The National Jack in the Box Franchisee Association believes a long-running conflict with management is getting worse, not better, despite comments to the contrary by the fast-food brand itself. Reiterating a past notion, the NFA called Wednesday for new ownership and a change in CEO following participation in recent corporate road shows. The NFA, which represents close to 89 percent of Jack in the Box’s franchise system, which amounts to 95 owners and roughly 2,000 units, said there’s been “no improvement in brand management or communication with the franchise community.” Actually, it said, the situation has deteriorated to “retaliation evidenced most recently by the formation of the Franchisee Advisory Council.”
The FAC is a new organization the NFA asserts appears to replace the Strategic Leadership Council, a body that was created through an agreement with the NFA and Jack in the Box CEO Lenny Comma.
“We had a signed agreement and our understanding is that it cannot be unilaterally changed,” Michael Norwich, chairman of the board of the NFA, said in a statement.
The new SLC is comprised of five NFA members and two at-large members appointed by Jack in the Box. The NFA said that was an appropriate balance to ensure all franchise concerns were addressed. Changes to the agreement require NFA approval, the company said. Yet no approvals were sought or given, they claim.
“NFA members did not participate in the formation of the FAC and as a result, it is comprised primarily of non-NFA members. Non-NFA members make up less than 15 percent of the system,” Norwich added. “We see the formation of the FAC as an act of retaliation intended to silence the NFA membership which represents close to 89 percent of Jack in the Box franchised restaurants.”
“We are desperate for leadership that understands the depth of concerns in the franchise community,” Norwich continued. “We are in a people business. We depend on people to patronize our restaurants, to operate our restaurants, and to lead our brand. That said, good relationships and trust are critical. We are disappointed in the lack of effort by the board of directors to address the relationship issues and our franchisee concerns.”
Jack in the Box released a statement Thursday.
"We have always supported the right of our franchisees to form associations, which can play an important role in representing the interests of franchisees," the compay said. "There are two such associations that represent our franchisees. The company has also created several inclusive channels through which to communicate with the entire franchise community, including regular town hall meetings and the peer-elected Franchise Advisory Council. All operators in good standing, including members of the National Franchisee Association, were invited to participate in creating the FAC—franchisees elected six members, and the company appointed one franchisee. Any suggestion that the formation of the FAC was 'intended to silence the NFA' is simply not true. To the contrary, NFA Board members were elected by their peers or offered seats on the FAC by the company, but refused to participate. For those who have been given the opportunity to participate on the FAC, the door remains open."
The NFA said the FAC is Jack in the Box’s “latest attempt to minimize the organization,” and said it highlights the board of director’s lack of engagement during the conflict.
“We believe in the Jack in the Box brand and it is our sole desire to grow the brand,” Norwich said. “At this point, we are hoping for a credible buyer that brings with them changes in management that will cultivate the business and foster robust franchisee relationships. If that happens, the brand will thrive, and all stakeholders win. Our franchisees have passion, ideas and resources—we who have seen Jack in its greatest days know that restoring the brand’s prominence is well within reach if we can make some positive changes.”
This is the latest tense chapter between the parties. The brand’s traffic fell 3.3 percent at company-run stores in the first quarter, reported in February, versus a 2 percent increase in the prior-year period. Same-store sales upped 0.5 percent at company-run units and declined 0.1 percent at franchised stores. That negative 0.1 percent figure lagged the quick-service sandwich segment by 3.2 percentage points for the comparable period, according to The NPD Group’s SalesTrack Weekly.
Norwich told QSR in January that Jack in the Box’s years-long transition from a restaurant operation company to an asset-light franchise company was painful and franchisees worry corporate decisions are too focused on short-term metrics like stock performance and neglect the long-term health of the brand.
In October, the group approved a vote of no confidence in CEO Lenny Comma that franchisees described as a culmination of years of frustrations. In November, it filed a complaint with the California Department of Business Oversight regarding Jack in the Box’s new financial restructuring strategy. And in December, the group filed a lawsuit against the brand, alleging a breach of contract.
“The relationship shouldn’t be this way,” Norwich told QSR. “But thus far it’s been difficult. And we don’t believe that we’ve been particularly well heard or understood.”
In a November quarterly earnings call, Comma told investors his team was “managing through” issues raised by the association. He acknowledged “spirited debates” with the brands franchise community, but assured that corporate was “fully aligned” with franchisee goals.
"We understand their concerns about issues our industry is facing such as rising labor costs, finding traffic, and market share in a hyper-competitive environment,” Comma said on the call. “We know that Jack in the Box cannot be successful if our franchisees aren't successful.”
Comma added in February that the company’s focus on improving the relationship was twofold.
“One, it will be to drive sales and profitability for our franchisees; and two, to spend as much face time with our franchisees as possible, helping them to understand what’s going on in the industry, how specifically our business can respond to industry and other pressures positively,” he said. “And I’m hoping that they will take those interactions and the facts that we’re sharing along with those interactions to heart and use those things to make rational decisions going forward.”
“I don’t think that when you have strained relationship, you can fix it overnight,” he added. “But I do think that profitability, sales and an open dialogue and face time are going to be key to our success.”
Jack in the Box leadership recently said road show franchisee attendance has been high. “I think with the success that we’re experiencing right now and with the open dialogue, I can only anticipate and hope that things will continue to get better,” Comma said.