Featured image credit: Michael Rivera
Cracker Barrel, America’s favorite place to remove pegs from wooden triangles while waiting for greasy Southern-style food, has been in the media a lot lately because of its logo. The logo changes came as a shock, considering the brand prides itself on decades of consistency. And that consistency is more or less why it’s appearing in a commercial real estate blog today. One of the keys to Cracker Barrel’s long-term success is sitting right beneath it – literally. The majority (possibly all) of their locations stand on land owned, not leased, by Cracker Barrel. And that gives the restaurant chain a distinct advantage.
The Benefits of Cracker Barrel Owning, Not Leasing, Its Land
With over 660 locations, Cracker Barrel isn’t disclosing how many were built on land it outright owns. But we know that even at a minimum, it’s the majority. As commercial leases surge across the nation and portions of the commercial market grapple with economic uncertainty, owned land presents a stable, significant asset.
By purchasing the land on which it builds its restaurants, Cracker Barrel illustrates a savvy but straightforward investment principle: consideration of the long term. Of course, Cracker Barrel’s technique isn’t the right move for everyone. It requires significantly more capital up front than simply leasing space. But it also means financial leverage, the strong possibility of sale-leaseback opportunities, and asset value that continues to grow with time. In the eyes of the investor, this means the difference between a low-growth restaurant chain and a venture that promises the twin benefits of hospitality and real estate.
Companies enjoy an extra degree of resilience that can prevent them from the pitfalls of less strategic chains when they purchase their own land. The chains that lease remain more susceptible to rent hikes and downsizing. That’s not to say it can’t happen to a company that purchases its land. After all, there are several factors at play in any successful investment.
Cracker Barrel Isn’t Alone in This Tactic
Perhaps to best gain an appreciation for the savvy strategy employed by Cracker Barrel, we need only look back at investor behavior toward McDonald’s. Sure, it’s a successful retail chain (and a household name). But McDonald’s is also famed for buying the land that many of its iconic stores are built upon.
Because of this move, investors began to think of McDonald’s less like a fast food chain investment and more like a real estate play. It’s a different side of investment diversification in which the classic restaurant chain refuses to rest on the laurels of its burgers. Rather, it adds reinforcement by collecting rent from franchisees, ensuring a more stable cash flow.
While most eyes are on Cracker Barrel because of the controversy surrounding their updating and then reinstating of their long-time logo, it’s also brought renewed interest in their corporate real estate investment tactics. It also underscores a growing preference among investors for companies with hard assets. While speculative tech risks collapse, land is time-tested and reliable.
Consistency is the Lesson
Headlines are typically fixated on controversy and innovation, but rarely on established companies staying the course. It’s part of what makes this illumination of Cracker Barrel’s land acquisition strategy so interesting. Here’s a company that literally built its legacy on dirt. And while its biscuits and gravy (and, yes, that wooden triangle game) will likely be what continues to stick in our minds when we think of Cracker Barrel, its stable foundation of land ownership is doing the behind-the-scenes work of anchoring it to profitability. Consider it a parable of smart investment.
