Consumers wanted a lot of pizza during the pandemic, but they didn’t necessarily want cheap pizza.
For Papa John’s, this idea has paid off. The company said on Thursday that sales of its NY-Style Pizza were better than expected. It also said that sales of its latest higher-end product, its Epic Pepperoni Stuffed Crust Pizza, could on its own pull sales out of some April doldrums. “It’s blown the doors off,” CEO Rob Lynch said in an interview.
Papa John’s has been outperforming the broader pizza category for more than two years now, including the first three months of 2022, a strategy fueled by a combination of high demand for pizza delivery and the chain’s focus on premium pizzas. Same-store sales rose 1.9% in the first quarter, despite a bevy of challenges—notably a labor shortage that sapped much of the sector of drivers. That came on top of the best quarter in its history, a 26.2% growth in the same period a year ago.
“We just lapped a 26.2 positively in one of the most challenging operating environments that we’ve ever operated in,” Lynch told investors on Thursday. “We are bullish on the category.”
Papa John’s was the only one of the big three pizza chains to report a positive quarter. Pizza Hut this week said its U.S. same-store sales fell 6% in the quarter. Domino’s same-store sales declined 3.6%.
All three companies have said driver shortages were a problem in the period, and Papa John’s was no exception. But Lynch said that its focus on premium pizzas has helped in that area, too.
In short, Lynch said, the company’s higher prices means it doesn’t have to rely on frequency as much as other chains, notably Domino’s. That means it is less dependent on labor. “We’re premium priced,” he said. “We don’t need quite as many transactions and therefore we’re less impacted by the staffing challenges that we’re all seeing.”
Yet premium-priced items have helped pull up Papa John’s average check without price increases, though the chain raised prices 7% last quarter to meet higher commodity costs.
The company has long banked its reputation on a “better ingredients, better pizza” positioning. The company has taken that to another level in the past couple of years with a series of higher-end pizzas, including the Shaqaroni and then the Epic Stuffed Crust Pizza.
These pizzas come in at higher prices. Epic Stuffed Crust was $12. The NY-Style pizza is $13. And the Epic Pepperoni Stuffed Crust Pizza is $14.
The premium items come along with lower-priced value offers, notably an $8 carryout deal. “We kept our core value proposition consistent, with premium innovations that allow customers to self-select into that,” Lynch said. “We’re sticking with that plan.”
Lynch believes the continued value provides a hedge against a potential shift in consumer behavior toward more lower-priced items. The company doesn’t promote its carryout special, however, but it’s there for customers who have a need to be met.
For now, customers aren’t doing that. April, for instance, has been a challenging month—suggesting that Papa John’s sales slowed in the period. But the company is now projecting a slight increase in same-store sales in the period, largely on the back of that Epic Pepperoni Stuffed Crust pizza. “It gives us a ton of confidence in our ability to guide positive comps in Q2,” Lynch said.
And Lynch promised more new items in the future. The premium position, he said, is “no less important today as we adjust to a new more inflationary environment with rising costs and consumers increasingly seeking out value,” he said.
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