Jack in the Box has 61 restaurants currently in the permitting, design, or construction phases. That’s the most CEO Darin Harris has seen in his tenure, and the most the company has witnessed in at least a decade.
“We've approved more sites in the past three or four quarters than we have in the prior three or four years,” Harris said during the company’s Q2 earnings call.
Since launching its development program in mid-2021, Jack in the Box has signed 76 new agreements for a total of 335 restaurants, with 69 commitments in fiscal 2023. Highlights include bringing in the first new franchisee in over a decade, the addition of new markets including Florida and Arkansas, and incremental development agreements via Del Taco refranchising, including commitments to bring both brands into new territories.
Jack in the Box also recently inked a franchise agreement for 22 restaurants in Northern Mexico. It marked the brand’s first agreement in the country in over 30 years, but Harris said that doesn’t mean the company is embarking on an aggressive international growth strategy.
“We chose to enter the Mexico border states due to the strategic partner we identified, their distribution capability, the brand affinity due to adjacent Jack in the Box markets, and the ease to which we can assist with nearby restaurant and franchise support,” he said.
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Jack in the Box’s restaurant count was positive in Q2 with two franchise openings and one franchisee closure. It ended the quarter with 2,187 restaurants, including 140 company-owned locations and 2,047 franchised locations. The chain is on track to reach positive unit growth in 2023 for the first time since 2019, with 25–30 new restaurants slated to open by the end of the year.
The first Jack in the Box location in Salt Lake City will open next month. The goal is to have 10 units in the market by the end of next year through a combination of company-owned and franchised openings. With Salt Lake City being a combined market, Harris said “all of our resources and efforts” are being activated in the hopes of making it the strongest new market opening in the chain’s history.
On the topic of strong early performance, Jack in the Box’s first drive-thru-only prototype in Oklahoma continues to outperform expectations by generating average weekly sales of around $43,000. The store is seeing 15 percent of sales coming through digital channels, aided by food lockers for speed and convenience.
“The restaurant has been open for about nine months, has all of our latest equipment, and we have seen a much higher level of sustained outperformance in terms of AUV and sales, particularly compared to the honeymoon curve we typically see in newly opened locations,” Harris said. “This is very encouraging as our franchisees look to expand with this lower-cost prototype.”
Profitability initiatives and a focus on maximizing store-level ROI are encouraging more franchisees to build and open new restaurants, he added. Restaurant-level margin at Jack in the Box was 21.4 percent in Q2, up 6.4 percent from the same period a year ago.
Harris said the brand is starting to see progress on its 200-basis-point restaurant-level margin opportunity, which represents potential annual savings of $55,000 per restaurant. Half of the system has installed new cheese pumps and Hydra Rinse shake machines, which together represent 30 percent of the annualized savings possible.
Commodity inflation was 7.7 percent for the quarter. Labor as a percentage of company-owned sales fell 340 basis points, partially offset by wage inflation of 4.3 percent. Harris said the company will continue taking a more data-driven and surgical approach to pricing, even as inflation shows signs of easing.
A new internal pricing team formed last year has been equipped with technology and machine learning tools. Those investments are helping cover this year’s food and wage inflation while making up for some of the margin the company lost in 2022.
“We’ve been able to find each quarter different opportunities related to pricing, and that’s where we remained focused,” Harris said. “How do we find by store, by market, and by product, an opportunity to price more strategically and make sure we’re in line with the competition? Historically, the approach was looking at pricing sensitivity and then spreading a price across a whole menu. Now, we’re looking specifically by item and by market.”
Same-store sales were up 9.5 percent in Q2, consisting of company-owned comps of 10.8 percent and franchise comps of 9.4 percent. The systemwide same-store sales growth was driven by a 9.1 increase in pricing, a 0.8 percent decrease in transactions, and 1.2 percent increase in mix. Interim CFO Dawn Hooper said the company was “especially encouraged” by the return of positive year-over-year mix shift for the first time since Q3 of 2021.
Digital channels accounted for 11.5 percent of sales, the highest in Jack in the Box’s history. Hopper said the majority of the digital sales stem from third-party aggregators, but mobile ordering on the brand’s app is increasing month-to-month. Web ordering launched earlier this year and is on the rise, too.
“While we have only scratched the surface of our overall digital position, we have clear next steps including personalization, driving loyalty and frequency with our big fans, and the ability to retarget lapsed users while growing our customer relation management and loyalty database,” Harris said.
Jack Pack rewards membership grew 45 percent in Q2, driven by in-app promotions for the Mint Mobile Shake and the brand’s famous tacos.
“We are well-equipped to realize this big opportunity and see realistic potential to do so by leveraging our scale and resources to capture and better utilize data to yield incremental sales for both brands,” Harris said.
A slew of operations initiatives also is driving momentum across the business and steering profitability in the right direction. Jack in the Box has been focusing on owning late night by increasing operating hours, specifically on the franchisee side. It’s still 30 minutes behind average hours opened versus 2019, but Harris said franchisees are “taking actions” and “understand that late-night represents a daypart where we believe we can take share.”
A focus on training has resulted in lower turnover rates and better staffing, which in turn is driving improvements related to speed and guest satisfaction. Jack in the Box’s drive-thru times were 11 seconds faster versus Q1 of 2022, and the brand is tracking a 20 percent improvement in standards of execution from third-party assessments.
Further improvements could come later this year with a new point-of-sale system. Harris said the company has narrowed the field to two POS providers and will finalize its decision in Q3. Restaurant implementation funded by franchisees will begin in 2024 and is expected to be completed by the end of 2025.
Harris said the new POS will drive costs out of the system and improve the guest experience with interactive tools like automation and AI, but the company isn’t waiting for that rollout to innovate on other automation initiatives. It is expanding its current Miso Robotics automated fryer test to a second location. Del Taco is plowing ahead with its automated voice ordering technology test, which Harris said is “providing insights that could benefit both brands.”
Del Taco has signed 14 agreements for a total of 101 units since its development program launched two years ago. Three franchised restaurants opened in Q2, bringing the total footprint to 595 stores, including 273 company-owned locations and 322 franchised locations. The brand has 17 restaurants in the permitting, design, and construction phases, including its first drive-thru-only “Fresh Flex” prototype, which is slated to open next month in New Mexico.
The company also is continuing to refranchise Del Taco Restaurants to get closer to a company-wide asset-light model. The initiative also is capturing incremental development agreements involving both new and existing franchisees as well as new and existing markets for both brands.
Including the 32 restaurants completed year-to-date, Harris expects to refranchise 65 to 85 restaurants this year, all of which will contain at least a 1:1 ratio of restaurants purchased to restaurants developed. The most recent transaction included development agreements that will bring both Del Taco and Jack in the Box to Wyoming and Montana for the first time in each brand’s history.
Del Taco’s systemwide same-store sales were up 3.2 percent in Q2, including a 3.5 percent increase at company-owned restaurants and a 2.8 percent increase at franchised restaurants. The comps breakdown included pricing of 9.9 percent, a 3.8 percent decline in transactions, and a mix decline of 2.6 percent. Restaurant-level margin was 17.3 percent compared to 17.8 percent in the same period a year ago.