The loss of lower-income consumers hurt Papa Murphy’s during its recent fiscal quarter.

MTY Food Group said the pizza chain felt a material impact from decreased government funding for the Supplemental Nutrition Assistance Program (SNAP). For perspective, EBT sales accounted for 14.69 percent of system sales in fiscal 2023, but in Q1, that dropped to 8.75 percent. That’s a roughly 40 percent decrease.

“Obviously, EBT is something we don’t control,” CEO Eric Lefebvre said during MTY’s Q1 earnings call. “So we need to find a solution to make that up, and that’s what the team is trying to do now. … For the first quarter, our sales are down but only very slightly if you exclude the EBT. So we’re relatively flat with Papa Murphy’s.”

This contributed to U.S. same-store sales dropping 3.6 percent in the first quarter. After seeing positive domestic comps for five straight quarters, MTY has seen back-to-back decreases. Below is a look at how the group has trended in terms of U.S. same-store sales percentages:

Q2 2022Q2 2022Q3 2022Q4 2022Q2 2023Q3 2023Q4 2023Q1 2024

Lefebvre said the product is “still very relevant,” but that Papa Murphy’s has to “find a way to make more sales and to make up for the lost sales with EBT.” He added the brand has many initiatives in the works and that “a lot more is coming.” This includes major changes in leadership and the team in general. In late 2023, Al Hank and Adam Lehr were appointed co-COO, replacing Nik Rupp, who worked at the chain for nearly six years before taking the CFO role at TGI Fridays. Both Hank and Lehr have previous operational experience with Famous Dave’s.

During MTY’s Q2 earnings call, Lefebvre highlighted a multifaceted approach that Papa Murphy’s is taking to drive growth, emphasizing the importance of operational excellence, research and development, and innovative marketing strategies. He noted the company is focused on continually refining processes while introducing new products to stay ahead of the curve. This includes an emphasis on national and digital campaigns, leveraging AI tools, and strategic partnerships.

In the summer of 2021, Papa Murphy’s announced a new open kitchen design adaptable to free-standing buildings and drive-thrus and an updated primary brand logo. At the time, it was the company’s first new restaurant design since 2014 and the first logo change in more than a decade.

The CEO told investors that the pizza segment in today’s time isn’t any more difficult than usual.

“Pizza is always very competitive,” Lefebvre said. “There’s always various offers with different price points from our competitors, I suspect that will not change. I don’t think it can necessarily intensify because it’s always pretty intense, so it is what it is. And on our side, we just need to find a way to respond without necessarily going too deep into these types of discounts because ultimately, we need our franchisees to make money.”

MTY is a large Canada-based restaurant group that owns the pizza brand and several other quick-service chains like Wetzel’s Pretzels and Cold Stone Creamery. It purchased Papa Murphy’s in 2019 for roughly $253 million. The pizza concept is the largest chain in the portfolio, with more than 1,400 restaurants systemwide, comprising 1,301 franchised units and 103 company-operated locations. The brand represents 20 percent of MTY’s system sales.

Papa Murphy’s wasn’t the only quick-service brand to struggle this winter. According to Revenue Management Solutions, U.S. traffic for quick-service restaurants dropped by 3.5 percent compared to the previous year. This decline was notably steeper than the 1.7 percent decrease seen in the fourth quarter of 2023. Several factors, including adverse weather conditions in January, particularly colder temperatures in Southern regions, contributed to the decline. Specifically, traffic plummeted by 4.5 percent in January, surpassing the 1.7 percent decrease from the prior year.

Fast Food, Finance, Pizza, Story, Papa Murphy's