Why do restaurants have retail stores inside?
Joshua P. Holyak
Labor Economics major
September 13, 2004
I have always wondered why restaurants place retail stores inside. This question has plagued me ever since I first went to Cracker Barrel. Now I see other restaurants, such as Bob Evans, duplicating Cracker Barrel and placing stores inside of the restaurant.
When I was a little boy, my grandparents took my family out to eat at a Cracker Barrel in Cambridge, Ohio. This trip was an absolute treat for me because I heard nothing but great things about this restaurant. Besides that my family never ate out. As we drove up route 70, I finally saw the sign that said Cracker Barrel and immediately I began to get excited. Once we parked the car, I jumped out and headed for the front door with my parents. My excitement and curiosity was about to be satisfied when all of a sudden I found myself wondering through the old rustic merchandise of the Ol’ Country Store. I thought perhaps we were at the wrong place or my mom wanted to get in some usual Sunday shopping. After I questioned my mom about the restaurant, she led me to the left side of the restaurant and we sat at a table with my grandparents. I have finally received the chance to see why Cracker Barrel, a restaurant known for it’s home cooking that made you feel like you were close to home on the road, would place a store just outside of its main seating area.
I began to do some research on Cracker Barrel and I found some history which may come in handy for the answer to my question. [1]According to the Cracker Barrel website, a small boy in Lebanon, Tennessee was working in the family gas station business when he decided he wanted to pursue another career; however, Dan Evins was always trying to help others. He thought long and hard about what he could build that would help Americans both local and traveling folks. He knew that many fast food restaurants were beginning to popup everywhere and most Americans were not getting good healthy foods in there systems. He decided to build a restaurant which would pride itself on home cooked meals where people could come, relax and visit with each other. Those who were traveling could also feel like they were only minutes away from home instead of hours.
Dan Evins opened up the first Cracker Barrel on September 19, 1969 in Lebanon, TN. As word spread to people both far and near, the restaurant found itself to be in great demand with people standing in lines for hours to eat. Dan and his investors didn’t take long to come to the realization that money could be made from those who were waiting in line to be seated. Along came the idea to start selling merchandise to the consumer. With a retail store, this would help pass along the time while people were waiting for their table to be cleaned and setup. We see that not all of the ideas that came from the Cracker Barrel investors took. The original Cracker Barrel not only had a retail store but also had a gas station but was shut down in 1977 due to surging fuel prices and also to focus mainly on the restaurant and retail store.
So we now see economics starting to help make business decisions in the Cracker Barrel store. Having the facilities to sell gasoline was becoming too expensive and the sales of gasoline had plummeted. The Marginal Cost of selling gasoline had exceeded the Marginal Benefit and the company had started to see profits dwindle due to the last of gasoline sales in 1977. [2]But the gift shop of Cracker Barrel was still going strong and profits continue to grow a little each year. Also according to Dawn Jones, the retail gift shop has become so important to the company because it actually accounts for 23% of annual sales each year and continues to grow. Because of the success of the retail arm of Cracker Barrel, the company has started to open up stand alone gift shops in retail outlet stores. The first shop has been opened in Lebanon, Tennessee, the origination of the Cracker Barrel Old Country Story restaurant. With the retail arm of the Cracker Barrel Old Country Store accounting for a quarter of yearly sales, it’s not wonder we are seeing other restaurants focusing on adding gift shops to their main stores. Let’s take a look at the economic theory and logic behind the decision to add retail stores to the restaurant.
Now let’s take a look at the economic theory behind the retail store as well as the discontinuing of selling gas to customers. First let’s see why Cracker Barrel Old Country Store decided to drop the service of selling gasoline. With surging gas prices through the late 1970’s, it should be apparent the cost of ordering, paying delivery and storing the gasoline was becoming to expensive compared to the profit gained per gallon of gas sold. The marginal cost per gallon had exceeded the marginal benefit of providing gasoline. However, the retail store had always been a smashing success for Cracker Barrel Old Country Store since it was first built. With the increase in stores being built and dedicated retail outlets now opening up, the cost per unit of retail goods should start to decrease for all stores. We would expect to see marginal cost to continue to decrease as more units per good are ordered to help stock the shelves of each store. [3]According to Michael Katz, a firm will stop producing where marginal cost line crosses the marginal revenue line.
Bibliography
Katz, Michael L., Microeconomics. Richard D. Irwin, Inc., 1991
Online, No Date.
Rutledge-Jones, K. Dawn. “Reorganization allows Cracker Barrel to grow” . 1998.
[1]Cracker Barrel Old Country Store - Our History, No Date,
[2]K. Dawn Rutledge-Jones, Reorganization allows Cracker Barrel to grow, 1998,
[3] Michael L. Katz, Microeconomics, 509,1991.