3 Reasons Why Jack in the Box Is Beating McDonald's

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A Jack In The Box Restaurant in Tyler Texas sits along Broadway open for business.
Stanley Marquardt/AlamyA Jack in the Box restaurant in Tyler, Texas.
McDonald's (MCD) is in a funk, and things are only getting worse. The world's largest burger chain posted uninspiring financial results over the weekend, with global comparable sales slumping 2.5 percent for the month of July.

Things were even worse closer to home, where comps at stateside stores clocked in 3.2 percent lower than the same month a year earlier. After three consecutive quarters of negative domestic comparable sales, McDonald's seems ready to stretch that streak to four periods of year-over-year quarterly declines.

Things may be bad for the revenue leader, but let's not paint the entire fast food industry with a broad basting brush. Many of McDonald's smaller rivals are doing just fine, and we heard from one of them -- Jack in the Box (JACK) -- late last week.

Let's go over a few of the ways that Jack in the Box is holding up better than McDonald's.

1. Comps are Growing at Jack in the Box

Your typical Jack in the Box eatery is still ringing up higher sales than it did a year earlier, unlike McDonald's which has posted negative comps at its U.S. restaurants in eight of the past nine months and is looking at the likelihood of its first year of negative comps since 2002.

Jack in the Box operates on a different fiscal year than McDonald's, but its comparable sales increased 2.4 percent during its fiscal third quarter which consists of 12 weeks ending on July 6. Comps are also positive -- up 1.8 percent -- through the 40 weeks ending on July 6, a period that's roughly in line with the three consecutive quarters of declining domestic sales at McDonald's.

Jack in the Box isn't the only chain that's growing its sales at the individual store level. McDonald's is actually the one that stands out for going the wrong way here.

2. Jack in the Box Kept its Quick-Service Burrito Chain

One of bigger mistakes that McDonald's has made was unloading Chipotle Mexican Grill (CMG). Many burrito buffs have no idea that McDonald's once owned a meaty 90 percent stake in the market darling of the fast-casual space. That's because it spun off the chain in 2006 after helping take it from just 16 locations when it first bought in back in 1998 to more than 500 when it gave it an IPO as a standalone publicly traded company.

McDonald's probably thought it was making a killing, turning roughly $360 million in investments into a $1.5 billion payday, but that doesn't seem so smart today with Chipotle carrying a $21 billion valuation.

Jack in the Box watches over Qdoba Mexican Grill, the growing Chipotle rival with more than 600 locations across the country. It's no Chipotle, but it doesn't need to be. Qdoba's comps improved 7.5 percent in its latest quarter, making it one of the industry's best performers after Chipotle. Jack in the Box isn't in a hurry to sell off the strong concept that will give it some diversification if burgers go out of favor. The same thing can't be said about McDonald's.

3. Jack in the Box Doesn't Have the Stigma of McDonald's

A recent Consumer Reports survey of fast food patrons found McDonald's ranking dead last in the burger category on taste among the country's 21 largest burger chains. Now, taste tests may be subjective, but it's not as if Jack in the Box can claim bragging rights over McDonald's: It was ranked No. 20.

But Jack in the Box is not the poster child for an industry that pays entry-level employees poorly and is often the scapegoat for childhood obesity. Activists have been making plenty of noise as they protest McDonald's, urging it to boost its minimum wage to $15 an hour. You don't see the same kind of public dissent when it comes to Jack in the Box and other chains that aren't necessarily paying their employees any better.

No matter where you stand on the debate for increasing the minimum wage, it's a safe bet that you recognize giants like McDonald's and Walmart (WMT) are ground zero for the topic. They're the leading retailers, and while that has advantages in marketing and purchasing, it's working against the perceived image of these chains today. It's popular to diss McDonald's. Whether or not this is playing a part in the sales declines being experienced at McDonald's, it's clearly not slowing down Jack in the Box.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our newsletter services free for 30 days.



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38 Comments

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gidsle

If you've been to a McD's lately, there shouldn't be any question why sales are down. Here in Central FL a BigMac is $3.59 (probably more up "nawth") and the whole meal is over $5. To have $5. in your hand, you need to earn about $7, right? So, if you're earning $16./hr that's still almost half an hour's pay for a hamburger, fries and a Coke. How many times a week do you think the average Joe can do that?

August 15 2014 at 3:05 PM Report abuse rate up rate down Reply
imustbegoingnow

JitB built quite a few stores here more than 15 years ago. Now, I think there are three of them left open. Most of them were right beside a McD's or had one built shortly after the JitB opened. Those are the ones that closed. The ones that are still open are the ones that do not have any really close competition. I really liked their Breakfast Jack sandwich. For only 99 cents, it was a good deal.

August 15 2014 at 1:26 PM Report abuse rate up rate down Reply
Iselin007

Sorry but the the burger chain made one of the worst tasting burgers ever an not much different then the one the drive in theater use to carry. The name says just what you would expect it to taste like.

August 15 2014 at 11:49 AM Report abuse rate up rate down Reply
Kent

First, when is Jack in the Box going to return to the Chicago area. They had stores back in the 1970s, when Rodney Allen Rippey was in their commercials. But, Wendy's pretty much drove them out of Chicago. In fact, several Wendy's in my area are the sites of old Jack in the Box stores.

Second, I Qdoba really doing that well? It closed a number of locations in Chicago, including one near my house. The only think I can surmise is that the remodelding Taco Bell, with a drive-thru, as well as 2 Mexican restaurants nearby, made it difficult. Still, if you look at a map, Qdoba seems to have given up on the west and south suburbs of Chicago.

August 15 2014 at 11:42 AM Report abuse rate up rate down Reply
socioeconomist1

Jack in the crack sucks... Their meat is 50% cardboard. They should bring back the ultimate cheeseburger how it was made in 1988 too. No Ketchup and Onion Mayo.

August 15 2014 at 1:48 AM Report abuse +2 rate up rate down Reply
1 reply to socioeconomist1's comment
Iselin007

Reminds me of when I was a baby the Diaper service use to come an pick up the hamper with the dirty diapers to be cleaned.

August 15 2014 at 11:55 AM Report abuse rate up rate down Reply
Joe Methuen

The blatant misandry in many of McDonald's commercials is highly offensive to many former customers of the chain. Jack in the Box, on the other hand, does not bash men in their commercials. Although this is probably not a huge factor in slowing sales for McDonald's, it surely plays some role and probably a larger role than suspected. I myself do not patronize McDonald's because of their constant male bashing, offensive commercials.

August 15 2014 at 1:31 AM Report abuse rate up rate down Reply
barryaclarke

About 10 years ago while I was driving home from a road trip, a friend of mine wanted to stop at a McD’s. Returning to the car, he had bought me a new 1/4 pound hamburger that they had been heavily advertising having lettuce and tomato for 99 cents. It was nice burger with a fresh bun, “lots” of lettuce and tomato and was really pretty darn good. The next day after telling my wife about it and how good it was, I drove over to our local McD’s and bought three of them along with fries. When I got home, all three had lettuce and tomato on a pathetic looking buns. The amount of lettuce and tomato wasn’t even enough for one sandwich but they managed to spread it across all three of them. The worst part of the order was all three hamburgers were mashed down to about ½ inch. A complaint to the corporation went unanswered and this was the last time we have bought anything from this store or any other McD’s...........….

August 15 2014 at 12:46 AM Report abuse rate up rate down Reply
1 reply to barryaclarke's comment
Kent

I'm really surprised that McDonald's didn't respond. I've e-mailed McDonald's for several issues. First is that some restaurants run out of the current Happy Meal toy, so the stores wind up using toys from a promotion 6 months or older. My son, when he was younger, got very upset when he didn't get a Hot Wheels or Star Wars toy.

The response from corporate was that of apology, followed by a complete set of the toys in the mail.

My other complaint is that one restaurant has a habit of sending drive-thru customers into the penalty box, if they are busy, and the order is for anything more than a soda and fries.

After e-mailing, I got a response from the district manager, saying that he would review the operating practices. The store manager called and offered a free value meal.

Finally, I bought dinner for my family before boarding a flight out of O'Hare Airport. When we opened the bags, my son's Happy Meal didn't have the Chicken McNuggets.

I e-mailed McDonald's to tell the what happened. The manager of the McDonald's locations at O'Hare called to ask which location it was (K Concourse), the date, and the approximate time. He was going to determined who was working at that time and go over some ways to insure that didn't happen again.

The fact that you had a bad experience and didn't get a satisfactory response shouldn't keep you from going to McDonald's. It's when the experience is consistantly poor.

My in-laws had a bad experience at a casual dining chain. They didn't complain. They just stopped going. Now, we had an issue with the same chain at a specific location. The service was horrible, becasue we always seemed to be seated at a table that wasn't assigned to a waiter.

Besides e-mailing corporate, we decided to try a different location, which is better managed.

August 15 2014 at 11:39 AM Report abuse rate up rate down Reply
gee.effwye

Sourdough Jack........pretty good sammich.

August 14 2014 at 10:43 PM Report abuse +1 rate up rate down Reply
paintingpalsllc

Forth reason: Mc D's task like **** and Jack in the box taste like ****. Ok, that was a tie.

August 14 2014 at 10:12 PM Report abuse rate up rate down Reply
1 reply to paintingpalsllc's comment
gee.effwye

Having never tasted ****, I'll have to take your word on that.

August 14 2014 at 10:39 PM Report abuse rate up rate down Reply
dktarver

I don't do McDonalds for years now. I got tired of the poor service, attitude of staff and lack of flexibility. It's either have it their way or don't have it at all. They are too full of themselves.

August 14 2014 at 7:14 PM Report abuse rate up rate down Reply