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Jack in the Box franchisees make new demands amid growing concern about burger chain's future

Jack in the Box franchisees make new demands amid growing concern about burger chain's future
Jack in the Box same-store sales rose just 0.5% in the quarter ended July 8, lagging behind other quick-service sandwich restaurants, according to NPD Group. (Glenn Koenig / Los Angeles Times)

Jack in the Box franchisees, growing increasingly troubled about the financial health of the San Diego chain, demanded Tuesday that they have input on corporate decisions they say are affecting their bottom line.

The leadership of the National Jack in the Box Franchisee Assn., which represents 95 owners of about 2,000 of the chain’s 2,240 locations, is asking for a seat on the board of directors, a meeting with the board to “arrest the decline of transactions,” and an audit of the company’s marketing fund.

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“What we really want is input into the larger strategic initiatives taken by Jack in the Box that affect our ability to perform as franchise operators,” association chairman Michael Norwich said in a telephone interview. “For one thing, they don’t have a chief marketing officer, and they’ve eliminated key positions in the marketing department, which is where many of the sales are driven.”

This summer, Chief Marketing Officer Iwona Alter left the fast-food chain after 13 years with the company, and key positions in the marketing department have been eliminated, franchisees say. (Habit Restaurants Inc. this week named Alter as its chief brand officer.)

Same-store sales — those for units open at least a year — rose just 0.5% in the quarter ended July 8, according to Jack in the Box Inc.’s most recent earnings report. The company lagged behind the quick-service sandwich segment by 2.1 percentage points for the comparable period, according to market research firm NPD Group. For the 40-week period ended July 8, Jack in the Box’s net earnings of $105.1 million were down slightly from the same period a year earlier.

Jack in the Box tacos.
Jack in the Box tacos. (Jack in the Box Inc.)

Jack in the Box’s stock price closed Tuesday at $79.36, up 3.6%.

Franchisee David Beshay, who operates 34 Jack in the Box restaurants in San Diego County, said he has been disappointed in their performance in relation to the competition.

“Having been in San Diego for over 26 years, we should dominate the market and we’re not,” he said. “Under current leadership we’ve continued to lose sales and transactions year after year. It’s because we don’t have an effective strategy, and the further you go from San Diego, the brand doesn’t resonate with the consumer as it does in the West.”

Jack in the Box said in a statement that although it remains open to working with the franchisee association, it does not believe the leadership of the group necessarily reflects the sentiments of all franchisees.

It added, however, that “we will continue to work with all of our franchisees 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.”

Just last month, the franchise group published a letter calling for the ouster of Jack in the Box Chief Executive Lenny Comma, saying that it no longer had confidence in his ability to lead. In its Tuesday announcement, the association said it wants to have a “seat at the table” where crucial decisions are being made regarding future cuts in resources.

The association demands came a day after Jack in the Box made public an agreement it had reached with New York-based activist investor Jana Partners to name two new independent directors of its choosing to the board. Those board members have not yet been selected.

Jana, which owns 6.7% of the company’s stock, had previously told Bloomberg News in an email that it shares the franchisees' concerns about Jack in the Box's performance and the lack of urgency in addressing it.

Said Norwich, “We don’t know if this is a positive or not. Jana has advocated for some of the same concerns we have, so we remain hopeful the second board seat could be someone from” the franchisee group.

John Gordon, head of San Diego-based restaurant industry advisory firm Pacific Management Consulting Group, expects tension between the two sides to persist as Jack in the Box looks for ways to better market the brand.

“It’s really going to be continued shadowboxing, and it’s not really going to get better because many of the rabbits already have been pulled out of the hat, like Jack in the Box selling their Qdoba brand and selling franchises,” Gordon said.

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Weisberg writes for the San Diego Union-Tribune.

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