Nadeem Bajwa’s path to 200-plus Papa Johns locations and ultimate goal of 500 happened, as it often does in franchising, a bit by accident. He arrived in the U.S. from Pakistan in 1991 and graduated as a triple major in management, accounting, and marketing. It gave him four degrees (he arrived in the states with one), but he couldn’t find a job that offered better compensation than the side gig he ran into while studying.
Bajwa started by delivering pizzas before finding a role in management. So he was holding full-time jobs on two fronts. After school, he decided to become an operating partner in Fort Wayne, Indiana, and opened his first franchise in 2002 in East Liverpool, Ohio. Since, he’s acquired some, built others, and this past April, inked a deal to open 50 new restaurants over the next five years, which will stretch his fleet through the Midwest, Arizona, Pennsylvania, and Florida. Bajwa will debut 11 or 12 this year, depending on city timelines, and 12–14 in 2025.
“I was on the edge anyway,” Bajwa says of the decision. “It was a storied brand and the product was phenomenal.”
Bajwa, now one of Papa Johns’ largest North America franchisees, finds himself developing restaurants during a complex, cost-erratic market and some transitory developments for Papa Johns itself. Former Wendy’s executive Todd Penegor was announced as CEO in early August, ending a search following the departure of Rob Lynch in March, who is now heading up Shake Shack.
The brand remains in the early chapters of a “Back to Better 2.0” update that includes increased investment in data science, a 20 percent rise in franchisee contributions to the national marketing fund, and new development incentives to improve restaurant-level EBITDA margins. Soon after, the company unveiled a refreshed brand platform as well—“Better Get You Some”—that highlights premium ingredients and guests’ emotional connections to pizza.
About a month after Lynch’s departure, BTIG analyst Peter Saleh conducted franchisee checks to gauge sentiment on the current and future state of things. There were a couple of key threads to emerge: One involved development incentives and the other what it actually costs to build restaurants.
Starting with the first, Papa Johns’ marketing fund board approved a program where franchisees who open standard U.S. restaurants in 2024 are exempt from paying contributions to the marketing fund for five years from the date of the qualifying units opening. Additionally, any standard store opened in 2025 does not have to contribute to the fund for three years. At the end of the five-, or three-year stretch, traditional rates kick back in.
Saleh estimated this amounts to roughly $330,000 of savings, or more than half of the cost of a new location. He guessed it also reduces the payback period to 3.2 years from about 5.5 years.
And getting to the other theme, costs, this has been a swirling topic at Papa Johns of late. Ravi Thanawala, who served as interim CEO before taking on an expanded CFO position, spoke in Q1 about design work being conducted to engineer better costs, and the brand’s larger efforts to provide optionality in terms of furniture fixtures and other elements to ensure the overall figure comes down. Papa Johns didn’t share exacts on its more recent Q2 review, but did say it continues to make progress. Earlier in 2024, per Saleh, costs were averaging about $630,000. A similar format at Domino’s, for perspective, was roughly $425,000, marking “the widest cost differential that we can remember,” Saleh said.
To understand the dynamics, he compared FDDs in March 2022 and 2024. Saleh found some costs running 50–60 percent above pre-COVID levels and peers. Furniture, fixtures, and equipment jumped $55,000 in a two-year period.
Bajwa, however, says he’s seeing new builds now come in at an average of about $500,000—providing a peek into perhaps the broader work unfolding. And to note, the $500,000 figure doesn’t factor in the incentives mentioned earlier.
Bajwa says flexibility, in the leads process and build options, have played a large role in lowering costs. Compared to some other brands, Bajwa adds, he can flex vendors for equipment, like pizza ovens, and food so long as stores maintain brand standards. He has his own construction company as well. Papa Johns works with Bajwa on targeting areas, down to the block. And then there’s your general uptakes on franchising for a brand with this level of scale, from lease negotiations to landlord acceptance. “The goal of everybody is that the mindset of leadership is that if franchisees do well, the brand is going to do well. So that focus, that how do we grow, and how do franchisees grow, and having that flexibility in mindset, that’s what’s paying off,” he says.
But speaking to wider industry topics, Bajwa says the biggest lesson he’s learned from Store No. 2 to 200 is any business is only as good as how well it executes. So while it might sound elemental, finding the right people and labor approach is how you go from 30 to 40 employees to 3,500 and still have pillars in place to expand.
“Value,” though, has dominated the mantle when it comes to Bajwa’s other leadership guidepost—”the customer is king.” What are they telling Papa Johns today?
This, like development costs, surfaced often in Penegor’s first quarterly recap as CEO. The brand’s premium platform—as old as Papa Johns is—provided some padding during the early waves of industrywide price hikes. It was easier to charge more for something already priced high than, say, try to take a value deal up significantly.
Yet pressure dialed up, over the summer in particular, as traffic across the sector lagged and consumers began to manage their overall ticket and flock to concepts with compelling value. Papa Johns displayed value on the menu, Thanawala explained in August—but its marketing and innovation didn’t build off that strength. It was focused more on premium.
Same-store sales in Q2 declined 3.6 percent (negative 4.2 percent for domestic corporate restaurants and negative 3.4 percent for franchisees). That represented the softest result in five years.
Restaurant margins, though, provided a silver lining, rising 210 basis points year-over-year to 20.3 percent. There was about $2 million of reduced local advertising factored in.
Papa Johns’ comps drop was driven by lower transactions as expansion in its aggregator channel was offset by a decline in organic delivery, which provided a 100-basis point headwind.
In plain terms, Papa Johns needed to elevate its value perception to match a changing landscape. And so, it worked to become more intentional through three lead areas: products at more attractive points (it brought back the Cheeseburger Pizza as an LTO for $9.99; in past years the brand innovated around Epic Stuffed Crust for $13.99); Papa Johns also started promoting its $6.99 Papa Pairings (two or more items, with a variety of choices, like Papadias, boneless wings, etc.); and more recently, introduced an extra large New York Style option for $10.99, also more competitive than last year.
Thanawala said Papa Johns saw value perceptions improve and the brand gained confidence it could better balance premium and value going forward to lift transactions. In some corporate stores, Papa Johns began testing offers as well to analyze repeat rates, things like potential basket starters and larger basket motivators.
All of this as the company grows digital and loyalty. Nearly a third of sales in Q2 flowed through apps. In July, the brand introduced an update that improved call-to-action and navigation, with better imagery and displays. There’s been talk of Penegor also considering reducing the rewards threshold to allow for faster redemption (now at about 3X visits).
Also, expect Papa Johns to put value out-front in local, region-to-region marketing alongside the national framework. That should provide a more adaptable strategy to meet different franchisee need states.
Bajwa says customer fluctuations in perception and spending are simply part of the restaurant experience. “It all comes down to if you and your franchisor are aligned. The main focus is to protect the brand’s integrity. We have to stay better,” he says of Papa Johns’ premium ingredients DNA. “Don’t compromise.”
One example he offers of how Papa Johns has done so is its Papa Call center for guests to dial in. “The macro challenge is never going to stop,” Bajwa says. “In today’s environment, there’s a lot of value. If you see the pricing war, it is real. We know better ingredients cost more money. We probably pay more for our ingredients than other brands because we are better, and we are proud of that. But at the same time, the customer is king. So we need to keep that in mind also.”
Bajwa’s growth joins a Papa Johns picture where, overall, 31 net unit closures were recorded in Q2 thanks mainly to 43 company-run stores in the U.K. shutting down.
North America openings were on track to be 15–20 percent higher than last year, management told investors. And “many” new restaurants that have opened in the past two years were producing AUVs at or higher than the system average of $1.2 million. The new-unit AUVs are “significantly higher” than the stores that are closing, Thanawala said in August.
The total average net sales for standard units last year (company-run and franchised) was $1.231 million. The top 25 percent (716 units) recorded $1.787 million and the top 50 percent (1,432 restaurants) $1.552 million. The top 75 percent (2,147) was at $1.388 million. The bottom 25 percent was $762,096; the bottom 50 percent $910,269; and bottom 75 percent $1.046 million.
Through the first six months of the year, Papa Johns opened 31 restaurants and closed 17, resulting in 14 net new North America venues. That brought the count to 3,447. Papa Johns expects to open more than 100 in fiscal 2024, but the closure figure could be slightly higher than originally anticipated. The total net figure this year should range between 45–65.
