Why are Papa John’s sales falling so much?

RB’s The Bottom Line crowdsourced a comparison between the John Schnatter firestorm and Chick-fil-A’s gay marriage controversy.
Photograph: Shutterstock

The Bottom Line

On Tuesday, Papa John’s highlighted the extent of the damage from the fallout over John Schnatter’s controversial comments, first in November and again in July: A same-store sales decline of 10.5%, potential franchise closures, a debt covenant in danger and up to $50 million in additional spending.

But why?

When Dan Cathy, Chick-fil-A’s chief operating officer and the son of its founder, came out against gay marriage in 2012, it generated boycotts and protests and a firestorm that engulfed the chain for a time. And then sales increased by 12.5% that year.

While the situations are considerably different, it begs the question: Why is Papa John’s getting hammered when Chick-fil-A did not?

To be sure, not everybody thinks that Schnatter’s comments are the source of its problems. That includes Schnatter, who has laid the blame squarely with existing management.

Still, I put the question to my Twitter followers. They did not disappoint. And the answers show just how complex and different this situation is from anything that’s come before.

This might be the biggest reason. No restaurant chain, and few companies period, are as connected with a single person as Papa John’s is with Schnatter. His face was on the logo. He appeared in ads. He was its chairman, its CEO, and its largest shareholder at 30%.

Cathy, meanwhile, is mostly in the background and appears in none of that. And nor is Cathy its founder, but rather the son of the founder, Truett Cathy.

It’s much easier to separate Chick-fil-A from Dan Cathy than it is Papa John’s from John Schnatter.

All of these are good points, but I think the reaction of sports teams is a big deal here. If we go back to July 11, the news intensified as the day went on. First there was the Forbes report, then the apology, and then Schnatter resigned. That resignation came after reports that Papa John’s was losing its deal with Major League Baseball.

The company had already ended its NFL partnership, and now was losing additional deals, including the naming rights deal for the University of Louisville’s stadium. The sponsorship losses put a real penalty on Papa John’s, and it helped fuel the story.

Chick-fil-A has long been known for its religious values—it’s closed on Sundays!—and so the view of one of its executives should hardly been considered a surprise. Cathy clearly viewed gay marriage through a religious lens.

Rightly or wrongly, Schnatter’s comments in November and in May led to the perception that he is a racist at worst or at least racially insensitive. And there is no religious defense for that.

Some people mentioned the size of the respective chains, noting that Chick-fil-A was more of a regional concept while Papa John’s is national.

That’s true to an extent. Most of Chick-fil-A’s 2,300 locations, even today, are in the bright red South and Southeast, according to Technomic data. It was even more present in the South back in 2012.

But Papa John’s is also heavily concentrated in the South, where it has nearly half of its 3,300 locations. And it’s important to note that, based on sales, Chick-fil-A was bigger in 2012 than Papa John’s is now.

Public relations matter.

Chick-fil-A in the aftermath of the gay marriage controversy famously said in a statement that, “Going forward, our intent is to leave the policy debate over same-sex marriage to the government and political arena,” and the company stopped funding certain groups seen as hostile to gay rights.

Cathy himself has worked to improve his own relations with the LGBT community.

While Papa John’s has recently removed Schnatter from its marketing and has been distancing itself from its founder, attracting a lawsuit and heavy criticism from him in the process, that reaction was delayed in November. The company apologized in a series of Twitter messages two weeks after Schnatter’s NFL comments.

The last tweet famously included a middle finger emoji aimed at Nazis.

The company now says that it needed to move away from a founder-centric marketing platform after those comments. Schnatter clearly disagrees, and until the most recent controversy Papa John’s was working him back into the spotlight.

A LOT of people mentioned quality. Customers clearly love Chick-fil-A. And a number of people have used the controversy to take shots at Papa John’s.

But the pizza chain has traditionally performed strongly in consumer ratings.

The difference, as people have pointed out, is that the pizza sector is much, much more competitive than is the chicken business. Papa John’s customers aren’t as loyal because there are a number of large, pizza competitors offering lower prices.

Chick-fil-A customers, on the other hand, have been quite loyal. There are fewer places to get a quality chicken sandwich. And the company has done a lot over the years to engender that loyalty. The company has famously strong service and does a lot in its communities.

This is the last point. These are fundamentally different situations. Papa John’s is publicly traded, and Schnatter is a public figure. Chick-fil-A is private, and Cathy is not well known. The comments were different. And the chains compete in very different markets. 

But it emphasizes the unique nature of the John Schnatter controversy. We’ve never seen one like it.

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