Financing

Papa Johns wants to help its franchisees open more locations

The pizza chain will help franchisees with construction services in a bid to spur more growth, saying its unit economics warrant a better pace of development.
Papa Johns
Papa Johns believes its unit economics warrant faster development. / Photograph: Shutterstock.

Over the past three years, Papa Johns has increased its average unit volumes by a third, to nearly $1.2 million, according to Restaurant Business sister company Technomic. That’s high for a pizza delivery chain.

And yet unit count has remained relatively stagnant. The chain has added fewer than 40 restaurants in the U.S. over that time.

This isn’t lost on Rob Lynch, the chain’s CEO.

“Our unit economics warrant a lot more development than we’ve seen,” he said in an interview.

The problem, however, is not the financial investment. Rather, Lynch said, it’s some of these other issues, such as permitting, construction, sourcing materials and finding general contractors.

Papa Johns has a solution: Help franchisees do these things. The company will provide franchisees with construction services, helping them through permitting, designs and managing general contractors. The idea: Spur growth by getting some of the roadblocks out of the way.

“We’re building restaurants as a company,” Lynch said. “We’re the largest developer in the system. We have the infrastructure and the support model. And if we’ve got it, and we continue to need help on these things, then we can leverage these assets.”

Papa Johns is the fourth largest pizza chain in the U.S., behind Domino’s, Pizza Hut and Little Caesars. But it has not had much in the way of unit growth for years. The chain, based concurrently in Louisville, Ky., and Atlanta, has about the same number of restaurants it operated 10 years ago.

Its sales challenges in 2017 and 2018 following the downfall of founder John Schnatter also led to a surprisingly quick level of closures.

The brand has long had financial incentives to convince franchisees to build new units. But that only worked so much. The company was hopeful that the recent run of success that started in late 2019 and then given steroids with the pandemic in 2020 would have a bigger impact on domestic development.

The chain brought in some new franchisees, notably the Dallas-based operator Sun Holdings. It has also started to roll out a new store design, which the company says is more efficient and easier to build.

Papa Johns wants to open 1,400 to 1,800 new locations globally between 2022 and 2025 and the company says it is still on track to meet its expected growth targets of 270 to 310 restaurants worldwide. While most of that is coming from international markets where the brand has aggressively signed new development deals, it would also like to start filling in some of the white space it believes it has in the U.S.

Yet that domestic development has been hampered by a variety of problems that are mostly out of the company’s hands. Permitting delays have caused enormous headaches for all kinds of developers, in part because government bureaucrats work from home and are less available than they were before the pandemic.

Equipment delays because of supply chain shortages also caused headaches. And simply finding construction workers for a while proved challenging coming out of the pandemic.

“We talked with our franchisees,” Lynch said. “It’s not about the financial investment. It’s just becoming hard to build a restaurant in North America.”

Papa Johns will not charge franchisees for the service, instead using franchise fees to fund it. “It’s not a huge source of revenue,” Lynch said. And it could pay for itself in the long run by spurring more growth.

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