Early into Darin Harris’ tenure as Jack in the Box CEO, unit development appears to be high on the priority list, which makes sense given his background.
Before joining the California-based brand, he worked as VP of franchise and corporate development at Captain D’s and SVP of franchising and development at Arby’s—roles in which he was tasked with guiding growth strategies.
As Jack in the Box continues to navigate the pandemic, Harris plans to leverage his experience to jumpstart growth. He’s currently working to get the teams, tools, and processes in place. He acknowledged that it will take time to build a pipeline of new development, but he also knows the key to starting is understanding what drives Jack in the Box’s success.
“Understanding what's driving our consumer behavior is another component that we will continue to focus on so that we can make sure we're entering the right markets with the right economic model and the right box,” Harris said during the company’s Q3 earnings call. “So what I would suggest is that as we look at, whether it's our existing markets where we have plenty of room to grow or new, it's really understanding our consumer behavior, what demographics are important, and then making sure that we have the flexibility in what type of units that we open or the prototype, in essence, kit-of-parts, so whether it's in-line, in-cap, whether it's nontraditional, we need to be able to meet consumers where they want to experience Jack in the Box.”
The chain experienced its best same-store sales quarter in five years, growing 6.6 percent. Company-owned stores lifted 4.1 percent, driven by average check growth of 20.2 percent and a transaction decline of 16.1 percent. Franchises increased 6.9 percent. Although he didn’t share specific data, Harris said momentum has continued through Q4.
The future unit growth that Harris refers to will be led by franchisees, which comprise 94 percent of the system. Jack in the Box ended Q3 with 2,100 franchises and 144 company-run stores. Year-to-date, 20 restaurants have opened and 19 have closed, one of which was company-owned.
Harris noted that franchised units are trending in a positive direction across all geographic regions. Several operators received Paycheck Protection Program loans, and many decided not to defer rent payments.
In his discussions with franchisees, he’s found that operators are eager to grow.
“Now what I would say we need to do in order to accelerate that is give them the tools, provide the correct processes to really enhance their desire to grow,” Harris said. “So like I mentioned earlier, kit-of-parts, being able to go to many different locations with the Jack brand, giving them the tools to find real estate more rapidly. And then more than anything, focus on the unit economic model and getting the right-sized box for them to build in that market.”
Harris indicated that because of changes in consumer behavior, off-premises will play a role in any future store design. For example, delivery and mobile app sales are still double what they were prior to the COVID pandemic. More than 95 percent of restaurants are covered by at least one of the four major third-party delivery providers, and 80 percent are using at least three. The brand is continuing to integrate its POS systems with the delivery companies to allow for simpler procedures.
Regarding drive-thru, Harris said Jack in the Box is focused on “delivering a product that's flavorful at a good speed and then also that's accurate.” The pandemic forced the brand to delay some of its drive-thru initiatives, such as holding cabinets, which allow stores to put more product upfront to help with speed and quality. Harris expects those type of operational improvements to roll out in the back half of the year.
The pandemic has created even more opportunities to learn, especially with improving the customer experience, he noted. All of these teachings will factor into how Jack in the Box approaches real estate and design.
“I think we want to look for every opportunity that makes sense from a standpoint in our geographic areas and those right outside of it to accelerate growth through finding, as I mentioned earlier, additional ways for people to consume Jack, whether that's taking over closed restaurants or whether it's just having a kit-of-parts to go into different sized buildings. So definitely, I think there's going to be an opportunity,” Harris said. “And I think our franchisees will and have already expressed interest in pursuing some of those opportunities.”
With its menu, Jack in the Box is continuing to find success with its Tiny Tacos that were introduced in mid-January. Harris said the item has remained highly incremental and appeals to off-premises occasions because of its takeout box and portability. Tiny Tacos drove both transactions and check sizes in Q3 since it’s constantly added on to orders.
The brand also introduced Popcorn Chicken, an indulgent product that fits with the company’s upsell strategy. This particular item has done particularly well in that regard, offering double the chicken for $2 more. Jack in the Box also increased sales for premium items like the Homestyle Chicken Sandwich and Classic Buttery Jack.
Additionally, Harris noted that customers have shifted away from the breakfast daypart, but are taking advantage of the all-day breakfast menu. And even though the morning time has been impacted, by the end of Q3, all five dayparts were positively contributing to sales.
In his six weeks as CEO, Harris said he’s met with many franchisees and onboarded with much of the corporate staff and executive team. Through these interactions, the new Jack in the Box leader noted that he was impressed with the nimbleness of the brand, which has led to strong sales.
He believes that trend will continue as the industry moves into the rest of 2020.
“Looking overall at the business, we are feeling bullish about our current trajectory, especially in light of our strong performance at this time last year and continued momentum into the fourth quarter,” Harris said.