Dive Brief:

• The National Jack in the Box Franchisee Association, which represents about 84% of the system, called on the company’s board of directors to host a “solutions-focused meeting” to rein in declining transactions, and also asked for a seat on the board to “ensure franchise owners can protect their vested interest in the success of the Jack in the Box brand,” according to a company release.
• Additionally, the association has asked for an audit of the company’s marketing fund, which includes franchisee contributions. This audit request includes a review of expenditures. 
• These requests come about three weeks after the association called on CEO Lenny Comma to step down, and to replace “several members” of the management team.  

Dive Insight:

Tensions don’t seem to be easing at Jack in the Box after a tumultuous few months, during which members from the National Jack in the Box Franchisee Association held a “no confidence” vote in the company’s leadership at its annual meeting in July. The association claims that the company and its board have refused to respond to not only that vote, but also repeated requests to meet to discuss franchisee frustrations. 

Likely adding to those tensions is the company’s decision to allow activist investor JANA Partners to name two additional seats to its board. Jana owns 6.7% of Jack in the Box stock.

At the heart of the matter is a vast reduction in resources, a group of franchisees recently told Forbes. General and administrative expenses, which were 3.9% relative to top-line revenue in 2015, are at 1.8% this year. The brand has also been without an experienced chief marketing officer for months, which is extremely rare in the quick-service segment, especially for a brand that is known for its diverse menu, quirky campaigns and a state-of-the-art innovation center. 

Frustrations have also been stoked by falling sales — from about $1.18 billion in 2011 to about $715 million in 2017. Comma has been chairman of the board and CEO of Jack in the Box since January 2014 and, prior, served as president (2012-14) and chief operating officer (2010-14).

In addition to sales, shares of the company have underperformed throughout the past year. For example, while the industry gained 13.1%, Jack in the Box’s shares fell 7.6%, according to NASDAQ.com. Earnings estimates for 2018 are expected to continue dropping by double digits. Analysts have attributes these losses to soft consumer demand, unit expansion, the opening of catering call centers, higher labor costs, and — interestingly — costs related to marketing initiatives. The latter is perhaps the impetus behind the franchisee association’s request for a marketing audit. What’s the point in contributing a percentage of revenues to a fund that is simply not yielding results? 

The NFA group claims it has reached out to the company’s leadership team and its board a number of times, to no avail. A request for a seat on the board is the association’s latest attempt for such access. If that doesn’t work, the franchisees may have even bigger issues. As the industry has learned from such case studies as Quiznos, if franchisees aren’t happy, the entire system can suffer.