News
Jack in the Box hopes new grilled sandwiches boost sales
February 18, 2010
Jack in the Box Inc. is counting on a free 'grilled sandwich with purchase' promotion to drive trial and boost the average check, company chairman, CEO and president Linda Lang told investors during the company's first quarter earnings conference call Thursday.
Jack in the Box introduced two varieties of grilled sandwiches earlier this month, both served on artisan bread. To promote the new sandwich, restaurants are offering the free sandwich with the purchase of a large drink Feb. 23. The sandwiches are available at participating Jack in the Box restaurants for $3.99 each.
"Our new Grilled Sandwiches have been very popular, especially among guests looking for something different than the traditional fast-food fare," division vice president of menu marketing and promotions for Jack in the Box Inc. Tammy Bailey said in a news release. "This is an innovative menu item for a major fast-food chain, with a distinctive blend of high-quality, flavorful ingredients, like the new grilled artisan bread."
Lang told investors on the call that the new sandwiches offer fast casual quality at quick-serve value and convenience. The company sees the sandwich introduction as an important component in boosting slumping same-store sales.
　
Same-store sales at Jack in the Box company restaurants were down 11.1 percent in the first quarter ended Jan. 17, compared with a year-ago increase of 1.7 percent.
At the company's Qdoba Mexican Grill brand, systemwide same-store sales were down 1.7 percent in the first quarter vs. a year-ago decrease of 1.1 percent. Same-store sales for the chain improved sequentially throughout the quarter and turned slightly positive in the last half of the quarter, Lang said. Additionally, Lang told investors on the call that Qdoba benefited from its higher income core customer, reflecting a boost of consumer confidence amount the affluent segment while lower income segments remained depressed.
The Grilled Sandwich introduction is important to the company, which is coming off lackluster performance from its Southwest Chicken Bowls introduced in the fourth quarter 2009. While the bowl leveraged the popularity of the successful Teriyaki Chicken Bowls in test markets, the system launch did not achieve the same success, Lang said in the call. Pricing the bowls above $4 — $4.29 suggested retail but higher in some franchise stores — likely hurt sales.
With the Grilled Sandwiches priced at $3.99, customers are responding much more favorably to this introduction, she said. The sandwiches also have been engineered to provide good margins at that price point.
"We think that's really key to delivering a great product that's differentiated and premium positioned, but also gets values," she told analysts during the Q&A portion of the call.
First quarter initiatives
During the quarter, the company continued to execute its strategic initiative to reinvent the Jack in the Box brand by offering guests a better restaurant experience than typically found in the QSR segment. Jack in the Box focused on both value and premium promotions during the quarter, including bringing back the Bonus Jack, a popular double-patty favorite, in October.
Lang said in the earnings call that the company will not focus on deep discounting but on value-priced combos, such as the Bonus Jack combo for $3.99, that have proven successful for the chain. Other limited-time bundled-value promotions in the quarter was the Jumbo Deal, launched in late December, and the breakfast offering of two croissants for $3.
Other value promotions during the quarter included the Big Cheeseburger and Big Texas Cheeseburger for just $1 and half-price holiday shakes during afternoon hours.
The number of discounted products during the quarter boosted traffic, but the Jumbo Deal had the most impact on the average check, Lang said. Now that the company's media focus has moved to Grilled Sandwiches, the company expects a lift in average check.
Future initiatives
Jack in the Box has a creative and compelling marketing calendar planned for fiscal 2010, with a robust pipeline of new products that are in various stages of development and test. "Our marketing strategy is to target multiple dayparts and balance our advertising and promotions to feature innovative premium products along with value-priced offerings, without jeopardizing our position as a premium QSR brand," Lang said.
The new Grilled Sandwiches platform meets the premium at a value component while the limited time Fish Sandwich for $1.49 offer, also launched in February, meets the value offering.
Lang told analysts during the Q&A portion of the call that the company's pipeline includes LTO beverage promotions, bundled deals with drinks as well as new flavors in shakes and smoothies to boost traffic in various dayparts, including afternoon. The company also is "looking at its coffee program" just as other chains, including Burger King, Hardee's and Chick-fil-A have improved theirs.
Restaurant openings
Seventeen new Jack in the Box restaurants opened in the first quarter, including 8 franchised locations, compared with 16 new restaurants opened systemwide during the same quarter last year, of which four were franchised locations.
In the first quarter, six Qdoba restaurants opened, including four franchised locations, vs. 17 new restaurants in the year-ago quarter, 15 of which were franchised.
At the end of the first quarter, the company's system total comprised of 2,228 Jack in the Box restaurants, including 1,052 franchised locations, and 507 Qdoba restaurants, including 348 franchised locations.
Refranchising program
The company will continue to move forward on its refranchising program and was more than 47 percent franchised at the end of the first quarter. It expects to pass the 50 percent mark later this year. The company is pleased with the progress and expects to achieve the goal of becoming 70 percent to 80 percent franchised by the end of fiscal year 2013.
Income
Revenues for the quarter were down 12 percent at $681.3 million, compared to $776.7 million in the same period last year. Net income for the quarter was down 14.7 percent at $24.2 million compared to $28.4 million last year.
Guidance
The following guidance and underlying assumptions reflect the company's current expectations for the second quarter ending April 11 and fiscal year ending Oct. 3, 2010.Q2 FY 2010 guidance includes:
- Same-store sales are expected to decrease 8 to 10 percent at Jack in the Box company restaurants versus a 0.4 percent increase in the year-ago quarter.
- Same-store sales are expected to range from flat to down 2 percent at Qdoba system restaurants versus a 2.3 percent decrease in the year-ago quarter.
- Same-store sales guidance reflects trends experienced during the first four weeks of the second quarter.
- Refranchising gains are expected to be lower than the year-ago quarter as a result of the timing of such transactions, although the full-year guidance remains unchanged.
Lang told analysts during the Q&A portion of the call that the company's biggest challenge remained high unemployment among its core demographic, including the younger, lower-income consumer and Hispanic consumers. She attributed much of the deceleration in sales between the fourth and first quarters to the weakening Texas market. The good news is that California appears to have stabilized.
Conference call
The company will feature a replay of the call through the conference-call link on the Jack in the Box Inc. home page until March 11.
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