According to reports, Schnatter “used the N-word” when asked how he would distance himself from racist groups online. Schnatter allegedly responded: “Colonel Sanders called blacks [racial slur],” and then complained about Sanders not facing the same kind of public outcry. He admitted the comments, but said he wasn’t racist, and “would never use that word, and Papa John’s doesn’t use that word.” Schnatter also expressed regret about resigning as chairman. The company has tried to remove itself from its founder by removing him from marketing, even changing imagery, and also evicting Schnatter from its company headquarters in Louisville, Kentucky. Schnatter has no plans to disappear, though.
“I built this company from the ground up and am still its largest shareholder. Results under my leadership demonstrate that I know what works and what doesn’t work for this company,” he said in the statement. “Indeed, history shows that the company performs better with me involved, and it declines when I step away. I have little doubt that the company’s financial performance will continue to deteriorate under the current CEO and board of directors. I am not going away and will continue to fight to do what’s best for the company and its employees, franchisees, shareholders, and customers.”
What the future holds
What does Papa John’s do now? There’s just no other way to position it—2018 is going to be a challenging one for the 5,247-unit chain.
This includes “a number of store closures in the U.S.,” CFO Joe Smith, who came on board in April, said in the call. Papa John’s isn’t sure how many restaurants it will shutter this year, but said it is doing everything it can to mitigate the closures and is forecasting more than 350 global openings for the year, mostly in international markets. Ritchie added that Papa John’s sees the setback as a temporary issue, “and then we can really start to move the brand forward back in 2019 and beyond.”
Papa John’s is targeting the fourth quarter to aggressively roll out a new advertising and marketing campaign. It tapped Hollywood powerhouse Endeavor Global Marketing as its new ad agency and promoted Victoria Russell to a newly created role of Chief of Diversity and Inclusion. Papa John’s also hired Nimbus in June as its first multicultural agency.
“Our work to drive new branding and marketing campaigns that differentiate Papa John's and refocus us on our value proposition is more important now than ever as we try to reestablish trust with our customers. Moving forward, these efforts will take into account what consumers, in particular millennials and Gen Z consumers expect from a business, including their expectations that companies have an active role in making the world a better place,” Ritchie said.
As Ritchie mentioned, Papa John’s is taking this opportunity to shine a new light on value.
“We know the importance value plays as part of our calendar and menu strategy. During the second quarter we offered a $12.99 bundle. While this had potential, it was clear that promotions alone are not going to reinvigorate trust in our brand given the broader sentiment issues,” he said.
“That being said, accessible value does have an important role to play,” Ritchie added. “And as we implement our brand relaunch, you should also expect to see value offerings. Knowing value can come through choice, variety, bundles, limited time offers and other options, we are focusing our efforts on building an arsenal of well tested proven products and offers that we believe will gain broad support from our franchisees.
Papa John’s said it recently completed a pricing study that evaluated each restaurant in its U.S. system to help with appropriate pricing by market.
Additionally, the chain is making progress on the tech front. It launched an API (application program interface) that allows it to leverage a new preferred national partnership with DoorDash and voice ordering by Amazon Alexa.
Ritchie said the deal would help Papa John’s deliver in some outlying rural areas and suburban developments outside its delivery zones. “More than 1,000 restaurants in hundreds of cities across the United States will soon be able to expand their delivery areas utilizing DoorDash technology to serve communities that would have otherwise been excluded,” he said.
Ritchie said Papa John’s is doing all it can to ease the burden for operators during this downswing. It employed third-party efficiency experts to review the potential for improvements within its restaurants. The experts are also conducting time and motion studies to “directly supplement the work we are doing within our restaurant design of the future.”
Ritchie said he’s traveled the country talking with franchisees and seeking input from operators. He said some aid could come in short-term royalty reductions, reimbursement for certain costs related to individual restaurant’s décor, and other assistance.
“Our franchisees live in the same communities in which they operate and the Papa John's leadership team is committed to supporting them and to helping them rebuild trust in our brand in their communities,” Ritchie said.
“We're very confident that this is a new day for the Papa John's brand,” he added later in the call. “And frankly, an opportunity as we work through these sentiment challenges to leapfrog within the category and frankly the industry to do something that is uniquely different than anything we've ever done before.”