Duck Dynasty Calls Out To Cracker Barrel

| About: Cracker Barrel (CBRL)

Cracker Barrel's (NASDAQ:CBRL) quick response to reverse its decision to pull back Duck Dynasty merchandise has simultaneously pleased customers and alienated shareholders. First, it offended customers by pulling out theme-based merchandise from its shelves after Phil Robertson made controversial public comments. However, after it regained customer approval by putting the products back on the shelf, it displeased shareholders who saw this as yet another instance of a muddle-headed management.

When the Tennessee-based Southern restaurant chain pulled a few Duck Dynasty products off their shelves, it argued that the merchandise might offend some guests. It made this move after the Duck Dynasty television show cast member, Phil Robertson made controversial remarks during a GQ interview. Phil Robertson, famous not only for his television show but also for his unique line of Duck Commander products, has a reality show on A&E that is based on his wonderful life in Louisiana and his duck hunting products. He is the family patriarch and the company's founder.

During the interview with GQ, Phil Robertson, aged 67, allegedly referred to gay people as offenders and compared their sexual practices to be similar to the perversity of bestiality. He also said that he was not aware of witnessing the mistreatment of African Americans during the era preceding the civil rights movement.

These ad hoc comments sparked a quick change in the fortunes of Duck Dynasty and it's merchandise. After the interview, The Walt Disney Company's (NYSE:DIS), A&E announced that Robertson was "indefinitely suspended" from the show. Meanwhile, Cracker Barrel management in an attempt to be politically correct, pulled products with the television show branding on it. They also slashed prices on the remaining products on the shelf, marking them half-off. They then defended their decision on their Facebook page.

Winning Back Customers
However, much to Cracker Barrel's surprise, this effort to pull Duck Dynasty merchandise off the shelf did not meet with public approval-- but actually earned its vehement disapproval. Duck Dynasty fans took umbrage at this attempt to punish Robertson for his comments. They not only threatened to boycott the chain, but also became vociferous on social media about their displeasure. Tweets and Facebook posts condemned the company's decision.

Capitulating to this public protest almost as fast as they had pulled the merchandise off the shelves, the restaurant and food chain store, with 625 outlets in 42 states, launched a massive effort to now put the merchandise back on the shelves. They then issued a public apology, reassuring their customer's that they had clearly heard them, respected their wishes, and reversed their initial decision.

Customers now cheered through social media. One patron, for example, thanked them for the apology and promised to return to the restaurant. Another patron complimented them for having the courage to admit their mistakes.

Alienating Major Shareholders

Meanwhile, shareholders perceived the company's management as fickle and untrustworthy. Sardar Biglari, a major shareholder with a twenty percent stake, was so displeased that he wrote a letter to Chairman James Bradford asking him to consider selling the company. Hampered by a Tennessee law that prohibited a bid, the shareholder called for an amendment to the law. Failing that happening, he suggested that Cracker Barrel conduct a share repurchase. In this case, Biglari indicated his willingness to sell his entire position rather than leave his money in the company's fickle care.

Loss of Confidence in Company Management

Cracker Barrel, like Phil Robertson himself, appears to have created a heap of trouble for itself. First they took a stand against Robertson, then they reneged. Their whimsical behavior, fluctuating between political correct behavior and customer pleasing, incurred the disdain of shareholders, who took this as one more sign that the company was not worth investing in.

What Should Shareholders Do

The managements' battle with the company's major shareholder has been going on for some time and it is not productive for the other Cracker Barrel shareholders.

We believe that there are other exciting chains like Potbelly (NASDAQ:PBPB) and Noodles (NASDAQ:NDLS) that are growing faster and appear to be better managed. See our prior report on Potbelly here.

Disclosure: I am long PBPB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.