"We expanded too quickly and felt the effects of cannibalization," said Chairman-CEO Robert Nugent in a conference call with analysts. "We need to back off and let those [new Jack in the Box] units mature."
Much like the other fast-feeders, the nation's fifth-largest burger chain is suffering from the economy and competition from fast-casual chains. But Jack in the Box has the added burden of being located mostly in California and other western states where fast-food competition is the most concentrated and fierce. Sales have been battered and Jack in the Box has determined that it can't expand without shoring up existing units.
In the first half of fiscal 2003, same store-sales fell 3.3%. But Jack in the Box results have improved, with third-quarter same-store sales down 0.2%, and it projected fourth-quarter sales would be up 1%. With last week's announcement, the company forecast same-store sales to rise between 1.5% and 2% for the first two fiscal 2004 quarters and 2% to 2.5% for the full year.
The second-tier chain known for its irreverent advertising that frequently pokes fun at its giant competitors, is now following many of the same moves already made by the biggies: McDonald's Corp., Burger King Corp., Wendy's and Yum Brands.
Among the efforts Jack in the Box has started is construction of a new restaurant prototype and an "innovation center" to fill the product pipeline with higher-priced premium items to appeal to a wider customer base than its 18-to 34-year-old male stronghold. Other chains, including McDonald's and Burger King, have rallied around broader targets of women and older consumers with premium menu items.
Jack in the Box executives wouldn't say how its marketing would change as the company pursues a wider consumer base, but recent ads via Secret Weapon Marketing, Santa Monica, Calif., that promote new chicken offerings may provide a clue to what future advertising may look like.
One spot catches Jack answering a reporter on whether the new Sourdough Chicken Club appeals more to women or men. As Jack explains that the company used research to measure the product's appeal, the screen cuts to a photo session with cross-dresser RuPaul in sequins holding the sandwich.
"Honey, this sandwich is flawless," RuPaul exclaims, flashing a megawatt smile. When the camera cuts back to Jack, he answers, "I have no idea."
A test market spot for chicken-breast filets is set in a boardroom where the marketing team tries to come up with a way to promote the chicken strips.
"They're real, like the old ones but bigger," says Jack, as he ponders, "bigger breasts, real, bigger, real," setting off snickers, snorts and giggles from the men as the woman switches between pondering and scowling at her male peers. When a man raises his hand to offer an idea, Jack, still serious and not missing a beat, interrupts him. "Don't go there, Phil."
While most analysts applaud the effort for safeguarding the chain's future, "the risk of reinventing Jack in the Box appears to us to be very high," said Fitzhugh Taylor, restaurant analyst for Banc of America Securities in a note to investors.
"The fast-food hamburger segment may indeed be stale and require bold innovation to maintain relevance in today's environment; however, the likelihood of alienating its core customer base seems on the surface much more probable."