Jack in the Box saw a noticeable gap. In the bottom quartile of its restaurants, guests were waiting, on average, a minute longer for their drive-thru orders. Those stores also generated year-over-year sales 2 percent less than the top 25 percent. “This is a top priority,” chairman and CEO Lenny Comma said during an August 9 conference call.
To fix the issue, Jack in the Box is embarking on a drive-thru revitalization starting in 2019 and rolling through the back half of the year and into 2020. Executives said the brand plans to invest $30–$45 million on company restaurant drive-thru enhancements and remodels.
This is critical to Jack in the Box’s near- and long-term success for a bevy of reasons. Here’s the first: drive thrus contribute more than 70 percent of its sales. Correcting the bottom-line performers is essential, but there’s also a sliding scale of opportunity in the second and third quartiles as well.
CEO and chairman Lenny Comma said the changes would include the following improvements:
Within three years, Comma said Jack in the Box would be able to touch more than 80 percent of the system at a very reasonable cost per unit. And this while investing in the area where, as mentioned before, 70-plus percent of its sales are generated.
“We're only a fraction of what we're planning to invest per unit to remodel just 25 percent of our system,” he said.
The 25 percent represents Jack in the Box’s second area of targeted investment. The company will offer franchisees the option to full remodel many of the 600 oldest units in its system.
“What you'll see us do in 2019 early is to take all of those components within one unit and execute them,” Comma said of the drive-thru changes. “So, we are seeing a lift where we have remodeled our locations, particularly the lift in the drive thru has been significant. And we also see, when we implement things like outside order takers, what that can generate for us is essentially it lengthens the stack on the drive-thru lane and allows us, with a greater sense of urgency and consistency, to capture the orders of the guests that are entering into that line. So, we do have proof positive of what the components individually can do for us, but what the next big step is to bring it all together.”
Jack in the Box shared the news in its third-quarter review. The company posted modest same-store sales gains of 0.6 percent at company restaurants and 0.5 percent at franchised units, year-over-year. This was against a 1.6 percent decline and a 0.1 percent, gain, respectively, in the prior-year period. The company metrics were driven by average check growth of 2.6 percent, partially offset by a 2 percent decline in transactions. There were 2,095 franchise and 146 company stores at the end of the third quarter.
Total sales of $188 million beat Wall Street’s Zacks consensus of $184 million, and adjusted earnings from continuing operations were $1 per share, topping the 88-cent call.
Comma said the sales increase in Q3 was also credited to the product launch of Sauced & Loaded Fries in June. The brand featured a premium Cholula Buttery Jack and offered a couple of value promotions, like a $3 bundle, in the quarter. He said Jack in the Box was pleased with the momentum it generated “without resorting to deep discounting that we believe is not in the best interest of the long-term health of our brand.”
On the value note, though, he said Jack in the Box is addressing aggressive pricing by deploying additional advertising combined with margin-friendly value offers. The company plans an incremental $1.5 million for advertising in Q3. “In this way, we believe we remain competitive today, while protecting the brand's equity over the long term,” he said.
“Over the years, we've built a lot of equity around products unheard of at most burger chains, like teriyaki bowls, jalapeño poppers and tacos,” Comma said later in the call. “Expect to see more of those kinds of non-traditional items as we target an increasingly diverse population that craves a greater variety of foods and flavors.”
Comma believes this strategy is a better option for Jack in the Box to take share than straight discounting.
“I really think the sweet spot for us is going to be using the brand equity that we have to reach beyond burgers and fries to deliver these types of products to the marketplace. We intend to do more of that,” he said.
Over the last couple of years, Jack in the Box has shifted its voice to be less irreverent from a more focused message around hamburger promotion. Comma said Jack in the Box plans to get back to its roots as a more edgy chain, and take “it one step further in the brand messages, helping people to understand who we are and what we’re all about as a company.” Already, Jack in the Box stirred up controversy with a recent TV commercial for its Teriyaki Bowls. Check it out here.
“Our guests love our brand's irreverent humor and they want us to push the envelope when it comes to creatively messaging our offerings,” Comma said on the overall irreverent strategy, not specifically that ad. “Humor is just one way we differentiate ourselves, but expect us to promote other differentiating equities as well. You'll see this reflected throughout various media, TV, digital, in-store signage, and elsewhere. Jack in the Box has always played by different rules and has always recognized that what makes us different is what makes each of us valuable.”
Jack in the Box’s continued to progress in its off-premises footprint. The company is now offering delivery in all of its major markets, with more than 75 percent of its system being served by one or more delivery companies, including DoorDash, Postmates, and Grubhub. The chain’s mobile app is expected to start rolling out across the system by year’s end.
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