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Founded in 1951, Jack in the Box is amongst the earliest brands of the U.S. in the fast-food restaurant category. The franchise chain has remained popular and innovative for 70 years. However, it has been going down over the last few years and now faces problems like less profit margin, lawsuits, franchise complaints, and dropping revenues.
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Fransmart has analyzed existing franchisee’s complaints, competitors’ proposals, and the parent company’s marketing agenda report and concluded that the Jack in the Box franchise is not the best franchise investment in the QSR industry. Our in-depth research can help you avoid common pitfalls while buying the Jack in the Box franchise.
Jack In The Box: Business Overview
Different Rules, LLC is the franchisor for Jack in the Box stores. It has been in business for 70 years and has 2,240 locations worldwide, serving in the QSR franchise industry.
The brand has an extensive menu, with hamburgers, sandwiches, tacos, salads, fries, and other food items. The brand also offers international options such as fried rice and egg rolls 24/7.
Jack in the Box’s iconic drive-thru experience and take-out orders make up a majority of its sales. The brand also has company-owned locations accommodating between 20-100 customers. Although, 90% of Jack in the Box restaurants are franchise locations.
Financials for Jack in the Box Franchise:
The estimated initial cost of opening a Jack In The Box franchise restaurant could be in the range of $1.5 million to $3.3 million. This does not include the cost of procuring real estate or other related expenses.
- Liquid capital required—$750,000
- Net worth required—–$1,500,000
- Initial Franchise fee—–$50,000
- Royalty———5.0%
Hundreds of Jack in the Box franchises are losing money and working with negative operating income for years. The increasing cost of labor and overheads in the industry is yet to be factored in in recent years.
To evaluate the accurate profit of Jack in the Box franchise owners, watch the video below, which gives you the potential financial model of how much profit is earned by any franchise owners after making investments and operating costs.
The company has also faced litigation from the National Jack in the Box Franchisee Association over marketing and advertising funds allocation. It seems the funds allocated were not enough to influence customers. Professionals in the field say that the company and its stores have been losing their popularity for a while. In the past weeks, the franchises have been very unhappy with the company’s strategic decisions and collectively demanded the resignation of CEO Lenny Comma, which was then executed in July 2019.
Though the current CEO Darin Harris has been aggressively trying to change the company’s working, Jack in the Box still is a precarious investment in the franchise model of business. Its relationship with its franchises has been noted to be quite strained.
Problems with Jack, the Clown
Jack in the Box makes an interesting case study where a famous brand can go wrong several ways. We have researched Jack in the Box FDD, other online portals and taken industry feedback to bring to your notice the various problems their franchisees face.
#1 Spending Cuts leading to a loss in Sales:
Jack in The Box has been involved in 2-year litigation with National Jack in the Box Franchisee Association over “Spending cuts” by the company. The company didn’t have enough marketing or advertising funds to bring the volume of customers they needed to their stores in the last few years. Especially with the very competitive fast-food market, new emerging innovative brands like Taffer’s, GFG, Halal Guys, and Brooklyn dumpling make it challenging for any new player to establish themselves among the big players. The giants have a lot of money to spend in advertising and marketing, while it’s hard for a company with smaller capital to compete.
The franchise group representing about 1700 of its restaurants claimed that the company has also failed to keep pace with the rising costs leading to declining profit for the stores.
#2 Low Unit Sales and Negative Operating Income:
Hundreds of Jack in the Box franchises are fast losing money, putting them in the danger of closing down. According to Restaurant News, about 300 of the 2200 Jack in the Box franchise locations generate $1 Million or less in annual sales. These restaurants have negative operating income. The sites with higher yearly sales than $1 million also have negative operating income.
With 13% of the total stores running into losses, the brand does not present an excellent picture to its future investors.
#3 High Rent on Property Leased to Franchises:
Jack in the Box leases out the store property to its franchises at 9.5% of its revenues. This trend is not uncommon in many players, including McDonald’s and Burger King, who follow a similar operating format. Franchising rent makes up for a whopping 30% of Jack in the Box’s income.
The problem with the franchises is that they feel the rent is very high considering the average unit sales of the stores, and the high rentals, in turn, lead to reduced profits for the franchise owners.
#4 Maintenance Expense of Real Estate Burdened on the Franchises:
Jack in the Box restaurants across the country complains about the heavy burden of upkeep and renovation. Franchisees found it unfair to shoulder construction and maintenance costs because the franchisor refused to change their remodeling policy in FDD. The National Jack in the Box Franchisee Association and many other franchises demanded that the company deal with this problem. Restructuring their financial assistance policy or remodeling policy could lighten the extra burden of expenses.
#5 Rising Labour Costs:
Jack in the Box franchises has been struggling to stay afloat in recent years. Labor costs and overheads have been increasing, adding to the many woes of Jack in the Box franchises. Many of Jack’s locations are in California, where the minimum wage is $11 statewide and will be $15 by 2022. We believe this increase is responsible for some of the unrest happening in the system.
Conclusion
The brand has been struggling with poor store sales and intense competition in the Burger industry for a long time. The many woes of Jack in the Box franchisees can be attributed to an increase in labor costs and overheads, especially in recent years. There has been a difficulty for many franchises to make ends meet and have yields from investment.
With so many management and dealers problems, this brand does not make for the best opportunity for your franchise investments.
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Sources:
https://www.jackintheboxfranchising.com/
https://www.franchisedirect.com/restaurantfranchises/jack-in-the-box-franchise-11617/ufoc/
https://www.franchisehelp.com/franchises/jack-in-the-box/
https://www.restaurantbusinessonline.com/financing/hundreds-jack-box-locations-are-losing-money
https://www.restaurantbusinessonline.com/financing/jack-box-franchisees-sue-company