He said here, I didn’t.
Activist financier and restaurant chain owner Sardar Biglari is running for the Board of Cracker Barrel.
And he says the chain should be licensing their brand to retail products. That’s something we told them over a year ago (they declined, saying it would “dilute brand value”).
To promote his efforts to assume a seat on the 11-member Cracker Barrel board, Biglari sent a monster 5,000-word letter to Cracker Barrel shareholders Monday, November 14, 2011 in advance of the company’s annual stockholders meeting outlining why they should vote him onto the board. He says that CEO Michael Woodhouse and current management have diluted shareholder value since taking over from founder Danny Evins in 2005 by following a strategy of opening new restaurants even as traffic (and profits) declined at existing ones. Like many chains, Cracker Barrel has seen same-store sales plummet during the recession, and admits traffic will decline a further 4.2% next year. Biglari lays out how Cracker Barrel spent $600MM on capital expenditures that have nearly doubled its from 357 to 603 stores, while seeing “25 out of 28 quarters of diminished customer traffic.”
Activist investors and proxy fights are nothing new: Nelson Peltz is rattling the cages of PepsiCo management, calling for them the split the corporation into a snacks company (Frito-Lay) and a beverage behemoth (Pepsi). He cites Diet Coke taking over the #2 slot in soft drinks as proof PepsiCo management is on the wrong track. And while most proxy fights fail, they often result in changes sought by the outsiders: Peltz may have been behind Kraft‘s recent decision to split in two. Biglari has a track record in takeovers, having wrested control of Broad Street Licensing Group client Steak n Shake in 2008 from a management team that had presided over 13 quarters of declines in same-store sales, and was (according to the letter to Cracker Barrel shareholders) losing $100,000 per day. Since then the chain has been profitable, and he uses the SnS example as proof he’s the right man for the Cracker Barrel board.
Disgruntled shareholders and activist investors usually rail against perceived misdeeds, rather than offering a detailed plan for turning things around (a variation on the “elect me and I’ll fix everything” theme from politics). Besides opposing the appointment of Woodhouse to Executive Chairman, and advocating the reallocation of future capital expenditures, Biglari offers concrete changes in Cracker Barrel strategy. And what leads the list?
The retail business of Cracker Barrel should not be restricted to its company-operated stores; rather, selected products could be distributed through other retailers. To reach more consumers in an effective, profitable way is to license Cracker Barrel products to third parties to generate retail royalties. The Cracker Barrel brand can reach more consumers through supermarkets, which most American households must frequent, whereas not all of them will enter a Cracker Barrel store in the coming year. Licensing will aid in making the brand ubiquitous and top of mind. We favor noncapital intensive strategies that leverage the Cracker Barrel brand to generate high-return, annuity-like cash flow.
Couldn’t have said it better ourselves.
Chains who think they compete against other restaurants in their category are hopelessly out-of-touch. They compete with every food marketer, from grocery stores to vending machines. How many corporate HQs have a real cafeteria these days?
Posted in Licensing, Licensing News, The Restaurant Business | No Comments »
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