As Pandemic Challenges Linger, Company Has Agreements With Franchisees To Add More Than 200 Locations
To keep growth plans on track while fending off the pandemic supply-chain disruptions slowing restaurant construction at some competitors, Jack in the Box has taken up a practice now common for its digital-savvy customers: ordering ahead.
Executives of the San Diego-based burger chain, which has more than 2,200 restaurants, told analysts Wednesday that agreements are now in place with franchisees to add more than 200 locations over the next three to four years. To keep openings flowing and avoid the now common industry challenges in obtaining ventilation, kitchen and other key equipment, Jack in the Box has taken to buying and stockpiling that gear well in advance of construction in some cases.
“We’ve used our balance sheet to pre-order a lot of the items to be prepared for this oncoming growth, so it doesn’t hamper our ability to meet our objectives from a growth standpoint in 2023 and beyond,” CEO Darin Harris said during the company’s first-quarter 2022 earnings call.
Executives said the company is on track to maintain a steady pace of 4% annual location growth through to 2025. During its first quarter that ended Jan. 23, the company signed 26 agreements with franchisees to open 98 restaurants over the next three to four years, bringing its total to 50 commitments for 201 upcoming new locations.
“This is the highest level of unit growth commitment in company history,” said Chief Financial Officer Tim Mulany, as executives said the mostly Western-focused chain aims to have locations in 40 U.S. states by 2030.
That future growth would follow a first quarter in which Jack in the Box closed 12 underperforming locations nationwide, primarily in the St. Louis region, and opened two, for a net decrease of 10 locations. Executives cited lingering challenges being faced by franchisees, including rising costs and limited business hours caused by labor shortages.
Executives said Jack in the Box is in the process of taking back several franchised locations in states, including Tennessee, Oregon, Kansas and Oklahoma, and turning them over to other franchisees who are better capitalized and committed to opening new locations.
Officials said the previously announced $575 million acquisition of rival chain Del Taco, set to close next month, is also expected to help the company grow locations through franchise agreements in regions where both chains currently have a limited presence.
“The pace is picking up from a development activity standpoint, and this is just with our existing base [of franchisees],” Harris said. “We’re still out talking with new franchisees as well and increasing that pipeline.”
Harris said Jack in the Box has been using location data “to map every market” and is looking to pick up the pace of internal location approvals while “really driving sites into the pipeline.”
Other big restaurant operators reporting earnings in the past few weeks — including Yum Brands, Chipotle and Denny’s — have also cited ambitious expansion plans while acknowledging supply-chain setbacks in obtaining needed equipment for planned new locations.
The large companies have also seen lingering operating challenges affecting the pace of development, at least in the near term, including staffing difficulties and rising costs for food, labor and equipment. Those have been offset partly by price hikes for menu items and customers’ increasing use of digital ordering that generally lessens labor and other costs.
For its first quarter that ended Jan. 23, Jack in the Box reported revenue rose 2% from the year-earlier period to $344.7 million and net income declined 23% to $39.3 million.