As part of its renewed franchise growth initiative, Jack in the Box put together a specific playbook on how to enter a new market, CEO Darin Harris said. The blueprint covers everything from operations to proper prototype designs, building awareness before and after entering a trade area, ramping up digital and late-night sales, and de-emphasizing LTOs.
Because of these strategies, the brand is thriving inside previously untapped markets. The four restaurants opened in Salt Lake City and Louisville during the chain’s fiscal 2023 are averaging more than $100,000 in weekly sales per unit. That’s more than $5 million in annualized AUV. For perspective, Jack’s franchise business earned a $1.97 million AUV in 2023. These were the first new market openings for Jack in more than a decade. The outlets feature the company’s new Craved branding, which comes with an updated restaurant image package and bolder colors and signage.
The chain now has three stores in Salt Lake City, including a drive-thru-only design. The plan is to reach 15 restaurants by the end of fiscal 2025. These units are experiencing record sales and sustained performance even with digital channels and late-night not fully online. Harris said the company is “aggressively” building out this market alongside two franchisees. As for Louisville, there’s one unit open and another scheduled to debut in the next two weeks. Jack expects there to be five locations in this DMA by the end of fiscal 2025. Development will be accomplished through a blend of corporate and franchise-led expansion. In late October, Jack announced that Mark and Karen Graffius—55-year Jack franchisees—and multi-unit operator Shane Paul signed a six-unit deal in Louisville.
“We’re going to pace ourselves into these markets, but we’re very excited about the way we’ve entered it,” Harris said during Jack’s Q4 earnings call. “We are excited about the playbook that we’ve used to enter the markets, and we’re going to continue to look for new opportunities like this.”
Jack opened 20 stores and closed 15 in fiscal 2023, marking its first year of net unit growth since 2019. The fast-food giant ended the calendar with 2,186 restaurants systemwide, 2,094 of which were franchised. The brand has opened six stores thus far in the first quarter, and there are 77 additional locations in the design, permitting, and construction phases. Jack projects 25-35 openings in 2024.
The chain has signed 90 agreements for 389 locations since launching its development program in mid-2021. The deals include Jack’s first entry into Mexico in mid-2024, as well as expansion in Florida, Arkansas, Montana, and Wyoming.
Harris noted that high-level performances from new restaurants aren’t limited to Louisville and Salt Lake City. Outside of those trade areas, new stores opened in 2023 are averaging $2 million in AUV.
“While new markets are certainly a focus, the outperformance of all new restaurants, including those open in current territories, is key to our overall growth potential,” the CEO said.
Amid inflated construction costs, Jack wants to reduce build-out expenses to around $1.8 million to $1.9 million. Harris anticipates that happening in 2024 with the help of value engineering. From a payback standpoint, the brand’s target is to stay under five years. The chain recently debuted a 1,350-square-foot drive-thru-only prototype that features a double Y-lane drive-thru, a walk-up window, dual assembly kitchens, and a dedicated window for mobile and third-party delivery orders. The updated box is supposed to cut build-out costs by 20 percent and increase real estate flexibility. The model is meant for free-standing locations, but it can work for C-stores, travel plazas, and endcap spaces.
“I think the entire industry has been pretty consistent in the statement that we have seen cost rise, so we have a value engineering program in place to reduce the 20 percent or 30 percent that we saw in increases; some of that’s from size of the building,” Harris said. “And then also we’ve got to figure out ways to take and make this process more efficient because we’ve definitely seen through COVID and post-COVID, that some of the delays and some of our [missed restaurants] this quarter on the guide, those stores just got delayed from supplier labor and pushed into this year. We definitely saw that happen, and we’ve opened quite a few at the first month of this year.”
Jack’s systemwide same-store sales rose 3.9 percent in Q4, lapping 4 percent growth in the year-ago period. This included a 7.6 percent increase in pricing, partially offset by a decrease in transactions and negative mix due to fewer drink attachments and items per check. Restaurant-level margin expanded 450 basis points in Q4 year-over-year from 16.2 percent to 20.7 percent. For the full year, comps rose 7.3 percent, on top of a 0.9 percent rise in 2022.
The chain’s digital orders accounted for 12 percent of sales. The current goal is to bump that mix to 20 percent. First-party channels (web and app) outpaced third parties in Q4 and rose 35 percent higher than last year, allowing greater opportunity to capture guest data. The Jack Pack Rewards program increased membership by 23 percent versus Q3 and achieved a 90-plus percent growth rate in 2023 compared to 2022.
Del Taco, a fellow Southern California chain that Jack bought for $585 million during the pandemic, is experiencing its own growth journey. The brand refranchised 111 restaurants in 2023, and 120 more are scheduled over the next three years. This would push the chain’s franchise mix to more than 90 percent by the end of 2026. Del Taco ended Q4 with 592 restaurants, comprised of 421 franchises and 171 company-operated units. That’s a franchise mix of about 71 percent, up from the roughly 51 percent mix when the acquisition was first announced. The proceeds from the refranchising agreements are used for share buybacks, debt reduction, and other high-return investments.
Del Taco system same-store sales declined 1.5 percent in Q4, consisting of company-owned comps down 1.4 percent and franchise comps decreasing 1.5 percent. This was fueled by declines in both transactions and mix, more than offsetting a 6.6 percent price increase. The drop in same-store sales was expected as the brand faced a tough comparison to last year when it used a heavy media spend to support its Tortas promotion. The negative trajectory continued into October, but positive movement returned in November.
For the full year, there were 14 Del Taco restaurant openings and 13 closures. The brand’s restaurant-level margin was 14.8 percent versus 15.9 percent in the prior year.
Digital grew to 12 percent of sales. New sign-ups for the Del Yeah! Rewards program increased 11 percent in Q4, ending the year with over 1.6 million members.