Jack in the Box Tackles Turnover

    The strategy partly depends on recruiting and retaining frontline employees who can deliver an enjoyable dining experience. The result: Jack in the Box Inc. is improving its employee benefits, enhancing its training and adding recruitment tools.

    Drive up to Jack in the Box Inc.'s restaurant in the eclectic Hillcrest neighborhood of San Diego, and you find something startlingly different. First, the building doesn't say Jack in the Box but rather JBX Grill--a hip moniker that's derived from the company's stock symbol. It’s one of two JBXs being tested in San Diego.

    Missing from the JBX are Jack in the Box's usual fluorescent lights, vinyl booths and tile floor. In their place are pendant lamps, upholstered banquettes and wood floors. The walls are painted in shades of pumpkin and avocado. Armchairs face a gas fireplace. It feels more like a Starbucks than a typical burger joint.

    And that's the point. It’s not just diners who need to imagine what Jack in the Box could become someday. Employees do too. And the idea is to keep them around to carry out that business vision.

    "Employees are hugely important," says Carl Winston, director of the Hospitality and Tourism Management Program at San Diego State University. "If you don’t have your employees understanding the big picture, you just can’t execute it. Like a lot of retail businesses, retention is a huge issue for quick-serve restaurants."

A changing market
    The company needed to differentiate its restaurants and bolster its bottom line in an industry that is locked in a price war of 99-cent menu items and is losing customers to "fast-casual" competitors--like Panera Bread--that offer fast-food convenience but higher-quality food. Net earnings had reached a five-year low in fiscal 2003, down 26 percent from 2000. But in 2003 the San Diego-based company announced its plan to reinvent its brand.

    "We knew it would take more than a fresh coat of paint or a new burger to meet the increased expectations of fast-food customers, let alone create an entirely different dining experience that would appeal to a broader audience of consumers," Jack in the Box president and COO Linda Lang told analysts in September. "So we embarked on a holistic approach aimed at creating a superior dining experience at Jack in the Box, focusing on significant upgrades to our menu, guest service and restaurant facilities."

    The company’s performance this year provides signs that the strategy is working. Jack in the Box reported that net earnings for its 53-week fiscal 2004 increased to $78.5 million from $73.6 million in fiscal 2003. Same-store sales increased 4.6 percent, compared with a 1.7 percent decrease in 2003.

    Jack in the Box executives see ample room for growth. The company’s namesake restaurants are in only 17 states, and executives hope that the new strategy will help the company gain a national presence. Market-share data compiled by consulting firm Technomic Inc. show that Jack in the Box had 4.7 percent of the fast-food hamburger segment last year, up from 4.4 percent in 2000. Market leader McDonald’s Corp. increased its market share to 43.6 percent in 2003 from 43.1 percent in 2000. Burger King’s market share fell to 15.6 percent in 2003 from 18.8 percent in 2000.

Reducing turnover
    Jack in the Box’s workforce management programs are an integral part of the plan to win guest loyalty. Company executives believe in a concept explained in the 1994 Harvard Business Review article "Putting the Service-Profit Chain to Work." That philosophy links the satisfaction, loyalty and productivity of frontline workers to organizational profitability.

    "Key to this philosophy is developing satisfied, tenured restaurant employees who offer higher and more consistent levels of guest service," Chairman and CEO Robert Nugent told Wall Street analysts in November. "Ours is a very competitive industry. Yet among (quick-serve restaurants), we believe that we can be the employer of choice by creating a superior working environment."

    Adherents of the service-profit chain believe that the cost of employee turnover isn’t merely that of recruiting, hiring and training replacements. The costs of lower productivity and decreased customer satisfaction, they argue, should also be included.

    To reduce turnover, Jack in the Box began offering medical, dental and vision insurance in December to full- and part-time hourly employees at company-owned Jack in the Box and JBX Grill restaurants. Jack in the Box pays a portion of the premiums for hourly employees who have at least one year of service.

    "It’s definitely an opportunity in the 21st century to become a good corporate citizen," says Dean Haskell, director of JMP Securities in San Francisco, who tracks Jack in the Box. "It’s those things that make them be perceived as a good company."

    The estimated cost of replacing an hourly employee is $2,399, according to People Report’s survey of 12,798 restaurants ranging from fine-dining to fast-food establishments. Jack in the Box estimates that it costs $1,000 to recruit and train each new employee. Its health care plan will pay for itself if crew turnover decreases by just one-tenth of a percent, CEO Nugent says.

    The company declines to say what its turnover rate is. The median turnover rate for the quick-service segment in 2002 was 80 percent, according to the National Restaurant Association.

    "It’s not only a smart business decision in that it should help further reduce turnover and training costs, but we feel that it’s the right thing to do," says Brian Luscomb, Jack in the Box’s vice president of corporate communications.

    Jack in the Box isn’t the first fast-food company to extend medical insurance to hourly workers. Sixty percent of the 230 fast-food restaurants surveyed by the National Restaurant Association offer partially paid health insurance to hourly employees. One percent provide fully paid health insurance.

    What is different about Jack in the Box is the proportion of restaurants owned by the company and, therefore, the percentage of its workforce affected by the decision. The company--not franchisees--owns the majority of restaurants.

    Jack in the Box owns 78 percent of its 2,006 namesake restaurants and all of the JBX Grills, which are scheduled to expand into Central California, Idaho and Dallas. In comparison, CKE Restaurants owns 42 percent of its 1,016 Carl’s Jr. restaurants and 33 percent of its 2,067 Hardee’s restaurants, according to the company’s latest financial data. CKE declined to say whether it offers health insurance to hourly workers, but its company Web site lists health care insurance among its employee benefits. McDonald’s offers health insurance to hourly workers at company-owned sites, but about 85 percent of McDonald’s domestic restaurants are operated by franchisees.

    Jack in the Box had offered health insurance to hourly workers until 1991, when the company stopped extending the benefit to new crew members. Since then, the company has tracked tenure of those with company health insurance and those who joined after 1991. The average tenure of those with health insurance was 15 years versus 1.5 years for those without it.

Tech upgrades
    The 53-year-old company has taken several other steps to enhance its workforce management practices. It has introduced computer-based training that replaced videotaped instruction. Employees use a touch screen to navigate the training, answering questions and getting feedback on mistakes. The e-learning complements core training provided by restaurant managers.

    Jack in the Box also has overhauled how it assesses customer satisfaction. The company ditched its mystery-guest program and now asks randomly selected customers to rate their dining experience through an automated telephone or Internet survey. The so-called Voice of the Customer program provides "more relevant guest feedback" in weekly versus twice-monthly reports and will save an estimated $1 million annually, the company says.

    To gauge consumer reaction to new menu items, Jack in the Box also has opened a 70,000-square-foot Innovation Center in San Diego that includes test kitchens and consumer research rooms. Cross-functional teams meet in conference rooms named for Benjamin Franklin, Henry Ford and other inventors.

    That kind of work is why the company is better able to execute its plans for the future, San Diego State’s Winston says. "It has to do with the fact that they have a whole culture of innovation."