Jack In The Box 2013 Annual Report Download - page 6

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The following table summarizes the changes in the number of company-operated and franchise Qdoba restaurants over the past five years:






Company-operated restaurants:
Beginning of period
316
245
188
157
111
New
34
26
25
15
24
Refranchised
(3)
—
—
—
—
Acquired from franchisees
13
46
32
16
22
Closed
(64)
(1)
—
—
—
End of period total
296
316
245
188
157
% of system
48%
50%
42%
36%
31%
Franchise restaurants:
Beginning of period
311
338
337
353
343
New
34
32
42
21
38
Refranchised
3
—
—
—
—
Sold to Company
(13)
(46)
(32)
(16)
(22)
Closed
(16)
(13)
(9)
(21)
(6)
End of period total
319
311
338
337
353
% of system
52%
50%
58%
64%
69%
System end of period total
615
627
583
525
510

Site selections for all new company-operated Jack in the Box and Qdoba restaurants are made after an economic analysis and a review of demographic data
and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and
opportunities for market penetration. Restaurants developed by franchisees are built to our specifications on sites we have reviewed.
We have multiple restaurant models with different seating capacities to help reduce costs and improve our flexibility in selecting locations for our
restaurants. Management believes that this flexibility enables the Company to match the restaurant configuration with the specific economic, demographic,
geographic or physical characteristics of a particular site. The majority of our Jack in the Box restaurants are constructed on leased land or on land that was
purchased and subsequently sold, along with the improvements, in a sale and leaseback transaction. Typical costs to develop a traditional Jack in the Box
restaurant, excluding the land value, range from $1.5 million to $1.9 million. Upon completion of a sale and leaseback transaction, the Company’s initial
cash investment is reduced to the cost of equipment, which averages approximately $0.4 million.
The majority of Qdoba restaurants are located in leased spaces ranging from conventional large-scale retail projects to smaller neighborhood retail strip
centers as well as non-traditional locations such as airports, college campuses and food courts. Qdoba restaurant development costs typically range from $0.6
million to $1.0 million depending on the geographic region.

Jack in the Box. The Jack in the Box franchise agreement generally provides for an initial franchise fee of $50,000 per restaurant for a 20-year term and
marketing fees at 5% of gross sales. Royalty rates, typically 5% of gross sales, generally range from 2% to as high as 15% of gross sales, and some existing
agreements provide for variable rates. We offer development agreements to franchisees for construction of one or more new restaurants over a defined period of
time and in a defined geographic area. Developers are required to pay a fee, which may be credited against a portion of the franchise fee due when restaurants
open in the future. Developers may forfeit such fees and lose their rights to future development if they do not maintain the required schedule of openings. To
simulate growth, beginning in fiscal 2012, we began offering franchisees who opened restaurants within a specified time reduced franchise fees and lower
royalty rates.
In connection with the sale of a company-operated restaurant, the restaurant equipment and the right to do business at that location are sold to the
franchisee. The aggregate price is negotiated based upon the value of the restaurant as a going concern, which depends on various factors, including the sales
and cash flows of the restaurant, as well as its location and history. In addition, the land and building are generally leased or subleased to the franchisee at a
negotiated rent, typically equal to the greater of a minimum base rent or a percentage of gross sales. The franchisee is usually required to pay property taxes,
insurance and ancillary costs, and is responsible for maintaining the restaurant.
4