Dive Brief:
- Jack in the Box is selling Del Taco to franchisee Yadav Enterprises for $115 million, according to a Thursday press release.
- The deal price is a significant markdown compared to the $575 million the burger brand paid for the taco chain in 2021.
- Jack in the Box and Del Taco have both struggled to grow sales in recent quarters, with the burger QSR posting its worst sales performance in years in fiscal Q3, and both brands closing stores and losing traffic.
Dive Insight:
In April, Jack in the Box foreshadowed the possibility of a sale when it announced a turnaround plan, Jack on Track, aimed at shoring up its balance sheet and shifting toward an asset-light business model. Jack in the Box had been working for years to refranchise parts of Del Taco’s store-system, which was more franchised than Jack’s.
Del Taco’s footprint has shrunk since the acquisition by Jack in the Box, when it had roughly 600 stores, down to about 550 locations today, per the release. In February, a Del Taco franchisee closed down 18 stores in Colorado, following a dispute with a lender. Del Taco announced several months later that it was reopening the locations with new kiosks and other changes. In July, Matadoor Restaurant Group, a 22-unit franchisee in the South, filed for Chapter 11.
Del Taco’s same-store sales have fallen for six straight quarters, and seven of the last nine quarters, according to company data. The brand has largely been behind the ball on value plays — its $5, $7 and $9 value boxes debuted 10 months after Taco Bell rolled out its $7 Luxe Cravings Box and more than three months after Taco Bell expanded its boxes to include $5 and $9 options. These woes, and similar sales problems for Jack in the Box, put significant strain on the parent company, which is facing pressure from Biglari Capital, the activist investor behind a long-running campaign to shake up Cracker Barrel.
The Jack on Track plan, in addition to strategic alternatives for Del Taco, included accelerated closures of underperforming Jack units and a deceleration of company-operated development. Jack in the Box also began selling some real estate in an effort to raise cash with which to pay down debt.
The transaction with Yadav is expected to close in January, and Jack’s CEO Lance Tucker said the deal would help the company carry out Jack on Track.
“This divestiture is an important step in returning to simplicity, and we look forward to focusing on our core Jack in the Box brand,” Tucker said in the press release. “After a robust process, we are confident we have entered into a transaction with the right steward for Del Taco in its next chapter.”
Yadav Enterprises is a multi-brand franchisee, and also owns two brands of its own: Nick the Greek and Taco Cabana. Yadav acquired Taco Cabana for $85 million in 2021 and bought a controlling interest in Nick the Greek about two years ago. Nick the Greek has since grown from roughly t 48 units to 90, according to the press release, in keeping with the broader expansion of the Mediterranean fast-casual sector.
Several major franchisees have built up brand portfolios in recent years. Sun Holdings bought several companies, most recently Uncle Julio’s. Earlier this year, Legacy Brands International, a Friendly’s franchisee, bought Friendly’s parent company, Brix Holdings.
