San Diego Business Journal

Lenny Comma, CEO of San Diego-based Jack in the Box Inc., isn’t one for gossip.

He won’t talk extensively about the NFA, or the National Jack in the Box Franchisee Association, which has called for the replacement of Comma multiple times in the last few months following a vote of “no confidence.” And, he definitely won’t answer any Kim Kardashian questions — not on the record, at least — following her tweet to the company about a “serious complaint” earlier this month that appears to have since been resolved.

What 49-year-old Comma, a native Brooklynite and avid runner, will talk about is Jack in the Box and its future. These days, after the food chain announced its decision not to sell the company to new owners and instead would pursue a securitization strategy, Comma’s focus is solely forward-looking.

Back to Running the Business

“It’s a sigh of relief for me” (now that the process is over), said Comma. “For me, I did have fatigue from running the company while running the process. Now, I get to run the business and not have this side job of looking for strategic alternatives.”

Just last week, the food chain announced it would pursue a securitization strategy, refinancing and restructuring its existing loans. And a few days ago, Jack in the Box added two new directors, Jean M. Birch and John P. Gainor, who will each serve on the Compensation and Nominating & Governance Committees of the Jack in the Box Inc. Board of Directors.

This decision comes after months of not-so-favorable headlines on Jack in the Box. And, while Comma is relieved a decision has been made, the NFA, primarily responsible for those negative headlines, continues to be displeased.

Seeking Leadership Change

In October 2018, the NFA asked for the termination of Comma and the current leadership team. A few weeks later, New York-based hedge fund, JANA Partners LLC, investor in Jack in the Box, disclosed it had trimmed its holdings in the company down to 1,831,007 shares from 2,050,325 during the second quarter. On Jan. 4, Jack in the Box began layoffs of 66 corporate employees, and, in early December, the NFA filed a lawsuit against Jack in the Box alleging the company failed to perform its contractual duties.

Michael Norwich, chairman of the NFA, said not only is the association unhappy with the outcome, but it is also hoping Comma, while a charismatic man, will make the choice to step down.

“That (securization) is something the company did on its own to put themselves in a position to borrow and make more share purchases and dividend distribution, but it isn’t something in favor of the NFA,” he said, adding that there have been resource cuts and layoffs that have affected the franchisees, specifically in the corporate support center. “If their intent was to invest in the brand, where they could add value and could, in turn, turn to revenue growth, that would have been something more appealing to us.”

Not Being Heard?

Norwich said that, under Comma’s leadership, Jack in the Box has ignored the NFA’s pleas to consider the concerns of the franchisees and be proactive about collectively finding a solution.

“I think if Lenny said, ‘guys, we have changes coming. Owners are demanding we change the business model and that is going to mean that we will need to make some cuts. But, let’s prioritize and leave the proper infrastructure in place, and then work on the areas that we should work on’… those are the types of discussions we need to have but we are not,” said Norwich. “They have been careful about ignoring us… and that is where frustration comes.”

Pairing Refinancing and Revitalization

Disaccord aside,Wendy Patrick, business ethics lecturer at San Diego State University, said, now that Jack in the Box has chosen the securitization route, in order to maximize profits, the refinancing strategy needs to be paired with “revitalization.”

“Competitive brand management can translate corporate image into profits,” she said. “Fast-food chains, facing heavy competition, often struggle to outdo each other through menus, management and money. Offering unique, health-conscious or distinctive menu items at a competitive price — served with a smile, goes a long way toward earning customer loyalty — one of the simplest ways to maximize revenue for shareholders.”

Energized

There is definitely work to be done. But, Comma, and his team, remain optimistic.

“I tell you, my team is already very reinvigorated,” he said. “Just the fact that we can focus forward and not be in a place of reevaluating… To an employee, that sounds like risk: Who will be my owner? How would it impact me? Now that we have put those aside, my team is so ready, fired up and energized.”

Earlier this month, Comma hosted a group of 50 diverse college students at the Kearny Mesa-based Jack in the Box Innovation Center and extended an exclusive invite to San Diego Business Journal’s Mariel Concepcion to tag along and pick his brain afterward. Here, Comma, who normally doesn’t talk much to media, answered questions about the process of trying to sell a business, told us why securitization was the right move for the company, and he shared what is on the horizon for the beloved homegrown chain.

First off, please tell us what a securitization is?

First thing is, people should understand a securitization is just a way to finance debt. In this particular vehicle, instead of borrowing money from a bank, which is what we traditionally do, we have our business rated as if it is a bond, then we go to potential long-term investors and say, ‘would you like to lend us money based on our rating?’

Who may be interested in this type of business deal?

The types of companies that love this are companies like insurance companies because it is a very secure deal although you aren’t getting a big return. There is no upside or downside. It’s like a mortgage where you know you pay a 4% rate or a CD in a bank in which I know I will get 1.5% back on my CD. We behave like those types of mechanisms by having our company rated as a bond. People interested in low-risk investments and relatively low return, they would then lend us money in exchange.

How did you come to this decision?

Within a strategic alternative process, all we are doing is evaluating all the ways to generate value and make the company more valuable. If I look at all the things we are doing with the business under my control, I ask myself, can I generate this much or more value if I bring other people to the mix that have different ideas or are attached to other businesses that add value? You compare all the value you think you can create in all the scenarios. In this case, the best value is to be gained by us keeping the business and running it ourselves, but you won’t know that unless you see what else you can do. We looked at those, and some were good ideas, but not better than what we already have going.

How do those involved feel about the securitization?

There are two different people looking at this. Some are shareholders. You have short-term shareholders that want to make a lot of money in a short period of time. “If Jack in the Box sells I might make a lot of money fast.” I can’t worry about them. Our fiduciary duty is to make the best long-term decision. Long-term shareholders could care less — they are just happy we are still around. And, the people that were interested in buying us: this is the nature of their business. They buy and sell businesses all the time. They are looking at a hundred things at one time, so, they don’t care. They did try to entice us, but it didn’t work out that way.

How does Wall Street feel about this decision?

We told Wall Street a long time ago we were going to raise our debt levels. They like that because they want us to use cash in different ways, either to buy stocks or pay dividends or build new restaurants. In our case, we can pay dividends and buy back stock, but that is not the only thing you do with this.

What is the process of selling a business, especially one as extensive as Jack in the Box? Are you constantly on a plane and living out of hotels for long periods of time?

It can be like that. It’s a combination of phone calls and meetings — a pretty rigorous combination of both. We don’t fly any private planes, though.

You’ve been going on roadshows to franchisee locations. Tell me about this.

There are two types of roadshows: one in the financial community, where companies will go out to the marketplace where investors are, travel around and meet them to talk about the company. We do that. But, at Jack in the Box, we have another roadshow, which is part of our franchisee engagement program, which we do at least three times a year. We launched this process at the beginning of the fiscal year. We go to multiple venues and allow franchisees to have access to the senior executives, including myself, through three or four hour meetings. During that time, we present a lot of things, might be what is going on with consumers, what is going with competitors, what is going with us, how we are performing, etc. And, we have broad Q&As where we pass along criticism and have an open forum for people to speak to the top.

What other ways do you make sure to stay connected with the company’s franchisees?

We also do market meetings that are really targeted toward what the next bunch of marketing promotions will be. We have those more often than three times a year. We have engagement through the franchisee advisory council with franchisees, where they come to San Diego, usually a smaller group, and spend time with senior executives. We have a task force targeted to specific projects that franchisees sit on. We have electronic emails that updates everyone on changes of products or minor changes to procedures — those types of communications. Then, other business intelligence information that gives franchisees access to critical performance on a daily basis through telephone or through an app. Roadshows are just one part of the whole system in which we engage franchisees.

Will there be any environmental and/or menu changes to Jack in the Box locations in the near future?

We are focusing on the drive-thru features: looking at digital menu boards, canopies and point-of-purchase related things to make the drive-thru experience better. We are currently testing that to see how consumers receive service in the drive-thru all in effort to drive traffic at a faster rate with greater hospitality while preserving order accuracy and good food quality. That will be the biggest environmental change as the drive-thru is 70% of our traffic. We hope to get results later this year, so, as we go into 2020, we are in a position to start launching.

In the past, I think consumers associated fast food chains with burgers. Now, chicken seems to be on the rise.

Chicken is definitely on the rise. It’s the fastest growing segment within the fast food business. I think it’s because consumers are saying, ‘we are interested in this protein’ at a much faster growing rate than they have been in the past, so, we are making adjustments. We have the spicy chicken strip combo available now and other chicken-based offerings coming out soon. We still sell a huge amount of burgers, we just have to have a balance now.

You are a runner. Does your running style cross over to your leadership style?

Yes. Running is just not about physical exercise, it is actually mediation. Practicing mindfulness is really important. It’s not just running, because it does hurt. You have to say, ‘I recognize that stress, but, I also recognize I am strong enough to run through it.’ That is directly applicable in every situation, especially in high profile jobs.

How so?

When I’m running, I am practicing life and perseverance. When you focus on yourself, you have a certain amount of motivation. But, when you think about other people, your motivation goes up and you work harder. When I’m running, I think of people in my life, I put prayers on the table, and I dedicate a number of miles and whatever pace to them. It’s mindful perseverance, but also this idea that it isn’t about you. When I feel bogged down in life, I go, ‘it isn’t about me’. It’s not just for you, it’s for other people that are important. The minute you focus on them and not on just you, you find the inner strength to go.