Item 1. Business
ITEM 1. BUSINESS
The Company
Overview. Jack in the Box Inc. (NASDAQ: 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 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.
Del Taco. 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:
• Shape a High-Performance Culture - When we serve our people and our franchisees well, we will maximize the guest experience for all who interact with the brand.
• Leverage Innovation and Technology Platforms - Taking our history of strong innovation on menu and operations and placing that same forward thinking on digital and technology development.
We use these principles as a guide while executing on our four strategic pillars:
• Build Brand Loyalty by transforming our restaurant design, improving the image of existing restaurants, and enhancing the digital experience for our guests.
• Drive Operations Excellence by evolving training efforts in our restaurants, execution of our brand standard systems, and improving speed and consistency.
• Grow Restaurant Profits by developing and implementing financial fundamentals, influencing pricing with a dynamic model, and building our data advantage.
• 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.
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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.
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. Royalty rates are typically 5.0% of gross sales but may range as high as 15.0% 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 (referred to in this context as “Developers”) 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. 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.
Del Taco. 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. 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.
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Del Taco. 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 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.
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.
Del Taco. 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.
Food Safety
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. We maintain product specifications for our ingredients and our Food Safety and Regulatory Compliance Department must approve all suppliers of food products to our restaurants. We use third-party and internal audits to review the food safety management programs of our vendors. We manage food safety in our restaurants through a comprehensive food safety management program that is based on the Food and Drug Administration (“FDA”) Food Code requirements. The food safety management program includes employee training, ingredient testing, documented restaurant practices, and attention to product safety at each stage of the food preparation cycle. 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.
Supply Chain
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. Contracts are entered into and commodity market positions may be secured when we consider them to be advantageous. However, certain commodities remain subject to price fluctuations. Most, if not all essential food and beverage products are available or can be made available upon short notice from alternative qualified suppliers.
Information Systems
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 and Del Taco mobile apps, third party delivery, or any other business-driving initiative while maintaining a secure, PCI-compliant payment system.
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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 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. To support order accuracy and speed of service, our drive-thru restaurants use order confirmation screens.
Advertising and Promotion
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.
Del Taco. 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
The restaurant business is highly competitive and is affected by local and national economic conditions, including unemployment levels, population and socioeconomic trends, traffic patterns, local and national competitive changes, changes in consumer dining habits and preferences, and new information regarding diet, nutrition, and health, all of which may affect consumer spending habits. 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 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 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. We employ both full-time and part-time restaurant employees in order to provide the flexibility necessary during peak periods of restaurant operations and meet the individual needs of our employees. As of the end of fiscal 2022, approximately 91% of our restaurant employees were part-time. We have not experienced any significant work stoppages.
Our Total Rewards framework includes pay and recognition, health and wellness, financial well-being, work/life happiness, culture and community, and learning and development. We are committed to providing employees with market-competitive pay and benefits and flexibility with respect to benefit choices. For our company-operated restaurant positions nationwide, positions are assigned to a pay range that best reflects market pricing of similar jobs in the restaurant industry and in the geographic location, and employees receive an automatic pay increase each time they work a certain number of hours provided performance is satisfactory. All corporate positions, field operations management, and restaurant management positions, including hourly assistant managers and team leaders, are eligible for performance-based cash incentives. Each incentive plan reinforces and rewards individuals for achievement of specific company and/or restaurant business goals.
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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. We offer a robust benefits package that includes medical, dental, and vision insurance with health savings account (HSA) employer contributions and an HMO plan; company-paid basic term life insurance; wellness programs; an employee assistance program (EAP); life and disability insurance; flexible spending accounts (FSA); legal services; pet insurance; and a 401(k) with company matching contributions. In addition, we recognize and support the growth and development of our employees and offer opportunities to participate in internal and external learning programs. We also hold regular restaurant level talent and development planning reviews to assist us with growing our internal restaurant teams.
We recognize our responsibility to take the steps necessary to create and maintain a safe and healthy work environment. All of our corporate and restaurant employees may report safety and security issues either through our risk management department or anonymously through our asset protection helpline. Reports are reviewed by our asset protection manager and are addressed appropriately by corporate partners and OSHA, if necessary. All of our corporate and restaurant employees may also report any ethics issues to our ethics hotline. We take every incident and report seriously and have detailed protocols regarding investigation, assessment and correction, safety communications, employee training, and record keeping.
Trademarks and Service Marks
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. Generally, with the appropriate renewal and use, the registration of our service marks and trademarks will continue indefinitely.
Seasonality
Restaurant sales and profitability are subject to seasonal fluctuations because of factors such as vacation and holiday travel, seasonal weather conditions, and weather crises, all of which affect the public’s dining habits.
Government Regulation
Each restaurant is subject to regulation by federal agencies, as well as licensing and regulation by state and local health, sanitation, safety, fire, zoning, building, consumer protection, taxing, and other agencies and departments. Restaurants are also subject to rules and regulations imposed by owners and operators of shopping centers, airports, or other locations where a restaurant is located. Difficulties or failures in obtaining and maintaining any required permits, licenses or approvals, or difficulties in complying with applicable rules and regulations, could result in restricted operations, closures of existing restaurants, delays or cancellations in the opening of new restaurants, increased cost of operations, or the imposition of fines and other penalties.
We are subject to federal, state, and local laws governing restaurant menu labeling, as well as laws restricting the use of, or requiring disclosures about, certain ingredients used in food sold at our restaurants. We are also subject to federal, state, and local laws governing packaging and service ware.
We are also subject to federal and state laws regulating the offer and sale of franchises, as well as judicial and administrative interpretations of such laws. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise arrangements.
We are subject to the federal Fair Labor Standards Act and various state laws governing such matters as minimum wages, exempt status classification, overtime, breaks and other working conditions for company employees. Our franchisees are subject to these same laws. Many of our food service personnel are paid at rates set in relation to the federal and state minimum wage laws and, accordingly, changes in the minimum wage requirements may increase labor costs for us and our franchisees. Federal and state laws may also require us to provide paid and unpaid leave, or healthcare or other employee benefits to our employees, which could result in significant additional expense to us and our franchisees. 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 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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Our marketing, advertising, and promotional programs are governed by various federal, state, and local laws and regulations concerning consumer protection, including the Telephone Consumer Protection Act.
We are also subject to various federal, state, and local laws regulating the discharge of materials into the environment. The cost of complying with these laws increases the cost of operating existing restaurants and developing new restaurants. Additional costs relate primarily to the necessity of obtaining more land, landscaping, storm drainage control, and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air, ground, and surface waters.
In addition to laws and regulations governing restaurant businesses directly, there are also regulations, such as the Food Safety Modernization Act, that govern the practices of food manufacturers and distributors, including our suppliers.
We have processes in place to monitor compliance with all applicable laws and regulations governing our company operations.
Available Information
The Company’s corporate website can be found at www.jackintheboxinc.com. We make available free of charge at this website (under the caption “Investors — SEC Filings”) all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission (“SEC”). The SEC also maintains a website with the address of www.sec.gov that contains our reports, proxy and information statements, and other information.