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Jack in the Box announced a 12-unit franchising deal for Chicago in September of last year. This week, the San Diego-based chain opened the first of what will now be eight locations in the city, the brand’s first there in 40 years.
A lot has happened between those two announcements. In January, CEO Darin Harris left, and was ultimately replaced by the brand’s CFO, Lance Tucker.
Tucker, tasked with improving the company’s financial picture and steering the brand back to its “asset light” roots, immediately set about changing the brand’s course. The company is closing up to 200 restaurants. It is planning to reduce openings of company locations and will no longer pay a dividend as it works to pay down debt.
All that comes amid a backdrop of struggling sales and the company’s decision to sell Del Taco, the secondary brand acquired in 2021 under former CEO Harris. And then there’s a wildcard named Sardar Biglari, whose purchase of nearly 10% of Jack in the Box stock prompted the company to adopt a shareholder rights plan, otherwise known as a poison pill.
The company’s stock price is down 48% so far this year, though it has seen a bump of late. But the stock is down 61% over the past year and 72% since 2019.
The return to Chicago was in many respects designed to highlight the company’s return to unit growth, which was one of the primary charges of previous management.
Unit growth has largely eluded Jack in the Box, which over the years has been occupied mostly with aggressive refranchising strategies.
The chain has opened less than 200 locations in 20 years, an average of 0.4% growth over that period. But all that growth came in the first 10 years. It has mostly shed locations in recent years, including about 50 restaurants since 2019.
Jack in the box will close more units this year, too. The company expects to close 80 to 120 locations this year, on top of 35 to 40 closures previously announced.
These closures are largely designed to shed underperforming locations so franchisees can open stores in better real estate that are theoretically higher performing. But previous efforts to do that have not yielded the hoped-for unit growth.
Jack in the Box is hardly alone in its inability to open new locations. Just about all large, fast-food contemporaries are smaller than they once were (McDonald’s and Burger King) or they are resorting to aggressive incentives to convince franchisees to build (Wendy’s). The simple fact is, it’s difficult and expensive to open new fast-food locations now.
Jack in the Box’s sales challenges of late are also not unique, as much of the fast-food space has struggled. In fact, Jack in the Box’s average-unit volumes have grown 28% since 2019, a rate of growth faster than Wendy’s or Burger King and only moderately lower than McDonald’s.
The difference, however, is that Jack in the Box isn’t as omnipresent as those other brands. It is largely concentrated in the Southwest, where the economics are looking increasingly unfavorable. In California, a $20 fast-food wage is driving up labor costs. But sales could also be depressed throughout the region thanks to the impact of the Trump Administration’s immigration policies on areas with heavy Mexican-born populations.
Given its sales challenges and closures, Jack in the Box now faces the likelihood that it will fall behind up-and-coming chains Whataburger and Culver’s as soon as next year. Jack in the Box generated $4.4 billion in domestic system sales last year, down slightly. But both Whataburger and Culver’s grew by at least 9.4% and they’re having no problems adding units right now.
Jack in the Box’s return to Chicago 40 years after leaving the market could give it a foothold in the Midwest, where it might find the competitive market easier to stomach. And local residents will get their taste of one of the industry’s most unique menus, a burger brand that sells cheap tacos and, of all things, egg rolls.
But it isn’t quite the triumphant return it might have been.
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