Extreme Discounting - But Who's Got Jack's Back?

Jack in the Box (JBX) put out a press release saying that the company will give away two free tacos to any customer who presents a valid gas receipt on June 26th. JBX's Chief Marketing Officer said, The rising price of fuel is really putting the pinch on consumers. Giving away free tacos is our way of letting guests know that Jack's got their back in these tough economic times. This promotion does not require any other purchases so although it may bring people into the restaurants, it might fail to drive a high level of incremental sales.

I have written extensively about the role discounting has played in driving traffic for restaurant companies and the subsequent impact on margins. Specifically, I have the highlighted the issues around MCD's Dollar Menu. Recent NPD data shows how prevalent restaurant discounting has become.

For the February to April 2008 time period, MCD's traffic has grown 3% YOY. Transactions on deal have increased 10% while non-deal transactions were flat, and 60% of the incremental deal traffic was driven by the Dollar Menu. In that same time frame, Subway has experience a 65% increase in its deal traffic while non-deal traffic has declined 8%. This is not only a QSR phenomenon, however, as T.G.I. Friday's also saw its transactions on deal increase 17% (Yesterday, we posted a chart showing the impact this increased focus on value combined with rising commodity costs is having on casual dining margins).