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Leadership

At Papa John’s, Rob Lynch slaughters some sacred cows, and keeps others

The Restaurant Leader of the Year finalist helped spur a remarkable turnaround at the pizza chain, with some assistance from the pandemic.
Papa John's Restaurant Leader of the Year Rob Lynch
Photo courtesy of Papa John's

Rob Lynch joined Papa John’s in 2019. His first two days as CEO of the Louisville, Ky.-based pizza chain were spent talking with analysts and doing interviews. On the third day he got to work telling people it was OK to do things differently.

That day, he attended a marketing innovation planning meeting. The discussion centered on a value platform to better compete with Domino’s. Lynch, however, wanted to talk about innovation, and asked for ideas.

The group had some ideas that tested well but, Lynch said, they weren’t allowed to use them. “We’ve never been allowed to touch the dough,” Lynch quoted the team as saying.

“Look, we’re allowed,” he responded. “Six weeks later we launched our first-ever crust innovation at Papa John’s.”

That crust was the garlic Parmesan crust. And though the innovation was simple, it represented a new era for the pizza chain that had been coming off a difficult two years: Its new leader was intent on doing things differently, even if he also insisted on keeping to the chain’s longstanding quality effort.

Papa John’s shift in direction took on new meaning in 2020, when the chain’s turnaround hit overdrive, helping it and its franchisees more than recover from that two-year period. It also earned Lynch a spot among the nominees for this year’s Restaurant Leader of the Year award.

“The meeting was the launching point for a change in the direction of the company,” Lynch said. “Not just sales, but from a strategy standpoint and positioning.”

Heavy innovation

Lynch has a marketing background. He spent seven years with Procter and Gamble and then five years with the Kraft Heinz Co. before he took a job as vice president of marketing for Taco Bell in 2012. One year later, he was lured to Arby’s, where he was the brand president and chief marketing officer. Arby’s was in the early stages of a comeback at the time under Paul Brown—himself a former Restaurant Leader of the Year winner.

At the time Brown took over Arby's, it was posting low average unit volumes, and large numbers of company stores burdened with expensive leases. Some thought the chain would need to be put into bankruptcy. 

System sales declined to $2.9 billion in 2011 from $3.6 billion in 2007. The chain closed some 200 locations over that period.

At Taco Bell, Lynch had learned innovation marketing, using new product news to get customers excited and in the door. He brought that same mentality to Arby’s, which decided to focus on its core meat-loving customers with its “We have the meats” campaign under Lynch.

“We were launching something every two months,” Lynch said. The company introduced items like a smoked brisket sandwich and then broadcast a 13-hour commercial simply showing the brisket being smoked.  

Arby’s comeback in the years since has been remarkable. System sales have grown 45% since 2011, even though the chain actually has fewer locations, at just under 3,400, according to data from Restaurant Business sister company Technomic. “Frankly, I learned a lot from Paul,” Lynch said of Brown. “I have a huge amount of respect for Paul on leadership, building a team you can trust, let the team contribute where they can. Paul taught me the power of not surrounding yourself with people that look and think like you, but with people that challenge your thinking.”

Arby's performance was the kind that can get a company president recruited to the CEO job of a well-known company. And in 2019 Papa John’s came calling.

“There are two situations that CEOs don’t want to walk into. One is a disgruntled founder. The other is an activist investor. We had both.” —Rob Lynch

Into the fire

The problems at Papa John’s are well documented. In 2017, its founder, John Schnatter, blamed NFL player protests for the sport’s poor television ratings and, by extension, faltering sales at his chain. Papa John’s and the NFL were closely tied together. The chain counted NFL figures like Jerry Jones and Peyton Manning among franchise partners, and both appeared in its commercials alongside Schnatter.

The result was a firestorm of media attention, while white supremacist groups praised the comments. By the end of that year, Schnatter handed over the CEO role to his hand-picked successor, Steve Ritchie.

The following May during a conference call with a media consultant, Schnatter used the N-word while defending himself—he was referencing the apparent use of the word by Colonel Sanders.

Forbes reported the comment in July, igniting another firestorm. Schnatter resigned as chairman. The company ended his founder’s agreement, meaning he would no longer be its spokesman or have an office there.

It’s difficult to understand just how closely associated Schnatter was with Papa John’s, an enterprise named after him. He was its founder, its CEO, its chairman, its largest shareholder and he appeared in the bulk of the chain’s ads as its primary spokesman. His face was on the Papa John’s logo. Extracting someone like Schnatter from the chain he founded in Jeffersonville, Ind., and ran for 35 years is no easy feat.

Schnatter himself decried his treatment, arguing that Papa John’s never properly responded to the controversy and threw him under the bus. He would ultimately relinquish his seat as a company director, and he sold the bulk of his shares in the company.

The controversies—which also included a Forbes article detailing the “bro culture” at corporate headquarters—had a predictable impact on its sales. But it also exposed problems with franchisee profitability in a number of markets.

Papa John’s system sales declined by $364 million between 2017 and 2019, and the company closed 172 locations. But those locations closed almost immediately, suggesting they were operating on the edge as it was. The company had to take some extraordinary measures to keep more of its locations from closing.

Papa John’s also put itself up for sale before ultimately bringing in an investor in Starboard Value, whose CEO Jeff Smith became the chairman. Smith is well known in the restaurant space for a complete overhaul of the Darden Restaurants board, leading to the hiring of CEO Gene Lee and the company’s subsequent turnaround.

Schnatter might have been out of the company, but he didn’t go away. Even today, he is issuing press releases and investigative reports working to improve his image. He has also taken to Seeking Alpha to comment on Papa John’s sales results and famously said he ate 40 pizzas in 30 days and found it didn’t have the same quality.

It was into this that Lynch stepped as CEO in 2019.

“There are two situations that CEOs don’t want to walk into,” Lynch said. “One is a disgruntled founder. The other is an activist investor. We had both.”

“I said we were never going to beat Domino’s by trying to be Domino’s. Going head-to-head with them on value doesn’t allow us to realize the positioning of this brand in the market place. Better ingredients, better pizza is our position. I can’t support us going out with a value platform. I want to talk about innovation.” —Rob Lynch

Sacred cows

When Lynch arrived in Louisville, he slaughtered some sacred cows, like the no-messing-with-the-crust rule. But he kept others. Go back to that marketing meeting.

The goal at the time was to talk about value. The company was putting together a strategy to battle more directly on price with its competitors, notably Domino’s. Lynch listened to the entire presentation.

And then he nixed the idea.

“I said we were never going to beat Domino’s by trying to be Domino’s,” Lynch said. “Going head-to-head with them on value doesn’t allow us to realize the positioning of this brand in the marketplace. Better ingredients, better pizza is our position. I can’t support us going out with a value platform. I want to talk about innovation.”

Lynch believed that the better ingredients, better pizza strategy is a winning idea. But you cannot spend a lot on those ingredients and then discount them.

“Our position, our true focus, is on quality and ingredients,” Lynch said. “Our flour costs more. Our olives cost more. Our tomatoes cost more. Our costs are higher than our competitors because there was an unrelenting desire to have better ingredients. It’s not one I’m willing to change.”

In the months since then, much of Papa John’s marketing has shifted away from the personality-based marketing of years past to that focus on those ingredients.

And Lynch at that meeting wanted to talk about innovation, which got to that crust idea that was implemented just six weeks later.

Lynch took the repeated innovation strategy used at Taco Bell and Arby’s to Papa John’s, albeit on a much-less-frequent scale.

Since Lynch took over, Papa John’s added new Papadias sandwiches, which generated lunch business going into the pandemic. It launched an “Epic Stuffed Crust” pizza to get at some of the pizza sector’s biggest customers. It also launched the “Shaqaroni” pizza, named for its famous director in Shaquille O’Neal.

“We went from being founder-focused to food-focused,” Lynch said. “You never see a person in our ads. We’re glorifying our food, showing why it’s special, unique and better.”

The results began to show quickly. Same-store sales began to increase late in 2019, including 3.5% in the fourth quarter of that year.

They were up 7.5% in the first quarter until the pandemic hit.

“Diversity without inclusion is propaganda. You can hire people with difference experiences and backgrounds. But if you don’t create an inclusive environment for them to bring their best self to work every day, you don’t get the benefit of that diversity.” —Rob Lynch

The pandemic

Papa John’s has a number of restaurants in international markets, where the coronavirus pandemic hit before it appeared in the U.S. As that happened, the company looked at sales trends and noticed something: In markets where the government allowed grocery stores to remain open and for pizza delivery to continue, sales quickly improved at pizza chains.

The company began preparing, building up supplies, meeting with franchisees and working to prepare for a surge.

“And then when the quarantine hit we had two weeks of negative sales,” Lynch said. “I’ve got to tell you those two weeks were very nerve-wracking. Especially since I put my signature on buying about $10 million of raw material inventory. We were very nervous. But we stayed data-focused. We continued to track and monitor international markets. In the third week, we saw the sales start to spike.”

Same-store sales in the first quarter went from 7.5% in North America to just 3.6% for the full quarter. But in April, they rose 27%.

The sales improvement continued through the year and effectively put Papa John’s recovery on the fast track.

Papa John’s system sales rose 16% last year to $3.2 billion—more than recovering what it lost in the previous two years despite having almost 200 fewer domestic locations. Unit volumes hit a record, and the company now has higher unit volumes than any of its biggest competitors outside of Domino’s.

The company is suddenly looking at expansion again—it hired Amanda Clark from Taco Bell to be the company’s chief development officer and late last summer signed its biggest development deal in two decades.

Lynch said Papa John’s developed its core values coming out of that marketing meeting and kept them during the pandemic. Those values—“we bring people together around pizza”—could have been a problem during a quarantine in which such gatherings were frowned upon. But, Lynch said, “it was an opportunity to insert some sense of normalcy, to give them a sense of joy when they’re anxious.”

There was another issue that Papa John’s was able to overcome. The problems of 2017 and 2018 led the company to get a reputation—whether it deserved it or not—as a racist pizza chain. The chain has worked since to improve that image, and more recently focused on improving the diversity of its executive ranks and to provide more opportunities for a range of people inside the company.

Earlier this year, Forbes—the same publication that in 2018 published the bro culture story—put Papa John’s on its list of best employers for diversity.

“We shifted our focus from trying to prove something to somebody else to try to build something,” Lynch said.

“Diversity without inclusion is propaganda,” he added. “You can hire people with difference experiences and backgrounds. But if you don’t create an inclusive environment for them to bring their best self to work every day, you don’t get the benefit of that diversity.”

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