Jack in the Box Inc. Analyzing the Environment and Assessing the Current Status of the Firm

Transcription

1 Jack in the Box Inc. Analyzing the Environment and Assessing the Current Status of the Firm For Dr. D Souza By John, Justin Keuk, Wanmoniwan Konderla, James Maine, Brittany Smith, Bret Stuart, Paul Tucker, Skylan Date July 23, 2013

2 Introduction The Jack in the Box, fast-food franchise exists in the highly competitive fast-food segment of the quick-service restaurant industry (QSR), and to ease the risk of being in a highly competitive segment, they acquired Qdoba Mexican Grill (Qdoba) in the fast-casual restaurant segment (Jack in the Box 10-K). We will analyze the broad and competitive environment in which Jack in the Box Inc., consisting of Jack in the Box and Qdoba, and we will assess the current status of the firm starting with its strategy, then its performance, and finally its business capabilities which include firm resources, management preferences, and organizational process. Part 1A - Analyzing the Broad and Competitive Environment Broad PEST Analysis (Top Three) Political: The quick-service restaurant industry is highly affected by political factors coming from local, state, and federal laws and government agencies. For instance, federal minimum wage has increased from $5.15 to $7.25 in a three-year span starting in 2007 and ending in 2009 (Standard & Poor s). Despite federal minimum wage resting at $7.25, the wage rate in the QRS industry continues to grow as seen in Figure 1. Figure 1: Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics The increase in wages has significantly affected the cost and profitability of many firms in the QRS industry as the cost of labor is a significant component of operating expense (Hoover 2013). The effects of increased wages can clearly be seen in some firms dollar menu. For example, items that were once a dollar before tax our now $1.19 before tax. Government agencies such as the United States Department of Agriculture (USDA) and the U.S. Food and Drug Administration (FDA) also have affected the QSR industry s profits by setting food quality and safety measures and by making the posting of nutritional facts mandatory. In addition, to the cost of creating informative material, consumers can now see more easily how many calories are in an item which may deter them from buying or at least persuade them to buy less. Social: Social factors such as consumer taste, food trends, and demographics play a high role in the QRS industry. Shifting consumer taste and food trends can affect a firm s profit positively or negatively depending on the firm s menu options. Today s consumers are wanting healthier food options such as organic, gluten-free, and low sodium and/or sugar. Firms that already sell healthy foods will enjoy a boost in business from this health trend while firms that do not will likely

3 suffer. Demographics such as ethnicity also play a major role in consumer taste. A growing minority or shrinking majority can affect menu options such as the adding or removing of Asianflavored or Mexican-flavored items. Technology: Technology is of high importance because the industry is volume-driven, transaction speed is extremely important and most fast food can be prepared and served quickly (Hoovers). In other words, firms in the QRS industry depend on selling enormous amount of product to generate substantial profits. This is the reason why investment in technology and research and development (R&D) is important. Advance point-of-sale systems (POS) can keep track of inventory and customer traffic enabling firms to better schedule supply shipments and work hours. Advance POS systems also allow for quicker processing of customer orders which is especially helpful during business rush hours. Another reason why R&D is helpful stems from consumers seeking healthier menu items as explained in the social paragraph. It is in and through R&D that the thinking, developing, and creation these new healthier menu items come to fruition. Competitive Five-Force Model Analysis (Top Three) Bargaining Power of Buyers: Consumer hold high bargaining power in the fast-food and fastcasual restaurant segment due to the following factors: Low switching costs Buyer s price sensitivity Many substitutes available to buyers Buyer s access to easily accessible information Rivalry among Existing Firms: Rivalry among existing firms ranks high. Currently, the fastfood segment contains large amount of highly profitable, competitive firms. This is one of the reasons why Jack in the Box Inc. acquired Qdoba in the fast-casual restaurant segment. The fastcasual restaurant segment is growing but it is currently not as fragmented and as competitive as the fast-food segment (Standard & Poor s). Also, both segments, but mainly the fast-food segment, spend millions of dollars yearly to employ a multitude of ads via print, radio, and television in hopes to capture market shares. Threat of Substitute Products: The threat from substitute products is high in the both the fastfood and fast-casual restaurant segments. Every food product sold in the segment has a substitute. Furthermore, food products outside the segment or industry can be seen as a substitute. For example, TV dinners at a local convenient store or a home-cooked meal. Also, fast-casual restaurants are increasingly adding take-and-go services; therefore, becoming a more viable substitute to fast-food restaurants. 1A(1) - Key Drivers of Environmental Change and Key Survival Factors Key Driver of Environmental Change The conclusion reached based on the analysis of the top 3 factors of PEST and the top 3 factors of the five-force model is that the key driver of environmental change in the quick-service restaurant industry are (1) demographics, (2) consumer preferences, and (3) personal income or buyer s needs. 1. As mentioned in the PEST analysis of social factors, demographics play a key role in shaping the environment. As demographics change, so does the appeal of certain firms in

4 regards to their menu offerings. Also, changes in demographics potentially represent new and emerging markets for which firms can target for market growth. 2. Customer preferences drive change because as mentioned in the social factor paragraph, consumers have the power to affect the profits of a firm, and cause that firm to develop new products. 3. In the wake of past economic downturn, personal income or buyer s need still affects firms in the QSR industry; therefore, firms must continue to adapt to consumers with low discretionary income with value menu offerings, and must continue to strive for increasingly efficient operations through technology and R&D. Key Survival Factors (KSF) Also based on the analysis of the environment, the key survival factors in the quick-service restaurant industry are (1) food safety and quality, (2) customer loyalty and brand recognition, and (3) efficient operations. 1. Food safety and quality is of the utmost importance, so much so that political entities regulate both aspects. Serving unsafe or low-quality food to consumers can result in litigation and destruction of reputation. At worst, violations of USDA and FDA food regulations can result in the closing of a firm. 2. Customer loyalty and brand recognition are very important to the survival of any firm in the QSR industry. The great importance of customer loyalty can be seen in the 80/20 rule which states 80% of business comes from 20% of customers. Brand Recognition is also important for two reasons: it helps alleviate threats from substitute product, and it helps weaken bargaining power of buyers. 3. Efficient operations are key to survival due to a direct link between efficient, fast food preparation and customer satisfaction and loyalty. In order to be effective in the QSR industry, firms must continuously innovate through technology and R&D. 1A(2) - Viable Strategic Orientations Viable Strategic Orientation One strategic orientation revolves around the KSF of food safety and quality. Jack in the Box Inc. introduced Hazard Analysis Critical Control Points (HACCP) in 2003 to assist in food safety and control. Jack in the box at the time was the first restaurant of their kind in the industry to implement an action plan like this. HACCP is used in all areas of operations from the science based research of food to how the food is handled. HACCP also helps regulate rules and procedures as well as audits to verify healthy practices. Some accolades that Jack in the Box Inc. possesses are the Black Pearl Award from the International Association for Food Protection (2004) and the NSF International Food Safety Leadership award for outstanding food safety achievements. This shows how committed Jack in the Box Inc. is to developing plans for the safety of its consumers. Part 1B(1) - Assessing Current Status of the Firm The Current Strategy of the Firm Goals: Jack in the Box Inc. has constructed a very detailed strategic plan broken down into several different areas of improvement including continued growth of the two restaurant brands,

5 increasing average unit volumes, and improving restaurant profitability and returns on invested capital (Jack In The Box Investors - Overview). The firm plans to achieve this strategy by, for example: creating a more stable, less capital intensive business model for their Jack in the Box franchise operations. Some of the more short term goals of the firm include opening more Jack in the Box locations and more Qdoba locations during the fiscal year of Product Market Focus: Looking at the Product-market matrix in Figure 2, Jack in the Box is in the broad product and market focus (top right box). Jack in the Box was placed in the top right corner of the graph because they provide the same products that are offered at competing companies. They have a broad focus on what they serve and whom they serve it to. Qdoba was placed in the right box as well but closer to the narrow boxes because the products that they serve are more specialized. They attract a crowd that wants to sit down and spend time at the restaurant. The reason that Qdoba is not narrow is because they are easily imitable and there are other restaurants that have similar concepts. Figure 2: Product Market Matrix Core Activities: Jack in the Box Inc. focuses on three major core activities: operation, customer service, and quality control. Operations: A great deal of time is invested into management training classes to ensure that each restaurant employee can be correctly trained in every aspect of the restaurant operations that pertain to their jobs. Performance based bonuses are set in place for the managers and supervisory personnel as an incentive. Customer Satisfaction: The "Voice of Guest" survey is a short guest satisfaction survey printed at the bottom of each guests receipt; the survey asks questions relating to overall

6 experience, quality of food, accuracy of order, etc. The firm also has a "secret shopper" program in place where a mystery guest grades their experience based on certain criteria. Quality Assurance: The farm-to-fork food and quality assurance program was set up to create and maintain high standards for the food itself and also the preparation procedures. Jack in the Box Inc. also uses the HACCP system which involves the training, testing, and documentation procedures of the employees to ensure the safety and quality of the food. Value Proposition: Jack in the Box and Qdoba both use the Red Ocean Strategy. Even though Qdoba has a different focus within the QSR industry, they both have aligned their operations to fit with this strategy. Figure 3 below shows how they fit into the Red Ocean Strategy. Figure 3: Value Proposition Overview of the Current Strategy: It seems as though the components of the strategy are very well articulated though out the firm. A lot of money is invested into the training programs for managers to learn what they need to be focusing on in order for the restaurant to be successful, and also how they should train the employees in order for the operations to run smoothly and to keep the customers satisfied. Capital is also invested into checking up on the restaurant units systematically through the customer satisfaction surveys and secret shopper reports: If a problem is occurring consistently in a certain location, top executives will more than likely get involved to ensure that the problem gets resolved. This system is working quite nicely for the firm, each restaurant unit knows what standards they must maintain and the incentive program drives them to do better than just the bare-minimum.

7 1B(2) Assessment of Performance Assessment of Performance Jack in the Box Inc.'s current and quick ratios show that there are more liabilities than there are assets, and both are unfavorable in terms of the industry benchmarks as well as competing firms such as Burger King and McDonalds. The debt to equity ratio is also unfavorable to the industry as a whole. Jack in the Box Inc. s revenue has decreased in 2012 and in Sales have also decreased approximately by $161.1 million in 2012 and $288.3 million in The decrease in sales for both years was primarily due to Jack in the Box Inc. closing some of its restaurants. It should be noted that revenue in existing, operating restaurants are increasing, and in concern to profitability, the returns percentages are actually favorable in comparison to the industry benchmarks. There has been a 28% decrease in the firm's sales growth. Burger King ranked just above Jack in the Box Inc. with $2.34 billion sales in 2012, whereas Jack in the Box Inc. only had $1.55 billion sales. Concerning revenues alone, Jack in the Box Inc. had a 29.56% decrease, whereas Burger King had only a 4.47% decrease. The organizational health is very strong and very positive. Many benefits are offered to employees, even part-time workers. Employee relations are believed to be good. Competitive wages are paid and vacation time and retirement is offered. One-year employee growth for Jack in the Box Inc. is %, which actually praises the company's efforts to reduce employee turnover (the industry's turnover average exceeds 200%). There is currently a $7 million lawsuit concerning a recent food-quality allegation that is being investigated. However, restaurants in the fast food industry are always at risk to various lawsuits concerning sanitation, health, employee injuries, and etc. Jack in the Box should be placed in the performance matrix should be placed in quadrant 2, complacent organization, due to its high organizational health yet recently diminishing financial performance. The current trend for the firm is declining from good to poor. Strong sales have diminished and debts/liabilities have started to increase. A new strategy must be implemented. Debt will increase and profits (although they are stable for now) will diminish. Sales have significantly decreased in 2012 compared to the two prior years. Hoover's Fast Food report as well as the K filing each supports this financial data. The company must focus on its financial position: obligations need to be paid. For market performance, sales growth does need to increase; however, the repair of their financial position is the most urgent. 1-B(3) Assessment of Business Capabilities Conclusion and Recommendations The following conclusions will address how the business capabilities of the firm support strategic actions in regards to the VRIO (valuable, rare, inimitable, organizable) criteria. Each conclusion is supported and based on the massive amount of data collected on firm resources, management preferences, organizing process, and on the organization and analysis of

8 current/available and potential business capabilities. Please see Part 1-B(3): Assess Current Business Capabilities in the WIKI PDF file submitted with this paper for more information on each component and their sub-components. The ability to personalize advertisements, menus, specials, products, and overall customer experience is the most important capability that Jack in the Box and Qdoba can have. This brings in all of the factors of competitive advantage: it brings in value, rareness, imitability, and organization. Value is brought in through the value it brings to the customers through their unique experiences, and it also enables firms to respond to environmental threats and opportunities. Rareness and imitability are brought in because Jack in the Box and Qdoba franchises are given power to control their own destinies and be able to do the things that they need to do to be successful. To be successful with all this personalization, there must also be a considerable amount of organization involved as well. The capability of being able to have a joint rewards system is important as well because no one else does it and are not able to do it either. Although there are companies with multiple brands under their belt, all those brands fit into just the fast food industry. Whereas Jack in the Box has ties with Qdoba which is considered a casual dining experience. Being able to traverse between these two industries will bring new customers to both sides because they would be able to collect rewards from both restaurants. This is both rare and imitable, because there is no other company that is able to do this. Value is also brought to the table because it lets firms respond to threats and capitalize on this opportunity. There must also be organization because it will require the two restaurants to work together for the common good. The potential for expansion is very important because there is a limited amount of fast food companies that can claim that they have a presence in all 50 states. The ones that can do that are the market leaders. Although this may not be entirely rare or imitable, it will definitely affect value and organization. If expansion is to take place into territories Jack in the Box and Qdoba are not currently in, there is the opportunity to steal market share and create a strong recognizable brand. Once established thoroughly in the US, overseas expansion and brand recognition would be accomplished with much more ease, especially with the ability to personalize the customer experience.

9 Works Cited Jack in the Box 10-K. "SEC Filings 10-K." Jack in the Box. Jack in the Box Inc., 11 Nov Web. 22 Jul < wywdlptg1nzu3mdcmrfnfut0xjlnfut0mu1fervndpvnfq1rjt05fqk9ews ZleHA9JnN1YnNpZD01Nw==>. Jack in the Box Investor Overview."Jack In The Box Investors - Overview." Jack In The Box Investors - Overview. N.p., n.d. Web. 21 July ( Standard & Poor s. Yin, Jim C. Standard & Poor's - Industry Surveys Restaurants. Rep. New York: Standard & Poor's, Print. ( content-rid _1/courses/busi nt w2/fast%20food%20- %20Standard%20and%20Poors.pdf)