Friday, February 19, 2010

New coffee to pop up at Jack in the Box

Burger King grabbed the headlines this week with its agreement to start serving Seattle’s Best Coffee, Starbucks’ secondary brand. But Jack in the Box hinted yesterday that more coffee news is percolating.

While the regional burger chain is experimenting with new flavors of shakes and smoothies, “We’re also looking at our coffee program,” CEO Linda Lang told stock analysts. “More news on that later.” She was responding to a query about how the burger brand might respond to initiatives like the one that had been disclosed by BK.

“Would you consider a branded product or do you need a branded product?” the questioner pressed.

“I don’t think you necessarily need a branded product,” responded Lang. But she wasn’t providing details. “we’ve looked at the different options and will be talking about that soon.”

During the conference call, Lang also acknowledged that Jack’s Southwest Chicken Bowl, introduced late in 2009, bowl wasn’t exactly a hit.

“That was not one [of] our stronger products,” she noted, according to a transcript of the call provided by

Lang explained that the item, an extension of an older line of rice-based meals in a bowl, was priced at $4.29, and many franchisees charged “significantly” more than that. She suggested going above $4 in the current environment is not prudent, adding that Jack’s just-introduced grilled sandwiches have been much better received. The sandwiches are priced at $3.99.

That prompted more head scratching by Robert Derrington, the restaurant analyst who’d asked about coffee. “Given that your company generally is pretty sophisticated about testing products before you roll them out, did you know in advance that the Southwest Bowl wouldn’t do as well, and if so why did you proceed with it?” asked Derrington, who tracks restaurant stocks for Morgan, Keegan.

Lang countered that the bowl was a niche product, and noted that new products are always tested in “limited markets,” not in a full-blown dress rehearsal.

Other revelations concerned the relatively stronger performance of Qdoba, Jack in the Box’s secondary franchise chain. The smaller but more expensive brand posted a comp-store sales decline of 1.7% for the quarter ended Jan. 17, compared with an 11.1% freefall at company-operated Jack outlets.

“:We’ve seen reports of a boost in confidence among the more affluent segment of the population while consumer confidence among those with lower income levels have remained depressed,” said Lang. “We think this helps explain the divergence in sales trends at Qdoba verses Jack in the Box.” Qdoba has the better-heeled clientele, she suggested.

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