Consumers apparently shied away from take-and-bake pizza last year.
Papa Murphy’s, the Vancouver, Wash.-based bake-your-own pizza franchise, apparently had a tough 2022 amid weak sales and closing locations, parent company MTY Food Group said this week.
Sales at existing locations declined in the “low single digits,” MTY executives said. And franchisees closed about 72 locations.
“We closed a lot of stores in 2022, unfortunately,” Eric Lefebvre, MTY’s CEO, told analysts on Wednesday. “The performance is not where we want to be.”
Lefebvre did paint a rosier picture of 2023, however. Same-store sales and system sales are both up so far in the first quarter and the company had a “good Valentine’s Day.”
“We’re feeling pretty good about where Papa Murphy’s is,” he said. “In Q4 there was a soft landing and it is on the rise now.”
The challenges at Papa Murphy’s were illustrative of the difficulties franchisees had, not just at MTY-owned concepts but in the restaurant industry as a whole. Major fast-food brands like McDonald’s, Burger King, Popeyes and Tim Hortons all watched franchisee profitability take a hit in 2022 as labor costs increased and the price of food soared at levels not seen in a generation.
MTY, which is based in Montreal, is primarily a franchisor. The company owns dozens of brands in the U.S. and Canada, including Pinkberry, Cold Stone Creamery and the recently acquired Famous Dave’s and Wetzel’s Pretzels. Its brands have 7,100 global locations, about 96.5% of which are franchisee owned.
The profitability of those franchisees took a hit last year. “There is inflation on costs, labor, food or packaging,” Lefebvre said. “There is also a shift in the way consumers go about the business. Delivery orders take a drain on our profitability.”
Profitability challenges did not affect all the company’s brands or each of its markets. But they did lead to some closures, and not just with Papa Murphy’s. The sandwich chain Blimpie, for instance, closed a net of 22 locations (15% of its 2021 unit count) and Baja Fresh closed 13 (13% of 2021 restaurant count). The once-struggling Cold Stone Creamery, by the way, operates 36 more locations than it did a year ago and now has more than 1,300 ice cream shops.
In Canada, the company’s Country Style brand closed 22 locations (9%) and Mr. Sub closed 11 units (5%), to name just two examples.
But Papa Murphy’s, which MTY acquired in 2019, operates locations with relatively low unit volumes, which were $643,000 in 2021, according to Restaurant Business sister company Technomic. But the brand has historically had challenges with locations far from its Northwest U.S. home that have had trouble generating more consistent sales. The chain has closed well over 100 locations over the past two years.
Overall, MTY’s brands closed 507 locations in 2022, up from the 489 restaurants its concepts closed in 2021. But the brands opened 245 restaurants during the year. And MTY acquired another 332 restaurants in 2022, notably through deals such as the one for Famous Dave’s owner BBQ Holdings.
Still, it’s “not a number we’re happy with,” Lefebvre said of its brands’ store closures. He noted that operators closed locations at a high rate in the fourth quarter and that the 500-plus closures was not “expected to be that high.”
“We make it a priority to focus on existing stores,” Lefebvre said. “It’s easier to keep an existing store than open a new one.”
He said the company is having conversations with its franchisees on what can be done to keep stores open or to sell the stores to other operators. “If we can help them sell assets rather than closing, that would be better,” Lefebvre said. “But closures were high in Q4, there’s no doubt about it.”
Still, Lefebvre said, most franchisees are doing fine. The company has access to most of its profit-and-loss statements and has regular discussions with them about the state of their businesses. Operators for the most part have been able to raise prices to meet cost increases without losing customers.
“For the vast majority of franchisees, the profitability is very satisfactory,” he said. “Obviously, there are exceptions to that. But the profitability is good. Customers are taking price increases really well with no impact on traffic at the moment.”
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