Why Jack in the Box Is a Franchise to Watch After a 24-year hiatus, the chain participated in Entrepreneur's Franchise 500 list -- and ended up at No. 4.

It has been 24 years since Jack in the Box last participated in the Franchise 500® rankings, so it was a surprise that it decided to jump into the mix again this year. What wasn't a surprise? The fact that the San Diego-based company, which has been serving fast food since 1951, landed so high on the list, at No. 4.

Jack in the Box has been on a tear since 2004, when it changed its business model and began expanding aggressively outside of its 17-state western stronghold. The company now has 2,250 restaurants in 21 states, with more in the pipeline.

The way it has gone about this expansion has been quite different from the strategies of other concepts. A decade ago, the company owned approximately 80 percent of its stores, while the rest were held by franchisees. As of 2014, that ratio had almost completely flipped: 81 percent of the system is now franchisee-owned. That change was accomplished primarily by refranchising (in which the company sold its corporate stores to franchisees). Jack in the Box also used a unique "seeding" strategy to enter new markets; for example, in Oklahoma City, Indianapolis, Cincinnati and other cities, corporate opened and operated several stores before selling them to local franchise partners. The goal is to get franchisees off the ground, then let them expand organically into contiguous areas and states.

Besides refranchising, Jack in the Box has undertaken other strategic initiatives that are paying dividends. The company redesigned and updated all of its dining rooms in the past decade, and has emphasized differentiating the brand from other burger-slingers. That means an almost constant pipeline of new menu options, like breakfast burritos, tacos and even a chicken, bacon and hash brown sandwich, all launched in the past year. It also serves breakfast all day, a strategy other brands have been hesitant to try. At the same time, as it tries to make itself more attractive to franchisees, Jack in the Box has improved unit economics by managing packaging and food costs, simplifying operations and focusing on long-term growth.

Another bright spot for the company is its fast-casual Mexican brand, Qdoba Mexican Grill, acquired in 2003. Qdoba, which now has 630-plus units in 47 states, has a fan base that's almost as rabid as Chipotle's, and with a 7.5 percent increase in sales in its most recent reported quarter, Wall Street is taking notice.

While change is difficult, the system seems to be adjusting well to a franchise-focused format. Mike Norwich,
an El Paso, Texas, franchisee who has been with Jack in the Box for 23 years, says franchisees are enthusiastic about CEO Leonard A. "Lenny" Comma, who took over last January, and Frances Allen, the former Denny's chief brand officer who became Jack in the Box's president in October. But he's most excited that the company has done a good job selecting franchisees.

"The Jack in the Box franchisee community is tight. We've been together a long time," Norwich says. "They've brought 10 or 20 new franchisees into the system in the last few years, and it's great getting those outside voices. It's a positive thing for the brand, and it's a great bunch of franchisees."