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    Pizza Hut Steps in as Papa John's Cuts Ties with NFL

  • The pizza chain struggled with sagging sales in the fourth quarter.

    flickr: Raja Sambasivan
    Papa John's North America same-store sales declined 3.9 percent in the fourth quarter.

    Recently promoted chief executive officer Steve Ritchie is now at the helm of a turnaround project for Papa John’s. And the pizza chain will need to do so without the support of its most visible partnership—the National Football League.

    Papa John’s announced the two parties mutually agreed to end the chain’s official sponsorship. The company will instead refocus its marketing efforts into the 22 NFL teams Papa John’s remains a sponsor of.

    As for why, Ritchie said Papa John’s evaluation of the future “drove us to look at diversification of our marketing mix and the allocations of our spend.”

    “While the NFL remains an important channel for us, we have determined that there are better ways to reach and activate this audience,” Ritchie said in a conference call Tuesday afternoon (February 27). “Thus we will shift our marketing from the broader NFL sponsorship to focus on our partnership with 22 specific NFL teams, a significant presence on league broadcast and digital platforms and on our relationships with many of the league's most popular players and personalities.”

    It didn’t take long for one of Papa John’s top competitors to step in. Pizza Hut announced early Wednesday that it is now the official sponsor of the NFL. The sponsorship will begin with the 2018 NFL Draft, which will be held near the company’s North Dallas headquarters. The partnership will include the collective use of all 32 team marks. Pizza Hut said the multi-year agreement will offer the chain "a vast array of exclusive marketing rights, benefits, and designations that will unmistakably connect the brand with the NFL and its teams, players, events, partners, properties, and the many NFL experiences that capture the passion of consumers and football fans from all over the world."

    “We know many of our fans enjoy pizza while watching NFL games and we are thrilled to have Pizza Hut, an industry leader and one of America’s favorite brands, as an official league sponsor,” NFL Commissioner Roger Goodell said in a statement. “With a focus on family, friends and fun, Pizza Hut has the creativity we are looking for in a partner and we look forward to working together with them to make the at-home NFL experience more exciting than ever for our fans.”

    “Pizza Hut has a history of bringing more entertaining food and experiences to the pizza occasion and we plan to continue that through our exclusive partnership with the NFL,” added Artie Starrs, president, Pizza Hut U.S. “NFL stadiums are packed every week but tens of millions of fans are also watching the game at home. We have an unmatched ability to bring those fans closer to the sport thanks to the power of our 7,500 restaurants and 150,000 football-crazed team members. The capacity for what’s possible is endless and that’s going to make this league partnership great fun for Pizza Hut, the NFL and everyone who loves pizza and football.”

    It’s hard not to look at this fracture and think back to December, when founder John Schnatter announced he was exiting as CEO. Schnatter took heat for comments made about the NFL’s handling of national anthem protests, saying: “The NFL has hurt us. And more importantly, by not resolving the current debacle to the player and owners' satisfaction, NFL leadership has hurt Papa John's shareholders.”

    “The NFL has been a long and valued partner over the years, but we are certainly disappointed that the NFL and its leadership did not resolve the ongoing situation to the satisfaction of all parties long ago,” he continued. “This should have been nipped in the bud a year-and-a-half ago. Like many sponsors, we are in contact with NFL, and once the issue's resolved between the players and the owners, we are optimistic that the NFL's best years are ahead.”

    The company responded to the backlash by apologizing on social media and even had to condemn white supremacy after a neo-Nazi site, The Daily Storm, endorsed Papa John’s and published a post that asked if the chain was “the official pizza of the alt-right.”

    Soon after, Schnatter stepped into a chairman role and Ritchie, a longtime employee who started with the company in 1996 as a customer service representative making $6 per hour, took over. Ritchie was added to the company’s succession plan in 2015 when he was named president.

    The NFL shift is just one major change underway at Papa John’s, which posted underwhelming fourth-quarter results. The brand saw its systemwide North America comparable same-store sales decrease 3.9 percent in the fourth quarter—well behind its top competitors. 

    “We know our potential is so much greater than our results, and we are taking significant steps to reinvigorate our record of profitable growth and value creation," Ritchie said in a statement.

    For the year, comps were up 0.1 percent in North America. International sales increased 2.6 percent and 4.4 percent in the fourth quarter and full year, respectively. Ritchie admitted the company is lagging in the pizza wars in a couple of categories—mainly digital and value—and in need of some widespread changes.

    Domino’s domestic same-store sales increased 8.7 percent at corporate stores (7.8 percent at franchised) in fiscal 2017. Pizza Hut was down 2 percent in the U.S. for the year, although it was up 2 percent in the fourth quarter, showing the positive effects of a $130 million transformation plan announced earlier in the year.

    Papa John’s will hope for a similar turnaround in 2018. And like Pizza Hit, Ritchie said it could take some time.

    “While I'm not pleased with the company's most recent performance, I am confident that our brand and our people provide the foundation we need to reignite customer enthusiasm for Papa John's, and drive improve levels of profitable growth and value creation,” Ritchie said.

    Ritchie said Papa John’s is starting with data gleaned from recent consumer research initiative and focus groups, and also from franchisee feedback received from visiting more than 80 percent of operators around the country. It helped the company identify five key areas of improvement, Ritchie said.

    The first is the “Better Ingredients. Better Pizza” tagline that was evolving into, well, just a tagline. “However, over the last few years, consumers have viewed quality as simply part of our tagline without a real connection to our products,” Ritchie said. “Much of our marketing has become predictable and lacks differentiation. We want consumers to understand the facts that support the inherent quality of a Papa John's pizza, including no artificial flavors or ingredients, fresh, never-frozen original dough, fresh packed pizza sauce and fresh cut vegetables and our ongoing clean label initiatives.”

    Papa John’s addressed this by first tapping new advertising and public relations firms. The company picked Laundry Service as its new creative agency of record back in late October and Olson Engage as its fresh PR firm. This will be guided by a new chief marketing officer in Brandon Rhoten.

    Ritchie said this would also include exploring opportunities to expand the company’s offerings with products that reflect its quality focus, including potentially added new entrees, desserts, and beverages.

    Value perception is next. “The research is clear, even consumers who prefer Papa John's often choose a competitor because we are perceived to be too expensive. We intend to provide everyday accessible value to our consumers in 2018,” Ritchie said.

    Thirdly, Ritchie admitted that Papa John’s “can do better” when it comes to technology and its omni-channel presence. More than 60 percent of the chain’s sales are coming through digital channels, and Ritchie said the chain will redirect investments to build new technology with enhanced data and analytics capabilities to improve engagement and operational effectiveness, as well as optimize marketing spend. Ritchie said Papa John’s “recently implemented a media attribution tool. This tool is helping us better define which media investments and channels drive sales and how to best optimize this mix and increase the ROI on our marketing spend.” This led to the NFL decision, he added.

    Significant upgrades are in the works for the company’s rewards program as well.

    The fourth point, Ritchie said, will be to identify “opportunities to operate more efficiently at the unit level, which we expect will result in significant savings on an annual basis. Importantly, these savings can be achieved without negatively impacting the quality of our food, or the service our customers receive. We're also building new technology inside our restaurants to improve our team member experiences, enhancing business tools and redesigning user flow to drive efficiencies and build a stronger unit economic model.”

    The final initiative is investing in the company’s employees. Ritchie said Papa John’s is issuing a new annual stock grant for corporate restaurant general managers.

    “Our strategic priorities for 2018 are clear,” Ritchie said. “We'll reestablish our brand differentiation by telling our quality story and conveying that narrative in new ways to better reach our customers. We will provide the value that supports customer action. We will invest in technology to improve how we market our products, and propel our capabilities in customer connection and digital ordering. We'll make important changes within our unit operations to increase efficiencies and unit profitability. And we will invest in our most important ingredient, our people, to attract and maintain the best Papa John's employees.

    As of December 31, there were 5,199 Papa John's restaurants operating in all 50 states and in 44 international countries and territories.