Life at Jack in the Box couldn’t be much better.
In Q4, the chain saw its best same-store sales since 1994 as systemwide comps grew 12.2 percent, as well as a 12.4 percent bump at franchises and a 9.6 percent lift at company stores.
Maybe even more importantly, JIB and the National Jack in the Box Franchisee Association (NFA) reached an agreement after a two-year lawsuit.
As part of the settlement, Jack in the Box not only agreed to be more transparent about its marketing fund, but said it will also create a Leadership Advisory Council to allow better communication between the company and franchisees.
“I want to bring franchisees into our process as partners in strategy from the beginning versus waiting till the end and saying, ‘Here’s our roll out. Go execute,’” CEO Darrin Harris said during the company’s Q4 earnings call. “And that’s the biggest changes—as an organization, making sure that we communicate earlier in the process and bring our franchisees along as we're developing our strategies and rolling out any new programs or promotions.”
THE COVID TRAIL FOR JACK IN THE BOX
The rise in sales presents a foundation for unit expansion, particularly through franchisees, who have expressed a desire to grow, Harris said. That path toward that growth was definitively cleared when the lawsuit resolved.
Franchisees are on the right track. In the past fiscal year, operators opened 27 new stores, which is the most in the past decade. Average profitability in Q3 was up $20,000 per store. On the flip side, 28 franchises shut down, but Harris said those were locations already headed for closure.
“I think for us, we’re going to evaluate our portfolio to make sure we’re in a position to enhance growth,” Harris said. “So there’s opportunity for us in some areas to take some of our loyal guests and transfer those sales to a different unit. So we’re going through that process today with evaluating our overall portfolio.”
Harris said it’s now on JIB’s shoulders to find the right opportunities for franchisees. That will be aided by Tim Linderman, who was recently hired as senior vice president, franchise and corporate development. He will focus on franchise recruitment and aggressively supporting operators in the hunt for sites, a position that hasn’t been at JIB previously.
The brand ended the quarter with 2,097 franchises and 144 company stores.
The restaurant recently debuted a lower-cost prototype that’s flexible to fit many different pieces of real estate such as drive-thru only, inline, endcap, and nontraditional. There will also be opportunities for conversion as more brands close their doors permanently amid the crisis. Harris said if JIB focused on just its existing markets, the company could build another 950 to 1,100 locations.
Harris said franchisees have expressed much interest in the prototype. He noted one site in Tulsa that was approved for a new smaller prototype, and the brand is seeing a 19 to 24 percent reduction in costs. The CEO said JIB also approved a company site in California to build the prototype, so the restaurant can lead the way for franchisees.
In reference to remodels, Harris said franchisees are excited about reinvesting in restaurants. He added that JIB is providing a lower-cost refresh that’s mostly exterior. Teams are working on a three-tiered reimaging strategy, which is three different levels of investment, depending on the type of site, the type of traffic, and behaviors at the restaurant.
“So some we need to go and do a complete reimage, which is a more costly reimage. Some just need the refresh I’m talking about to spruce up the exterior of the building and some of the interior. … We’re in the midst of rolling that out throughout the system and then in addition to that part of our strategy, and we’ll talk more about this going into the new year, is innovating around new designs that speak to the future of addressing our guests’ needs.”
Harris attributed the growth in same-store sales to JIB’s work around the menu. He said in recent years, the brand has benefited from its $4.99 bundle deal and upsell and add-on strategies. This includes the launch of Tiny Tacos in mid-January, which have remained highly incremental, driven transactions, and bolstered average check as a frequent add-on. Additionally, Mozzarella Sticks returned as a $3 add-on and Spicy Chicken Strips found success with a $2 upsell for two more pieces. JIB also tapped into digital trends by offering a 10-piece Spicy Chicken Strips option available only through delivery.
Going forward, Harris said JIB plans to innovate across the menu, whether it’s premium, value, or snack-based items. He briefly mentioned that the chain is preparing to launch a product line around chicken and testing a virtual brand in about six stores.
“When you have the value focus, the combination of upsells and add-ons, with innovation and operational execution all working hand in hand, you drive better results,” Harris said “ … Beyond that, what we’ve done differently is we’ve spent a lot of time—just since I’ve joined—intensely focused on listening to our guests. We have a better understanding about why they’re coming to Jack in the Box.”
Transactions declined 12.3 percent in Q4 but average check grew 21.9 percent. Harris said the chain has seen increased sales for premium and indulgent items such as the Homestyle Chicken Sandwich and Classic Buttery Jack. He added that consumers are now purchasing larger orders, typically for multiple people. Items per order has grown from 3.8 to 4.2 compared to last year, and overall average check is currently tracking at $10.72 compared to $8.68 in the year-ago period.
Digital sales have remained double what they were pre-COVID and sales have increased in all five dayparts, including breakfast and late-night, which were hit particularly hard by the pandemic. JIB also said it has made gains with higher income customers, which played a role in the average check growth.
“As we continue to do a lot of research and listen to guests and their needs, we’re finding some distinct segments that we may be able to communicate with in different ways to keep that transaction count moving in the right direction,” Harris said.
Harris noted that as JIB finds ways to communicate effectively regarding variety, innovation, and value, the company is also ensuring that customers are receiving their products swiftly from well-trained employees.
The company has focused on giving restaurants tools to improve speed of service, such as new holding bins and cooking procedures that cuts wait times in half. JIB also rolled out a new training platform so workers are more supportive and increasingly focused on safety amid the COVID crisis. Harris said that for the past two quarters, guest’s perception around JIB’s speed of service has improved quarter-over-quarter.
“Really focused on what we call ‘Speed 101,’” Harris said. “Giving them the tools and techniques to really focus on how do we improve the experience at the drive-thru and be more consistent. Our focus is on being more consistent at speed than just quick.”
For the entire fiscal year, comps grew 4 percent systemwide, including a 3.1 percent increase at company-owned stores and a 4 percent rise at franchises. Q4 revenue rose to $86.8 million, or about a 10 percent increase, and annual revenue increased to $348 million, or a roughly 3.6 percent lift.