Think about the past few years for the pizza chain Papa Johns. Its founder and longtime chairman was ousted. It changed management, went through the pandemic and its resulting sales surge, and then the inflationary aftermath.
Then the CEO, who moved some of the corporate headquarters to Atlanta and then fueled a massive change to its marketing, left to take another job. And Papa Johns had to find a replacement as that plan faltered and a brutal fast-food environment took hold.
“It is a brand that’s been through a lot,” Todd Penegor, named CEO earlier this year, told investors on Thursday. “If you think about the last seven years, right? We had a founder challenge. We had some leadership changes. We rolled into a pandemic. We rolled into an unbelievable inflationary environment. We had some more leadership changes. And we had some international disruptions with all the conflicts out there.”
And yet, he said, Papa Johns managed to hold onto most of the sales it gained over that period while it added locations. “The brand has been resilient,” said Penegor, who took the helm of the chain more than three months ago. “The brand is not broken by any stretch of the imagination.”
But the brand has lost market share this year as consumers changed and competition in the pizza business intensified. Penegor and Papa Johns management revealed more detailed plans to change that, regain market share, and turn a “super-regional” pizza chain into more of a nationwide force.
Those efforts include more investments in technology and revenue-generating efforts. The company plans to evolve its marketing, with more price-based promotions than it’s had in recent years and fewer new products to improve operations. Executives also suggested plans for potentially “tough conversations” with franchisees to ensure everybody has a “growth mindset.”
Sales and marketing
In 2019, the year Rob Lynch took over as CEO, Papa Johns locations generated average weekly sales of $17,414. Those soared past $20,000 in 2020. By last year, the typical unit did $23,282 per week.
A traditional Papa Johns location now does $1.25 million in revenue per year and averages about $150,000 per year in EBITDA, or earnings before interest, taxes, depreciation and amortization, though that doesn’t include nontraditional stores and some in small towns.
Yet the company’s same-store sales fell behind top competitors last year and worsened so far in 2024. That includes declines of 2%, 4% and 6% in the first three quarters of the year, respectively.
The pizza business as a whole has grown difficult in recent years, in part because consumers are ordering more delivery from aggregators—and more carryout from traditional pizza players—and less delivery from pizza chains themselves. Just 35% of Papa Johns sales come from its own delivery channels.
Still, this year’s results for Papa Johns were particularly problematic, because the company under Lynch convinced franchisees to spend more on national marketing, in exchange for the elimination of the requirement they spend on local marketing.
Lynch then left for Shake Shack just as the chain launched the campaign at the center of that marketing change, called “Better Get You Some.”
Penegor said that national marketing is more efficient, but the company lost something with the shift away from local marketing. Papa Johns is now working with franchisees on a “rebalance” of that marketing spending.
“There’s a big role for national,” Penegor said. “But pizza’s inherently a local business, and you’ve got to go out there and fight as a unit and not have one franchisee with one message on one side of town and another on the other and the rest of them in between.”
The marketing message itself may not have resonated. “I would say the execution and the timing didn’t quite resonate the way we’d hoped,” Jenna Bromberg, a former Pizza Hut executive recently hired to be chief marketing officer, told investors.
One area executives discussed was value. Penegor suggested more price-based “value” marketing to increase frequency. “We see substantial value in driving frequency in our core product,” he said, referring specifically to a $6.99 “Papa Pairings” menu giving customers a select number of items for $6.99 apiece when they order two.
Price is a key driver of sales in the pizza category but it can be historically dangerous for a brand such as Papa Johns that has marketed itself based on quality.
Yet Penegor argued that top-performing stores in the system do more value-focused marketing, noting that even though their average check is slightly lower ($26.95, compared with $27.03 for the entire system) while food costs are slightly higher (28.3% versus 28.1% for the system).
“When our franchisees invest a little bit of margin to drive frequency, to drive great quality product, it generates a flywheel of ongoing transaction growth,” Penegor said.
Papa Johns has already had at least one big marketing win. The chain has been investing $4 million in marketing this quarter, and the company just had the best Halloween weekend it ever had. It also advertised during the Tyson-Paul fight.
Core menu
Executives argued that Papa Johns spent too much time broadening the menu with items like Stuffed Crust or NY-Style pizza and not enough on pushing its core product. That ultimately hurt frequency and it hurt operations, they said.
“Papa Johns was built on quality, better ingredients, better pizza,” Penegor said. “But we’re hearing that we may not be consistently delivering on this promise day in and day out.”
For instance, in 2019, 75% of Papa Johns pizza orders were traditional, medium and large pizzas. Today they represent just over 50%, while extra large, stuffed crust, thin and “other” take up a larger share of pizza crust sales.
Similarly, the chain is now selling more wings, Papadias, breadsticks and other sides rather than pizza.
The new products are not driving in as many orders. “We’ve added a lot of complexity over the last many years,” Penegor said. “We brought a lot of product on. It’s driven some short-term sales. It’s brought in new users, but it’s not driven the frequency we need.”
“You know,” he added, “as I’m working in the restaurants, we’re cranking out a lot of great pizzas, and then all of a sudden some unique product that was put out there, some unique topping, we’ve got to go searching for it. And it takes us away from making a great pizza.”
Penegor said the company needs to focus more on its core menu items to improve operations. He said the company doesn’t plan to move away from innovation. “We’ve just got some cleanup to do on our restaurants,” he said. “New offerings actually bring in customers, but great pizza drives frequency.”
The company may also slow its ovens down. Penegor said that there is a “ton of oven variability” in its system. Papa Johns may even shift to slower ovens, which make for better pizzas than faster ovens.
New items like stuffed-crust pizza don't necessarily drive frequency, executives said. | Photo courtesy of Papa Johns.
Technology
In addition to the hiring of Bromberg to be CMO, Papa Johns hired Kevin Vasconi to be chief digital and technology officer. Vasconi had previously worked with Penegor at Wendy’s.
The company a few months back convinced franchisees to pay more fees that can be used to invest in technology initiatives. That’s a key driver of sales in the pizza business.
Papa Johns is using those funds to upgrade its customer-facing technology. It has already upgraded the company’s app and website to make them easier to use, with loyalty points—which the company calls “Papa Dough”—on the front page so customers know right away.
Those efforts are already paying dividends, as orders through the mobile app increased.
Executives also talked extensively about using data, noting that the company has not used the data it has been collecting from customers over the years. They also talked about making that technology stable so it is always in use.
Papa Johns has also upgraded its loyalty program, allowing customers to start redeeming Papa Dough with smaller purchases. Customers can now get $2 off with as few as 15 points, meaning that just one typical visit can lead to a reward that can be used on a later visit. Before, customers couldn’t redeem until they spent $75.
“It took literally three orders to get $75 to get $10 off,” Penegor said. “Our average customer comes in only four times a year, so many folks were never getting all the way to earn their full rewards.”
Vasconi also noted that, come January, Papa Johns will allow customers to save their favorite order, which speeds the ordering process. That’s about 80% of the chain’s orders. “That’ll cut the time in half to order,” he said.
The franchisee base
The biggest issue may simply be the number of locations. The chain operates just over 3,200 locations in the U.S., which is not much more than it operated five years ago, despite efforts by the brand to increase that.
The company is either the top or second-biggest pizza chain in 11 of its 15 top markets. But it is the most penetrated along the East Coast, as well as Texas and California. “We’re a super-regional brand,” Penegor said.
He said the company has opportunity to “fortress” some of its biggest markets to make them more relevant for carryout customers, who now account for 45% of the chain’s sales. The company could also develop locations in cities like Dallas, Houston and Los Angeles to “steal some share in those markets.”
Outside of its core markets, however, “there’s a lot of whitespace opportunities,” Penegor said. The company plans to first focus on infill development, however.
Still, one of Papa Johns’ long-term challenges is its franchisee base. About three-quarters of its franchisees operate one to five locations, and only 13% of those have development agreements.
Many of those franchisees have been with the system a while. The average tenure of the chain’s operators is 15 years, the company said. And many of its restaurants are old. The average age of a Papa Johns location is 20 years.
“We have an asset base that has gotten old and tired,” Penegor said. The company doesn’t plan to address that issue quickly, but it could test a reimage next year that could lead to a remodel effort starting in 2026.
Penegor suggested the company could refranchise some key markets to spur more development. But he also said that there may be some “tough discussions” with some franchisees to ensure that more of its operators want to open more locations.
“We’re really trying to … identify who has that growth mindset, who are we going to really partner with to really leverage that growth mindset, and then the focus that are on the sidelines who don’t have that mindset,” he said. “We have to have some really tough discussions about what their role is in this system, to continue to help us grow and amplify our great brand.”
“We are really looking at our whole franchise community and where they stand in the spectrum,” he added. “We want to win with the winners and we want to have some good discussions and coaching with the focus that need to be a little more growth focused.”
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.