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American consumers are tightening their belts. So companies selling to households are pulling in their horns. Wall Street expects San Diego consumer companies such as Jack in the Box, Rubio’s, Charlotte Russe, WD-40, and Callaway Golf to face a double whammy: waning customer demand and rising costs of doing business.

Households are tussling with excessive debt, rising unemployment, wages that have been stagnant for 8 years, tightening credit, still-falling home values, and higher prices for food and energy. It’s little wonder that consumer sentiment has been running at close to its lowest rate for more than 25 years. “Credit growth will be slower in coming years, and so will economic growth,” says E. James Welsh, Carlsbad money manager.

“We’re passing out of a very, very long-term buildup in consumer spending,” says David Allen of North County’s Palomar Equity Research. “We reached the zenith in the last three or four years, and now we’re on the downside of the slope. Profits have become a larger percentage of [total economic output] while incomes have lagged. Consumers have made up for that by borrowing through credit cards, mortgages, home equity loans, whatever. So the average consumer is more indebted at a time unemployment and inflation are rising. It doesn’t paint a pretty picture.”

“Many consumer stocks got beaten up horribly, then had a run-up, and now have turned back down,” says Bud Leedom of Leedom Asset Management. He, too, doesn’t see solid signs of a consumer turnaround, although the dollar’s recent strength portends lower commodity prices that will translate into lower prices if the trend continues.

Mark Basham of Standard & Poor’s thinks full-service restaurants are being hit the hardest, and fast-food outlets will pick up some of that business. But you can’t see that in recent results of fast-food chains Jack in the Box and Rubio’s. Jack has suffered two straight quarters of traffic declines, and its Mexican chain, Qdoba, has had three, says Rachael Rothman of Merrill Lynch. The company’s bakery costs have soared 57.5 percent over the past year, while cheese prices have gone up 20 percent. One problem is that 43 percent of outlets are in California, where the economy founders. Rothman’s target on the stock is $26, above where it is now.

John Owens of Morningstar, Inc., is more bullish: he thinks the stock’s fair value is $40 a share. He likes the strategy of going upscale with Asian chicken salad, the 100 percent sirloin burger, and ciabatta burgers and sandwiches. On the other hand, Jack is going for the value market with such products as a nacho cheese sandwich. Early this month, the company lowered its forecast of earnings for the year but predicted they would still be up 7 to 9 percent. “That kind of growth in this challenging environment is impressive,” says Owens, citing “cutthroat competition” from Burger King, Carl’s Jr., McDonald’s, and Wendy’s.

“Rubio’s has always lagged expectations,” says Allen. The Mexican fast-food chain, which has more than 180 outlets in Western states, lost money in its first quarter. Its second-quarter profit of a mere $335,000, or 3 cents a share, was down from $503,000, or 5 cents, in the same quarter of the prior year. The stock has been as high as $11.90 over the past year. It’s now trading around $6. Standard & Poor’s says the stock is worth $4.70. According to S&P, 87 percent of the companies it follows are more desirable investments than Rubio’s.

“The price of cheese, cooking oil, flour went way up, hitting Rubio’s, which hasn’t found a sweet spot yet,” says Leedom.

Charlotte Russe, which sells apparel to women in their teens and 20s through 469 stores in the United States and Puerto Rico, is not garnering Wall Street’s respect just now because of “extensive management upheaval,” says Allen. In July, the company said it would have a weak fourth quarter. Also, chief executive Mark Hoffman would retire. In early August, the company said its chief financial officer, Patti Johnson, was stepping down. Len Mogil, the interim chief executive, would temporarily fill her shoes. Then executive vice president Patti Shields said she was taking off too. Since July 1, the stock has plummeted from almost $18 to around $12.

The company gets 25 percent of its sales from California, Florida, Arizona, and Nevada — states that are getting walloped economically. As a result, Charlotte Russe is “slowing the pace of expansion in response to difficult retail conditions,” says Jason Asaeda of Standard & Poor’s. The company earned $1.50 a share in 2006 and $1.43 in 2007 and should earn $1.21 this year and $1.15 next year, says Asaeda. That would be a pretty steady downspiral.

WD-40 makes a variety of household products. It has 80 percent of the U.S. market for its WD-40, the spray lubricant that people use to loosen up almost anything that sticks. The company also sells other lubricants, such as 3-In-One oil, heavy-duty hand cleaners, and household cleaners. Its Spot Shot carpet cleaner has half the U.S. market. Sales should grow by 4.34 percent this year, but they will decline in North and South America, says Loran Braverman of Standard & Poor’s. He thinks new products and higher prices will boost sales in the next 12 to 24 months, but growth will be “below that of other household product companies,” he says. Also, competition will stiffen.

S&P thinks WD-40’s stock price is ahead of itself. It gives the target price as $26. But the stock sells for about $8 more than that already. S&P would sell the stock. Leedom, however, notes that this company’s products are needed, not merely wanted: “It’s a pure consumer blue chip; they have been doing a good job,” he says.

In recent years, there has been a massive shift of wealth and income to the richest Americans. For example, the upper 1 percent now corrals more than 40 percent of the nation’s financial assets, such as stocks and bonds. Nonetheless, American Express recently announced extremely disappointing earnings and said that the affluent are cutting back on spending. Results have been mixed at retail stores catering to the carriage trade. Callaway Golf goes for the upscale market by selling golf clubs made of space-age metals for hundreds of dollars per club. But Erik Kolb of Standard & Poor’s expects Callaway’s sales to rise only 0.8 percent this year, compared with 11 percent last year. Drivers and irons might record percentage gains in the low single digits, but golf balls will be a problem, says Kolb.

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Don Bauder Aug. 28, 2008 @ 9:48 p.m.

Response to post #20: That sounds like a lot of breakfast. Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 9:50 p.m.

Response to post #21: Be wary of anyone who says, "Let's do lunch." Best, Don Bauder


Fred Williams Aug. 27, 2008 @ 1:43 p.m.

It costs me $1.39 at "Gag in the Bag" to get a Jumbo Jack, a price lower than I could possibly make it myself.

I'm confident this is a "loss leader" designed to lure in customers who end up ordering something different, so I'm glad to take advantage. By always changing the order to include pricy extras, I'm hopeful I increase their costs even more. Often, I check the burger on the spot and request that they add yet MORE lettuce and tomato, just to make sure that those productive hard working and underpaid employees are earning just that little bit less for my favorite hometown foodmaker.

On the other hand, I'm an evangelist for WD-40, telling my European and Asian friends of the wonders of this miracle lubricant, and urging them to try it on all their tricky sticky problems. It's one of the few products on the market you can really count on. Great stuff.

Rubio's fish tacos have always been a disappointment. I prefer the real ones in Ensenada or San Felipe, not the fish-sticks in a shell Ralph passes off to the gullible. Besides, he's a longtime advertiser and supporter of Hedgecock, who I've grown to disrespect over the years.

Charlotte Russe...throw away clothes for girls with throw away brains. The world could easily do without that store. Same with that other store that sells ugly black accessories to overweight goth chicks. Help make the world more beautiful, and tell women to avoid shopping at either place.

Callaway is a parasite feeding on publicly subsidized golf, whereby water that should be preserved is squandered on a game suitable for Scottish grasslands, not San Diego's desert by the sea. If they went out of business tomorrow, how would the world not be better off?

So I say, let's all go out and buy an extra can of WD-40 to have around the shop...and be sure to munch ONLY on a Jumbo Jack that has to be specially made at greater expense than it's sold. We'll improve San Diego each time, by rewarding a good company and punishing a bad one.

I don't know if this has any affect on their stock price, but I'm doing what I can to help.


Fred Williams


Russ Lewis Aug. 28, 2008 @ 1:14 a.m.

Fred, if you want to drive all the way to Ensenada for a fish taco, beat my guest. I may be gullible, but I'd rather drive down the street for a perfectly good fish taco with onions and plenty of hot sauce for a buck and a quarter (on Tuesdays). I'm just tightening my belt.


Don Bauder Aug. 28, 2008 @ 6:24 a.m.

Response to post #5: Rubio's was doing great until it went public. Some say it took the bite out of the product when it expanded into other states. Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 6:20 a.m.

Response to post #3: Jack may not be pleasing you, but it is pleasing Wall St. analysts with the ciatta sandwich and nacho sandwich. Best, Don Bauder


Don Bauder Aug. 27, 2008 @ 2:32 p.m.

Response to post #1: Fred, your post was so esoteric, so effervescent with recondite sapience, that I thought you said you put WD-40 on your Jumbo Jack. How does it taste? Or did I just get confused? In any case, I believe -- and as you can see I am too lazy to look this up-- that WD-40's foreign sales top domestic sales. Best, Don Bauder


Burwell Aug. 27, 2008 @ 8:34 p.m.

I stopped eating at Jack in the Box 30 years ago when they took the Bonus Jack, along with Jack's Secret Sauce, off the menu. The Bonus Jack was one hell of a burger. The Bonus Jack couldn't compare with the chicken sandwich sold by Picnic'N Chicken, a local chain. Then Altas Hotels took over Picnic'N Chicken and shortly thereafter the company went out of business after posting huge losses.


M. E. Aug. 27, 2008 @ 8:56 p.m.

I'm right-on with Fred_Williams's suggestion about Jack in the Box. They have great loss-leaders.

You can also order a second patty -- double burger -- for a small additional charge. A good way to get more meat. Last I checked it was 90 cents. 'Course that was when I fry cook for them, in 1983. Jesus, I'm old.


JohnnyVegas Aug. 27, 2008 @ 10:42 p.m.

Rubio's is one of the best,and my personal favortie, fast food joints in America. I remember when I first moved here for college at SDSU and they only had 3 restaurants-including the one at State. A San Diego success story.

WD-40, a home grown superstar.

Stands for Water Displacement-and took 40 tries before they got it right-hence WD-40.

The Atlas Hotels, used to be the largest independant hotel chain in CA....... are they still in business or did they sell out????

I love this town!


Don Bauder Aug. 28, 2008 @ 6:22 a.m.

Response to post #4: On the other hand in this day of cholesterol- and obesity-consciousness, do you want that second beef patty? Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 6:26 a.m.

Response to post #6: With gasoline prices still high, the driving distance is a factor in any dining selection. Best, Don Bauder


Fred Williams Aug. 28, 2008 @ 8:55 a.m.

How to eat fish tacos without driving:

Take the trolley to the border. Five dollars for a day pass.

Walk across, and avoid the taxi touts entirely.

The private bus lines at Plaza Viva include ABC. A one way ticket costs around ten bucks. The bus is comfortable enough to nap on the way, or you can enjoy the beautiful coastal scenery.

It drops you off within walking distance to the fish market in Ensenada, where you can eat some of the finest fish tacos in the world.

Okay, sure it takes you all day, and the long line crossing back is a test of patience, but for those of us who take our fish tacos seriously, there's no better option.



Don Bauder Aug. 28, 2008 @ 9:53 p.m.

Response to post #22: My recollection is that Jack never admitted that the meat was kangaroo meat from Australia. It was a rumor going around -- but it might have been true. The time Jack almost went under was in the early 1990s when several people died (and many got quite sick) from getting ecoli from eating at Jack. Jack made a good recovery from that debacle. Best, Don Bauder


JohnnyVegas Aug. 28, 2008 @ 12:02 p.m.

Sign me up for the next Fred Williams Ensenada fish taco excursion....... I am so THERE!


Ponzi Aug. 28, 2008 @ 12:25 p.m.

In my opinion, Rubio's quality has declined since they became a large chain. The best fish tacos in town are at the Brigantine's.

As far as consumer spending, I feel people are eating out less at all levels of establishments. Fast food places are not cheap anymore if you don't discpline yourself to the dollar deals or speacial items, it can easily cost $8.00 a person for a lunch.

I wonder when Carl's Jr. will have to rename their "Six Dollar" burger becuase it's not going to be long before theirs is $6.00. The named it that to make fun of expensive restarant burgers. A burger in a restaurant is now typically $10 and many placesd are asking $12. It wasn't long ago you could order a small steak for that.


Russ Lewis Aug. 28, 2008 @ 1:50 p.m.

re #8: No, the question is do you want that first beef patty.


Don Bauder Aug. 28, 2008 @ 2:28 p.m.

Response to post #11: That's a lot of time to spend for one fish taco, but to each his own. Are you sure there isn't some other place where you spend time while you are on the taco expedition? Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 2:30 p.m.

Response to post #12: OK, but remember you will have to wait while Fred visits the XXXX -- oh,never mind. Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 2:33 p.m.

Response to post #13: Right. The rise in commodities prices is dictating higher prices on menus. Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 2:35 p.m.

Response to post #14: Is a delicious burger worth hardening of the arteries? Best, Don Bauder


Visduh Aug. 28, 2008 @ 2:37 p.m.

Those "Value Menus" at the fast food joints are one of the best deals around. I doubt they clear any profit on those items, and now are likely losing money on them. I head out most days for a couple such things for lunch, and seldom spend more than $2. If they were depending upon me for their profits, they all would be out of business now! A couple of the places also give me a senior discount on those value items.

Yet, here recently, Taco Bell has reenergized its value offerings, with a few items only 79 cents. For those of you who have forgotten, it was Taco Bell that started all that value menu one-upmanship several years ago. Carl's seems to want it to go away, and Rubio's keeps trying to boost its prices.

That 99 cent double cheeseburger at McDonalds and the occasional offering of a similar burger at BK are really phenomenal deals. But enjoy them while you can--it can't last forever at those prices.


Don Bauder Aug. 28, 2008 @ 9:47 p.m.

Response to post #19: McDonald's is offering less on its $1 meal. Others will no doubt follow. Best, Don Bauder


Don Bauder Aug. 28, 2008 @ 9:55 p.m.

Response to post #23: One person going through the drive-in was said to have leapt out of a convertible after eating a burger. Best, Don Bauder


JohnnyVegas Aug. 28, 2008 @ 6:36 p.m.

I order exclusively off off the "value meal" items ($1).

The one exception is I will once in a great while order the full breakfest at Mickey D's for around $5.


Visduh Aug. 28, 2008 @ 7:08 p.m.

To JohnnyVegas:

We seem to be kindred spirits. Perhaps we should "do lunch" soon. At J in the B or Mickey D's, of course.


Burwell Aug. 28, 2008 @ 8:10 p.m.

I'm glad Jack in the Box is doing well with the ciatta sandwich and nacho sandwich. I remember in the mid 1970s that the chain almost went under when it unknowingly purchased hamburger patties in Australia that were spiked with Kangaroo meat. The public outcry was enormous.


Russ Lewis Aug. 28, 2008 @ 8:19 p.m.

re #22: I remember that. A friend of mine suggested we go to the drive-through and order a Wallaby Jack.


NovemberMan Aug. 29, 2008 @ 12:47 a.m.

JITB changed their menu up a few years back and got rid of a lot of their smaller items- regular cheeseburgers, apple turnovers, rice bowls... and since I was raised on that stuff, I've never felt the need to go there as much. The larger patties are too much- when did small go out of style? Are there any JITB employees around that can shed light on that corporate strategy?


Josh Board Aug. 29, 2008 @ 1:58 a.m.

I can't do the "response to post #8" and all that, because I can't remember who said what. And I'm too lazy to scroll back up.

But, Picnic'n chicken. I remember that place. I loved it.

Regarding them making a profit, hate to burst your bubble, but they probably still are. All thru high school I worked at McDonald's in Mira Mesa (mid-80s). My owner told me the large Cokes we were selling for $.89, only cost him 5 cents. And, the hamburgers we were selling for $.49, only cost him about 12 cents.

A friend of mine that recently sold the Subway Sandwiches he owned in Point Loma, told me the Coke prices haven't gone up much. A large soda (which he probably sold for $1.25 or something), only cost him around 7 cents.

So, even on those value menues, they make a profit. But, a friend of mine pointed something out. You can see the cheap stuff plastered all over the windows. But once you're inside, you don't see it anywhere. They hope that you forgot all that once you're in the door, and buy a $6 burger, a huge shake, etc. And, I usually do. I figure, unless you're homeless living on the streets, buy the food you like, and don't worry as much about the prices.


Russ Lewis Aug. 29, 2008 @ 3 a.m.

I was at Jack's a while ago, and I have to say, I had trouble believing what I was seeing. All I could think was, "Is this the same company that was on death's door a few years ago during that e. coli breakout?" Man, that place has bounced back.

Don, was it you who pointed out that Jack's contribution to Western civilization was the drive-through window? I'm not misremembering history, am I?

Finally, remember their early-'80s image makeover where the TV ad showed the drive-through talking jack-in-the-box exploding? (It's here: http://www.youtube.com/watch?v=OY4gXi...) (No, wait -- this one's better: http://www.youtube.com/watch?v=BRqJjz...) A friend of mine who lived in San Carlos back then swears that somebody did dynamite the clown at the Jack in the Pants on Lake Murray Blvd. They were asking for it, he said.


Don Bauder Aug. 29, 2008 @ 7:30 a.m.

Response to post #29: Why don't you write Jack and alert the company to why you are no longer a customer? Any intelligently managed company wants this kind of feedback. Best, Don Bauder


Don Bauder Aug. 29, 2008 @ 7:35 a.m.

Response to post #30: Buy for 7 cents, sell for $1.25. That's a helluva profit margin. So wide that I tend to doubt it. However, you do see spreads that size in the stock market: insiders buy their stock at a penny a share and dump it at $50. See Moores, John (although the spread wasn't that wide in his case, but very, very wide.) Best, Don Bauder


Ponzi Aug. 29, 2008 @ 8:04 a.m.

The first drive thru restaurant was In-N-Out Burger in 1948.

Jack opened in 1951.


Ponzi Aug. 29, 2008 @ 10:07 a.m.

Interesting, I researched this a little more and discovered that banks had drive-thru location a couple of decades earlier.

McDonald's didn't have it first drive-thru until 1975, 25 years after JBX and In-N-Out.

Of course there were "drive-ins" which had car hops and later speakers to order. Not sure who started the drive-in but it was probably in car crazy California.


Don Bauder Aug. 29, 2008 @ 11:21 a.m.

Response to post #35: Now you have forced me to look this up. Best, Don Bauder


Russ Lewis Aug. 29, 2008 @ 11:38 a.m.

Ponzi, you're saying that banks had drive-throughs in the mid-1920s? Huh??? (This could be a case for Matthew Alice if you can't crack it, Don.)


Don Bauder Aug. 29, 2008 @ 7:39 a.m.

Response to post #31: I am sure I wasn't the first to say it, but I believe that Jack may have been the first drive-thru. I think that is part of Jack lore. Best, Don Bauder


Don Bauder Aug. 30, 2008 @ 7:03 a.m.

Response to post #44: It looks like Johnny has experience in the field. Anybody want to dispute him? Best, Don Bauder


Ponzi Aug. 29, 2008 @ 1:26 p.m.

I found this on Wikipedia:

In 1928, City Center Bank, which became UMB Financial Corporation, president R. Crosby Kemper opened what is considered the first drive-up window. In the page 8 of the December 15, 1940, issue of the Syracuse Herald Journal, Merchant's Bank of Syracuse, New York, ran an advertisement for the newly opened "Drive-In Teller Service" located on the side of their bank building on South Warren Street in downtown Syracuse.

Although some other banks claim to be the first - "The date was November 12, 1946. The place was the Exchange National Bank of Chicago. The innovation was what was called a "drive-in bank."

Don, sorry to take this off-topic. I just found it interesting and was surprised it took McDonalds so long to follow the JBX and In-N-Out drive-thru concept.


Burwell Aug. 29, 2008 @ 5:37 p.m.

I remember the ecoli situation. Many investors thought Jack in the Box wouldn't survive. Don analyzed Foodmaker's financial position in his column and concluded it had enough cash to whether the storm and would survive. He was right.


Don Bauder Aug. 29, 2008 @ 6:51 p.m.

Response to post #38: Russl, don't you remember all those old movies? Gangsters would drive their Cadillacs up in front of the banks, carrying violin cases that didn't contain violins. They would go into the bank, make a hit and race back into the car with sacks of loot. Isn't that a drive-through bank? Best, Don Bauder


Don Bauder Aug. 29, 2008 @ 6:54 p.m.

Response to post #39: Interesting point. McDonald's actually started in San Bernardino, and Ray Kroc didn't launch it. He bought the concept from the person who had founded the first one. Best, Don Bauder


Don Bauder Aug. 29, 2008 @ 6:56 p.m.

Response to post #40: The company hired crisis control experts who gave a lot of PR help. Best, Don Bauder


JohnnyVegas Aug. 29, 2008 @ 11:43 p.m.

My owner told me the large Cokes we were selling for $.89, only cost him 5 cents. And, the hamburgers we were selling for $.49, only cost him about 12 cents.

A friend of mine that recently sold the Subway Sandwiches he owned in Point Loma, told me the Coke prices haven't gone up much. A large soda (which he probably sold for $1.25 or something), only cost him around 7 cents.

100% false. I used to sell Subway all their food thru Sysco foodservices in the early 90's, and that is NOT the costs of soft drinks.

A 12 oz Coke costs .30-.35 cents, not 5 cents, and that was back in 91 when I sold them. The profit margins, if sold at .89 cents would then be about 60%.

Coffee costs about a nickel for a 5 oz cup, and the profit margins are much higher than soft drinks.

I can also state that a burger did not cost 12 cents to make in 1985.


Josh Board Aug. 30, 2008 @ 6:05 p.m.

Regarding those profits...I probably remembered the numbers wrong. My bad. I just remember thinking they were so huge. And, at his Point Loma Subway, the students from the high school would buy a Coke, and get a bunch of refills. Wouldn't purchase a sandwich. I asked him if it bothered him, and he said "When it costs me 7 cents a Coke, and I sell it for $1,25, no...it doesn't. They can't drink enough to kill that kind of profit." He probably just said it off the cuff.

Regarding drive-thru's and fast food, when I worked at McDonald's, I always loved on weekends, going to Corvette Diner (love them chili cheese fries), and Kooky's diner on Miramar Road. And, a friend told me that those types of diners went out of business back then, because of fast food restaurants. I found that interesting.

And lastly...how insane was it that Jack in the Box tried to make those "upscale" versions of their "restaurant". That lasted about 3 months.


Don Bauder Aug. 30, 2008 @ 8:38 p.m.

Response to post #46: Yes, that experiment you allude to in your last paragraph did not last long. Jack has made some big mistakes throughout its existence, but is doing well now despite the bad economic conditions. Best, Don Bauder


Don Bauder Sept. 1, 2008 @ 1:01 p.m.

Response to post #48: It sounds like it is worth checking out. Best, Don Bauder


oakgirl Sept. 1, 2008 @ 11:32 a.m.

I agree that Brigantine's fish tacos are better -- and happy hour is the time to order them. There's also, if you're in Encinitas, a small restaurant called Mexican Viejo, which has superb fish tacos and burritos. Their tacos make eating at Rubio's similar to dining out on cardboard. Viejo is on Encinitas Blvd, tucked in behind the old Pat and Oscars.


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