Jack in the Box aims for greater unit growth, even as franchisees close their locations
Jack in the Box has generated strong sales recently, including 16.4% same-store sales over two years in the quarter ended April 11. He hopes this will prompt operators to add new locations, and indeed the chain is taking aggressive steps to expand its Tiny Tacos into more communities.
But first, the hamburger chain is shutting down some units. Franchisees closed 19 restaurants in the last quarter, more than in the same period a year ago.
Executives credited the improved relationship between the company and its franchisees for these closures, and said the closures are necessary to improve the “overall quality” of the system.
“We saw high closings during the quarter,” CFO Tim Mullany told investors Wednesday, according to a transcript on financial services site Sentieo. “A lot of this is due to improved relationships, frankly, with the franchise system and the business. We interact with them very frequently and allow them to exit underperforming sites in anticipation of our expansion into new clearing units within existing markets. ”
“It’s really a way for us to grow our portfolio and, in the long run, improve overall quality,” he added.
Jack in the Box has big plans for growth under the leadership of CEO Darin Harris, who arrived at the company last year and immediately repaired franchise relationships that had deteriorated under his predecessor, who had undertaken an aggressive strategy to reduce corporate overheads.
With sales having already started to pick up when he arrived, Harris quickly shifted his focus to unit growth, something Jack in the Box hadn’t done for a long time. The number of units entering in the last quarter was 2,241 in the United States, roughly the same as ten years ago.
The San Diego-based burger chain initially focused on existing operators. Harris said this week that two-thirds of existing franchisees have expressed interest in the expansion and that the company has new development agreements with eight franchisees to build 23 new stores.
The company has also launched new recruiting initiatives and has started to advertise new operators. The company said the number of prospects doubled in the first four months of 2021 compared to the same period of a year ago.
He also looks for ghost kitchens. The company has reached an agreement with REEF Kitchens to open this summer at eight facilities in three states.
Harris said it will take “at least 18 to 24 months before we begin to show significant new store growth.”
“We are seeing a tremendous response from our existing base,” said Harris. “We are delighted with what we are seeing in the pipeline.”
While the expansion may take the company out of its predominantly West and Southwest markets, the company said these existing markets have plenty of room for unit growth. He said the company could add 180 locations in California, 110 in Texas and 90 in Colorado, as well as 52 in Utah. “The key is to focus where we have awareness and create concentric circles around that core and look for some new markets,” Harris said.