Same-store sales and traffic at Papa Johns declined last quarter and have remained down so far this year, albeit with some sequential improvement.
Yet company executives believe they are making some important progress in their effort to guide the chain’s recovery from a surprisingly difficult 2024. Most notably, a change to the company’s loyalty program in November is apparently performing the task for which it was intended: Bringing customers back to the brand.
Papa Johns changed its loyalty program in November, shifting from a straight buy-so-many-pizzas-get-one-free offer to one in which customers accumulate points and redeem them earlier. The change to the Papa Rewards program is costing the company money in the short term, but to executives that price is worth it because it’s giving customers value while bringing them back to the chain.
About half of the program’s members are redeeming their points, or “Papa Dough,” compared with just 21% a year ago.
“We launched our loyalty enhancement in mid-November, and like in a blink of an eye, we doubled customers’ Papa Dough balances,” CFO Ravi Thanawala told analysts on Thursday, according to a transcript on the financial services site AlphaSense. “The great news is that drove lapsed consumers back to the brand. It showed consumers like a very distinctive value proposition we can offer.”
Papa Johns sales, much like the broader quick-service pizza category, have slumped recently as consumers have shifted to third-party delivery services and lower-income diners have cut back on restaurant frequency. The chain also faced challenges last year after shifting just about all marketing spending from local to national.
The company changed management following the departure of Rob Lynch, replacing him with Todd Penegor. The chain has brought in other management and has set about fixing that marketing, while it has worked to simplify the menu—it has eliminated 11 ingredients, for instance—and improve operations.
Sales are not back yet. Same-store sales declined 6% last year. That has improved to a decline of 3% early this year. Traffic is down 0.5% over that period, which is an improvement from earlier last year. That suggests the loyalty program is encouraging some customers to return. But those customers spend less when they visit, largely because they’re redeeming rewards.
Indeed, average ticket is down 2%, with half of that due to customers redeeming rewards.
Under the previous program, customers had to spend $75 to get $10 in rewards. Now, customers get $2 in rewards when they spend $15. And they get one point for every dollar spent.
The company believes this change is key and is worth the short-term expenditure, because it encourages people to return to Papa Johns more quickly than they would otherwise. And that traffic is crucial at a time when many people are cutting back or turning to other delivery options.
“We’re getting to that second purchase faster,” Penegor said. “It’s pretty powerful when you get $2 off a $15 average order. By the time you wake up the next morning, you’re actually seeing Papa Dough show up in your account, which is a pretty compelling reason to spend again. It’s cold, hard cash that you can bounce back. So it also helps our value perception along the way.”
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