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Tuesday
Mar052019

Jack in the Box

Jack in the Box's strengths include a high penetration in its core California markets, humorous ads around a unique brand personality and a diverse menu which spans a wide range from premium sandwiches at the top to its popular tacos at the bottom - hitting all dayparts with brunch during the day, breakfast all-day and late-night "munchies" for the party crowd. The primary idea is that JACK's menu addresses various cravings throughout the day. A better burger positioning is reinforced by its Buttery Jack burger platform & Double Jack and, although this is a regional system with 69% of its stores located in California & Texas, the brand enjoys leading QSR hamburger share in 8 of its top 10 markets. The quantity of JACK's new product intros exceeds the segment average, reflecting the brand's commitment to relevant innovation while a new, simplified menu reduces redundant SKUs and streamlines operating procedures. Sales and access should benefit from plans to implement drive-thru upgrades to 80% of the system over the next 3 years and new app & delivery functionality provides a popular option for dinner & late night guests. Having said all this, the brand's price value positioning (necessary to drive traffic in a price sensitive market) is challenged by a lack of sufficient scale and an elevated operating cost structure typical of California. This is challenging as 50% of Jack’s customers are value oriented and it is notable that this is on the high side for QSR. Further, JACK may benefit from a more clearly defined core menu competency given its limited share of voice. This is all reflected by cooling comps which are notable given system tailwinds which include: stronger breakfast & late-night sales due to new product intros; an increasing percentage of franchised stores now open 24/7 (which also helps breakfast sales); and service improvements. To make matters worse, franchisees have filed a lawsuit against the franchisor and JACK is exploring a strategic sale which may be necessary because of its severe system disunity. While an increase in its marketing calendar featuring value promotions from 50% to 80% in 2019 may help traffic, it could also further aggravate those franchisees opposed to discounting. In conclusion, no matter the owner/brand leaders, Jack in the Box must find a new path to pursue sufficient unit-level profitability in today's world marked by sharply rising costs on the West Coast and aggressive QSR discounting.  

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