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Item 1. Business

2022-11-22 compared with 2021-11-23 · 89 added, 55 removed, 99 unchanged (59% of the section changed)

Jack in the Box Inc., based in San Diego, California, operates and franchises Jack in the Box® quick-service restaurants (“QSRs”).

We opened our first restaurant in 1951 and have since become one of the nation’s largest hamburger chains.

Jack in the Box Inc.

JACK), founded and headquartered in San Diego, California, is a restaurant company that operates and franchises Jack in the Box®, one of the nation's largest hamburger chains with approximately 2,200 restaurants across 21 states, and Del Taco®, the second largest Mexican-American quick service restaurants (“QSR”) chain by units in the U.S.

with approximately 600 restaurants across 15 states.

As previously disclosed, on December 5, 2021, Jack in the Box Inc., a Delaware corporation (the “Company” or “Jack in the Box”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Del Taco Restaurants, Inc., a Delaware corporation (“Del Taco”).

On March 8, 2022, Epic Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Company, merged with and into Del Taco (the “Merger”), with Del Taco continuing as the surviving corporation.

As a result of the Merger, Del Taco became a wholly-owned subsidiary of Jack in the Box.

References to the Company throughout this Annual Report on Form 10-K are made using the first person notations of “we,”, “us” and “our.”

Restaurant Brands

Jack in the Box.

Jack in the Box restaurants offer a broad selection of distinctive products including classic burgers like our Jumbo Jack ® and innovative product lines such as Buttery Jack ® burgers.

We also offer quality products such as breakfast sandwiches with freshly cracked eggs, as well as craveable favorites such as tacos, curly fries, egg rolls, specialty sandwiches and real ice cream shakes, among many other items.

We allow our guests to customize meals to their tastes and order any product on the menu when they want it, including breakfast at night, or burgers and chicken in the morning.

Our trademark of variety and innovation has led to the development of five true dayparts:

breakfast, lunch, snack, dinner, and late night.

Jack in the Box opened its first restaurant in 1951 and has since become one of the nation’s largest hamburger chains.

Based on number of restaurants, our top 10 major markets comprise approximately 70% of the total system, and Jack in the Box is at least the second largest QSR hamburger chain in seven of those major markets.

As of October 3, 2021, we operated and franchised 2,218 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including one in Guam.

As of October 2, 2022, we operated and franchised 2,181 Jack in the Box quick-service restaurants, primarily in the western and southern United States, including two in Guam.

Of the 2,181 restaurants at fiscal year-end, 2,035, or 93%, were franchised.

The Company operates as a single segment for reporting purposes.

Our revenue is derived from sales by company-operated restaurants and by charging royalties, rent, advertising fees, and franchise and other fees to our franchisees.

In June 2021, we held a virtual Investor Day and provided an overview of our growth strategy, including detail on plans for unit growth, transparency on unit economics, debut of our new store prototype, and focus on future investments in digital.

Del Taco offers a unique variety of both Mexican and American favorites such as burritos and fries, prepared fresh in every restaurant's working kitchen with the value and convenience of a drive-thru.

Del Taco's menu items taste better because they are made with quality ingredients like freshly grilled chicken and carne asada steak, fresh house-made guacamole, freshly grated cheddar cheese, slow-cooked beans made from scratch, and creamy Queso Blanco.

Founded in 1964, today Del Taco serves more than three million guests each week at its approximately 600 restaurants.

Del Taco’s commitment to providing guests with the best quality and value for their money originates from cooking, chopping, shredding, and grilling menu items from scratch.

As of October 2, 2022, we operated and franchised 591 Del Taco restaurants across 15 states, including one in Guam.

Of the 591 restaurants at fiscal year-end, 301, or 51%, were franchised.

Business Strategy

Our strategies are rooted in two foundational principles:

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• Grow Restaurant Profits by developing and implementing financial fundamentals, influencing pricing with a dynamic model, and building our data advantage.

• Expand Jack’s Reach by creating modular and flexible restaurant designs, building company-operated stores to help seed growth, fostering growth capital, and increasing franchise candidate and restaurant site lead generations.

This strategy builds on our historical strengths as a differentiated, challenger brand.

• Expand Our Brands Reach by creating modular and flexible restaurant designs, building company-operated stores to help seed growth, fostering growth capital, and increasing franchise candidate and restaurant site lead generations.

This strategy builds on our historical strengths with our Jack in the Box and Del Taco differentiated, challenger brands.

Those strengths include our uniquely broad menu, operational capabilities, passionate and loyal guests, committed team members and franchisees, and ability to invest in development and innovation that will deliver long term growth.

Jack in the Box restaurants offer a broad selection of distinctive products including classic burgers like our Jumbo Jack ® and innovative product lines such as Buttery Jack ® burgers.

We allow our guests to customize meals to their tastes and order any product on the menu when they want it, including breakfast at night, or burgers and chicken in the morning.

Our trademark of variety and innovation has led to the development of five true dayparts:

breakfast, lunch, snack, dinner, and late night.

During our 70 years as a brand, we were the first restaurant and burger chain to develop and expand the concept of drive-thru restaurants.

In addition to drive-thru windows, most of our restaurants have seating capacities ranging from 20 to 100 people and are open 18-24 hours a day.

Del Taco Refranchising Strategy

On November 2, 2022, we announced that we have partnered with a leading restaurant and franchise investment banking firm, to manage the sale of certain company-owned Del Taco restaurants with three main intentions.

First, to create a company-wide asset-light model that will benefit from mitigating exposure to macroeconomic pressures;

second, to generate incremental development agreements throughout the refranchising process that provide a more robust unit growth pipeline than otherwise achievable;

and third, to provide a more efficient capital structure.

Our objective is to be asset light as we navigate market forces in the near term.

We will adjust the rate, pace and sequence of refranchising efforts to balance impact to earnings, as we await accelerated new unit openings from incremental development and natural general and administrative reductions.

We plan on executing deals with existing Jack in the Box franchisees early in the upcoming year and will provide updates throughout 2023.

Franchising Program

Jack in the Box.

The franchise agreement generally provides for an initial franchise fee of $50,000 per restaurant for a 20-year term, and royalty and marketing payments generally set at 5.0% of gross sales.

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Developers may lose their rights to future development if they do not maintain the required opening schedule.

To stimulate growth, we have offered a waiver of development fees for new sites, in addition to lower royalty rates or a development loan, to franchisees who open restaurants within a specified timeframe.

In addition, franchisees who lease an existing restaurant location from us, which primarily relate to when we have refranchised a restaurant, will pay monthly minimum rent, as well as percentage rent based on each month’s gross sales, if applicable.

The typical percentage rent is 9.5% of gross sales.

Site Selection, Design, and Construction

Site selection for all new restaurants is made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses, and opportunities for market penetration.

New restaurants developed by franchisees are constructed to brand standards and specifications using brand approved plans on properties that we have approved.

To stimulate growth, we have offered an incentive program that provides discounted royalty fees for new franchisees who maintain development compliance and sign at least three franchise agreements by March 2023.

The franchise agreement provides for an initial franchise fee of $35,000 per restaurant for a 20-year term, and royalty and marketing payments generally set at 5.0% and 4.0%, respectively, of gross sales.

Some existing agreements provide for lower royalties for a limited time and may have variable rates.

We may offer development agreements to franchisees for construction of one or more new restaurants over a defined period of time and in a defined geographic area.

Developers may be required to pay fees for certain company-sourced new sites.

Developers may lose their rights to future development if they do not maintain the required opening schedule.

Site Selection and Design

Site selection for all new Jack in the Box and Del Taco restaurants is made after an economic analysis and a review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses, and opportunities for market penetration.

New restaurants developed by franchisees are built to brand standards that we have approved.

Jack in the Box.

Jack in the Box offers multiple new restaurant prototype designs that feature different configurations and dining room sizes to provide maximum flexibility when considering properties for development.

This flexibility enables the Company and franchisees to optimize the layout and configuration of a new restaurant with the property’s specific economic, demographic, geographic, or physical characteristics.

Based on a potential property’s geographical location, physical characteristics, local requirements, and size, as well as the prototype building selected for use, typical costs to develop a traditional restaurant, range from approximately $1.4 million to $2.0 million, excluding the land value.

The majority of new Company restaurants are constructed on leased land or on land that is purchased and subsequently sold, along with the improvements, in sale and leaseback transactions.

Upon completion of a sale and leaseback transaction, the Company’s initial cash investment is reduced to the cost of equipment, which typically ranges from approximately $0.3 million to $0.5 million.

In September 2022, we unveiled our new off-premise-only restaurant prototype with the opening of a new location in Tulsa, Oklahoma.

The new prototype was designed to meet the continued increasing demand for drive-thru service and digital ordering.

At only 1,350 square feet, the restaurant features a double y-lane drive-thru, a walk-up window for ordering, dual assembly kitchens and a dedicated pick-up window for mobile and third-party delivery orders.

The goal of the new prototype is to reduce buildout costs by around 20%, while also increasing real estate flexibility.

The new model is designed for free-standing locations but can be adapted to fit in a variety of spaces such as C-stores, travel plazas, and end-cap locations.

A typical Del Taco restaurant is a free-standing building with drive-thru service that ranges in size from 2,000 to 2,600 square feet.

In December 2021, we unveiled the new “Fresh Flex” restaurant prototype with the opening of a new location in Orlando, Florida.

The new Fresh Flex design offers multiple buildout options, including small footprint drive-thru only sites with no dining rooms, that range in size from 1,200 to 2,400 square feet.

With innovative additions like third-party pick-up stations and double drive-thru lanes with a dedicated lane for mobile orders and delivery pickups, the future-focused model optimizes operational efficiencies and caters to modern consumers' expectations.

Restaurant Management and Operations

Jack in the Box restaurants are operated by a company manager or franchise operator who is directly responsible for the operations of the restaurant, including product quality, service, food safety, cleanliness, inventory, cash control, and the conduct and appearance of employees.

Jack in the Box and Del Taco restaurants are operated by a company manager or franchise operator who is directly responsible for the operations of the restaurant, including product quality, service, food safety, cleanliness, inventory, cash control, and the conduct and appearance of employees.

We focus on attracting, selecting, engaging, and retaining employees and franchisees who share our passion for creating long-lasting, successful restaurants.

Managers of company-operated restaurant are supervised by district managers, who are overseen by directors of operations, who report to the vice president of company operations.

Under our performance system, the vice president is eligible for annual incentive compensation based on achievement of goals related to company-wide performance and restaurant level margin.

Directors are eligible for an annual incentive compensation based on achievement of goals related to the sales and profit of their assigned region, and a company-wide performance goal.

District managers and restaurant managers are eligible for quarterly incentives based on growth in restaurant sales and profit and certain other operational performance standards.

Company-operated restaurant managers are required to complete an extensive management training program involving a combination of in-restaurant instruction and on-the-job training in specially designated training restaurants.

At both brands, company-operated restaurant managers are supervised by district managers, who are overseen by director of operations, who report to vice president of operations.

Jack in the Box.

Restaurant managers are required to complete an extensive management training program involving a combination of in-restaurant instruction and on-the-job training in specially designated training restaurants.

Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines using training aids available at each location.

Customer Satisfaction

Company-operated and franchise-operated restaurants devote significant resources toward offering quality food and excellent service at all of our restaurants.

One tool we have used to help us maintain a high level of customer satisfaction is our Voice of Guest program, which provides restaurant managers, district managers, and franchise operators with ongoing feedback from guests who complete a short satisfaction survey via an invitation typically provided on the register receipt.

In these surveys, guests rate their satisfaction with key elements of their restaurant experience, including friendliness, food quality, cleanliness, speed of service, and order accuracy.

Our Guest Relations Department receives feedback that guests provide via phone and our website and communicates that feedback to restaurant managers and franchise operators.

We also collect and respond to guest feedback through social media, restaurant reviews and other feedback sources.

On the first day of employment, every team member receives the first of three training modules focused on helping the team member clearly understand the brand and their role.

Subsequent modules focus on the specifics of how to provide a consistent customer experience.

The training program is a blended learning approach including self-paced reading, hands-on exercises, and written knowledge validation tests.

Our “farm-to-fork” food safety program is designed to maintain high standards for the food products and food preparation procedures used by our vendors and in our restaurants.

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In addition, our food safety management program uses American National Standards Institute certified food safety training programs to train our company and franchise restaurant management employees on food safety practices for our restaurants.

All of our company-operated and franchisee restaurants have a long-term contract with a third-party distributor.

Under this contract, the distributor will provide distribution services to our Jack in the Box restaurants through August 2022 through seven distribution centers in the continental United States.

The primary commodities purchased by our restaurants are beef, poultry, pork, cheese, and produce.

At both brands, we contract with a single primary foodservice distributor for substantially all of our food and supplies.

In fiscal 2022, Jack in the Box entered into a new long-term contract with this distributor.

Under the contract, this distributor will provide distribution services to our Jack in the Box restaurants through July 2027.

Our Del Taco brand contract with this distributor provides distribution services to our Del Taco restaurants through September 2023.

The primary commodities purchased by Jack in the Box restaurants are beef, poultry, pork, cheese, and produce.

Taco meat is the largest commodity purchased by Del Taco.

We monitor and purchase commodities in order to minimize the impact of fluctuations in price and supply.

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Information Systems

Our restaurant software allows for daily polling of sales, inventory, and other data from the restaurants directly.

Our Jack in the Box and Del Taco restaurant software allows for daily polling of sales, inventory, and other data from the restaurants directly.

Our company restaurants and traditional-site franchise restaurants use standardized Windows-based touch screen point-of-sale (“POS”) platforms.

These platforms allow the restaurants to accept cash, credit cards, and our re-loadable gift cards.

The single POS system for all restaurants helps franchisees and brand managers adapt more quickly to meet consumer demands and introduce new products, pricing, promotions, and technologies such as the Jack in the Box mobile app, third party delivery, or any other business-driving initiative while maintaining a secure, PCI-compliant payment system.

We have business intelligence systems that provide us with visibility to the key metrics in the operation of company and franchise restaurants.

The single POS system for all restaurants helps franchisees and brand managers adapt more quickly to meet consumer demands and introduce new products, pricing, promotions, and technologies such as the Jack in the Box and Del Taco mobile apps, third party delivery, or any other business-driving initiative while maintaining a secure, PCI-compliant payment system.

We have business intelligence systems that provide us with visibility to the key metrics in the operation of Jack in the Box and Del Taco company and franchise restaurants.

These systems play an integral role in enabling us to accumulate and analyze market information.

Our company restaurants use labor scheduling systems to assist managers in managing labor hours based on forecasted sales volumes.

Our restaurants use labor scheduling systems to assist managers in managing labor hours based on forecasted sales volumes.

We also have inventory management systems that enable timely and accurate deliveries of food and packaging to our restaurants.

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Advertising and Promotion

We build brand awareness and drive sales through our marketing and advertising programs.

Jack in the Box.

At Jack in the Box, we build brand awareness and drive sales through our marketing and advertising programs.

These activities are supported primarily by financial contributions to a marketing fund from all company and franchise restaurants based on a percentage of gross sales.

Activities to build brand equity, advertise products, and attract customers include, but are not limited to, system-wide and regional campaigns on television, digital and social media, radio, and print media, as well as reaching consumers through our branded mobile app and delivery partnerships.

In October 2022, we launched a brand-new ordering website and integrated mobile app featuring a full array of capabilities including full menu ordering, customization options, location finder, product and restaurant information, flexible delivery or pickup options and an integrated loyalty program.

At Del Taco, we run a highly coordinated marketing and advertising campaign to create customer awareness, engage fans, and maximize positive brand associations.

These activities are supported primarily by financial contributions to a marketing fund from all company and franchise restaurants based on a percentage of gross sales.

We use multiple marketing channels, including television, radio, outdoor and direct mail to broadly drive brand awareness.

We advertise on local TV/Cable and local radio in our primary markets, and utilize local radio, print, internet advertising, and billboards for some of the less developed markets.

In September 2021, we launched our new Del Taco Mobile App, featuring enhanced marketing capabilities including a loyalty program and targeted promotional offers to drive guest frequency.

Competition and Markets

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Key elements of competition in the industry are the quality and innovation in the food products offered, price and perceived value, quality of service experience (including technological and other innovations), speed of service, personnel, advertising and other marketing efforts, name identification, restaurant location, and image and attractiveness of the facilities.

Each restaurant competes directly and indirectly with a large number of national and regional restaurant chains, some of which have significantly greater financial resources, as well as with locally-owned or independent restaurants in the quick-service and the fast-casual segments, and with other consumer options including grocery and specialty stores, catering, and delivery services.

In selling franchises, we compete with many other restaurant franchisors and franchisors generally, some of whom have substantially greater financial resources than we do.

Each Jack in the Box and Del Taco restaurant competes directly and indirectly with a large number of national and regional restaurant chains, some of which have significantly greater financial resources, as well as with locally-owned or independent restaurants in the quick-service and the fast-casual segments, and with other consumer options including grocery and specialty stores, catering, and delivery services.

In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources than we do.

Human Capital Management

Jack in the Box recognizes and takes care of its employees by offering a wide range of competitive pay, recognition, and benefit programs.

We are proud to provide our employees, many who begin their career at Jack in the Box with their first entry-level job, the opportunity to grow and advance as we invest in their education and career development.

As of October 3, 2021, we had approximately 5,300 employees, of whom 4,900 were restaurant employees, 350 were corporate management and staff, and 40 were field operations management.

We are proud to provide our employees, many who begin their career in our restaurants as their first entry-level job, the opportunity to grow and advance as we invest in their education and career development.

As of October 2, 2022, we had 12,083 employees, of whom 11,448 were restaurant employees, 546 were corporate management and staff, and 89 were field operations management.

Most of our employees are paid on an hourly basis, except manager, field operations management, and certain corporate positions.

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Each incentive plan reinforces and rewards individuals for achievement of specific company and/or restaurant business goals.

We strive to ensure pay equity between our female employees and male employees performing equal or substantially similar work.

Each year, we review the median pay of our male and female employees, share the results with the Board of Directors, and take remedial action as appropriate to ensure that male and female employees are paid equally.

We regularly review the pay of our female and male employees to ensure pay equity for performing equal or substantially similar work.

We share the median pay of our male and female employees in various position classifications with the Board of Directors, and we take remedial action as appropriate to ensure pay equity is maintained.

We are committed to providing market-competitive, high-quality, and affordable benefits to meet the changing needs of our employees.

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an employee assistance program (EAP);

disability insurance;

a flexible spending account (FSA);

life and disability insurance;

flexible spending accounts (FSA);

legal services;

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Trademarks and Service Marks

The JACK IN THE BOX ® name and logos are of material importance to us and are registered trademarks and service marks in the United States and elsewhere.

In addition, we have registered or applied to register numerous service marks and trade names for use in our businesses, including the Jack in the Box design marks and various product names and designs.

The JACK IN THE BOX ® and DEL TACO ® names and logos are of material importance to us and are registered trademarks and service marks in the United States and elsewhere.

In addition, we have registered or applied to register numerous service marks and trade names for use in our businesses, including the Jack in the Box and Del Taco design marks and various product names and designs.

Our policy is to pursue registration of our important service marks and trademarks and to vigorously oppose any infringement of them.

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We are also subject to federal immigration laws requiring compliance with work authorization documentation and verification procedures.

We are subject to certain guidelines under the Americans with Disabilities Act of 1990 and various state codes and regulations, which require restaurants and our brand to provide full and equal access to persons with physical disabilities.

We are subject to certain guidelines under the Americans with Disabilities Act of 1990 and various state codes and regulations, which require restaurants and our brands to provide full and equal access to persons with physical disabilities.

Our collection or use of personal information about our employees or our guests is regulated at the federal and state levels, including the California Consumer Privacy Act.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business