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Jack in the Box finds that value works

The company said its sales improved last quarter after it shifted to more price promotions.
Photograph: Shutterstock

Jack in the Box found out last year that it couldn’t beat its competitors in the midst of a value war by promoting its premium items.

So it joined them, and, at least for now, the strategy appears to have worked.

The company said this week that its same-store sales declined 0.1% in the company’s fiscal first quarter, which ended Jan. 20. That was a 320-basis-point underperformance against its fast-food competitors.

But executives said that a promotional shift in the middle of the quarter, away from premium and toward more value, improved sales as the period ended. Jack in the Box promoted a $4.99 BLT Cheeseburger combo.

“Half of our customers are value-oriented,” CEO Lenny Comma said on the company’s earnings call Thursday. “We have to present something to them.” Otherwise, he said, those customers will go somewhere else.

Jack in the Box has struggled with its balance of price and value in recent quarters amid increasing competitiveness in the quick-service space, and especially among fast-food burger players.

Aside from McDonald’s 2.3% growth, none of the major, publicly traded fast-food burger chains reported same-store sales higher than 0.8% at the end of last year.

Chains have been promoting value heavily, with $4 and $5 meal bundles, discounted items such as the $1, 10-piece chicken nuggets that Burger King offered late last year, and other value promotions.

“Value is the No. 1 situation we’re dealing with,” Comma said. “Companies are selling a lot of a la carte items very cheaply. Or they’re selling bundled value.”

Jack in the Box has tried to avoid that value war, noting that price promotions are difficult given rising labor costs, particularly in the San Diego-based chain’s home market. Competing heavily over price is “not in the best interest of the brand, particularly in the face of rising labor costs,” Comma said.

But the company realized it had to be competitive in some manner to generate sales in this environment.

Complicating matters has been an uprising in recent months by the company’s franchisees, who operate about 90% of the chain’s 2,250 locations. Jack in the Box’s franchisee association passed a vote of no confidence in management and then called for a new CEO.

Jack in the Box management in recent weeks has been making presentations to franchisees to improve sentiment while also arguing in favor of a more value-focused strategy. The company plans to continue those presentations this year at it seeks to rebuild its relationship with operators.

“At the end of the day, money talks,” Comma said. “We feel like it’s the right strategy.” He added that the shift to value has had “no impact” on restaurants’ profit margins.

The company said it is also working on efforts to simplify the operation to improve both efficiency and consistency, which Comma believes could help improve sales further as the year goes on.

Improving sales, he said, will be the best way the company can improve its relationship with franchisees.

“Comps help to build a lot of great relationships in this business,” Comma said. “That’s our No. 1 priority. Driving profitability for franchisees, more than anything, that’s what they need right now.”

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