Jack in the Box expects net unit growth in fiscal 2023, something that's been a rare occasion in the past decade. From 2013 to 2022, the burger chain achieved positive expansion just three times (2019, 2016, and 2013).
But now, arrows are pointing upward after Jack launched its renewed development program last year. Since, the brand has signed 68 agreements for 267 new restaurants. Of that, 155 were signed within the past 12 months, a new single-year record. CEO Darin Harris said site approvals are higher in the past 18 months than the previous 30 combined. The brand approved nine sites in Q4 alone.
New blood is coming into the system, too. Jack recently brought on its first outside operator in more than a decade, signing them to a 37-unit deal in Baton Rouge, North Carolina, South Carolina, and Nashville. In August, the restaurant announced an incentive program focused on discounted royalty fees for new franchisees who maintain development compliance and sign at least three franchise deals by March 2023.
"The pipeline is filling, and that’s the biggest thing for us to be able to generate net unit growth," Harris told investors during Jack's Q4 earnings call. "And so as we keep filling up the top of the pipeline, we are also filling up the site pipeline that enables us to look into visibility for future growth, and we are seeing that."
"It also allows us to mitigate some of the things that move, whether it’s permitting, whether it’s equipment, all those things that happen within a pipeline naturally, it enables us to get in front of that and start to mitigate that challenge," he continued.
In fiscal 2023, Jack plans to open 25–30 restaurants across the country, including new markets Salt Lake City and Louisville. Harris says Salt Lake City is one area with "strong familiarity and demand," and will hold both franchise and corporate locations. Meanwhile, Louisville is a "true whitespace territory" with less proximity to existing core DMAs.
Next year promises to be a much more successful growth stretch than the previous two. Jack finished its fiscal 2022 with 2,181 stores systemwide (146 company-owned and 2,035 franchises), including 33 closures. In fiscal 2021, the brand shut down 37 restaurants. However, Harris noted part of the development program has been accelerating the shuttering of underperforming units.
"We don’t anticipate closings at the same rate that we have had over the last three years," Harris said.
Jack believes it has enough whitespace to eventually surpass 6,000 stores in the U.S. The goal is to eventually reach 4 percent annual unit growth by 2025. To open real estate opportunities, the chain created a slimmer 1,350-square-foot off-premises-only prototype. The new store design debuted in Tulsa, Oklahoma, in October. The restaurant is projected to cut costs 18–23 percent while achieving similar volumes as legacy locations.
In terms of the existing footprint, Jack's reimage program has gained momentum since its official launch during the summer. As of now, 366 reimage forms have been submitted by franchisees, and 13 have been approved to start construction. So far, the brand's new image has resulted in traffic-led sales gains.
"Fiscal 2023 will be a pivotal year for this all important pillar between our outlook on gross openings, two very exciting new market entries, and the expectation of positive net unit growth for full year 2023," Harris said. "It’s fair to say the hard work preparing for growth is coming to fruition."
Jack's same-store sales grew 4 percent systemwide in the fourth quarter, including 11.4 percent at company-operated stores and 3.2 percent for franchises. The figures were fueled by 10.4 percent pricing and sequential improvement in traffic. Even with inflation, Jack was able to hold its value consumers; transactions under $7 remained flat versus Q3 even with increased pricing.
All menu categories and dayparts saw positive growth, with dinner and late night showing the best improvement because of better operating hours and the redesigned Late Night Munchie Meals platform. The growth has continued into Q1 2023.
In addition to unit expansion, profit remains one of Jack's most important pillars. The chain is currently seeking immediate opportunities to build company margins by 200 basis points and translate that into the franchise system. For example, standardized product builds are resulting in $2,900 in savings per restaurant, new cheese pumps are providing $7,500 in savings, and new Hydra-Rinse shake machines are saving $5,000. There's also a three-in-one toaster to improve speed of service and the implementation of a few specification changes to enhance product quality and reduce costs.
When it comes to technology, Jack is upgrading its POS systems, partnering with Miso Robotics to automate some back-of-house processes, and testing food lockers for third-party delivery drivers and takeout customers at a Southern California restaurant.
Jack's restaurant-level margin was 16.2 percent in Q4, down from 20.1 percent last year. Excluding certain lower-performing markets, margin would be 19.5 percent. Fourth quarter profits were pressured by a 1.6 percent increase in food and packaging costs, driven by 14.9 percent commodity inflation. Jack has seen prices rise across almost all food categories except pork, with the greatest increases seen in sauces, oil, poultry, cheese, dairy, and beef. Labor rose 1.2 percent in Q4 year-over-year, because of 11.3 percent wage inflation. The brand executed a large pay increase starting in Q2, which helped recover lost operating hours. In the fourth quarter, 70 percent of stores operated at reduced hours, which is flat versus Q3, but an improvement from 80 percent in Q2.
"We are looking at every little line item to try to find where can we improve, and a lot of those will take hold," Harris said. "And it’s a clear plan that we had to execute that will take hold. What we don’t want to do is not improve the guest experience. We want to make sure that we do improve the guest experience or upgrade quality as we make any of these changes. And so, I mentioned that, because we also have made some spec changes and the size of our chicken product and some other products that have overall improved the quality for our guests."
Del Taco, which Jack purchased for $585 million, saw same-store sales lift 5.2 percent in the fourth quarter, including 4.1 percent at company-run units and 6.4 percent at franchises. The fast casual finished the year with 591 restaurants, 303 franchises and 291 company-owned. Earlier in November, Jack announced plans to sell at least 250 corporate Del Taco restaurants to new and existing operators.