Jack In The Box (JACK)

Porter's Five Forces

1) Rivalry in the Industry -- Very High. Although McDonald's and Doctor's Associates control a very large percentage of the market, there is still no way that this industry could be considered a two business race. What makes rivalry in the industry so high though? For starters, there are a large number of firms like Jack-in-the-Box competing for that same amount of market share (Wendys, Burger King, etc.) which creates fierce rivalry at the bottom of the QSR industry. Then there's the concept of slow market growth, and constantly battling with fast-dining sit-down restaurants for the "out to eat crowd" this creates an immense amount of pressure for firms in the industry to compete for excess profits because there just isn't that much to spread around. Another aspect to high rivalry in this industry is high fixed costs coupled with perishable items. Maintenance of each individual store and keeping inventories at a minimum will definitely create pressure on the industry's firms to perform. Aside from that though, there is also almost zero switching costs associated with the consumers. The only cost might be on gasoline when traveling in a motor vehicle, but the market is so saturated in QSR's that there are at least three even in the most remote of locations. What might be the greatest pause for concern though, is the lack of product differentiation. Most restaurants are trying to diversify their menu from just burger stands, but now most of the restaurants have achieved their new menus. What does this do now for differentiation? In psychological terms, it means a great deal. Generally, most consumers in the QSR industry eat the food not out of quality, but out of their higher priorities of speed and quantity. This creates the idea of the "satisfactory hamburger", a menu item in a QSR that passes as acceptable to the person on quality standards, while achieving the two higher priorities. This creates low possibilities even for product differentiation, because the customer isn't even focused on what could potentially differentiate the product. What does differentiate the products in the industry is brand identification, and this drives the industry's differentiation.

2) Threat of Substitute Products -- Low. Thankfully for all of the competitors in the QSR industry, past trends indicate that there is relatively no substitutes to threaten the industry. The QSR industry has suited the American (and now global) mentality of prompt food and will remain relatively inelastic for quite some time. The only potential threat is fast-dining sit-down restaurants (e.g. Chipoltle) that are beginning to take some of the general public's interest away from drive-thru food.

3) Bargaining Power of Buyers -- Medium Low. Like it states in the "Threat of Substitute Products" section, the fast food industry and its products are relatively inelastic. That being said, the general public will continue to buy from the QSR industry for the forseeable future. Furthermore, the buyers themselves are fragmented and no buyer has any particular influence on product or price. However, buyers hold a trump card in the fact that they have no switching costs in choosing their way of eating.

4) Bargaining Power of Suppliers -- Medium Low. In the same way that buyers were fragmented in regards to the industry, so to are most of the suppliers. In produce and agriculture, along with other raw materials, suppliers are relatively weak in controlling price. However, there is still a large necessity for these products from every player in the QSR industry, so in some way the suppliers may have control.

5) Threat of New Entrants -- Very Low. At this point, fast food chains are pretty well established and the market is pretty stagnant. There are incredibly high barriers to entry: with machines that need to be specially made to mass produce, etc., patents and proprietary knowledge that only serve to restrict a new business, and supplier/distribution channels and relationships which are already incredibly well defined by the current players, entry in to the industry is almost unforseeable.

Financials

Other Investor Information^[9]

The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year (except 2004 when the comparison date is October 3 due to the fifty-third week in fiscal 2004) to the yearly weighted cumulative return of a Restaurant Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. The below comparison assumes $100 was invested on September 30, 2003 in the Company’s common stock and in the comparison group, and assumes reinvestment of dividends. The Company paid no dividends during these periods.

Key Management^[10]

Linda A. Lang -- CEO

Total Annual Compensation: $924,423

Ms. Lang has been Chairman and Chief Executive Officer of Jack In the Box Inc. since October 3, 2005 and has been President since February 2010. Ms. Lang served as President and Chief Operating Officer of Jack in the Box Inc., from November 7, 2003 to October 3, 2005. She served as Executive Vice President, Human Resources and Information Systems and also Marketing and Operations, of Jack in the Box Inc. from July 2002 to November 2003. Ms. Lang served as Senior Vice President, Marketing from May 2001 to July 2002, Vice President and Regional Vice President, Southern California Region from April 2000 to May 2001, Vice President, Marketing from March 1999 to April 2000 and Vice President, Products, Promotions and Consumer Research from February 1996 to March 1999. Ms. Lang joined Jack in the Box in 1985 and has held various positions of increasing responsibility in marketing, operations and finance. She has 18 years of experience with Jack in the Box Inc. in various marketing, finance and operations positions. Ms. Lang has been a Director of WD-40 Company since February 17, 2004. She has been Director of Jack in the Box Inc., since November 7, 2003. She serves as a Member of Board of Trustees at California State University. She has a Master's Degree in Business Administration from San Diego State University and a Bachelor's Degree in Finance from the University of California, Berkeley.

Jerry P. Rebel -- Executive VP and CFO

Total Annual Compensation: $477,000

Mr. Jerry P. Rebel has been Executive Vice President and Chief Financial Officer of Jack in the Box Inc. since October 2005. He was previously Senior Vice President and Chief Financial Officer from January 2005 to October 2005 and Vice President and Controller of the Company from September 2003 to January 2005. Prior to joining the Company in 2003, Mr. Rebel held senior level positions with Fleming Companies, CVS Corporation and People’s Drugs and has more than 20 years of corporate finance experience.

Gary J. Beisler -- CEO of Qdoba Restaurant Corporation Total Annual Compensation: $356,731

Mr. Gary J. Beisler has been Chief Executive Officer of Qdoba Restaurant Corporation since November 2000 and President since January 1999. He was Chief Operating Officer from April 1998 to December 1998.

Leonard A. Comma -- Senior VP and COO

Total Annual Compensation: $340,962

Mr. Leonard A. Comma has been appointed as Senior Vice President and Chief Operating Officer of Jack in the Box Inc. effective from February 1, 2010. He was Vice President Operations Division II from February 2007 to February 2010, Regional Vice President of the Company’s Southern California region from May 2006 to February 2007 and Director of Convenience-Store & Fuel Operations for the Company’s proprietary chain of Quick Stuff convenience stores from August 2001 to May 2006.

Rising Food and Commodity Prices^[11]

Jack in the Box's margins are highly dependent on food prices. In particular, the company is dependent on the price of corn, beef and also oil. Recently, the price of many key inputs has risen and could affect the profitability of the firm in years to come. The price of corn, which is fed to livestock and is also a key input in many processed foods, has doubled in the last two years, due mainly in part to the ethanol boom. Because it now costs more to feed the cattle, the Beef Prices | price of beef and chicken, two extremely important inputs for a fast food restaurant, has also risen. In addition, oil prices have risen four-fold since 2001 and the price of gas is also up 40% in the last year alone. Oil is used to produce food, as well as to transport it all over the world. Finally, the price of food has risen due to higher demand in developing countries like China and India. In 2009, the company reported that its commodities costs increased by 2%.

Changes in Diet/Increased Focus on Healthfulness

Jack in the Box could be affected by a shift in consumer tastes and eating habits due to new diet, nutrition, or health trends. Jack in the Box produces a food that is high in fat and sodium, and is not particularly healthy. Exotic diets, like the Atkins diet, have grown in popularity in the last few years, and have made people more aware of what they are eating and what they should be eating to live a healthy life. If people continue to try to live and eat healthy, it could have a material impact on Jack in the Box's profitability. To read a more detailed discussion of consumer health trends and how they affect the fast-food industry, see also Healthier Food Consumption.

Health Scares^[12]

Jack in the Box is vulnerable to a range of health scares that have affected other restaurants and the fast food industry in general. The two most well known scares are mad cow disease (scientifically termed bovine spongiform encephalopathy, or BSE) and outbreaks of illness from the bacteria E. coli. BSE is a fatal neurodegenerative disease found in cattle. Any scares or rumors of E. coli would severely decrease traffic in Jack in the Box restaurants. For a more detailed discussion of health scares and how they impacts the food industry, see also Health scares.

References

1. ↑
2. ↑ JACK 2009 10-K "Restaurant Concepts" pg. 4-5
3. ↑ "MCD Information"
4. ↑ "DOI Information"
5. ↑ "YUM Information"
6. ↑ "JACK 10-k"
7. ↑ "JACK Competitor Comparison"
8. ↑ "Present Day Metrics"
9. ↑ "JACK Weighted Return Comparison"
10. ↑ "JACK Management"
11. ↑ "Rising Agricultural Commodity Prices"
12. ↑ "Health Scares"