Last month, Cracker Barrel (CBRL), a Tennessee-based restaurant chain, lost nearly $100 million in market value after it made headlines for all the wrong reasons.

This drop precipitated in the wake of its rebranded logo, which earned the ire of long-time patrons, investors, and even political commentators.  

The rebrand was part of an ongoing revamp made to attract younger customers. And while rebrands are part and parcel of operating a business, attempts at doing so can backfire if it erodes long-established brand identity.

Cracker Barrel made a name for itself by adopting an old country-themed identity. Its locations are draped in vintage decor and its menu is inspired by home-cooked dishes. This brand image was further reinforced by its logo which depicted an old, seated gentleman leaning against a barrel. 

When this beloved logo was replaced with a text-only design, customers, experts, and conservative pundits reacted negatively.  The wave of negative sentiment led to a swift apology from the restaurant and pushed it to revert its logo change. 

Prior to switching back, sales and foot traffic for the restaurant slowed as its logo rebrand was criticized heavily on social media.

Now, it seems that its old logo isn’t the only thing Cracker Barrel is keeping. 

Earlier this week, the chain halted its remodelling plans for its restaurants which would have shed its rustic atmosphere in favor of a more modern environment. This initial plan didn’t sit well with long-time customers and Cracker Barrel was criticized accordingly.

Since its logo rebrand was so unpopular, it’s unsurprising that the company scaled back this aspect of its transformation as well.

While Cracker Barrel’s attempts at reinvention has earned bad press, its reason for doing so isn’t entirely unwarranted as its business has been losing momentum over the past few years.

Prior to the pandemic, the company generated reliable returns ranging from 9% to 10%. However, since 2020, the chain has struggled to deliver returns at par with its historical performance.

From 2020 to 2023, its Uniform return on assets (“ROA”) hovered at around 4% before nosediving to just 2% last year.

This is the reason why Cracker Barrel has been pursuing a transformation. Following its announcement that it will revert back to its logo, the chain’s shares rebounded, but shares are still down 17% from before the unveiling of its new logo.

Time will tell whether these moves will work as it remains to be seen what else the restaurant will do to recapture its former glory.

What’s clear here is that while transformations are essential to turn struggling businesses around, they cannot come at the cost of losing touch with the customer base and abandoning the core qualities that made a company successful in the first place. 

The most effective transformations build upon existing strengths rather than abandoning them entirely.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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