A group of Jack in the Box’s franchisees is calling for the ouster of Chief Executive Leonard Comma, claiming the San Diego quick service restaurant brand is not spending enough to support them.
The National Jack in the Box Franchisee Association – comprised of 95 owners of roughly 2,000 of the Jack in the Box’s 2,240 locations – published a letter Tuesday calling for its board of directors to replace Comma and the current leadership team.
Michael Norwich, chairman of the association and owner of 14 Jack in the Box franchise restaurants, cited a lack of corporate resources for marketing and other support services – which is causing “unsustainable losses in sales.”
“Management is thinking so quarter to quarter right now,” said Norwich in a phone interview. “That is what is really hurting us.”
“There are two ways to get the value in the business – driving profitable top line sales or cutting expenses, and they have really focused on the latter,” he said. “We don’t even have a chief marketing officer at the moment. There have been key positions in the marketing department that have gone unfilled.”
This summer, Chief Marketing Officer Iwona Alter left the fast-food chain after 13 years with the company. One of its advertising agencies also is no longer working with the firm.
“There has been a lot of turnover,” said John Gordon, head of San Diego-based restaurant industry advisory firm Pacific Management Consulting Group. “When you have the CMO go and do not have a replacement, and the ad agency goes before the CMO, that pattern tells me there is some stress.”
In a statement, Jack in the Box said it has worked closely with the National Franchisee Association leadership over the past year.
“We have always been open to their constructive feedback and have worked to address any legitimate concerns,” said the company. “Importantly, we believe the viewpoints expressed today by the NFA leadership are not reflective of the entire franchise community.”
The franchisee group cast a “no confidence” vote in Jack in the Box’s executive team at its annual meeting in July, according to the letter. It has hired Robert Zarco, a Miami-based trial lawyer with experience in franchisee rights, to represent restaurant owners in the dispute.
The public letter calling for replacement of the CEO is a surprising step for Jack in the Box franchisees, many of whom have operated franchises for a long time, said Gordon, the restaurant industry consultant.
“This is nuclear in the franchise world,” he said. “Jack in the Box, we love it here in San Diego. It is our home brand. But it has always had trouble growing outside of the West Coast.”
Under pressure from activist shareholders, Jack in the Box sold off its Qdoba Mexican restaurants recently. It also has been transforming company-owned restaurants into franchise locations.
Although Jack in the Box posted better-than-expected earnings per share and revenue in its most recent quarter, the gain was driven by a lower tax rate and share repurchases. Same store sales growth — a key metric in the restaurant business — was only 0.5 percent.
Quick service franchise restaurant companies typically spend about 4 percent of revenues providing services and support to their franchisees, said Zarco. With Jack in the Box, the target for this type of spending this year is 1.8 percent, he said. “That is a dramatic reduction.”
Zarco claims he has been trying to engage in direct discussions with Jack in the Box’s board of directors, but at this point has been unable to do so.
New York-based activist investor Jana Partners, which owns 7.5 percent of Jack in the Box’s stock, told Bloomberg News in an email that it shares the franchisees’ concerns about Jack in the Box’s performance and the lack of urgency in addressing it. “We appreciate their input and will incorporate it into our ongoing dialogue with the company.”
Shares of the company closed trading Tuesday up 16 cents at $84.22 on the Nasdaq exchange.