San Diego company agrees to share more information with franchisees around marketing and advertising to drive traffic to restaurants
Jack in the Box franchise owners have settled a lawsuit against the San Diego fast-food chain over marketing strategy — five months after new Chief Executive Darin Harris officially took the helm of the company.
The settlement announced Wednesday ends a contentious two-year battle in which the National Jack in the Box Franchisee Association publicly called for the ouster of former CEO Lenny Comma.
Terms of the settlement are confidential. But Jack in the Box agreed to provide greater transparency around its spending for marketing and advertising to drive customers to its 2,220 franchise and company-owned restaurants.
It also will establish a new Leadership Advisory Council to further improve communication with franchise owners.
“The franchisees are very happy with a resolution that they believe is mutually beneficial and favorable to them, and the company is happy to know it can move with a positive foot forward in its relationship with franchisees,” said Robert Zarco, founding partner of Zarco, Einhorn, Salkowski, & Brito, the legal team representing franchise owners.
The franchise group, which represents about 1,700 of the chain’s restaurants, complained for years about spending cuts under Comma that it claimed contributed to flat or declining sales that failed to keep pace with rising costs.
The dispute came to a head in 2018 following the departure of Chief Marketing Officer Iwona Alter, who had been with the company for 13 years. She is now with Habit Burger.
At the time, activist investor Jana Partners had taken a stake in Jack in the Box and was driving the company to improve its financial performance, including adopting an “asset light” business model.
“Franchisees were complaining, in general, about the fact that because private equity got their hands on the company, that forced many staff cuts,” said John Gordon, head of San Diego-based restaurant industry advisory firm Pacific Management Consulting Group. “Franchisees felt that they were the ones left out in the dark.”
Under terms of a 1999 settlement, the company was required to be transparent with franchisees about its marketing and advertising spending, including disclosure of accounting and other back-up information.
The latest legal action filed in 2018 alleged Jack in the Box failed to live up to those terms. It highlighted how strained the relationship between the company and its franchisees had become.
“We believe that played a huge role in making sure there was a management change where Lenny Comma, the former CEO, in essence, resigned and was removed from the board,” said Zarco.
Comma announced his retirement in April. When Harris arrived in June, the tone changed, according to franchisees. He immediately began talks that paved the way for the settlement.
“With a new CEO coming on board — and some new board members — that new CEO very much wants to put the litigation from the prior CEO and the prior team to rest,” said Gordon. “He wants a fresh start.”
Gordon called the settlement “positive.” He noted that marketing fund transparency is not uncommon among franchise restaurant chains.
“Some brands do it as a matter of course,” he said. “Some have been doing it for 20 years.”
Rabi Viswanath, president of the Jack in the Box franchisee association, said in a statement that Harris “understands the value that maintaining a healthy and happy franchise community can bring. We are grateful for his leadership and are excited to unite behind him as he stewards this brand to its fullest potential.”
Jack in the Box did not respond to a request for comment. In a statement, Harris said both sides are committed to having a good relationship that contributes to the growth of Jack in the Box.
“We are very excited for what is ahead for this brand,” he said. “We could not do it without the support of all our franchisee partners, especially those within the National (Jack in the Box) Franchisee Association.”
Jack in the Box is expected to report quarterly financial results on Nov. 18. The company’s shares ended trading Wednesday up 1.3 percent at $84.96 on the Nasdaq exchange.