Made from Scratch

In the summer of 1969, Dan Evins came up with his old country store idea while driving his family down to the Atlanta (Georgia) Zoo. The drive from middle Tennessee usually took five hours, and Evins had some time to think…at least until the kids started repeating, “Are we there yet?” As a Shell Oil jobber, Evins was always interested in finding new ways to sell gasoline. He thought about the old country stores that he remembered as a child, where honest men in overalls stood around a barrel full of saltine crackers. These stores were a community’s unofficial meeting place where folks visited with friends and traded common sense wisdom. Evins thought, “Why not bring this old country store out to the interstate? Why not open a business where travelers could stop for gas, eat a good meal, enjoy some penny candy, play checkers, and simply take a relaxing break from the road?

”Thirty-five years later, more than 500 Cracker Barrel Old Country Store units line the interstate and busy highways in forty-one states. Cracker Barrel has built a reputation of providing both quality meals and retail products at a fair price, no matter which location you visit.

In fiscal year 2004, Cracker Barrel generated more than two billion dollars in revenue with more than 23 percent coming from retail sales. That combination of a restaurant and retail store creates a unique loss prevention environment.

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University of Florida professor Richard Hollinger, who is well known in the loss prevention industry for his research on workplace dishonesty, knows the Cracker Barrel model quite well [see “An Academic Approach to LP” page 30]. He often visits the Cracker Barrel location in Gainesville where his son once worked.

“The essential struggle for loss prevention in America is how do you have security without offending the customer?” says Dr. Hollinger. “Cameras, electronic article surveillance, and security are the antithesis of the Cracker Barrel atmosphere. They treat their customers like neighbors. Neighbors watch out for each other and trust each other.”

Dr. Hollinger notes the employees have that same neighborly approach. He’s on a first-name basis with the managers and several employees who know him for buying Mary Jane Taffy candy and peanut brittle.

“My son Charlie worked here a few summers ago,” says Dr. Hollinger. “Mark, the manager who hired him, is still there and often asks about Charlie, even though he hasn’t worked there in two years. I can sense the camaraderie there. These people work hard and have a good time at it. There’s a relatively low turnover among staff, and what’s the best predictor of shrinkage—high turnover.”

Growing Pains

In the early days, Cracker Barrel handled employee and customer theft through its security department and focused primarily on food cost. In 1995, new corporate leadership dissolved the security department and expected local operators to control shrink issues. That decision proved to be a costly mistake. For five years, Cracker Barrel operated without a loss prevention unit. Shrink rose to nearly 5 percent while the company lost its operational focus. The turning point came in 1999, when executive Donald M. Turner returned to Cracker Barrel as president and chief operating officer. Turner had retired a few years earlier, but returned to the company to restore its operational focus.

“Every company needs a loss prevention team because the unfortunate reality is there are some dishonest people out there,” says Turner. “These dishonest people can be a direct drain on profit. Their actions affect the safety of our guests and employees, the benefits we offer, and the return for our shareholders. Our loss prevention investigators help our managers keep an eye on their business, and I don’t know how any company can be successful without them.”

Turner, who just retired from the company, was known for personally responding to every case resolved by the Cracker Barrel LP team. “It’s great knowing the company president pays attention to our efforts,” says Diane Tucker, a regional investigator based in Atlanta. “We closed nearly 300 cases last year and each time Don would pass along thank-you notes and other words of encouragement.”

As a Cracker Barrel veteran, Turner understood the importance of rebuilding a loss prevention team that would respect the company’s culture. He agreed that Joe Hardman was the right man for the job. Hardman, a twenty-seven-year loss prevention veteran with experience at Rich’s, Parisian, and Books-A-Million, could tell Cracker Barrel was strikingly different from his previous employers.

“First of all, we’re a loyalty brand,” says Hardman. “Our guests are very loyal to Cracker Barrel. Consider how we do business. Our guests come through the retail store to get to the dining room. They enjoy a meal and then head back to the retail store to pay their restaurant check.

“We’re unique in how guests pay the bill. They will often shop before paying for their meal. Sometimes, those folks walk out the door forgetting to pay. An hour later, or sixty miles later, they call to apologize and promise to put a check in the mail or offer to pay the bill at the next Cracker Barrel they find on the road. How’s that for brand loyalty?”

To create the loyalty, Cracker Barrel focuses on guest service and comfort foods like chicken and dumplings, meatloaf, and cornbread. More than 600,000 guests come to Cracker Barrel every day. Some interesting facts about Cracker Barrel include that each year the company serves 127 million eggs and guests consume 6 percent of the world’s pure maple syrup supply. Talk about made from scratch—the cooks in each Cracker Barrel kitchen use about 140 pounds of flour each day in their recipes for biscuits and dumplings.

“Shrink at Cracker Barrel comes from both sides of the building,” says Hardman. “We serve more than 200 million meals per year on the restaurant side and sell more than 500 million dollars worth of retail product. The dynamic of tracking both components can be mind-boggling when described to my colleagues outside the company.”

Starting from Scratch

“I learned from my first days here that Cracker Barrel was committed to its mission statement of ‘pleasing people,’” says Hardman. “So it was important to build a team that shared that same commitment. We needed people who thought of themselves as Cracker Barrel employees first and loss prevention investigators second.”

Gary Alford, a nineteen-year Cracker Barrel veteran, had originally been in the company’s security department, but moved into training after the security department was dissolved in 1995. He’s now the company’s corporate manager of loss prevention. Known for his direct, no-nonsense approach, Alford describes how loss prevention created its own image within the company. “We wanted our managers and employees to get a quick response when they called us,” says Alford. “If the store is calling loss prevention, they’re calling for a reason and we need to answer the phone.”

Loss prevention started small at Cracker Barrel and used small victories to build support within the company. Hardman and his team rolled out a program called “Focus 50,” an effort that closely monitored the activities and trends at the fifty stores that had the highest levels of shrink.

“We didn’t have the staff to fight the whole company’s shrink, so we tackled the fifty stores where our shrink was the highest,” says Dave Shugan, manager of investigations who came to Cracker Barrel when loss prevention was getting back on track. “Those stores were our opportunity to learn what would work throughout the company because it was so important to build trust with the operators.”

Focus 50 started in August 2000 and a direct impact on shrink was quickly seen. A better focus on training contributed to the reduction. Within the first year, shrink totals in those stores dropped 66 percent. Throughout that first year, loss prevention realized that few employees understood the magnitude of the problem because managers did not share that information with employees.

“How could you solve a problem if you don’t talk about it?” was the question Hardman posed to store managers. “We broke the numbers down to show how much it cost a store per day and per hour. When employees understood the problem, they wanted to be part of the answer.”

Four years later, Focus 50 is still a major component in loss prevention’s overall plan to reduce shrink. The company opens approximately twenty-five new units per year and employees are constantly being hired at both new and existing units. It’s crucial to provide loss prevention training to the next generation of Cracker Barrel employees.

Employees in Focus 50 stores are certainly disappointed when learning their store is on the list, but loss prevention investigators are encouraged by how employees take it personally. Shugan regularly conducts training meetings that are proactive and educational. “The employees take pride in their work, and they want their store off that list,” says Shugan. “We get them to understand how their attitudes can change habits.”

With Focus 50 making strides in reducing shrink, loss prevention saw the opportunity to introduce new technology to the Cracker Barrel culture. “I remember hearing how Cracker Barrel would never have security cameras, do background checks, or use electronic article surveillance. But those early victories created partnerships with other departments and those partnerships gave us the momentum to make gradual changes. Some of those changes are still being made.”

Half Restaurant, Half Store, All Country

As the company’s billboard messages suggest, Cracker Barrel likes being known as the country store that offers quality food and products at a fair price. The unique combination of restaurant and retail poses a challenge for any loss prevention investigator who is used to working in one environment and not the other. As the loss prevention department grew, Hardman and his team had to learn both components of this unique business model.

“I had never even considered the intricacies of food cost before coming here,” says Shugan. “All my time was spent on the retail side, and I was surprised how much of our work involved the restaurant’s food cost.”

Investigator Cary Jones also had to learn food cost when he came to Cracker Barrel. Based in his home state of Arkansas, Jones now understands that food doesn’t have to be stolen to come up missing. “It’s a lot more than stopping someone from carrying a case of steaks out the back door,” explains Jones. “We track things like production, yields, and recipe measurements so at the end of the night, I can look at our production chart to see where we stand. Using a one-ounce ladle instead of a half-ounce ladle seems minor, but it can cause a major increase in your overall food cost and end up looking like shrink.”

“We noticed a lot of our Focus 50 stores have similar problems with food cost,” says Jackie Cato, a regional loss prevention investigator based in Florida. “Food cost often comes back to operational issues, like not following the recipe or serving up portions that are too big. When I do store meetings, I explain to the cooks how these factors affect their food cost. Many of these issues are corrected through training.”

“I had never even considered the intricacies of food cost before coming here. All my time was spent on the retail side, and I was surprised how much of our work involved the restaurant’s food cost.”

Dave Shugan, Manager of Investigations

Michigan-based loss prevention investigator Anthony Gravina came to Cracker Barrel from another restaurant company. He understood the basics of controlling food cost, but the challenge has become comprehending the volume of product that’s delivered each week. “Before, I would track several cases of a few products. Now it’s thousands of pounds rolling off the truck every week,” says Gravina. “Plus I’ve had to learn the retail component. I’ve been mentored well and have even attended some national conferences to understand it all.”

Part of the Family

All loss prevention investigators have attended the company’s mandatory manager training program. Since each store is corporately owned and all managers follow the same guidelines in operating their stores, the only way to understand the intricacies of the operation is to experience it.

“You have to immerse yourself in the culture in order to appreciate it,” says Hardman. “The investigators will fail if they don’t recognize the challenges our managers face. Plus, we want the managers to consider us as their resource. We’re constantly spending time in the stores so managers get to know us, and more importantly, trust us.”

Shugan adds, “We made even more inroads by forging partnerships with training and the company’s internal employee assistance program (EAP). We would find employee theft cases in which the employee would reveal an addiction or emotional problem. When those situations came up, we turned to EAP because the employee needed help. We can handle the theft recovery after that person’s health situation gets the attention it needs.

Initially, covering the large number of stores with a small staff was a challenge. “Before we added people, we learned how effective telephone interviews could be,” says Shugan. “We turned to telephone interviews because we didn’t have enough staff to cover the caseload. But it worked out really well. Our travel costs went down, our suspect admissions and prosecution rates went up. Our investigators were much more productive because they cut way back on the time spent staring through a windshield or waiting for connecting flights.”

Even though staff has been added over the last few years, Cracker Barrel loss prevention investigators continue to rely on telephone interviews. They expect to handle approximately 1,000 telephone interviews this year. The time management also gives investigators more presence in various markets while increasing their own quality of life issues by decreasing travel time.

“We tried to make our telephone interviews more like conversations,” says Shugan. “We wanted this process to reflect our culture. That means remembering these are people on the other end of the line, not case files. All of our investigators have received training from Wicklander-Zulawski, and we blended those techniques into our culture.”

Another benefit of telephone interviews turned out to be loss prevention investigators working as a team, rather than as individuals focusing solely on their own stores. “We like to call it ‘regions without fences,’” says Shugan. “Our investigators see the big picture, rather than just viewing Cracker Barrel through a telescope. They see how individual cases affect the entire company, and not just their region.”

New Technology

Better use of technology also showed loss prevention where it could improve. Investigators now analyze data to identify instances of shrink before those issues transform into thousands of dollars walking out the door.

In February 2000, loss prevention started looking for computer programs that would help track both restaurant and retail operations. Loss prevention found several exception-reporting programs that would work for one component of the company, but not the other. Vendors talked with the company’s information services (IS) team to work through programming challenges. After hearing from several vendors, IS came to loss prevention and offered to create the program internally.

The partnership with IS led to the development of the company’s Sleuth system. Sleuth tracks critical information involving every transaction and the employees who have access to the point-of-sale device. The program took six months to develop, but is constantly upgraded. With the ability to process fifty-one individual inquiries at any given time, Sleuth tracks every transaction, every employee, and all facets of food and retail sales. What started off as a loss prevention tool has evolved into a program that benefits several departments, including merchandising, financial planning, legal, and employee relations.

Sleuth now comes under the guidance of loss prevention manager Lori Lopez. Starting with Cracker Barrel fifteen years ago, Lopez moved from the training department to loss prevention in 2001. Hardman calls it another instance of finding the best fit for the team, a person who brings new experiences and knowledge to the table.

In her role as a trainer, Lopez helped incoming managers understand pointof-sale and effective ways to eliminate mistakes. She’s also been instrumental in providing the feedback that helps other departments benefit from the wealth of information that Sleuth generates. “Lori trained our sales audit people to think like investigators,” says Hardman. “She’s done a great job in helping us understand the program’s potential.”

“I learned from my first days here that Cracker Barrel was committed to its mission statement of ‘pleasing people.’ So it was important to build a team that shared that same commitment. We needed people who thought of themselves as Cracker Barrel employees first and loss prevention investigators second.”

Joe Hardman, Director of Loss Prevention

“When the check is created at the store, we know the time the order was placed and how it was paid for, or not paid for,” says Lopez. “Sleuth is programmed to email us any exceptions. Sleuth not only shines light on dishonest employees, but it also shows us the employees who make honest mistakes. We can correct those issues through training.”

Cracker Barrel has developed specific systems that track manager meals, employee discount cards, gold cards, unresolved tickets, and the shipping of all retail products to every store.

“Naturally, most mistakes occur with new employees,” says Lopez. “One of our marketing initiatives involves Gold Cards. These are paper certificates about the size of a credit card that can be redeemed for complimentary meals. Gold Cards can only be redeemed for food, not retail items. Sleuth shows us when employees place retail merchandise on a Gold Card transaction. That’s one instance that’s easy to correct.”

Tracking Retail

Approximately 70 percent of the retail merchandise sold at Cracker Barrel gets shipped from the company’s sole distribution center. Trucks are sent on more than one hundred delivery routes each week. In 2003, more than 62 million items of inventory were shipped to Cracker Barrel units throughout the country.

Todd Jenkins coordinates all loss prevention activities at the distribution center. He focuses his efforts on warehouse security, employee access, truck seals, delivery discrepancies, and employee safety.

“Just like in the restaurant and retail sections of our company, we constantly train employees,” says Jenkins. “Our new hires quickly understand the importance of shipping accuracy and billing. Otherwise, you get the wrong products going to the wrong places.”

Another aspect of overall safety considered by Cracker Barrel was the decision to participate in the U.S. government’s Customs-Trade Partnership Against Terrorism (C-TPAT) program. Designed to review and tighten security procedures involving imported goods, C-TPAT has prompted Cracker Barrel to ensure complete security throughout the entire supply chain. In 2002, Cracker Barrel voluntarily joined C-TPAT and has completed the required internal security review.

“After 9/11, the possibility of terrorism through ocean containers became a reality,” says Jenkins. “Joining C-TPAT helps us better protect our employees and business interests.”

Results Strengthened by Awareness

Increased staff and better technology have helped Cracker Barrel record its lowest shrink totals in years. The loss prevention department resolved the most internal theft cases in its history in fiscal year 2004. Training continues to be a focus because internal statistics show most employee-theft cases involve new hires. Those new hires quickly see the emphasis Cracker Barrel places on loss prevention. In the last fiscal year, more than half of the employees terminated for dishonesty had been working for the company for less than one year.

Regional Investigator Diane Tucker stresses awareness in all her training sessions. “The same principles we use in the restaurant can be applied in retail,” says Tucker. “We know greeting guests when they walk in the door greatly reduces the chances that person will steal from you.”

To get the awareness message across, loss prevention uses a variety of communication tools. One of the most unique avenues comes in the form of a cartoon storyboard. “We introduced L.P. Carnes as a colorful teaching tool to emphasize retail and food shrink,” says Alford. “The employees enjoy the creative storylines and before they realize it, they have learned another way to reduce shrink.”

L.P. Carnes has covered topics such as robberies, internal theft, and inventory shrinkage. Recent issues feature L.P. Carnes getting a new partner and even a “to be continued” storyline. “I got more responses when L.P. got stuck in a jam, and the story was continued to the next issue,” says Alford. “It reminded me of those old Batman TV shows when the announcer says ‘Tune in next week…same bat time, same bat channel.’”

Loss prevention also features posters on every store’s employee awareness center. It holds twelve posters in addition to brochures on health insurance, employee assistance programs, and other topical issues.

“One of our most important partnerships involves our internal communications team,” says Hardman. “Their creativity gets our messages across in posters and brochures. We will profile theft cases because employees always like to read how others have stolen from the company.”

Loss prevention has also made strong connections through Barreltalk, the company’s interactive electronic message board available to all employees through the Internet.

“Barreltalk is loaded with employees who are absolutely committed to high standards of quality and service. So they are really receptive to our efforts,” says Hardman. “We’ve had interactive chat sessions about all aspects of loss prevention, what they can do to support Cracker Barrel, our reward program, and our confidential line. It’s amazing how the employees on Barreltalk are so committed to getting things right.”

Another awareness tool is handing out a “Posse Award” to deserving employees who have assisted loss prevention in solving cases or other courageous acts of service. Keeping the company’s country theme, the Posse Award is given to approximately forty employees each year.

“All these awareness tools help us get our name out there,” says Sean McDermott, a regional investigator based in North Carolina. “Managers and employees know about us because of all the interactions we have with them. Whether it’s a poster or a personal visit, they know we’re around all the time, and not just when someone’s in trouble.”

Our Own Development

Cracker Barrel loss prevention investigators also work to have good relationships with local law enforcement. Credibility is key in these circles, especially when investigators bring cases to the judicial system. Three of the company’s loss prevention investigators are certified forensic interviewers (CFI).

“We had a pretty small department when I arrived at Cracker Barrel,” says Shugan. “But the company made sure that we were not only trained in Cracker Barrel operations, but were at the forefront of the industry in training.”

Loss prevention investigators have also taken ownership in the department’s future. Cracker Barrel plans to have nearly 530 locations open by mid-2005. Therefore, loss prevention will need to grow as well.

“When we hire someone, we look for things we don’t currently have,” says Hardman. “We try to hire folks who are smarter than us. We’ve learned how to do things pretty well around here, but we certainly don’t know it all.”

JIM TAYLOR is in corporate communications at Cracker Barrel. He can be reached at 615-235-4082 or jim.taylor@crackerbarrel.com.

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