Chief executive officer Steve Ritchie put it simply: “It’s not business as usual at Papa John’s,” he said during a May 8 conference call.
That might be an understatement. Fiscal 2018 is going to be a transformational year for the 5,212-unit chain, and it’s off to a rocky start. Given the vast changes at hand, Ritchie, who assumed the role January 1 after founder John Schnatter stepped aside, said the downturn was in line with the company’s expectations, although Papa John’s “[knows] we can do better and I'm confident that we will.”
Comparable same-store sales dropped 5.3 percent across the company’s 3,424 North America units, year-over-year. Papa John’s company-owned domestic store count dropped 29 stores, a decrease of 4.1 percent, to 679. Internationally, Papa John’s comps lifted 0.3 percent.
Broken down, comps declined 6.1 percent at domestic corporate stores and 5 percent at North America franchise units. First-quarter earnings per diluted share were 50 cents compared to 77 cents in the prior-year period.
In addition, Papa John’s is making a marketing change at the top. CMO Brandon Rhoten, the former VP of advertising, media, and digital/social at Wendy’s International who joined Papa John’s in late May 2017, is leaving the company at the end of the month. Ritchie said he would lead the marketing department as the chain searches for a new marketing leader.
"As we continue our journey to revitalize the Papa John’s brand, we are making a change in the chief marketing officer role," he said. "Brandon Rhoten will exit his position as CMO effective May 25. Over the past year, Brandon has helped us better understand our challenges and assisted the team in the development of a comprehensive strategic plan to take the brand forward. We appreciate his innovation and efforts and wish him the best after his departure at the end of this month. Moving forward, we will be initiating a search for a new leader that can execute our marketing strategy with urgency and agility while making meaningful connections with consumers to improve results.”
“Given my conversations over these past 100 days and as a franchise owner myself, I know that this company has a lot of upside ahead. But we need to be faster in improving how we communicate and connect with consumers to improve results,” Ritchie added.
And the executive changes don’t end there. Tim O’Hern is being promoted to president of international and senior vice president, chief development officer. He will now oversee all international restaurant operations. Papa John’s is also promoting Jack Swaysland to SVP, chief operating officer of international.
Undoubtedly, it’s been an eventful early stretch for Ritchie, who recently completed his first 100 days as CEO. Ritchie said he spent part of the time traveling around the country, visiting franchisees, leadership, restaurants, and talking with shareholders.
He’s confident Papa John’s five strategic priorities, which he outlined at the end of fiscal 2017, will get the brand back on solid footing through a renewed message. Ritchie added that Papa John’s has “the best quality pizza in the industry.” So much of this comes down to how the company shares and positions its perceived strength, and also ensuring it is presenting the right offerings for customers.
This is becoming increasingly critical given the red-hot pizza landscape. Domino’s just blasted the doors off its first-quarter sales report with domestic same-store gains of 8.3 percent, year-over-year. Internationally, comps grew 5 percent. YUM! Brands’ Pizza Hut had same-store sales increases of 2 percent in the U.S. in Q1 and has put together three consecutive positive reports. Pizza Hut also took the spot of Papa John’s as the official sponsor of the NFL in February.
“You've heard us say, 'Better Ingredients. Better Pizza.' Our brand was founded on this point of differentiation, yet we have discovered our slogan alone is not enough,” Ritchie said. “We must share the undeniable truths that make the brand uniquely special. In the near future, you'll begin seeing creative that brings the meaning back and explains how we define better, things such as fresh original dough, fresh packed sauce, meats without fillers, and pizzas with no artificial flavors or colors.”
In April, Papa John’s unveiled a new marketing campaign centered on value—a new long-term $12.99 meal offering that includes a large, one-topping pizza, choice of bread side, and a 2-liter drink. The company tapped Laundry Service as its new creative agency of record in late October. This was the group’s first campaign. Papa John’s also brought on Olson Engage as its fresh PR firm.
This leads into Papa John’s second priority for 2018, Ritchie said: value.
He said the $12.99 deal, as well as additional offers the company is testing, “will allow consumers to better calibrate the price of our brand, and always choose Papa John's even when times are a bit tight. We're just a month in and we are already starting to see value perception improvements from this work.”
Technology is goal No. 3. Currently, more than 60 percent of Papa John’s sales are coming through digital channels. Ritchie said they can be significantly higher.
“We have greatly expanded the size and skill set of our tech teams and have made incredible progress on our stated technical objectives for the year,” Ritchie said. “We have created a number of new consumer insight and analytical capabilities and are beginning field trials of a significant expansion of our industry-leading Papa Rewards loyalty program this quarter. Further, we are nearing completion of a major rewrite of our geocoding platform, which will allow us to reach more customers and serve them better than ever before.”
The company launched what it’s calling several forward-facing tech innovations as well, and said it would use its test-and-learn model to pick which solutions deserve additional focus and investment moving forward.
Fourthly, Papa John’s is focused on improving unit economics, Ritchie said. The company hired a vice present of unit economics, someone who was a former owner and operator of a multi-unit group. The company didn’t provide further details.
Ritchie said Sean Muldoon, the company’s chief ingredient officer, “has identified numerous opportunities to remove costs from the model. While his work continues, it has already resulted in tens of millions of dollars in reduced pricing to our North America system, all without compromising our superior quality standards.”
The last focus, Ritchie added, is on Papa John’s people. The company has monthly bonuses to drive short-term results, and also introduced an annual stock grant in February intended to inspire long-term results. “In addition, the recent tax reform changes provided us the opportunity to invest more in our teams. Our corporate team members recently received a one-time spot bonus award in appreciation of their efforts as a further evidence of our commitment to making this an even better place to work,” he said.
Papa John’s is working on a program to provide employees with better career development opportunities by expanding its existing tuition assistance program as well. “This partnership will empower our people to pursue a more fulfilling life and career by obtaining a discounted and sometimes free college education,” Ritchie said.
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