“That’s really big, because they’ve hung their hat on that for a really long time,” says Leslie Kerr, president and founder of the restaurant pricing advisory firm Intellaprice. “It’s giving the franchisee a lot of leeway to say, ‘OK, we’re going to take the pushback and the feedback.’”
Even as the U.S. economy expands and some chains move away from deep discounting, Kerr says, value hasn’t decreased in importance for restaurant customers. But prices and discounts are among a variety of factors—including quality and convenience—that motivate where consumers dine, she says. And operators don’t necessarily have to view ongoing value wars as a race to the bottom.
“There are a variety of marketing tactics that operators use when they want to create a sales bump,” she says. “This is just one of them. There are tools in the arsenal, whether they are relying on loyalty programs or apps or LTOs, name your program du jour.”
Kerr says leaning too heavily on discounts can train customers to expect deep markdowns. She says savvy operators have discounted incremental add-ons, not items that customers would ordinarily purchase regardless of price.
“It’s really important to avoid discounts that are overly generous for items that consumers would already be buying,” Kerr says, “That’s why we see, when there are value menus, the smarter ones are about an upsell and getting guests to buy an additional item or a couple items, rather than, ‘Here you go, we’re going to give you this item you already wanted anyway and we’re going to give you a discount.’”
As the major quick-service players continue to compete heavily with value menus, bundled pricing, and discounts, Jack in the Box has worked to avoid going too far and threatening franchisee margins. During an August quarterly earnings call, CEO Lenny Comma told analysts the company had deployed additional advertising and margin-friendly value offerings.
“In this way, we believe we remain competitive today,” he said, “while protecting the brand's equity over the long term.”
Comma said Jack in the Box touted some of the most favorable margins in the industry. To maintain them, the company spent an incremental $1.5 million on advertising in both the second and third quarters of 2018. Comma said that move helped avoid “the potential longer-term consequences of training customers to only come to us when we are offering an aggressive deal.”
Jack in the Box also relied on buzzy LTOs to drive sales. Those included Sauced & Loaded Fries, a premium Cholula Buttery Jack, and a $3 bundle. Citing previous innovations with teriyaki bowls, jalapeño poppers, and tacos, Comma told investors to expect the proliferation of more “nontraditional items.”
But the 2,241-unit Jack in the Box will be thoughtful about pricing those items. Asked about when the brand might relaunch a popular 99-cent taco deal, Comma told analysts that the company was testing several promotions. But franchisees, who are struggling against high labor costs, are wary of going too far with price deals.
Comma advocated for a “more balanced approach than just tacos.” The company does need to establish value in the marketplace, but he believes it can do so with a continuum of prices below the $5 point.
“So we may not ultimately get back to à la carte tacos at 99 cents,” Comma said on the call. “We may bundle them or do some other add-on-related features to the tacos to reestablish value.”