Jack in the Box did what some other chains have declined to do: acknowledging the elephant in the room and conceding that McDonald’s All-Day Breakfast program had some negative impact on its sales in its Q1.
CEO Len Comma expressed disappointment in the quarter—ended Jan. 17, 2016—which saw Jack in the Box same-store sales rise just 1.4%. Company-store comps were up 0.5% despite a 3.5% increase in average check (a 0.6% gain from mix; 2.8% from price). A 2.8% decline in transactions was the problem and Comma said Jack in the Box sales/traffic took a hit during the 10:30 a.m. to noon period because of McDonald’s All-Day Breakfast. In the previous quarter Jack had enjoyed a robust 6.2% jump in comp sales.
But don’t get too frothy about the impact of McMuffins for lunch: it wasn’t the only reason for the disappointing quarter, Comma said. Unexpectedly heavy discounting by competitors in the second half of the quarter collided with Jack’s promotional marketing that wasn’t as aggressive as it had been a year earlier, when it offered a popular “2 Croissants for $3.50” deal. This year the chain and its franchisees were gearing up for the “Declaration of Delicious” marketing and menu program that launched during the Super Bowl, he said. That marketing blitz introduced the Double Jack burger, a million burger giveaway and improvements in the preparation of 29 menu items. Comma said Jack expects to “get some traction” from those improvements through 2016.
Breakfast and lunch sales were down slightly in Q1 but dinner, late-night and snack dayparts showed gains, the company said. The breakfast daypart accounts for about 22% of Jack’s sales.
It’s worth noting that Jack in the Box’s Qdoba Mexican chain—not a direct competitor with McDonald’s—also had a slow Q1, with system same-store sales up 1.8%, compared with 14% a year earlier. Qdoba, too, was gearing up for 2016 menu changes.
And despite McDonald’s breakfast gambit, The NPD Group’s SalesTrack Weekly data for the 16-week time period ended January 17, 2016, showed a 3.8% same-store sales increase, Jack in the Box said. So All-Day Breakfast seems to have grown the whole category, not just stolen share from competitors.
Comma said Jack will reluctantly shift its marketing mix to do more value marketing and discounting through the rest of 2016 because “we don’t have a choice.” But he said Jack won’t back away from its quality-ingredient messaging “while we play the discount game.” Expect to see more of the value-bundle meals the chain does well.
Jack also announced plans to increase to 90% the percentage of its stores operated by franchisees within the next few years. Currently 1,836, or 81.6%, of its 2,249 stores are franchised.