Jack in the Box completed its $585 million purchase of Del Taco, the company said Tuesday, after shareholders approved the merger of a pair of California-based fast-food chains that are just a little different from their contemporaries.
“A key reason we are excited to bring Del Taco into the Jack family is it’s the perfect fit of business model, geography, customer base and culture,” Jack in the Box CEO Darin Harris told investors last month.
There are a lot of similarities between the two chains, in part based on menu. Jack in the Box is a burger chain that sells tacos and Del Taco is a taco chain that sells some burgers. Both are based in California and have similar markets.
Both brands have sizable late-night businesses and push a combination of value and premium products. And the two concepts compete with much bigger companies—Taco Bell, in Del Taco’s case; and McDonald’s, Wendy’s and Burger King in Jack’s case.
The two brands hope their combined buying power will help them be more competitive in this set at a time when costs are soaring and demands on brands for technology have never been more intense. “Both brands will be able to evolve within many strategic areas faster together than apart,” Harris said.
To be sure, as with most such mergers, the two companies believe they will find “synergies” that enable them to share costs—or services they can combine to get economies of scale and thus lower corporate overhead. Jack in the Box expects to find cost savings in supply chain, distribution and digital.
Jack in the Box expected to generate $15 million worth of such synergies within two years, but it believes it can exceed that amount. “We continue to be excited about the opportunities that this transaction will provide and the possibility of exceeding our previous target of $15 million in run rate synergies,” Jack in the Box CFO Tim Mullany said.
That said, there could be some changes in the offing for Del Taco as it comes under the Jack in the Box umbrella. One may be its corporate stores.
Jack in the Box has about 2,200 locations, about 95% of which are operated by franchisees. Del Taco has about 600 locations, half of which are franchisee owned. Jack in the Box executives suggested they could look to refranchise some of the Del Taco corporate stores.
“We see an opportunity for the strategy of refranchising,” Harris said. “That was part of the strategic approach we took when we bought Del Taco.”
But, Harris said, the company hasn’t had a chance to meet Del Taco franchisees and determine the opportunity to sell corporate stores. In addition, “there is plenty of interest outside the Jack in the Box system expressing interest in both Jack in the Box and Del Taco,” Harris said. “We’ve done some work, but we’re not in position where we can talk openly about it.”
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