With store count falling, Papa John’s starts helping franchisees

Franchisee leaders back the company’s response to the John Schnatter controversy.
Photograph: Shutterstock

Papa John’s plans to give franchisees a break on royalties and other fees this year in a bid to reduce store closures by operators stung by steeply falling sales following controversial statements by founder John Schnatter.

The company said late on Friday that it plans to reduce certain royalty payments, foodservice pricing and online fees this week.

It is also planning to provide funds to support new marketing and reimaging.

The company had previously said that costs associated with franchisee assistance and other investments this year would cost $30 million to $50 million.

The program “is one of many actions we are taking to prioritize our team, address the recent challenges and move Papa John’s forward,” CEO Steve Ritchie said in a statement.

The efforts come as Papa John’s growth has skidded to a halt this year amid steeply falling same-store sales. Same-store sales fell 5.3% in the first quarter and 6.1% in the second quarter, and then 10.5% in July, amid a growing controversy surrounding Schnatter, the chain’s founder and its former chairman and CEO.

The number of Papa John’s locations has fallen by 21 in North America over the past 12 months, to 3,407 from 3,428. The reduction includes 42 franchise unit closures in the period.

By contrast, rival Domino’s has added more than 250 domestic units over the past 12 months.

Company executives have laid the blame squarely on the shoulders of Schnatter, who ignited controversy in November by appearing to blame NFL players protesting during the national anthem for his chain’s weakening sales—and then his use of a racial slur during a conference call in May.

Schnatter resigned as chairman, and the company kicked him out of its office and stopped using him in its logo and its advertisements, proclaiming it was “time to move on” from its founder-centric marketing.

But Schnatter has said he regrets resigning. He has sued the company and has been highly critical of management, saying that sales were worsening before he made the comments. He says his comments were misinterpreted.

Schnatter owns 30% of Papa John’s stock and remains a director.

Leaders of the company’s franchisee organizations have backed the company.

“We applaud the actions taken by the company to define the future for the Papa John’s brand,” Bill Green, chairman of the company’s franchise advisory council, said in a statement provided by the company. “The full FAC supports this collaborative agreement as well as other new marketing, technology and operational initiatives the company is taking to move the brand forward.”

Papa John’s revenue fell by 6.2% in the second quarter, but its franchise royalty and fee revenue fell by more than 10% in the quarter, and that was before any assistance or the Schnatter controversy.

“We believe it is time for the founder to move on,” Vaughn Frey, president of the Papa John’s Franchise Association, said in a statement. “Steve is pursuing the right initiatives to reinvigorate growth and recognizes the importance of working together to move forward successfully.”

He added that the franchisee assistance program “will help mitigate the impact that the founder’s inexcusable words and actions have had on franchisees.”

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