DJ TALES OF THE TAPE: Cracker Barrel Hopes The Price Is Right Monday, August 03, 2009

NEW YORK (Dow Jones)--Cracker Barrel Old Country Store Inc. (CBRL) hopes to emerge from the recession with pricing power to help juice sales after avoiding discounts and smaller portions used by other chains to woo customers.

Cracker Barrel dishes like chicken and dumplings and country fried steak have remained hearty and the prices full through the recession. Granted, the price point was never high - dinners between $9 and $9.50 a person, compared with $12 and up at competitors such as Brinker International Inc.'s (EAT) Chili's Grill & Bar and Ruby Tuesday Inc. (RT).

Starting with lower prices affords Cracker Barrel the luxury of raising them about 3.4% from last year, though it's how the company is pushing the hikes through that's getting attention. Analysts say Cracker Barrel is rigorous in evaluating the impact of price increases, tapping an outside consultant (RMS) to test higher prices in some markets and analyzing the impact to traffic post-implementation, helping to avoid turning off guests.

"One thing that's under-appreciated is how sophisticated they are in managing price," SunTrust Robinson Humphrey analyst Chris O'Cull said. "These guys run restaurants like engineers."

While Cracker Barrel's traffic is down, it's less so than at its peers. At the same time, the company's average per-person check is rising, an anomaly compared to the broader casual-dining space, where discounting has lowered bills. That's providing a boost to same-store sales, which is where investors are looking for the next leg of the restaurant recovery after tighter cost management helped lift many casual-dining stocks out of multiyear lows. Cracker Barrel joined that crowd, with shares nearly tripling from an eight-year low in November and trading recently at $38.90, up a little more than 40% in 2009.

The run-up has left analysts mixed on the stock, as some find it difficult to get bullish as consumer spending remains tight. According to FactSet Estimates, four of the nine analysts covering Cracker Barrel recommend buying the shares, but two have the equivalent of sell ratings.

Still, the company thinks it's in a better position than its peers in a recovery, though it's not expecting to see it until 2010. Until then, Cracker Barrel is remaining sensitive to price increases. "We've never believe in pricing ourselves out of trouble," Chairman and Chief Executive Michael Woodhouse said in an interview.

About a quarter of Cracker Barrel's guests come in at least once a month and account for three-quarters of visits, so the chain doesn't want to turn them off with higher prices. But about half its guests come in less than once every three months, leaving a big pool of customers to try to convert to more loyal guests with good value and hearty portions.

Prevalent alongside highways, Cracker Barrel is top of mind for travelers, though not as much for locals. The chain is trying more radio ads, and in some markets television advertisements, to remind those people to come more often. With more miles being driven this summer due to lower gas prices, Cracker Barrel also might find more passersby stopping in, giving the company a chance to convert them into more loyal customers.

Cracker Barrel doesn't think it'll have to wean anyone off discounts other chains have offered. "That's a big hole to try to dig out of," Woodhouse said.

By Paul Ziobro Of DOW JONES NEWSWIRES

Copyright ©2009 Dow Jones & Company, Inc.

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