Papa John's International, Inc. (Nasdaq:PZZA) announced Nov. 29, 1999 that its Franchise Advisory Council has initiated a program which will allow the cost of cheese to all Papa John's restaurants to be established on a quarterly basis.
The Council will oversee the establishment of a franchisee-owned corporation through which the program will be administered. This corporation will purchase cheese at the market price and sell it to Papa John's distribution subsidiary, PJ Food Service, at a fixed quarterly price based upon historical average market prices. PJ Food Service will, in turn, sell cheese to Papa John's restaurants at a set quarterly price. Gains or losses incurred by the new corporation due to differences in the actual market price of cheese purchased and the established quarterly sales price will be factored into determining the price for the following quarter.
Cheese costs have historically been subject to daily market fluctuations. During 1998 and 1999, the block market price has fluctuated from less than $1.20 per pound to more than $1.90 per pound. This volatile market price has served as the basis for restaurants' cheese cost, the largest individual component of food cost.
"Reducing cheese price volatility will allow restaurant management to better plan marketing initiatives and administer compensation programs that have historically been affected by fluctuating food costs," said Wade Oney, Papa John's Chief Operating Officer. "Over time, the actual cost of cheese to our restaurants under the program will approximate the average market price, but the established quarterly prices should fluctuate over a narrower range than the actual daily market prices."
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