Jack in the Box Goes Upscale As Customers’ Tastes Change

By CONNIE LEWIS

San Diego Business Journal

Jack in the Box Inc., like other fast-food chains too dependent on the target 18-34-year-old male market, wants to expand its customer base to include more women and older adults. More easily said than done.

The San Diego-based chain has made some inroads in introducing more salads and other non-burger fare, but there’s still doubt in the industry as to whether the move from fast food to “fast casual” will be successful.

As if to reinforce the challenge, Jack in the Box has recently reduced its earnings guidance for the year ending September 2004 to $1.68 a share from its previous forecast of $2.04 and analysts’ then-consensus estimate of $2.16. The company said brand repositioning and slower growth targets announced at the same time were factors in the lowered guidance.

Jack in the Box shares fell 12.9 percent the day of the news, to $19.86; by the Oct. 20 close they were at $18.22.

Aiming its sights on long-term earnings, the company said it would remodel existing restaurants to “more fully incorporate the company’s proprietary brand spokesman, ‘Jack’ into the restaurant experience.” Part of the repositioning will involve ads featuring the acerbic Jack character, part of a campaign by Santa Monica-based advertising agency Secret Weapon Marketing.

Revamping the menu to include higher-priced fare, such as that served at fast casual restaurants, could end up pleasing investors, said Carl Winston, director of San Diego State University’s Hospitality and Tourism Management Department.

“There’s so much competition at the low end,” he said. “It’s easier to make a profit charging $5 for a salad and a soda than 99 cents for a burger.”

Increased customer base

So far, the campaign to draw in women is working, said Greg Joumas, division vice president of advertising and regional marketing, who declined to cite figures. “Salads are a compelling new offering,” Joumas said. “It has increased our customer base and definitely increased transactions.”

Same-store sales at the chain slipped 0.2 percent in the third quarter, but the decline was more modest than in the first half of the year, when same-store sales were off 3.3 percent. A Value Line analysis attributed the improvement to the salad offerings and Turkey Jack sandwiches. “Jack in the Box’s top line appears to be on the mend,” said Value Line analyst Justin Hellman.

But Greg Sanders, editor of fast-food trade publication QSR, described the makeover as “kind of ho-hum because everyone is doing this. When you look at the entire quick-serve segment, where it’s going is toward premium menu items and upscale d & #233;cor.”

In the past couple of years, several chains, including Burger King Brands Inc., Wendy’s International Inc. and McDonald’s Corp., have introduced new salads and touted healthier fare, such as grilled chicken. The results have been mixed in an industry that continues to struggle amid fierce competition and a soft economy.

Sanders said the transition from fast food is especially difficult for Jack in the Box because the chain has embodied assembly-line service since its founding in 1951. “Jack is cool, but definitely not upscale,” he said. “And I don’t know how the traditional advertising will fit will the new image.”

Tom Di Zinno, president and chief executive of Di Zinno Thompson advertising, thinks the quality of the advertising has surpassed the quality of its food and service, and it needs to shore up the gap.

While the company has tried numerous menus in the past, “the best product they deliver, unfortunately, is the brand itself,” he said. “Now the Jack ads are more popular than the restaurant chain. That doesn’t work. Both have to be in sync.”

One way Jack in the Box appears to be assessing quality is a secret shopper program. Bill Eadie, director of San Diego State University’s School of Communication, said he noticed a help-wanted ad for secret shoppers on the firm’s Web site.

“They’re trying to have it both ways maintain the drive-up window and have a restaurant where people will come and stay a while,” Eadie said. “Starbucks is an example of restaurants where people come in, hang around and chat. But they also introduced drive-up windows in Palm Springs, and people love it. So if Starbucks can do it, maybe Jack in the Box can too.”