Papa Johns spent much of last year working to convince franchisees to make a major change in their marketing strategy: Pay another 1% of their sales into the national marketing fund. In exchange, they would no longer be required to pay 3% into a local marketing fund.
It may seem like an easy decision: 1% is, obviously, cheaper than 3%. But such moves are not so simple, as they render local marketing co-ops unnecessary and unfunded, and shift control of marketing to the brand, rather than operators.
The change would come with some compelling new incentives to spur development, including no marketing contributions for the first five years. And the brand promised new menu news to convince customers to come in.
Franchisees ultimately bought in, creating a foundation for what would be a pivotal year in the company’s history. With sales slow coming out of the pandemic as consumers shift their delivery spending to other options, the boost in national marketing and new menu news should lift sales this year.
And then many of the executives left.
Amanda Clark, who led the company’s international efforts, departed in January. The company lost some key executives last year, including its CFO. And then in March, just three weeks after Papa Johns announced the marketing changes, CEO Rob Lynch left to take the CEO job at Shake Shack.
Executive departures happen all the time, and one never knows when another chain looking for its own CEO will come knocking with a massive offer.
But the departure is weighing on morale among operators, according to BTIG analyst Peter Saleh.
The company is making massive changes this year while it searches for a new CEO “and the executive ranks are historically thin,” he wrote. “There was a broad sense of disappointment from franchisees, noting they were buying in and investing a lot in the turnaround strategies he championed, only to see him depart for another company when these are starting to take hold.”
Papa Johns introduced a new tagline to take advantage of its marketing spending boost. | Image courtesy of Papa Johns.
The pizza business is at something of a crossroads this year. Sales for each of the major pizza chains have slumped coming out of the pandemic, due largely to competition on one side from grocers selling cheap frozen pizzas and on the other from third-party delivery taking wealthier consumers looking for variety.
Papa Johns’ marketing changes do not come without risk. Company executives have argued that the increase in national marketing will be more efficient than the 3% spent on local marketing. That’s because some of that 3% goes to fund administrative expenses and local contractors, while all that 1% goes to digital or television ad placements.
Yet local marketing in franchise brands connects those brands with communities, reminding consumers that the franchise is locally owned and operated. The shift is eliminating that spending—and most franchisees, according to Saleh, have stopped spending on local marketing.
The company recently introduced a new tagline, Better Get You Some, featuring the musician Big Boi.
Franchisees are still waiting for that marketing to lift sales, but according to Saleh they do expect that to happen this year, if for no other reason than the chain is pushing higher-priced items this year than it did last year.
Papa Johns is offering an XL New York Style Pizza. But that pizza is priced at $13.99. A year ago the chain was pushing a Cool Ranch Doritos Papadia at $7.99.
Then again, that Papadia didn’t come with a lower-priced competitor. Domino’s and its much larger ad fund is offering a three-topping New York Style pizza at $10.99.
Papa Johns isn’t the only major pizza chain looking at a leadership change. Pizza Hut is looking for someone to head its U.S. business, following the departure of David Graves. And any new CEO of Papa Johns will likely work to build on the efforts from the previous regime, which in this case includes a major marketing shift.
But it’s also tough to win a race when the ship’s captain leaves in the middle of it, which is what Papa Johns is doing now.