Customers' Fears Ease, But Jack In The Box Still Hurting

Jack in the Box

-- Parent company: Foodmaker Inc.

-- Headquarters: San Diego, Calif.

-- No. of restaurants: 1,160 Jack in the Box, 236 Chi Chi's

-- No. of Jack in the Box restaurants in Washington: 64

-- Second-quarter sales: $285.4 million

-- Second-quarter loss: 75 cents per share -------------------------------------------------------------------

Ilyaas Abdul-Wajid vowed that he would never eat at Jack in the Box again. The 21-year-old nurse from Rainier Beach was turned off after more than 500 people were sickened and three children died in the E. coli outbreak stemming from tainted hamburgers at the restaurants last January.

But cruising through Greenwood recently, he stopped at the Jack in the Box on the corner of Aurora Avenue North and North 85th Street to pick up a chicken sandwich, curly fries and a strawberry shake.

"It was the only place around," he said.

Although Abdul-Wajid said he probably wouldn't go out of his way to eat at a Jack in the Box, he is no longer avoiding the chain. He figures that what happened at Jack in the Box could have happened almost anywhere.

"I could go to a health food store and get sick eating tofu," he said with a shrug. "Who knows?"

Jack in the Box customers such as Abdul-Wajid say memories of the E. coli outbreak are fading in their minds, but problems are not over for the nation's No. 5 fast-food hamburger chain.

Some customers, such as Gary Guthrie from Bellevue, are still leery. Gutherie, a 57-year-old appliance repairman, recently ate at Jack in the Box for the first time since the outbreak. He said he believed the contamination problems had been solved, but the publicity has affected his burger-buying habits.

"Consciously, I had no feeling like, `I'm not going to eat at Jack in the Box,' " Guthrie said. "But subconsciously, if there were two restaurants side by side, like McDonald's and Jack in the Box, I would have veered off to McDonald's."

Jack in the Box's parent company, San Diego-based Foodmaker, says an aggressive advertising and promotion campaign has helped the chain rebound, but a lawsuit filed recently by franchisees claims some restaurants are still suffering heavy losses and are near bankruptcy.

The company lost $29.3 million in the quarter after the disaster, including $8 million in financial assistance for franchisees and lower income from rents and royalties. Sales were down 11 percent, to $217.3 million. The second-quarter loss prompted the company to scale back expansion plans for Jack in the Box. Foodmaker also operates the Chi-Chi's Mexican restaurant chain.

Analysts are expecting Foodmaker to report another loss when it announces third-quarter results next week.

"They've made some smart moves in terms of marketing, but I also know that it's an extremely competitive market on the West Coast," said Laurie Smith, an analyst with The Seidler Cos., a Los Angeles-based brokerage. "Their promotions are successful, but they are discounting more than they would like." Sales may not recover until the end of the year, she predicted.

Television commercials featuring Foodmaker President Jack Goodall and special discounts on popular items, such a hamburgers, tacos and french fries, have helped.

Lured by the chain's stream of promotions, Sudarsan Raghavan, a 25-year-old student at the University of Washington, regularly stops at the Jack in the Box on University Way on his way home.

"If you are going in for coffee, you might as well get a meal for 99 cents," he said. "I'm not that concerned that I'm going to get poisoned. If they've already had a scare, they're probably taking more precautions so it won't happen again."

Now that Jack in the Box is phasing out some of the specials, a clearer picture of its financial position should emerge. Sales at the chain's 1,160 restaurants (both company-owned and franchised) plunged an overall 40 percent immediately after the E. coli outbreak. They were off 8.4 percent in the four weeks ended May 9, compared with the same period a year ago.

"Some of the recovery is artificial," said Mitchell Shapiro, an attorney for the franchisees who are suing. "A lot of those sales are of heavily discounted items." The 85 franchisees, who operate 325 of the chain's 450 franchised outlets, claim that sales at some restaurants are still down 30 percent and that they have not been compensated for the financial fallout.

Foodmaker does not release sales figures by region, but a company spokeswoman said sales at the 70 restaurants in the Northwest were still trailing other areas. Jack in the Box restaurants are in 13 states in the West and Southwest.

The franchisees claim Foodmaker was negligent for failing to ensure that meat supplied to the restaurants was safe. They are seeking damages of more than $100 million.

The franchisees have also asked the California Department of Corporations to investigate Foodmaker. They say the chain tried to break up the group by threatening individual franchisees and forcing settlements with a few high-profile members.

The company was "disappointed and outraged" by the allegations, said Foodmaker spokeswoman Sheree Zizzi. She said it would continue to work with the group to settle the matter.

Most of the 64 Jack in the Boxes in Washington are owned by Foodmaker. The sole franchisee in Washington state, Joe Zacher, who operates 10 restaurants, is not involved in the suit. He declined requests for interviews.