Why Wingstop Thrived While Cracker Barrel Struggled

While it may be tempting to lump all restaurant investments together, not all are created equal. When choosing an investment in this space, it's important to know where revenue is coming from.

In this video from Motley Fool Live, recorded on July 2, Motley Fool bureau chief of healthcare and cannabis Corinne Cardina talks with contributor Jon Quast about how the COVID-19 pandemic exposed key differences in restaurant stocks. Some, like Wingstop (WING 2.81%), were well prepared for the disruption thanks to a high percentage of digital sales prior to the coronavirus. By contrast, Cracker Barrel (CBRL 2.08%) has a large retail presence that couldn't recover with reduced in-restaurant traffic.

Corinne Cardina: Why don't we start with the COVID trends. We're going to talk about a restaurant stock that did really well in COVID and one that really struggled. Maybe as part of that, we can talk about some of the COVID trends that are going to continue or maybe possibly reverse. What do you have to share in terms of a good COVID restaurant stock and one that really suffered?

Jon Quast: For me, one of the best performing restaurants in 2020 was a company called Wingstop. Have you ever had Wingstop, Corinne?

Cardina: I love Wings. I think I had Wingstop in college, they'll deliver to your house, so maybe one or two times. I like it. [laughs]

Quast: I've had it a couple of times as well. My family is from Buffalo, New York, so I feel like I know wings. I was really impressed when I first had Wingstop.

The reason that they did so well during 2020 was because, prior to the pandemic, 80% of their sales were already takeout, either through delivery or you order it online and you pick up in the store. When they went all delivery, all takeout, they didn't skip a beat. It was business as normal for them. That really put them at an advantage during that time. Comparable sales were up big during the pandemic because there was few options that were available and they really were able to capitalize on that.

Cardina: If there was a Wingstop nearby. I probably would've had a ridiculous amount of Wingstop during the pandemic.

What is one that maybe struggled during the pandemic?

Quast: As an example of a company that did not perform so well, that would be Cracker Barrel. That's something that I think we're a little bit more familiar with in the south. I don't know if they've made it up Jeremy's way into New York City, maybe not.

For those who aren't aware, Cracker Barrel is a southern comfort foods sit-down restaurant, but that's only part of the business. The other part is they have this big store, when you walk in, it's full of old country things like regional sodas or old fashioned candies, things like that. That was actually 20% of the business for Cracker Barrel prior to the pandemic. That's not really a big e-commerce thing right? That's more of your Cracker Barrel for meal and this is a cool little thing that it's an impulse buy. By not having people in the restaurants -- and they did take out and take out do great-- but when you don't have people in the restaurants, that part of the business suffers.

Cardina: Yeah. I do have some thoughts on Cracker Barrel, so I am totally susceptible to those impulse buys, let me just say, [laughs] I'm never looking for the tchotchkes that you buy Cracker Barrel online, nobody seeks those out, but you're there and it's so cute, and your like, oh, my gosh.

But the other thing about Cracker Barrel, is it such like side of the highway stock, and people weren't driving on the highways and traveling as much during the pandemic, so you have your loyal customers who are going to Cracker Barrel in town and I don't think that they probably switch to take out, but they definitely lost out on that foot traffic of people going up and down I-95, which is where I see 100 Cracker Barrel's when I go anywhere.