Say “Cheese!”

By: Stephen DeGrow *

800px-Cow_female_black_whiteCracker Barrel Old Country Store recently launched a new strategy that analysts, quoted by USA Today, say is “a low-risk way to broaden brand awareness, appeal and revenues.” The strategy involves a licensing agreement with Smithfield Foods’ subsidiary John Morrell and entails selling ham, bacon, glazes, and other meats in grocery stores under the Cracker Barrel name.

The agreement follows older attempts by Cracker Barrel to expand beyond its restaurant chain. The company once started an unsuccessful fast food branch and a stand alone retail store. This time around, however, analysts are saying good things about the new strategy.

For starters, because there is a licensing agreement, the strategy places more risk on the producer, Smithfield Foods. The plan also puts Cracker Barrel products in grocery stores far from restaurants, which comes with the added benefit of giving Cracker Barrel access to upper income households that often buy restaurant branded products in supermarkets. Finally, because Cracker Barrel’s grocery products are different from its dinner offerings, the strategy should not hurt restaurant sales.

Hereford_bull_largeDespite the possibilities for Cracker Barrel, the company has a super(market) legal hurdle. Kraft Foods, the maker of Cracker Barrel cheese, has sued the company with the hope of stopping the restaurant chain’s expansion. According to filings quoted by Food World News, Kraft wants to protect a “mark [that] has come to represent an enormous amount of good will for Kraft.” (It also happens to be a mark that generates quite a bit of cash. The Cracker Barrel brand brings in around $100 million in annual revenue.)

The lawsuit comes on the heels of Kraft’s new advertising campaign for Cracker Barrel cheese, launched last October. In the ad, judges examine cheese with the delicacy you’d expect from diamond dealers. Not surprisingly, Kraft comes out on top at the end when viewers are reminded that Cracker Barrel won an award at the 2012 World Championship of Cheese.

Kraft’s success with cheese connoisseurs could coincide with a courtroom victory. Legal experts quoted by USA Today say that it “will be a serious fight” and that Kraft “could prevail in this case.” Ultimately, Kraft would like to stop Cracker Barrel Old Country Store from “selling any branded food items beyond its own restaurants, store or website.” But “experts believe the dispute likely will be settled.”

Texas_LonghornThe outcome of the case, if it goes to trial, should be interesting because the brands have the same names but involve separate goods. Despite the product difference, Kraft, according to USA Today, believes that the expansion “threaten[s] to destroy the substantial goodwill that Kraft has created in its Cracker Barrel trademark, and [is likely] to create significant confusion.” Adding further drama to the case is the fact that Cracker Barrel’s partner, Smithfield Foods, competes with Kraft in the billion dollar food industry. (As of February 22, 2013, Smithfield Foods’ market capitalization topped $3 billion, while Kraft Foods Group came in at over $28 billion.)

Moving forward, hopefully the two parties can resolve this dispute quickly without making a big cow out of it.

*Stephen DeGrow is a second-year student at Wake Forest University School of Law and holds a Bachelor of Arts in Economics from Cornell University.