Jack in the Box Inc.
Jack in the Box Inc.
Incorporated: 1966 as Foodmaker, Inc.
Sales: $2.77 billion (2006)
Stock Exchanges: New York
Ticker Symbol: JBX
NAIC: 722211 Limited-Service Restaurants; 447110 Gasoline Stations with Convenience Stores; 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)
Jack in the Box Inc. is the operator and franchiser of the Jack in the Box fast-food hamburger chain, which encompasses nearly 2,100 units mainly in the western and southern United States. Around 70 percent of the units are company owned. The chain mainly targets adult fast-food customers and relies on quirky advertising featuring Jack, a fictional founder, CEO, and pitchman with an oversized, ping-pong-ball-shaped head. The company also operates more than 50 Quick Stuff convenience stores, which include a major name-brand gasoline station and are adjacent to a full-size Jack in the Box outlet. In addition, the company owns Qdoba Mexican Grill, a fast-casual chain featuring “nouveau Mexican” food, with more than 350 restaurants in around 40 states, most of which are franchised.
Jack in the Box’s founder was Robert O. Peterson, who created the chain through his foodservice company called San Diego Commissary Company. Within this firm, Peterson created numerous successful specialty restaurant chains, including Oscar’s, Hamburger House, Family Tree, and The Jolly Ox. His greatest success was Jack in the Box, a unique chain of fast-food restaurants that enabled customers to drive up to a menu board, place their order, and drive away with their food in roughly three minutes. Situated on top of the menu board, with a microphone concealed inside, was the company’s symbol, a large jack-in-the-box. Peterson’s fast-food concept was notable for its speed of service and its drive-through, rather than drive-in, format.
Jack in the Box had evolved from a carhop restaurant opened in 1941 as Topsy’s Drive-In. Over the next several years, as the drive-in restaurant concept began to enjoy increasing popularity, Topsy’s Drive-In was expanded to four locations and renamed Oscar’s, then renamed Jack in the Box in 1951, when its first drive-through unit was opened in San Diego. In 1960 the parent company changed its name to Foodmaker Company, and Jack in the Box expanded for the first time outside of California, opening its first outlets in Phoenix, Arizona. Texas was next on the expansion agenda, with Jack in the Box units popping up in Houston and the Dallas–Fort Worth areas in 1963. The chain, which had expanded to 24 units by 1961, grew to 182 units by 1966.
Throughout Jack in the Box’s formative years, Foodmaker Co. had prepared all of the chain’s food products except dairy items and hamburger buns, providing for the daily delivery of food to each individual restaurant. In 1965, however, Foodmaker Co. spun off its restaurant division, including Jack in the Box, and its commissary and specialty restaurant division, which included Hamburger House, Family Tree, and The Jolly Ox. The former was incorporated in July 1965 as Jack in the Box Inc. In September 1966 Food-maker, Inc., was incorporated, and four months later it acquired the commissary and specialty restaurant business of Foodmaker Co. The result after the confusing corporate reshuffling was Foodmaker, Inc., operator of 27 specialty restaurants located throughout southern California, and Jack in the Box Inc., owner of roughly 200 Jack in the Box restaurants.
Shortly thereafter Foodmaker merged with Jack in the Box and Foodmaker, Inc., began providing exactly the same preparation, purchasing, and delivery services to Jack in the Box restaurants that Foodmaker Co. had previously provided. By the time the dust had settled from the renewed alliance, the chain of fast-food drive-throughs had established a solid foundation after a decade and a half of growth. Offering a menu that included hamburgers, cheeseburgers, french fries, onion rings, fried chicken, fried shrimp, tacos, apple turnovers, and soft drinks, Jack in the Box had proved its popularity with the American public, prompting Foodmaker to map out an ambitious expansion plan. Between 1966 and 1973, Foodmaker management proposed to open 450 to 500 additional Jack in the Box restaurants, more than tripling the size of the chain.
Such optimism pervaded Foodmaker’s management in 1966 for several reasons. Since the inception of the Jack in the Box concept and the chain’s swift expansion throughout the Southwest, only two units had failed, an enviable record made more remarkable by the potentially risky practice of leasing Jack in the Box restaurants to independent entrepreneurs. Designated leasees rather than franchisees, independent Jack in the Box operators purchased all their food from Foodmaker, paid rent to Foodmaker based on the sales their restaurant generated, and kept the remainder of the money their particular unit produced as income.
Much of Foodmaker’s growth was due to its methodical approach to managing the Jack in the Box chain. Everything, including the preparation of food, the selection of restaurant sites, the screening of prospective leasees, and the staffing of individual Jack in the Box units was done methodically and efficiently. Once successfully past a preliminary screening, leasees were subjected to a battery of tests conducted by a psychologist, then provided with a location for their Jack in the Box that from 1965 forward was selected by a computer. After seven months of training, Jack in the Box operators were required to stay in close contact with Foodmaker management through daily and weekly accounting summaries. Foodmaker’s control over the chain went further, including at least three onsite inspections per week, giving Foodmaker the ability to maintain quality standards, monitor performance, and plot further growth with precision.
Jack in the Box pioneered a number of firsts in the quick-serve industry. It was the first major fast-food chain that started as a drive-thru, and it was also the first to introduce menu items that are now staples on most fast-food menu boards, including a breakfast sandwich and portable salad. Today, Jack in the Box offers a broad selection of distinctive, innovative products targeted at the adult fast-food consumer, including hamburgers, specialty sandwiches, salads and real ice cream shakes.
Well organized and enjoying gratifying success, the Foodmaker organization drew the attention of much larger companies, and in 1968 Foodmaker was acquired by Ralston Purina Company, which operated it as a wholly owned subsidiary. During the 1970s, Foodmaker and Ralston Purina led the Jack in the Box chain toward its most prolific growth, but as the decade progressed, the chain began to increasingly resemble its larger competitors, particularly the industry giant, McDonald’s Corporation. Jack in the Box began to struggle during the latter part of the decade, and its expansion into East Coast markets was at first cut back from original estimates, then halted altogether. In 1979 Foodmaker decided to concentrate its efforts on the western and southwestern United States, and it sold or closed its more than 200 Jack in the Box outlets in the eastern and midwestern parts of the country.
Needing to shift gears to effect a turnaround, Food-maker management began the following decade on an explosive note when the chain in 1980 signaled a dramatic shift in marketing strategy by blowing up its symbol, the jack-in-the-box clown, in television commercials. Jack in the Box announced that it would no longer compete for McDonald’s target customer base of families with young children. Instead, Foodmaker would attempt to attract older, more affluent customers with what it touted as a higher-quality, more upscale menu, which attempted to satisfy the changing tastes of aging baby boomers.
In accordance with this new marketing strategy, Jack in the Box restaurants were remodeled and redecorated with designs intended to attract older, more affluent patrons. Most important, the chain’s menu was greatly expanded, transforming Jack in the Box from a limited-menu hamburger operation that had been unsuccessfully competing against McDonald’s into a chain of restaurants boasting a diverse menu at a time when few fast-food operations offered more than what had become the standard menu for the industry. Menu diversification became the key to success during the 1980s, driving annual sales upward as the decade progressed. Another important change in this period came in 1982, when Foodmaker discontinued its San Diego-based commissary and food-manufacturing activities.
After Foodmaker’s new strategy had recorded encouraging success for several years, Ralston Purina came out with its own new strategic plan, announcing in 1985 that it would continue to own only those companies that were number one in their respective markets. Despite Foodmaker’s progress during the first half of the decade, Ralston Purina’s edict meant that Foodmaker was slated for divestiture. Foodmaker’s management arranged a $435 million leveraged buyout of the company, returning Foodmaker to private ownership after 18 years as a subsidiary of Ralston Purina.
Once again on its own, Foodmaker continued to distinguish itself from other fast-food chains with its varying, expanding menu. Under Foodmaker’s direction, Jack in the Box was introducing at least two new menu items per year at a time when the chain’s competitors were simplifying their menus, and was recording big success with such items as Chicken Fajita Pita, Hot Club Supreme Sandwich, Ultimate Cheeseburger, and a line of “finger foods” that included egg rolls, deep-fried shrimp, and fried chicken strips. During the late 1980s the chain’s menu offered more than 40 items. By 1987 sales reached $655 million, the chain boasted 897 restaurants, and Foodmaker went public.
- Through his San Diego Commissary Company, Robert O. Peterson opens the first Jack in the Box restaurant in San Diego.
- San Diego Commissary is renamed Foodmaker Company; Jack in the Box expands into Arizona.
- Foodmaker, Inc., is incorporated and becomes the successor to Foodmaker Co.
- Ralston Purina acquires Foodmaker and its Jack in the Box chain.
- Foodmaker divests its Jack in the Box restaurants in the East and Midwest to concentrate on the West and Southwest.
- Chain shifts its focus more toward adult fastfood customers.
- Foodmaker returns to private ownership through a $435 million leveraged buyout.
- Foodmaker is taken public.
- Foodmaker acquires the Chi-Chi’s Mexican restaurant chain and is taken private once again.
- The 1,000th Jack in the Box restaurant opens in Yorba Linda, California.
- Once again, Foodmaker goes public.
- Four people die and hundreds fall ill after eating E. coli -tainted Jack in the Box hamburgers.
- Foodmaker sells Chi-Chi’s.
- Jack in the Box resurrects Jack, its clown mascot, for its advertising campaign.
- Foodmaker is renamed Jack in the Box Inc.; chain begins a new push into the southeastern United States.
- Jack in the Box begins rolling out its Quick Stuff convenience store format.
- Company acquires the fast-casual Qdoba Mexican Grill chain; “brand reinvention” effort begins that centers around taking the Jack in the Box menu upscale.
With Jack in the Box once again demonstrating the strength it had shown during the 1950s and 1960s, Foodmaker began looking for another growth vehicle for the company. In 1988 Foodmaker acquired Chi-Chi’s Inc., based in Louisville, Kentucky, for $235 million. The acquisition gave Foodmaker a chain of roughly 200 Mexican dinner restaurants to complement its primary money earner, Jack in the Box.
Believing the stock market had significantly undervalued its stock, Foodmaker management returned the company to private ownership after the acquisition of Chi-Chi’s. Over the course of the next two years sales generated by the Chi-Chi’s chain doubled, jumping from $25 million to $50 million, while the Jack in the Box chain continued to perform admirably. In 1990 the 1,000th Jack in the Box unit was opened in Yorba Linda, California, marking the end of a ten-year period that saw the chain emerge from the formidable shadow cast by McDonald’s and establish a distinct image. Looking ahead, Foodmaker management anticipated opening 60 new Jack in the Box units per year and 20 new Chi-Chi’s restaurants per year during the early 1990s, confident that the previous decade of growth would continue unabated into the 1990s.
The onset of a national economic recession, however, dashed the company’s expectation of an encouraging start in the new decade. In 1991 the company suffered an 81 percent decline in net earnings, while annual sales remained flat, hovering at $1.15 billion. Once again, Foodmaker went public, with a 1992 initial public offering of 17.2 million shares (at $15 per share) raising about $258 million, which was earmarked to fund an ongoing expansion of the firm’s two chains. Despite the lackluster performance recorded during 1991, company management announced an ambitious plan in October 1992 to spend between $60 million and $100 million over the next decade on international expansion, delineating plans to develop roughly 700 Jack in the Box units in the Far East, Southeast Asia, and Latin America.
In December 1992, however, the company suffered a disastrous blow when a customer, six-year-old Lauren Rudolph, suffered three heart attacks and died. Her death was caused by a food-borne bacteria known as E. coli (Escherichia coli), the origin of which was linked to the consumption of a tainted and undercooked Jack in the Box hamburger. Within a month three more Jack in the Box customers, all young children, died, while more than 600 people in five western states fell ill, arousing nationwide fear of an E. coli bacterial epidemic and a pervasive distrust of the Jack in the Box chain. Food-maker lost $98.1 million in 1993 and another $39.6 million in 1994, while sales slipped to $1.24 billion in 1993 and $1.05 billion in 1994. In January 1994, in the wake of the E. coli contamination episode, the ChiChi’s chain of 237 Mexican restaurants was sold to Restaurant Enterprises Group, Inc. (REGI), for $270 million in cash and equity, as Foodmaker attempted to recover from the massive image problem engendered by four dead customers and hundreds others left with lasting health impairments and the need for organ transplants. Foodmaker emerged with a 39 percent stake in REGI, which simultaneously changed its name to Family Restaurants, Inc. (FRI).
In the meantime, in early 1994, Foodmaker settled four wrongful-death lawsuits stemming from the E. coli outbreak, paying the victims’ families an unspecified amount. The company launched a comprehensive food safety program immediately after the E. coli outbreak, a program later cited by the Food and Drug Administration as a model for the fast-food industry. Foodmaker also settled a class-action lawsuit brought by its franchisees over the bacteria outbreak for approximately $44.5 million and another one brought by shareholders for $8 million. Quarter after quarter—nine straight through early 1995—Foodmaker operated in the red. Not surprisingly, sales and performance levels enjoyed by Jack in the Box before 1993 continued to elude the chain, causing considerable concern for the future.
An aggressive attempt to achieve a recovery was launched in 1995. That year, the company resurrected its clown mascot in national television commercials, bringing the old symbol of Jack in the Box back in a series of irreverent advertisements featuring Jack as a blue-suited fictional founder, CEO, and ad pitchman with a spherical clown head. Foodmaker earmarked $35 million for remodeling Jack in the Box units by the spring of 1995, with the remodeling of franchise units slated to follow in the ensuing 18 months. The company returned to the black in the second half of fiscal 1995, although full-year results showed a $69 million loss, much of which stemmed from a $57.2 million write-down of its stake in FRI. Foodmaker divested this stake late in 1995.
Longtime company CEO Jack Goodall retired from that position in April 1996 but remained Foodmaker chairman. Taking over as chief executive was Robert Nugent, who had been executive vice-president and head of the Jack in the Box chain. Foodmaker achieved a full-year profit of $20 million in the fiscal year ending in September 1996 as sales swelled 4.3 percent. The company signaled its continuing recovery the following year by returning to growth mode, opening 75 more Jack in the Box locations. It also put the E. coli tragedy farther behind it in early 1998 by reaching a settlement with the Vons Companies, its main meat processor prior to the outbreak. Foodmaker had sued Vons and other suppliers in 1993, and the settlement called for Food-maker to receive a payment of $58.5 million.
In fiscal 1999 more than 100 Jack in the Box outlets opened for business, bringing the total to more than 1,500, while existing units enjoyed robust sales gains thanks to improved service and an increased advertising emphasis on the quality of the chain’s food offerings. As a result, Foodmaker recorded record profits of $76.5 million on revenues of $1.46 billion, with sales jumping nearly 20 percent. On the heels of these stellar results, the Foodmaker name was finally retired, as the corporation renamed itself Jack in the Box Inc. At the same time, the company embarked on a new expansion drive centered on a return of the chain to the southeastern United States. Three markets were the initial locations chosen for new Jack in the Box outlets that sported an updated, more contemporary design: Charlotte, North Carolina; Baton Rouge, Louisiana; and Nashville, Tennessee.
After enjoying another solid year in fiscal 2000, Jack in the Box saw its sales and profit growth stagnate along with the rest of the fast-food industry amid the economic downturn that began the new century. The company nevertheless continued to open up new outlets, though fewer than in previous years, including its first ones in a fourth southeastern market, Greenville-Spartanburg, South Carolina, which debuted in 2001. That same year, Goodall stepped down from his position as chairman and was succeeded by Nugent. Attempting to reignite growth, the chain in 2002 launched a major promotional initiative called “Our Best Burgers Ever” that centered around an upgrade of its core sandwich line with better ingredients, improved procedures, and new packaging. At the same time, Jack in the Box launched a “refranchising” effort aimed at increasing the percentage of the chain’s outlets that were franchised. Fully 80 percent of the units were company owned then. The firm sought to accomplish this refranchising goal both by pursuing the opening of new franchised outlets and converting company-owned units into franchised ones. This initiative was aimed at increasing company earnings given that franchised outlets were typically more profitable than those owned by the company.
Other avenues that Jack in the Box pursued at this time to restart growth included a new cobranded concept and the acquisition of another chain. In 2002, after three years of testing, the company began rolling out its own convenience store format called Quick Stuff. The Quick Stuff outlets, each of which was located adjacent to a full-size Jack in the Box, incorporated a major-branded gasoline station into their sites. In January 2003 Jack in the Box entered the rapidly growing fast-casual sector of the restaurant industry by spending $45 million for Qdoba Restaurant Corporation, operator of the Qdoba Mexican Grill chain, which had 85 outlets in 16 states. Qdoba, based in Wheat Ridge, Colorado, and founded in 1995, specialized in “nouveau Mexican” cuisine for adults and had increased its sales to $65 million by the time of its acquisition by Jack in the Box. Under its new corporate parent, the largely franchised Qdoba chain was rapidly expanded to more than 200 units by the end of 2005, when systemwide sales reached approximately $220 million.
In the meantime, the company’s core Jack in the Box chain in 2003 began revamping its menu to take it more upscale and make it more appealing to women and older men, thus widening the target customer base beyond the chain’s stronghold of 18- to 34-year-old males. Entrée salads and what was thought to be the fast-food industry’s first turkey burger successfully debuted in 2003, and two years later a very popular line of sandwiches featuring ciabatta bread was introduced. While adding these high-end items, the chain retained many of its lower-priced items and special deals, creating a two-tiered menu that appealed to a broader range of customers. Jack in the Box also launched an effort to improve the level and consistency of its customer service and began rolling out a renovation program aimed at overhauling the chain’s outlets to include a more contemporary design featuring ceramic tile floors, a mix of seating styles, and flat-screen televisions. These efforts were spearheaded by Nugent with a great deal of help from his second-in-command, Linda A. Lang, who had been promoted from executive vice-president of marketing to president and COO in late 2003. Nugent retired in October 2005. Lang succeeded him as chairman and CEO and carried on what the company called its “brand reinvention.” In the meantime, the 2,000th Jack in the Box opened in 2004, though the growth of the chain had been slowed and the southeastern push placed on hold in favor of building the strength of the existing sites.
By 2006, Jack in the Box was on a clear and sustained roll. For the fiscal year, the company saw its revenues increase more than 10 percent to a record $2.77 billion, while same-store sales for the chain jumped nearly 5 percent. Profits hit a record as well, at $108 million, while the company’s stock shot up during the year, from $29.91 per share to $52.18. In addition to maintaining a steady rollout of new premium menu items, such as the Chipotle Chicken Ciabatta, Jack in the Box continued its refranchising program, and by the end of fiscal 2006 had increased the percentage of Jack in the Box outlets that were franchised to nearly 30 percent. The firm aimed to boost that percentage by 5 percent each year. For fiscal 2007, 40 to 45 new Jack in the Box units were slated to open, while the Qdoba chain continued to expand at a more rapid clip, with 80 to 90 new units planned. Also ongoing was the remodeling of the Jack in the Box chain, which entailed around 200 makeovers during the year. Sales were up strongly during the first half of fiscal 2007. A key factor again were menu innovations, including the 100 percent Sirloin Burger, touted as the first such offering from a major fast-food chain.
Jeffrey L. Covell
Updated, David E. Salamie
Qdoba Restaurant Corporation.
Jack in the Box.
McDonald’s Corporation; Burger King Holdings, Inc.; Wendy’s International, Inc.; CKE Restaurants, Inc.; YUM! Brands, Inc.; Doctor’s Associates Inc.
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