Jack in the Box details commodity expectations

Jack in the Box Inc. said commodity cost pressures look to be worse than expected this year, and that any resulting menu price increases would have to be “modest and targeted.”

In a call to investors on Thursday, following the company’s release Wednesday of better-than-expected first-quarter results [3], Jack in the Box said commodity cost increases for 2011 are now expected to be twice what had been previously projected.

In November, company officials had projected that commodity costs would increase between 1 percent and 2 percent in 2011. Now, Jack in the Box expects costs to increase between 3 percent and 4 percent.

Produce such as lettuce and tomatoes, which have been pressured by harsh winter weather in growing regions around the U.S. and Mexico, is expected to increase between 20 percent and 25 percent in the second quarter alone, the company cited as an example.

For the year, beef costs are expected to jump 9 percent and cheese will be up 13 percent, the company projected. Dairy costs will increase by 5 percent in 2011, but bakery products will likely decrease by 1.5 percent. The company does not expect any change in its outlook for chicken.

Linda Lang, Jack in the Box’s chair, chief executive and president, said the company does not reveal specifics on pricing strategies, but she said, “Our approach to pricing will be cautious. Whatever pricing we do take will be modest and targeted.”

Sales drivers

San Diego-based Jack in the Box has struggled with sales traction in recent years in part because its core locations are in Southern California, Texas and Arizona — all markets that have been hit hard by high unemployment levels.

During the quarterly conference call, Lang noted that California is now the company’s strongest performing market, and sales have also turned positive in Texas and Arizona. However, economic recovery in those regions is expected to be slow.

Lang said Jack in the Box remains committed to its strategy of promoting both premium and value-focused products.

Over the past year, the Jack in the Box chain has been upgrading core menu items, including its fries, tacos, coffee and ingredients like bacon, for example.

Lang said value-positioned promotions, such as the offer of two croissant sandwiches for $3, have successfully driven traffic, especially during the chain’s strong breakfast daypart. That promotion, first introduced last October, was so successful, the company is bringing it back next week, she said.

Other recent traffic drivers have included combination meals, such as the Jumbo Deal, including a Jumbo Jack burger, two tacos, a small order of fries and small drink for $3.99; as well as the All-American Jack Combo, including the new double-patty burger with small fries and a 20-ounce beverage for $4.99.

Contact Lisa Jennings at [email protected]