The recent pandemic has given pizza delivery stores a significant boost in their business. Papa John’s franchise was no exception to it. Because of restrictions on dine-in restaurants, the takeaway and pizza online delivery companies outperformed themselves compared to previous years.
But dismally, the upward sales graph for Papa John’s was limited only to the period of pandemic restrictions.
However, despite the surging sales for more than 12 months, Papa John’s revenue could not cross even half of what it was in 2016.
Before the pandemic, Papa John’s was on the verge of defaulting its contract with the bank. It was because of many underlying issues plaguing the profitability and growth of the company and many franchisees.
Papa John’s has some major issues in its product, service, quality, and institutional talent. Unfortunately, Papa John’s has recklessly abandoned the principles and values on which its success was built.
In recent years, Papa John’s franchisees are facing central management and PR faux pas under the leadership of its founder and CEO John Schnatter, which did a lot of damage to its business.
In addition, unhappy franchisees are also struggling for adequate cash flow, and the stores are seeing a decline in sales. The customers are also unsatisfied as Papa John’s is much more expensive than competitors like Domino and Pizza hut.
Papa John’s Business Overview:
With over 5200 outlets, Papa John’s is the third-largest pizza delivery company in the world. Present in 50 US states and 43 different countries, it has over $ 3 Billion. Their motto, “Better ingredients. Better Pizza,” is persuasive even to a health-conscious audience.
Selling Pizza and Pizza-related food items, Papa John’s operates mainly on a delivery and carry-out basis. However, they do have a few dine-in restaurants and plan to open more dine-ins in the future.
Papa John’s have both traditional and non-traditional franchise concepts. The conventional stores are for lease on or near the large traffic areas, and the franchise owner of the non-traditional stores can operate at places like sports stadiums, food courts, etc.
Financial Requirement for the franchise:
- Liquid Capital: $75,000
- Net Worth: $2,50,000
- Total Investment: $115,120 – $ 794,420
Apart from the initial investment, Papa John’s franchisees pay an annual royalty of 5% on the net sales to the company and an additional 5% as the national marketing contribution.
Problems with Papa John’s stores:
Notwithstanding being one of the major players in the industry, Papa John’s faces many issues, which makes its franchise business a hazardous investment.
Here at Fransmart, we’re an independent source that researches individual franchise opportunities. After combing through the new franchise Disclosure Document from Papa John’s, we found it lagging behind the industry on some necessary disclosures. We investigated lawsuits from unhappy franchise owners and found that many Franchisees have been left with a sour taste in their mouths after investing in a franchise.
#1 High Cost Of Operations Leading To Much Lower Profits For The Franchises:
The pizza business is very highly competitive, and its customers are not loyal to a brand. Their preferences will readily change for a better deal. The problem with Papa John’s is that its stores do not generate enough cash flow to cover the discounts required to compete in this market.
It is more challenging for the brands to compete if their stores do not make enough profits. The franchises, in this case, are less likely to add more units, invest in new technology, remodel the stores, or even give offers and discounts in a high price-sensitive market.
#2 Management Faux pas and PR nightmares:
Papa John’s management faux pas started with its founder John Schnatter accusing the National Football league (NFL) of the brand’s poor performance. He soon was at the center of controversies for using the racial slur to litigation threats to extortion claims.
What went worse was, their PR agency could not do any damage control and was accused of threatening to extort money from the company. All this damaged the company’s image and left a bad taste in the mouth of pizza customers and franchisees.
#3 Wait, It’s Just Not A Decline In Sales For Franchise Owner
Many franchisees have been reporting declining sales and lower footfall in their stores. As per the franchise agreement, the locked-in period makes it even worse as it leaves no scope for the franchise owner to come out of it. Also, during such difficult times, franchisees are bound to pay additional royalties and advertising expenses without any rebate from the franchisor.
#4 Papa John’s Pizza Is Overpriced:
Papa John’s has prided itself for maintaining a premium position among its competitors. They have branded themselves with the slogan “Better Ingredients, Better Pizza,” resulting in customers believing the brand to be more expensive.
With a crunch in the economy and little to differentiate the pizzas, the customers do not want to spend more on Papa John’s.
Their chicken wings were ridiculously tiny and overpriced when customers could have meatier and tastier chicken at local grocery stores or KFC.
#5 Papa John’s Faced Intense Competition:
For years they have marketed themselves as better in quality and taste than its many rivals. Still, with consumers getting more price-conscious and Pizza Hut and Domino’s offering great deals on their meals, it is becoming difficult for Papa John’s franchisees to sustain the ROI.
The problem is that though Papa John’s is highly recognized, it is no one’s favorite brand for Pizza.
Conclusion:
Any franchise in this business can increase its earnings through five different ways: increasing sales from stores, increase in the number of stores, increasing the profit of the stores through reduced fees, increasing corporate profitability, and decreasing in general expenses. Sadly for Papa John’s franchise opportunity, none of these is possible right now.
The implications are that Papa John’s is not a brand to be trusted. Its share prices reflect this sentiment and have seen a sharp decline in recent years.
Sources:
https://www.franchisedirect.com/foodfranchises/papa-johns-franchise-07050/ufoc/
https://money.cnn.com/2018/07/12/news/companies/papa-johns-pizza-problems/index.html
https://www.theguardian.com/us-news/2021/mar/09/papa-johns-founder-john-schnatter-n-word