What really catalyzed this decision, Comma said, was competition. He pointed out $1 French fries (likely a nod to Wendy’s recent deal), to premium items that show up once a year that are now priced at 2 for $5 (McDonald’s launched this deal in August) to 10 chicken nuggets for $1 (Burger King).
“And when you move into casual dining, we’ve seen entrees for as low as $3,” Comma added. “So across the entire industry, there seems to be almost a desperation for same-store sales and transactions to the degree that a lot of things that are happening in the market are hypercompetitive, and you might argue at times are even a little irrational.”
Irrational or not, Jack in the Box does need to play in that space, Comma said, if it’s going to maintain customer counts and recapture some of what it lost below the $5 price point.
The price-tipping point
In the past, franchisees in Jack in the Box’s system have shied from deep discounting in an effort to protect margins. And Comma said on previous calls that Jack in the Box wouldn’t erode its brand equity by jumping into the value wars and discounting “all of the great equities we have that are association with high-quality food.”
“At the same time, I think we're going to have to find a way to play in the value space appropriately,” he said, referring back to the $4–$6 and $2–4 structure outlined before.
“I think the No. 1 area of focus has got to be value. We've lost the vast majority of our transactions at the below $5 price point,” Comma said. “And so I think that providing that value to the consumer is ultra important right now, particularly because our competitors are extremely aggressive.”
The path now is to drive sales and transactions. If Jack in the Box can change the trend on transactions, it could perhaps be more aggressive on price.
How Jack in the Box will achieve this is with value below $5 and also add-on sales that can drive average check for consumers who take the lower-priced offerings as an add-on. At the same time, those offers provide value for the consumer who has “less dollars in their pocket and is looking to construct an overall meal below $5,” Comma said. That same consumer who was headed elsewhere before.
On Monday, The National Jack in the Box Franchisee Association, which represents 95 franchise owners who operate about 2,000 restaurants, filed a complaint with the California Department of Business Oversight regarding Jack in the Box’s new financial restructuring strategy. They said Jack in the Box was altering how it handles 1,800 master-lease agreements with landlords. The company subleases those properties to franchisees. According to a letter obtained by the franchisee group, Jack in the Box asked property owners in October to transfer their lease agreements from Jack in the Box Inc. into a newly formed subsidiary, Jack in the Box Properties LLC. “The intent behind filing this complaint is to protect the tenant rights of franchisees who have invested their life savings in these buildings,” said Dan Watkins, attorney representing the National JIB Franchisee Association, in a statement.
Comma responded by saying “their concern is perhaps fair, but unfounded.”
“… the structural changes will not have any negative impact on our franchisees, certainly doesn't have an impact on their rights, whether it's through the franchise agreements, the development agreements or their leases, which is the way that we interact contractually with our franchisees,” he said. “So this is work that needs to be done in order to prepare should we decide to go with the securitization. It does not impact franchisee's rights one bit.”
Comma addressed some other concerns brought forth by the NFA in recent months, including there being no full-time CMO in place following Iwona Alter’s August departure.
“I think those are concerns that are largely based on where we're currently performing in sales. I think they're just connecting the dots and saying, if we had a CMO in place today, that would contribute greatly to driving up our top line sales. I don't necessarily disagree that a CMO can be valuable to our team, and I look forward to continuing that process and identifying the right person,” he said. “But I will say that I have a significant amount of confidence in the two VPs that are currently running marketing. And I do believe that their level of expertise and the way they're leading this brand can give us some patience to find someone who we believe is going to bring a skill set to our team that we don't currently have versus just a title to the team that our franchisees are looking for.”
“I'm going to do what's right for the brand over the long term and round out our team versus rushing to a decision there.”
Overall, he said the franchisees interest is a shared interest, and “our goals are our common goals.”
“Our management team has spent a lot of time on the road meeting face-to-face with franchisees, hearing them out and working through the issues that they have, and we're committed to continuing to do that going forward. And I would suspect that as we're able to improve performance and keep the dialogue going that the relationship will become more productive over time,” Comma said.
Simplification and drive-thru update
Jack in the Box continues to test initial elements of what it expects to be a major overhaul of the drive-thru experience. By the end of fiscal 2021, Comma said, they believe the changes can touch more than 80 percent of the system.
As noted earlier in the year, this includes:
Jack in the Box plans to implement digital menu boards to give the chain an “opportunity to advertise and interact with guests more dynamically,” Comma said.
It is adding menu-board canopies with the goal of using outside order takers to make the experience more personal, and to facilitate speed and consistency. This is something Chick-fil-A has done effectively in many of its locations.
Jack in the Box also expects to “dress up the drive-thru lane with various points of purchase, landscaping, and modest improvements to make sure that we look crisp,” Comma added.
Jack in the Box is also testing at roughly 150 restaurants, primarily franchised, a simplified menu that reduces redundant SKUs and streamlines operating procedures. The final program is expected to roll out systemwide later this fiscal year.
“This is what we've done as we've looked at multiple SKUs that we have for things like sauces, cheeses, spreads,” Comma said. And we have reduced some of these SKUs so that there's an easier production line in the back of the house. And then, we've also standardized some of the builds.”
Jack in the Box reduced some of its breads, too, as the redundant setup current requires multiple toasters and procedures. “These are the types of things that can slow down and inhibit a faster speed of service and also make it very difficult from a training and execution standpoint for our employees.