Jack in the Box CEO on buying Del Taco: ‘We saw a lot of opportunity for growth across the country’

Jack in the Box CEO Darin Harris joins Yahoo Finance Live to discuss the fast-food chain's acquisition of Del Taco and its handling of rising inflation costs on its menu.

Video transcript

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BRIAN SOZZI: Jack in the Box is gobbling up fellow challenger brand Del Taco in a $575 million deal. Founded in 1964, Del Taco says it serves up more than 3 million guests each week at its roughly 600 restaurants spanning 16 states. About 99% of Del Taco restaurants feature a drive-through, which is a must-have, of course, for fast food chains in this new pandemic world. Joining us now for more details on this deal is Jack in the Box CEO, Darin Harris. Darin, nice to see you here. Congrats on this deal. Why'd you make it?

DARIN HARRIS: Thank you very much, and good morning. You know, we saw a lot of opportunity. As we think about Jack in the Box growing nationwide, we saw that Del Taco was very similarly positioned to us. This deal creates a QSR player with substantial scale. It reinforces our unit growth plans. We love the challenger mindset of the concept and the culture. There are similar guest profiles.

As you mentioned, very different than our former brand that we own in Qdoba. It has-- 99% of the Del Taco locations have a drive-thru and compete in QSR. So, a lot of opportunities we see in synergies. And then, you know, most of all, this deal was immediately accretive to earnings.

BRIAN SOZZI: Darin, what is it-- so Jack in the Box has had a lot of good success selling tacos. I can go to your website. I see you selling Tiny Tacos. And now you're adding Del Taco to your mix. What is it about the business of tacos that make them so lucrative?

DARIN HARRIS: Well, you know, we are a burger joint best known for selling tacos. And what we liked about Del Taco is that it's the second largest player in the growing Mexican QSR space, a distant between Taco Bell. And so we saw a lot of opportunity for growth across the country. And so we think, you know, where they position ourselves in the category from a standpoint of both quality and value is a great fit for the Jack in the Box brand similar to how we go to market.

BRIAN CHEUNG: Hey, it's Brian Cheung here. You mentioned that there's some synergies that you can have between these two brands, that it's already accretive to earnings. Can you clarify, I guess, where you see those synergies? I mean, is it just like a combination Del Taco, Jack in the Box, or are there also kind of areas in the supply chain that you can streamline with the availability of these two brands now being able to combine?

DARIN HARRIS: Yeah, we think there is definitely shared services and shared knowledge savings. So within our supply chain and procurement, there's substantial savings by combining the two brands. We think both of us are making investments in both technology and digital. And at this point in time, why both of us building our digital capability when we can do that together? And then we also see just overall financial business from knowledge sharing at the restaurant level and how we operate our business.

JULIE HYMAN: And Darin, it's Julie here. Speaking of how you operate your business, let's talk costs for a moment. This is something we've been talking to pretty much everyone about, but particularly in the restaurant industry. When it comes to ingredients, when it comes to labor, what are you guys seeing right now? What's your experience in terms of inflation?

DARIN HARRIS: Yeah, we're definitely seeing enhanced inflation. And we, at the same time, see plenty of opportunity to increase price. As we've looked over the last year, we were probably in the bottom portion of the industry as far as taking price. And so, throughout this quarter and through the year, we'll be increasing our price to manage inflation.

But we also have to look at different opportunities and look at things like robotics or process and efficiencies that we can gain at the unit level to drive cost up, not driving it out through quality, really through focus in enhancing our capability and how we engage our guest and/or operate our business.

BRIAN SOZZI: Darin, something stood out to me in your latest earnings call, which you just had-- the word "success," as in you're having success in retaining workers and hiring them. I've not heard that from many others in the fast food space. What are you doing to keep these workers?

DARIN HARRIS: Well, we've actually been challenged like all in the industry, especially in our late night business. You know, what's interesting about post-pandemic is-- or comparing to pre-pandemic is that our late night business, we could be taking share. There's tremendous demand. And if we could hire, we could service even more. And so what we've been doing in the late night is offering premium pay. And so that's reduced our unutilized operating hours by about 25%. So I can't say it's-- that we're were successful. What I can say is we're improving the situation that we're in. And we're starting to see more and more applications come into the restaurant.

BRIAN SOZZI: You were brought on, Darin, really just as part of a rebirth of Jack in the Box. And one of your longer term targets is trying to reach 6,000 restaurants. When do you think you can do that?

DARIN HARRIS: Yeah, our focus is to be in 40 states by 2030. And so, you know, we believe there's plenty of opportunity to continue to grow this brand by 2025 to grow at about a 4% run rate.

BRIAN SOZZI: Well, lastly, Darin, most people don't know, Jack in the Box was founded, I believe, in 1951. You were one of the first chains with a drive-thru. How do you see the drive-thru experience changing as we move deeper into the pandemic?

DARIN HARRIS: You know, there's definitely plenty of innovation going on. And a lot of it comes through what I mentioned earlier, synergies through technology and digital. We can provide a better guest experience through the drive-thru with the way we organize it, with the way we provide tech tools to our guests.

A lot of times at this point, we know when our guests are getting near based upon geofencing and data they get on their phone. And they can tell us, hey, when we identify they're closer, when they're getting closer, ready to leave, they can actually hit a button on their phone and tell us, you know, drop the order so they can pick it up hot and fresh. And so that's just one example of many where, through technology and through the drive-thru, we can enhance the guest experience.