Pandemic has Redefined Value for Jack in the Box

    CEO: Customers wants ‘craveable items that they can trust.'

    Jack in the Box exterior.

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    The products that do roll out will be ones that are familiar and travel well.

    The COVID-19 pandemic has pushed Jack in the Box to look beyond the traditional definition of value, CEO Lenny Comma said.

    Value is usually equated with price and the quantity one receives for that price. But Comma said consumers’ evaluation of value now broadly encompasses not only the price point, but the convenience of digital and off-premises channels and the safety of the transaction.

    Amid the crisis, the brand pivoted its marketing strategy to address these consumer needs by promoting value-based products that travel well and don’t have an abundance of produce. The primary item has been the Tiny Tacos, which drove transactions, check sizes, and brought back lapsed users, Comma noted.

    The company also highlighted its $4.99 Spicy Popcorn Chicken and $4.99 Triple Bonus Jack, which includes an upsell option to four patties. Comma said the marketing team also created family bundles and third-party delivery promotions that allowed Jack in the Box to attract new consumers.

    As a result, in the first four weeks of Q3, comp sales were up 1.6 percent after dropping 17 percent in the final five weeks of Q2. In the week ending May 10, comps were up more than 8 percent.

    “I think it’s going to be important that we not only look at some of the historic drivers of our business, but we’re going to have to pivot the way we think about the brand and the way we present product to the consumer to meet their current set of needs, which has evolved quite rapidly,” Comma said during the brand’s Q2 earnings call.

    Comma said that Jack in the Box has an innovation pipeline that’s a couple of years long. He doesn’t expect the pandemic to impact the chain’s ability to roll out successful limited-time offers because many have already been tested.

    The products that do roll out will be ones that are familiar and travel well, which will meet the consumers’ shifting needs, Comma said.

    “ .. During times like this, folks are looking for craveable items that they can trust,” Comma said. “They want to know that when the food is taken home, or brought home through a delivery provider, the products are still going to be hot, they’re going to be crunchy, they’re going to be fresh—whatever they need to be.”

    “… If we were going to do something that was less familiar like maybe a new Italian-inspired chicken sandwich—it’s been forever since we’ve done anything like that at Jack—probably not the right time to do that,” he said later on the call. “But Popcorn Chicken—right down the middle of the fairway. The consumer really knows what to expect.”

    Through March 8, transactions were positive and comp sales were up 5.2 percent, which was on pace to be the brand’s strongest quarter since Q3 2015. But with the onset of the pandemic, Jack in the Box ended Q2 down 4.2 percent. Company-run stores dropped 4.1 percent, which breaks down to an average check rise of 6.4 percent and a 10.5 percent slide in transactions. Franchise comp sales decreased 4.1 percent. First-quarter revenue increased to $216.2 million, up from $215.7 million last year.

    After the combined work of operations, marketing, and the supply chain, results began to flip into a better direction, Comma said.

    In addition to the positive same-store sales in Q3, delivery sales have more than doubled. Ninety-five percent of stores are covered by at least one of the four major delivery providers, and 80 percent utilize at least three. There’s also a record-high usage of the mobile app; the amount of active members has doubled since the start of the pandemic.

    Comma said the company is feeling bullish in Q3, considering the brand is seeing positive results while lapping the brand’s strongest quarter last year.

    Although dining rooms in more than 50 percent of states will be reopened under limited capacity by Memorial Day, Comma doesn’t anticipate a drop in efficiency. Prior to the crisis, dine-in mixed only 15 percent while drive-thru accounted for 70 percent.

    “Based on these results, I would describe our outlook going forward as cautiously optimistic, and we will continue with an approach that will be careful and conservative,” Comma said. “ … As I contemplate the next chapter for Jack in the Box, it gives me great peace to know sales and cash flow remain robust despite the challenges brought on by the coronavirus.”

    More than 99 percent of Jack in the Box restaurants are open. The chain ended Q1 with 2,246 units systemwide—2,102 franchises and 144 company-run stores.

    CFO Lance Tucker said the liquidity of franchises remains strong after entering the pandemic with AUVs of $1.5 million. No units have closed permanently, and many franchisees have or will receive Paycheck Protection Program loans.

    Comma said Jack in the Box is putting procedures in place and providing signage packages to franchisees for the eventuality of dining rooms reopening, but he added that operators will “slow walk” the process.

    To assist franchisees, Jack in the Box reduced marketing fees and postponed collection of about 40 percent of rental payments. In locations where Jack in the Box is the primary lessee, the company negotiated terms with landlords. In addition, franchise development agreements were delayed by at least six months and other capital investments were suspended.

    Tucker said from a development standpoint, there will likely be opportunities for franchisees when the pandemic subsides.

    “We’ve got to get a little further along in this to make sure franchisee balance sheets look the way we expect and hope they’ll look coming out of this situation,” Tucker said. “With that said, we do have a lot of work under way to make sure that we’re providing a really effective, affordable cheaper unit to franchisees. And various iterations of that would include minimal seating and walkup windows.”

    Jack in the Box has $169 million in cash on its balance sheet, $132 million of which is unrestricted. The chain doesn’t expect to have any issues with its supply chain.

    This was Comma’s final earnings call as Jack in the Box CEO. Darin Harris, a former CEO of CiCi’s Pizza and Arby’s executive, will take over the position no later than June 15.