Saying that operators have been “left to fend for themselves” as the brand’s sales have tanked over the past year, Papa John’s franchisees have hired a high-powered franchise attorney to investigate the pizza chain’s decline.
The Papa John’s Franchise Association on Friday said it has hired Robert Zarco, from Miami-based firm Zarco Einhorn Salkowski & Brito.
The association said its goal is to stop the decline in sales that began a year ago when founder and former CEO John Schnatter appeared to blame NFL player protests for the chain’s performance and worsened when he acknowledged using a racial slur during a conference call.
“Having exhausted all other options, the association feels it has been left with no choice but to conduct an investigation and rectify the root causes behind the steady decline in its members’ store sales,” Vaughn Frey, chairman of the association’s board, said in a statement.
In a statement, Papa John’s said it is committed to operators’ long-term health. Papa John’s did provide royalty relief to franchisees in the wake of Schnatter’s resignation as chairman in July and the company’s subsequent removal of his likeness from its marketing.
The company is also investing $10 million into the company’s marketing fund.
“We have been and continue to be committed to our franchisees’ long-term financial health and will continue to work constructively with them in our efforts to move the company forward.”
A spokesman for Schnatter would not comment.
The association’s hiring of Zarco adds another wrinkle to the controversy surrounding the company. It suggests growing discontent and restlessness with operators of the chain, which has 3,400 locations in the U.S., despite Papa John’s efforts to ease their finances.
The Papa John’s Franchise Association represents franchisees with 1,200 of the chain’s restaurants.
Operators have been closing stores all year long, including 51 net closures last quarter, as the chain’s same-store sales have declined. Those same-store sales declined 9.8% in the quarter ended Sept. 30, though the company says they improved in September as the chain shifted its marketing to focus more on employees and franchisees.
The company lost a number of sponsorships over the past year, including its once-lucrative sponsorship of the NFL.
Zarco is a well-known franchisee attorney. He was recently hired by the National Jack in the Box Franchisee Association, which called upon that chain to replace its CEO.
In an interview with Restaurant Business, Zarco said he plans to investigate what has happened over the past year and leaves open the possibility that franchisees could take legal action to recover their financial losses.
“I am committed to investigate how this entire debacle regarding losing the NFL as a client arose and was carried out, and what role Mr. Schnatter played in that as well as the extraordinary amount of financial damage that has been inflicted on the franchisee community as well as damage to the brand,” Zarco said.
“At this point, there has been no determination made as to if, or when, this dispute will escalate. It will all depend on whether a remedy or a result can be achieved among all parties, without having to escalate the dispute to another forum.”
The association held little back in its announcement, citing not only Schnatter’s controversy but referencing reports of a “toxic culture” at the company’s Louisville, Ky., headquarters and “a bitter public feud between Schnatter and the brand to regain control of the company.”
The association said that its members “have been left to fend for themselves in the midst of all of this turmoil.”
Frey and the association were especially critical of Schnatter, his comments and the dispute between him and the company he founded in the months since his departure as Papa John’s chairman.
“His comments about the NFL during the earnings call and his use of a racial slur in the media training session with the company’s marketing firm have significantly harmed the brand and our membership’s store sales,” he said.
Frey also criticized Schnatter’s actions since his departure. Schnatter has started a website, sued the company multiple times and has engaged in a campaign against the company he founded and its existing management team—including his hand-picked successor, CEO Steve Ritchie.
“The brand image has been severely tarnished by the continuing negative press coverage surrounding Mr. Schnatter and his dispute with the company,” Frey said. “He has put out his version of the truth on his website and has given several interviews on this issue, which has kept the negative press coverage going.”