Sometimes, you just have to do it yourself.
That’s roughly the strategy behind Papa Johns’ acquisition of 91 restaurants in the U.K. from a franchisee, Drake Food Service International (DFSI), announced on Monday.
The deal represents a shift in thinking for the Louisville, Ky.-based pizza chain, which has traditionally let franchisees run all the restaurants in its international markets. But the U.K. is the chain’s biggest international market, and sales and profits have been declining there of late, and thus the company has opted to become a substantial operator there.
The acquisition will give Papa Johns ownership of about 18% of its more than 500 U.K. locations. It could also give the company opportunities to improve operations, profitability and sales over the long term. The company also believes it could help the chain realize its growth potential there.
“We still have tremendous whitespace in the market,” Amanda Clark, chief international and development officer for Papa Johns, said in a statement. “Owning and operating restaurants will allow Papa Johns to follow a similar model that we’ve created in the U.S., which enables us to leverage our resources, best practices and scale with franchisees in the U.K. and worldwide to further their success.”
The U.K. has struggled over the past 18 months as inflation has been particularly problematic, hammering sales and profitability in the market. Papa Johns’ international same-store sales declined 6% in the first quarter, for instance. The company said its challenges in the U.K. “had a significant impact” on the company’s international results.
Papa Johns owns the commissary in the U.K., but with sales as weak as they were and inflation hurting margins, the company was unable to pass all of its costs onto franchisees, which ate into profits, executives told investors last month.
“Since this market is more than just a royalty stream, the challenges we are facing have a more pronounced impact on our international profits,” Chris Collins, interim principal financial and accounting officer for the chain, told investors, according to a transcript on the financial services site Sentieo/AlphaSense.
Papa Johns believes that it can improve the operating model, including revenue management, technology and product innovation, which can improve sales and profits.
“Establishing a corporate-owned restaurant portfolio is one of many steps we are taking to reposition our U.K. portfolio in a way that ensures our franchisees and this market drive above-average industry growth over the long term,” said Rob Payne, managing director for Papa Johns U.K. The market had previously announced investments in marketing technology, pricing and operations, he said.
Drake Food Service will continue to operate Papa Johns locations in Spain, Portugal, Chile and Central America.
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