On Thursday, Jack in the Box said that its flagship burger chain’s margins took a hit, a result of soaring costs for both labor and food.
Its solution to the problem: Self-cleaning shake machines.
Specifically, the San Diego-based company said automated shake machine cleaning, along with simplifying burger builds and new cheese pumps, are among a handful of efforts that over time could improve profitability by 200 basis points.
“We see an opportunity for 200 basis points of margin improvement on average,” CEO Darin Harris told analysts on Thursday. He noted that such improvement could come within three quarters, and that the company was working “aggressively” with its franchisees to implement many of these plans.
The strategies are among several the company is using to get more workers in stores and find cost improvements at its 2,200-unit flagship chain, most of which franchisees operate.
Same-store sales at the chain declined 0.8% in the quarter ended April 17, the company said, due to a combination of weakness from the omicron variant, hours limitations because of a lack of workers and difficult comparisons in March. On a two-year basis, same-store sales have risen nearly 20%.
The weaker sales led to a substantial hit on margins. Restaurant-level margins were 15% of sales, the company said. A year ago, those margins were 25.9%. Wage inflation rose 14.2%, the company said. Commodity costs rose 16.4%--a jump from 10.5% inflation the previous quarter. “Our anticipation is that we see pressure continuing to some degree throughout the rest of the year,” Harris said.
The company is working to fix both its labor and profitability problems.
Jack in the Box has a new staffing effort in its two biggest company markets. The company focused on culture and surveyed workers to understand what they value. Jack in the Box also used direct mail, an employee referral program and premium pay for late-night and other difficult-to-hire hours.
The company has seen a “dramatic increase in interviews” along with improved retention in the markets. In Los Angeles, one of those markets, the number of employees is up 7% this year already.
By hiring and retaining more workers, Jack in the Box believes it can open more dining rooms and stay open longer. Only about half its dining rooms are open right now and the restaurants aren’t always open as late as the company would want. Jack in the Box also expanded the use of its certification program to involve all workers.
Executives believe they can show these results to franchisees and get them on board. “The optimism here is that the company portfolio is the leader in demonstrating success,” Harris said. “We cut our impact of lost labor hours from Q1 to Q2 almost by half in the company store portfolio. The franchisees have seen that.”
But then there’s the margin issue, and margins are vital for franchisees that rely on profits. The company has created an operations service team to improve restaurant-level margins. It also created a task force of employees and franchisees to identify short-term opportunities to lower costs.
And Jack in the Box is working to be effective in taking price. “We believe we have pricing power, and this allows us and franchisees to apply pricing strategies to value platforms, premium items and everything in between,” Harris said.
“We’ve been aggressively working with our franchise partners and this task force,” he said. “We’re watching their margins. We’re working together on improvement.”
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