Papa Murphy’s growth comes to a halt

The pizza chain has closed more than 60 locations over the past year amid weak sales.

Papa Murphy’s is shrinking its unit count and expects slow growth in the coming year, amid the chain’s continued sales weakness in a challenging market.

The Vancouver, Wash.-based take-and-bake pizza chain said this week that it has closed 16 company-owned units over the past year, and franchisees closed another 78 over that same period, offset by 32 openings.

The result: Papa Murphy’s has shrunk by 62 locations over the past year. The system now has 1,504 locations, down from 1,566 a year ago.

The company expects franchisees to open just 10 units this year, CEO Weldon Spangler said on the company’s first quarter earnings call Wednesday.

Despite the slowdown, Spangler said, “We believe this system continues to have significant opportunity for franchise development, both in the U.S. and internationally,” over the long term.

The decline in the number of locations come as the chain’s sales have struggled to recover amid a competitive market in the pizza category and the company’s weak performance in certain markets.

Same-store sales systemwide declined by 3.9% in the quarter ended April 2, the company said. That came on top of a 5% same-store sales decline in the same quarter a year before, or a two-year, stacked same-store sales decline of 8.9%.

Spangler said on the earnings call that same-store sales were up in 18 markets that adopted certain marketing initiatives to improve the brand’s relevance and customer value perceptions.

Those markets represent about 22% of the chain’s total domestic system sales. The company’s efforts included stronger value promotions and efforts to re-engage lapsed customers.

But same-store sales declined in other markets, more than offsetting that performance.

Executives did say that sales improved through the quarter. “January was challenging,” Spangler said, but “Valentine’s Day was especially good.”

“We are seeing some improvement,” Spangler said. “It’s slower than we want it to go. And we are seeing some benefit in several markets that are adopting a lot of the value promotions.”

The company moved a lot of business online, thanks to a new partnership with the online ordering company Olo that helped generate “a lot more business online” during Valentine’s Day.

The company also had some success with a promotion on March 14, otherwise known as Pi Day, as well as April 25, or “Love at 425 Day,” celebrating the fact that Papa Murphy’s pizzas are baked at 425 degrees.

Stores participating on those two days generated online sales mix of 51% on Pi Day and 37% on April 25.

Spangler said that check averages for online orders are 20% to 25% higher than they are placed elsewhere. “We now have a stable online ordering platform that we are confident can support our business needs,” he said. “We will aggressively push more of our business online.”

Papa Murphy’s plans to relaunch its mobile app in the second half of the year. It also expects to increase the amount of delivery in the system and is working with several different third-party providers. The company plans to “aggressively” expand delivery and expects the service in half of its stores by the end of the year.

“Pizza just tastes better when it’s fresh out of the oven,” Spangler said. “Because our customer gets to bake our award-winning pie at home, the quality of our product doesn’t degrade as it sweats in a warming bag.”

Papa Murphy’s says it is working more with franchise owners, to improve the company’s relationship with the people that run its locations. The chain is refranchising more of its locations, with plans to reduce its company-owned unit count from 145 to 50 over time.

That makes the franchise relationship all the more important, especially when the system needs to convince operators to adopt the marketing strategies the company believes can reverse sales problems.

“We are making progress building a trusting relationship with our owners,” Spangler said. “In a highly franchised system, momentum is key, and though we aren’t yet putting points on the board, I do believe we are building a groundswell of momentum that will move the business forward.”

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