Papa Murphy’s is in the process of significant consumer-facing and non-consumer facing changes. It’s also still “exploring strategic alternatives” that could add the 1,437-unit pizza chain’s name to the flurry of restaurant M&A activity heating up over the past year. While the brand saw some positive lift from internal initiatives—October marked the first period of comparable store-sales growth in 37 months—Papa Murphy’s retracted its unit count by 86 restaurants in 2018. A year ago, the brand had 1,523 locations.
Papa Murphy’s ended the fourth quarter of fiscal 2018—announced March 14—with 106 company-run stores, which represented a net decrease of seven stores compared to Q3 and 39 less than Q4 2017. This reflects 10 closures over the last year and a net reduction of 29 stores that were franchised—a push Papa Murphy’s is making as it tracks back to at least a 95 percent franchised system with no more than 50 corporate units by 2020.
On the franchised side, the brand’s Q4 count of 1,331 compared to 1,378 in the prior-year quarter. The decrease comprised of a total of 87 franchise store closures offset by 11 openings and a net refranchising of 29 company-owned units over the last 12 months. In total, Papa Murphy’s closed 97 restaurants in 2018.
Moving forward, CFO Nike Rupp said Papa Murphy’s has “significant opportunity for franchise development, both in the U.S. and abroad.” But in the near term, it expects to open about 15 franchises in 2019—10 domestic. The company did not offer guidance on closures for this coming year.
Papa Murphy’s reported revenue of $32 million in Q4 compared to $38.5 million a year ago, a decrease driven primarily by the refranchising efforts and net closure of company units. Same-store sales declined 1.3 percent, year-over-year. For the year, comps dropped 2.5 percent compared to fiscal 2017.
Reported net income was $4.3 million for the full year, or 25 cents pre diluted share, compared to a net loss of $1.8 million. Revenue came in at $126.4 million versus $148.5 million.
Inside the changes
As Papa Murphy’s charts a return to profitable and sustainable growth, it’s not sitting back. The initiatives unfurling at the pizza chain are extensive, and they’re providing some top-line improvement in the early going. In Q4, 48 of Papa Murphy’s domestic designated market areas showed growth, up from 39 in Q3. One thing the DMAs had in common: they fully adopted a new marketing message that streams a low, broad, and consistent value story across all channels.
Chief executive Weldon Spangler said, “becoming more convenient has become table stakes in the restaurant industry.”
Papa Murphy’s had a lot of room grow on that note, especially compared to the other pizza giants that flood the marketplace with tech-forward carryout and delivery strategies. In March, Papa Murphy’s rolled a new ecommerce platform that serves as the foundation for many of its convenience initiatives, Spangler said. It’s already led to a steady increase in the mix of online orders with Q4 ecommerce sales jumping 34 percent over Q3. Online check average were roughly 28 percent higher than in-store orders.
Also, delivery orders still represent a very minimal part of Papa Murphy’s overall business. The mix in its top 10 stores offering delivering hit 4 percent in Q4. At year’s end, delivery was live in 480 restaurants, with highly incremental orders, Spangler said. The company plans to double that count by the end of 2019, which would bridge a significant convenience gap between Papa Murphy’s and its main competitors.
This past fall, the company introduced a new mobile app as well. It focuses on seamless digital ordering, including favorites and the ability to quickly reorder with saved payment information. But it also integrated into Papa Murphy’s POS system, which has helped the chain minimize operational impact, Spangler said. He added the app has more than 243,000 downloads to data and generated almost as many orders.
Up next: adding a loyalty program. Spangler said Papa Murphy’s is in the process of selecting a partner and is targeting a systemwide rollout by late 2019.
“These digital tools are not only great facilitators of driving convenience, but importantly, they are driving growth of our text and e-mail databases,” he said. “These databases enable powerful targeted one-to-one marketing capabilities that will allow us to further tailor our messaging to the needs of individual customers in addition to facilitating more effective and efficient marketing efforts.”
The other side of the coin for Papa Murphy’s is brand awareness. In August, after an evaluation of the company’s brand positioning, digital marketing, and social media strategies, it unveiled a new creative design to ensure it was reaching younger guests without disenfranchising the brand’s current customers. The message focuses on Papa Murphy’s product and its do-it-yourself poisoning, “clearly demonstrating our differentiation,” Spangler said.
In conjunction with the changes, Papa Murphy’s shifted more adverting mix toward digital marketing. It’s a more cost-effective path and broadens the company’s reach.
The non-consumer side of change
Papa Murphy’s continues to work toward better execution, at all levels, Spangler said. The company is getting there through people and processes.
Most importantly, Papa Murphy’s had ground to make up in regards to its relationship with franchisees. “We've made significant progress in strengthening these relationships throughout 2018 and believe that most of our franchise owners would agree,” Spangler said.
An example he gave: In January, Papa Murphy’s introduced a pre-pizza offer that had 96 percent participation and buy-in from the system, all arranged within a four-week time frame. “That kind of participation would have been incredibly hard, if not impossible, to accomplish just a year ago,” he said.
Naturally, this is going to become even more important as Papa Murphy’s approaches the 95 percent franchised mark.
Starting in 2019, the company said it’s adding five regional franchise advisory meetings per quarter, “with the goal of getting in front of more of our regional franchise leaders and elevating our connection to the broader franchise owner base,” Spangler said.
A key is the systematic improvement of processes in the company’s support center, in the field, and in its store, he added. In response, Papa Murphy’s developed an ongoing in-store career path training program it calls, “One Bit at a Time.” The platform focuses on skills instead of positions, Spangler said.
“The goal of the program is to empower crew and management members, adding value to the recruitment and retention process,” he said. The training program began in Q4 and was introduced in more than 700 stores. Systemwide rollout is expected by year’s end.
A final note
Spangler didn’t offer too many details into the ongoing strategic review process, but some could be coming soon. “As part of that effort, the board hired North Point Advisors as a financial adviser to assist in the process,” he said. “Although we've made significant progress in reviewing the strategic alternatives, we are not yet in a position to make further public comment regarding the review until it has been completed. We hope to be able to provide a further update in the near future.”
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