Difficult industry-wide macro environment hurts QSR chains on the West Coast
/Jack in the Box will close 150 to 200 locations to shore up long-term finances and reduce debt. Between 80 and 120 Jack in the Box restaurants will close by the end of 2025, and more underperforming locations will shutter in 2026.
The company also plans to increase cash flow by selling a select number of owned real estate holdings, and redirect the proceeds towards reducing debt.
The QSR chain is also considering selling Del Taco, a Mexican American fast food brand that Jack in the Box acquired in 2022.
But here’s the most concerning issue: According to CEO Lance Tucker, Jack in the Box is suffering from what he termed as a “difficult industry-wide macro environment.” What is causing that?
I’ll offer you 10 key factors that are currently affecting the profitability of fast food restaurants, particularly for chains like Jack in the Box that operate a large number of West Coast locations:
1. Labor Costs: California and other West Coast states have implemented higher minimum wages—California, for example, raised its minimum wage for fast food workers to $20/hour in 2024.
2. Staffing Shortages: Even with higher wages, labor shortages persist in some areas, leading to reduced hours, longer wait times and customer complaints.
3. Occupancy Costs: Commercial real estate costs in cities like San Francisco, Los Angeles and Seattle remain high, squeezing margins.
4. Limited Real Estate Opportunities: Good high traffic locations with access, visibility and adequate size to create dual drive-thru lanes are hard to find in large metropolitan markets. Some municipalities make approvals for drive-thru operations nearly impossible to obtain.
5. High Interest Rates: Persistent high costs of borrowing and servicing debt since 2022 has eroded profitability and limited access to capital for renovations and expansions.
6. Food Inflation: The cost of ingredients—especially meat, dairy and produce—has risen due to supply chain disruptions, climate-related events and general inflation.
7. Regulatory Pressure: Stringent labor laws, paid leave requirements and environmental regulations, e.g., limits on single-use plastics, often add compliance costs.
8. Changing Consumer Preferences: There’s a growing demand for healthier, plant-based or locally sourced food. Meeting this demand requires changes in sourcing and menu development, which can raise costs.
9. Third-party Delivery Fees: Heavy reliance on delivery services like DoorDash and Uber Eats cuts into profits due to high commission fees (often 15–30%).
10. Competition: Intense competition from expansion of successful fast food chains, fast casual, ghost kitchens and food trucks keeps pressure on pricing.
Jack in the Box currently operates 600 Del Taco restaurants across 17 states and about 2,200 Jack in the Box locations across 22 states, primarily on the West Coast. The first Jack in the Box restaurant opened in San Diego in 1951.