Jack in the Box offers multi-unit franchisees discounted royalty rates

Dive Brief:

Jack in the Box is offering a discounted royalty rate in the first five years of franchise agreements with new operators who agree to develop at least three stores, the company announced Tuesday.
The burger chain is offering a 1% royalty rate in the first year, rising by 1% each year until the fifth year of the agreement. Then, the rate will remain at 5% for the duration of the franchise agreement.
This discount, which Jack in the Box claims could save the average operator $180,000 per store, is intended to support the company’s franchise-heavy expansion strategy.

Dive Insight:

Jack in the Box’s growth hinges on its ability to attract and retain franchise partners, and a significant upfront discount could encourage more operators to buy into the chain. The company’s standard 20-year franchise contracts also ensure longevity and a stable cost structure, which could be attractive amid economic uncertainty.

The chain signed up 30 franchisees to open 106 new restaurants in the first two quarters of 2022, according to a press release. Jack in the Box has about 2,000 franchised restaurants, accounting for more than 90% of its system, according to SEC filings. The company’s most recent 10-Q also shows franchised same-store sales slipped 1% in the last quarter, while corporate same-store sales were up 3.5%.

Jack in the Box’s AUVs hover around $1.8 million, according to the press release, so the royalty discount can add up to a substantial amount of money. Franchisees still pay a variety of other fees, however, including marketing, technology and sourcing fees, according to SEC documents.

“We're signing development agreements still mostly with our existing base. And yet we also see interest from new franchisees. ... With this economic backdrop, we definitely see new franchisees taking their time evaluating the opportunity,” CEO Darin Harris said on the company’s Q3 2022 earnings call.

Jack in the Box is pursuing a similarly franchise-dependent strategy for its recent acquisition, Del Taco, which has attracted franchisees to develop at least 74 new stores in the last year.

As of publication, Jack in the Box has not responded to questions about the eligibility of existing franchisees who operate fewer than three stores but might wish to expand their operations.