Has Jack in the Box Solved the Discount Problem?
One big problem with dollar menus is people like me, but Jack in the Box thinks it may have found a way around me with its new “Pick 3 for $3″ customizable value menu.
I’ve been known to hit the drive-thru at McDonald’s for a $1 Sausage Burrito in the morning, but I don’t get coffee. And when Burger King marked down its Double Cheeseburger to $1, I’d buy one but not a drink to go with it. In other words, I’m a net margin drain, buying the discounted entrée but not a higher-margin beverage or side. If chains hate me, I totally understand.
Jack in the Box knows the problem people like me present and has avoided straight-up dollar-menu promotions as a result, choosing instead to promote bundled meals that ensure customers buy a drink and fries. These have limitations, however. For example, its recent $3.49 Jumbo Deal was effective only to the extent that its customers wanted a Jumbo Jack burger, two tacos, small fries and small drink, which was the set offering. Those hungry for something else got no price break.
But Jack’s announcement frames its “Pick 3 for $3″ menu as “offering guests a unique way to create their own value meal.” And it is. But it also is a way to avoid losing money on me, which makes complete sense.
Guests can choose any three from among eight items. These include three sandwiches (Hamburger Deluxe, Jr. Bacon Cheeseburger and Chicken Sandwich), four sides (onion rings, egg rolls, small fries and mini churros) and a small fountain drink. Certainly there’s the possibility someone could order three Jr. Bacon Cheeseburgers for $3, but there’s at least a one-in-three chance a higher-margin side or drink is going to be in the mix than if everything were à la carte at $1.
In addition to finding ways to profitably promote bundled meals, Jack in the Box Chairman-CEO Linda Lang repeatedly has told analysts she wants to rethink the chain’s marketing strategy so that more than one menu item, deal or message is being communicated simultaneously. That certainly has happened. Consider that Jack in the Box is now marketing a value menu (“Pick 3 for $3″), a new lunch/dinner sandwich platform (Grilled Sandwiches), a breakfast extension of that platform (Grilled Breakfast Sandwich), a new coffee (Kona Classic), a “two tacos for 99¢” deal and new french fries. That’s one full plate. But one with good margins.
Can't keep track of all the new menu additions? Check the 
It’s interesting how a customer can be not profitable. I think if you’re an investor in some of these fast food chains you have to be careful when investing into a company that is going to try and compete with McDonald’s $1 Menu. I don’t think too many can compete and be profitable.
But the real question is what is the difference between selling one $1 items and selling 3 $1 items? They still should be making a profit selling one $1 item no?
Also you could assume the customer that only buys 1 $1 item may buy something else in addition to order one $1 items and that could drive margins. But maybe in this case Jack in the Box does not want potentially unprofitable customers and making a 3-item deal guarantees them a certain level of profit on each customer.
Btw way great articles on the fast food industry. I am a fast food investor and I like your insights.