Rob Lynch didn’t sound like the CEO of a pizza chain that just talked about a “challenging” quarter with a combination of slowing sales and rising costs.
“I’m super optimistic not just about the fourth quarter, but on 2023 and beyond,” the chief executive of Papa John’s said last week.
Papa John’s same-store sales were down less than 1% in the third quarter but, Lynch said, “we still have 30% three-year comps.”
“We have been cranking for a couple of years,” he said. “Yet we have higher comps than everybody else. Our competition just did 1% to 2% comps on much lower comparisons. We’re pretty happy with our ability to hold onto these sales.”
That confidence comes in part on improving sales so far this quarter. The Louisville, Ky.-based pizza chain expects positive same-store sales to end the year.
But Lynch also believes pizza works well in a potential recession, and despite generally weak sales for the category this year, companies like Papa John’s will do just fine. “I don’t know how many businesses I’d rather be in than pizza,” Lynch said. “We still offer unbelievable value, even relative to grocery.”
Pizza chains have stumbled a bit this year. Papa John’s and Domino’s Pizza both confessed to a shift from delivered pizzas to carryout. Domino’s shift was particularly pronounced, while Papa John’s did not provide its data on sales by channel. Domino’s went so far as to warn its investors that a worsening economy would be bad for delivery, given its costs.
The three publicly traded pizza chains all mostly held serve during the period, with Domino’s same-store sales up 2% and Pizza Hut’s 1%. Yet, Lynch noted, “a lot of us have taken 8% to 10% pricing.”
Third-party delivery doesn’t appear to be having the same problem. DoorDash announced a remarkably strong third quarter, for instance, and several chains said their delivery sales were up in the past three months, including giants like McDonald’s.
That runs counter to the prevailing wisdom that third-party delivery would lose sales in an economy where consumers are paying soaring prices and worried about the future. Yet it appears that, despite the relatively high prices that come with their services, third-party aggregators continue to gain share.
And pizza, which has used delivery the longest and which remains a strong value relative to other players, is struggling the most.
Lynch, however, is unfazed. “You expect to see a fair amount of volume decline,” he said.
One problem this summer: Consumers returned to normal. People traveled a lot more, meaning they weren’t home ordering pizzas. He also noted commodity and labor costs were particularly difficult. “We believe it’s our most challenging quarter we’re going to face,” he said.
Papa John’s did start pushing value over the summer, mostly after previously focusing on that aforementioned innovation to get people to spend more when they ordered pizzas. Papa John’s started selling a deal giving customers two items from a selection of various menu offerings for $6.99 apiece, similar to Domino’s permanent value menu.
“We thought about value differently than maybe some others in the category,” Lynch said. “That’s why our national promotion isn’t a large 50% or 40% or 30% off every item.”
For the most part, however, he believes in the company’s innovation pipeline. Papa John’s began promoting Papadias sandwiches again last quarter and more recently started offering its large “Shaq-a-Roni” pizza again. “Instead of shrinkflation, we have Shaqflation,” he said.
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