Jack in the Box is selling Del Taco to Yadav Enterprises for $115 million. The sale came four years after Jack bought the Mexican fast-food chain for $575 million.
The 80% drop in value demonstrates, at least in part, just how much the fast-food restaurant sector has changed over that time.
We covered this in a video and hinted at this in our initial story on the subject. But when Jack in the Box paid that $575 million, the restaurant industry was in a much different spot than it is today.
In short, the fast-food sector was supposed to dominate. Chains with drive-thrus, mobile ordering and a big delivery presence were all supposed to generate strong sales for years.
These companies received massive valuations from investors betting on a takeout-centric future. Franchisees were being sold for record valuation multiples. Companies lined up to go public. Others were sold.
Everybody wanted a drive-thru. Fast-casual chains that long resisted the lane started revealing prototypes that added one. Many chains tested drive-thru-only locations. Some experimented with four-lane drive-thrus. And drive-thru sites became expensive. They still are.
Jack in the Box decided to buy Del Taco, its Southern California neighbor, in a bid to become a multi-concept company. It was a big bet on its ability to do this and a clear sign of faith in the future of fast food.
The reality has proven to be much different. By late 2021, it became evident that inflation was a more serious problem than many people expected. Labor shortages created numerous headaches for operators, driving up wage rates both in restaurants and with many of the suppliers that provide food and other goods.
Rising interest rates cut off the IPO market and inflationary concerns reset valuations. Almost immediately, in other words, the value of Del Taco took a hit. As it did with a lot of other companies sold during the go-go period of 2021.
Restaurant chains raised prices to offset their own soaring costs. Restaurants raised prices more than 30% on average between 2019 and 2024.
There were more predictions of recessions from economists than there are predictions of World Series titles by New York Yankees fans every spring training. Yet most of us, myself included, bet on fast food in any recessionary scenario, because when consumers cut back on dining, they shift more visits to fast-food restaurants from more expensive options. That's what's happened during every other recession.
But there was no recession, thank goodness. Yet consumers increasingly made it clear that they did not like those price increases.
McDonald's faced a social media backlash over those prices, as posts over an $18 Big Mac meal at a Connecticut rest stop and its high real estate costs went viral, while some reports and websites alleged its prices doubled. That forced the company to take the rare step of publishing its prices, which increased 40% between 2019 and 2024.
In the meantime, California forced fast-food chain restaurants to start paying workers $20 an hour, which exacerbated issues in that state.
The industry then jumped headfirst into a discount war. One year later, that war is as intense as ever and is taking place even in high-cost services like third-party delivery. Nearly three out of 10 orders are on some sort of deal. That's more than any point in decades. And yet traffic remains a problem. Even Chick-fil-A, of all companies, saw its weakest organic sales results in decades last year.
Meanwhile, chains like Chili's have thrived by focusing on value and hospitality. The brand used its own social channels to compare its prices to those of McDonald's and thrived. Casual-dining chains are suddenly getting more visits from younger consumers.
Some of the chains that went whole hog into this takeout environment are reversing some of their post-pandemic strategies. Starbucks, notably, is improving its dining rooms and closing its takeout-only pickup units. There's evidence that consumers are slowing drive-thru visits and going back inside restaurants. Some people we speak with believe consumers are righting the ship, going back to hospitality after years of eating in the car.
And so, as Jack in the Box encountered an increasingly difficult sales environment and watched Del Taco struggle under its stewardship, the company decided to sell.
None of this excuses Jack in the Box from whatever it did to contribute to the challenges at the chain it acquired. Most of the time when restaurant chains buy secondary concepts, they eventually sell them because the combination didn't work.
But the fast-food future that many thought was inevitable when the combination was first made never came to fruition.