The National Jack in the Box Franchisee Association, arguing that operators are increasingly struggling amid cuts to franchisee support and marketing, have called on the company to replace CEO Lenny Comma following a July vote of “no confidence” in the leadership team.
The association, which says it represents 2,000 of the San Diego-based burger chain’s 2,240 locations, has also hired a high-powered attorney in Robert Zarco.
“We just don’t believe we’re in alignment with the franchisor,” Michael Norwich, chairman of the association, known as the NFA, said in an interview with Restaurant Business. “We have two different visions and two different objectives. They’re quarter-by-quarter driven, making a lot of short-term decisions having a negative impact on the franchise community.”
The NFA said it has sent a letter with several areas of concern and proposed changes to the Jack in the Box board of directors but says it has not received a response to those concerns.
In a statement sent to Restaurant Business late Monday night, the company said the issues the association expressed “are not reflective of the entire franchise community.”
“For the past several years, and during the past year in particular, we’ve worked closely with the leadership of the NFA on a variety of issues of importance to the company and our franchisees,” the statement read. “We have always been open to their constructive feedback and have worked to address any legitimate concerns. Importantly, we believe the viewpoints expressed today by NFA leadership are not reflective of the entire franchise community.
“The company will continue to work with the franchise community to develop and refine our strategy for success, and ensure our ultimate goals are fully aligned. We remain focused on balancing the interests of all our stakeholders, including our franchisees, customers, employees and shareholders.”
The no-confidence vote is the latest in a growing number of disputes between franchisors and the franchisees they are increasingly relying upon to operate their restaurants.
Jack in the Box, much like other restaurant chains such as Burger King, McDonald’s, Wendy’s and others, has sold off hundreds of company-run locations to franchisees, or “refranchising.”
It has also worked to reduce corporate overhead. But the NFA argues that those cuts have gone too far.
Norwich said that Jack in the Box spent 3.8% of its revenues on general and administrative spending in 2015, “one of our better sales years,” but now plans to reduce that to 1.8%. He believes that this reduction is cutting services to franchisees, including things like training, where programs to train managers and workers were replaced with tablets.
The association also argues that the company has deep concerns about the marketing department. Chief Marketing Officer Iwona Alter stepped down more than a month ago and has yet to be replaced.
But Norwich argues that the CMOs the company has had over the years haven’t had the experience needed. “The CMOs have been great people,” he said. “They just don’t have the marketing background that a company doing nearly $3 billion in sales needs.”
He also said the marketing department has seen a number of departures over the past 18 months.
“It just doesn’t seem to be a priority,” Norwich added. “They’ve just been cutting expenses. That’s been hurting us.” He said the company’s marketing calendar is only completed through January.
New product innovation designed to lift sales hasn’t worked as planned, the association says, and that has left operators with products they had to purchase that didn’t get sold. That includes a line of Food Truck sandwiches that were introduced in February, following an ad with Martha Stewart. Items like the Pork Belly BLT did not meet projections, Norwich said, and they were difficult to make.
“They were operationally complex,” he said. “The products didn’t taste that good. Repurchase intent was very low. We could get people to try them. We just couldn’t get a repurchase out of them.”
Norwich said the company is “falling way behind” on its goal to get average unit volumes to $2 million by 2020.
He said that franchisee profits have been on the decline in recent years, and that a number of franchisees are struggling. “There are franchisees in trouble,” Norwich said.
The operators have a list of requests, including the replacement of Comma with a CEO “with strong and effective experience and demonstrable success in developing an organization like Jack in the Box.”
The NFA is also asking the company to appoint a CMO and to stop cutting franchisee support staff and infrastructure. And it wants Jack in the Box to share information on the company’s use of the marketing fund that franchisees pay into.
Norwich said the association has brought its concerns to the company’s board of directors but were “rebuffed.” In a release, the NFA said Jack’s board of directors hired an independent outside counsel to investigate issues related to the no-confidence vote but that there is “no sense of urgency” to the investigation.
“We just can’t believe they’re not willing to sit down and say, ‘Let’s get these issues worked out,'” he said. “They’re not listening to us.”
“Frustrated is an understatement,” Zarco, an attorney with the law firm of Zarco, Einhorn, Salkowski & Brito, said in an interview. “They’re at their wit's end.”