The brand’s rise has also been fueled by digital acceleration. Last year, sales through the app, website, and third-party delivery providers represented mixed more than 75 percent in the U.S., up more than 300 basis points from 2020 and 1,000 basis points from 2019. Those figures are largely supported by Papa Rewards members, or as Lynch described them, “our most valuable customers.” There are nearly 23 million loyalty guests, an increase from 17 million at the end of 2020 and 12 million in 2019.
Third-party delivery aggregators have contributed meaningfully to comp sales growth, with partnerships resulting in new customers, incremental and profitable transactions, and assistance with the recently heightened labor shortage.
“We are an e-commerce company, and we are investing throughout the company in technology,” Lynch said. “The aggregator partnerships are just one piece of that, a very important piece, a growing piece. We still believe that it's a symbiotic relationship. We work with those guys. We add a lot of value to them. We provide a lot of trips for them. We're one of their largest customers. So it's been a great partnership. We'll continue to foster that. And through these times of staffing challenges, it's been definitely a strategic differentiator for us.”
Papa Johns, however, has not been immune to the impact of Omicron. Restaurants experienced their lowest staffing levels in the first quarter since the pandemic began. In limited cases, it’s affected the brand’s ability to deliver or take orders. Those issues now appear to be decreasing, with staff returning quickly.
In terms of commodities and supply chain challenges, Papa Johns has managed to protect margins and offset costs thanks to “our world-class supply chain and procurement teams, as well as the operating leverage created from our comp sales growth,” according to Lynch.
“We don't have any issues with ingredient availability at this point,” Lynch said. “I think I mentioned chicken wings in our last call as one of our challenges; we've even mitigated that challenge at this point. So, supply chain is actually up and running, fully functional, operating at a high level, supporting our business.”
Papa Johns expects Q1 operating margins to surpass Q4, but land below last year’s record level, because of “temporarily acute staffing challenges as well as inflation,” CFO Anna Gugino said. The brand is taking targeted pricing actions as necessary to offset these pressures.
Lynch doesn’t anticipate supply chain disruptions impacting store openings either. Issues in the back half of 2021 came from equipment challenges in the U.S., and mostly affected company-owned restaurants. The CEO said those headwinds have been mitigated.
Supply chain shortages didn’t hurt international development, which accounts for 80 percent of net unit growth.
“We don't anticipate any challenges achieving the targets that we just put forward on the call here in 2022,” Lynch said. “This will be the biggest year of development in Papa Johns history.”