Papa John’s CEO Rob Lynch said companies have a choice in deciding whether adversity makes them better or worse.
And in the midst of a global COVID-19 pandemic—the most aggressive adversity the industry has possibly ever faced—the pizza brand has accelerated at historic levels.
In April, the brand’s same-store sales at North American stores systemwide grew 27 percent year-over-year. It was Papa John’s strongest month in terms of average unit volume and systemwide sales in the company’s history.
Lynch said the COVID-19 pandemic represents about 10 percent of that growth. The remaining amount is incremental growth in the loyalty program, third-party delivery, and innovation.
WHY A GOLDEN ERA FOR PIZZA CHAINS IS COMING
After declining sales numbers and questions about its culture following the fallout with founder and former CEO John Schnatter in recent years, customers have shown trust during the pandemic. More than one million users were added to the loyalty program in April, increasing the total to 16 million.
“I think the work that we’re doing as a team, the pride that we are showing and [the pride] our employees have is really helping us to win back a lot of customers we may have lost in the past,” Lynch said during the brand’s Q1 review.
To meet demand, Lynch said Papa John’s hired thousands of workers and launched contactless delivery. In addition, partnerships with third-party delivery providers—which cover about 70 percent of the system—allowed the chain to scale delivery during peak times. Third-party business is mixing 4 percent, up from less than 2 percent last year.
Regarding innovation, Papa John’s introduced Papadias and Jalapeño Popper Rolls this year to grow its lunch daypart. The company found that customers are adding those items onto their pizza orders, resulting in check growth.
“Where we used to have a lot of discounting last year trying to solve some of the problems the brand was facing in Q1 of 2019, we haven’t done that this year,” Lynch said. “… We are focused on innovation and focused on our brand delivering better quality and positioning ourselves in a marketplace as such versus commoditizing the category and chasing the discounts.”
Lynch said the boost from the COVID-19 pandemic will last longer than people may expect even as states reopen. The CEO believes customers will still have a large demand for the delivery business.
Operationally, the company is more than prepared, Lynch noted.
“I can’t overstate just how much our team has come together at the restaurants. We’re operating more efficiently,” Lynch said. “Our customer service has never been better … With all the new jobs we’ve hired on and created, we’re able to staff appropriately. So the throughput in our restaurants is improving, as well. We’re seeing the true output that our restaurants are capable of when we drive the kind of demand for products that we have over the last month.”
Papa John’s ended Q1 with comp growth of 5.3 percent at North American stores systemwide after dropping 6.9 percent in the year-ago period. U.S. company-owned stores lifted 6.1 percent compared to a 9 percent drop last year, and North American franchised units increased 5.1 percent after sinking 6.1 percent last year. Comps at international locations grew 2.3 percent. Total revenue in the first quarter increased $11.5 million year-over-year to $409.9 million
Here’s a look at how comps trended through Q1 and into Q2:
December 30-January 26
- Domestic company-owned: 9.4 percent
- North American franchised: 7.1 percent
- North American systemwide: 7.6 percent
- International systemwide: 4.9 percent
January 27-February 23
- Domestic company-owned: 7.6 percent
- North American franchised: 4.8 percent
- North American systemwide: 5.4 percent
- International systemwide: 2.9 percent
February 24-March 29
- Domestic company-owned: 2.5 percent
- North American franchised: 3.9 percent
- North American systemwide: 3.6 percent
- International systemwide: –0.6 percent
March 30-April 26
- Domestic company-owned: 22 percent
- North American franchised: 28.4 percent
- North American systemwide: 26.9 percent
- International systemwide: 1.4 percent
By the end of Q1, Papa John’s had 5,395 units systemwide—598 U.S. company-owned, 2,690 North American franchised, and 2,107 international units. A net of three stores opened in North America in the first quarter and a net of 14 stores closed internationally.
About 375 international stores are closed, however only 15 stores remain closed in China. The brand said nearly all of its traditional restaurants in North America are open. Some nontraditional locations at universities and stadiums are closed, but they don’t significantly impact revenues and operations.
Lynch said Papa John’s foresaw supply chain concerns, so it moved quickly to secure incremental inventory. The company also secured more suppliers and made sure to have redundancies.
“Disruptions with meat or other key suppliers have not impacted our stores,” Lynch said. “And based on the contingency plans that we have put in place, we don’t anticipate any disruptions to our business.”
During Q2 and Q3, the brand expects to spend between $15 million and $20 million in temporary franchise support under its We Win Together program, which has been used to fuel the chain’s turnaround efforts.
The chain said the program will phase out in Q3 because of the return of positive comp growth among franchisees.
“The health of their restaurants is the best it’s been in the last three years,” Lynch said. “We are actively working right now to build plans and incentive structures and other agreements and partnerships with them to accelerate development. … At the end of Q3, we are in great shape to come out of [the We Win Together program]. We are not planning on any subsidization or support moving forward and that’s because our franchisees are in great shape.”
In Q1, the chain reinvested nearly half of profit growth back into additional benefits, bonuses, and incentives for corporate team members. It also expanded health benefits to include free virtual doctor visits for all employees and families and increased paid time off policies.
Papa John’s generated $24 million in cash flow in Q1. It has access to nearly $350 million through its credit facility.
