The controversy surrounding Papa John’s and its beleaguered founder, John Schnatter, is costing the company customers.
Sales at Papa John’s fell 16% the second week of July, amid publicity about Schnatter’s use of a racial slur and subsequent resignation as the company’s chairman, according to data from Technomic’s Transaction Insights.
That’s a steep decline from the 2.2% average monthly sales decline this year through June, according to Technomic, which gathers data from 3 million credit card users and nearly 20 million restaurant visits. The numbers measure total sales, rather than same-store sales.
The numbers are early, and they don’t necessarily take into account anything the other chains might have done to generate their own sales and grab a share of the market, as well as factors such as weather or prior promotions. And they represent just one week, which can be especially volatile.
But the numbers suggest that controversy surrounding Schnatter and his ultimate departure from the chain hurt sales, at least initially.
Papa John’s will report earnings for the second quarter next week and is likely to shed light on the impact that event has had on its business.
“Consumers have so many choices today and information moves and spreads at lightning speed,” said Sara Monnette, vice president of innovation for Technomic, a sister company of Restaurant Business. “Brands that don’t live up to consumers’ standards for integrity aren’t given a free pass.”
Schnatter first courted controversy with comments during an earnings call last year, in which he seemed to blame NFL players’ protests during the national anthem for hurting business. Since then, Papa John’s ratings on trustworthiness with consumers has fallen, according to Technomic's Consumer Brand Metrics.
For instance, the percentage of people who strongly agree that the company has values similar to their own has fallen 5.4%.
The chain’s same-store sales have fallen, too. North America same-store sales declined 5.3% in the first quarter.
On July 11, Forbes reported that Schnatter used the N-word during a conference call with a marketing agency hired to help him avoid public relations problems. Schnatter acknowledged using the word and resigned as chairman.
Technomic data shows that Papa John’s market share compared with its three biggest rivals, Domino’s, Pizza Hut and Little Caesars, fell sharply that week.
According to Transaction Insights, Papa John’s had a 14.9% share of the market owned by those four large chains. That was a steep drop from the previous week, when the company’s share of that market was 15.3%, and lower than the 15.5% it had averaged that year.
“Since John Schnatter has long been the face of the company, he is so closely associated with the larger Papa John’s brand, more so than most restaurant founders and CEOs,” Monnette said. “Unfortunately, a company assumes greater risks when individuals are the spokesperson for a brand.”
Schnatter has been pulled from the company’s advertising and kicked out of his office. He subsequently sued the company and its board and has said publicly a number of times that he regrets stepping down.
More recently, his comments have only intensified: This week he told the Associated Press that he believes he should be back as the public face of the company he founded.
He also told CNBC that he has “no confidence” in the company’s current management, including CEO Steve Ritchie, his hand-picked successor who took over after Schnatter decided to step down in December.
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