Papa Johns CEO Todd Penegor knows there are plenty of opportunities to turn around the pizza chain’s recent struggles, including an 8.3% same-store sales decline in the second quarter and hundreds of location closures.
He has talked at length about reinstating advertising co-ops to better balance national and local marketing dollars, for example. He has also said that inconsistent operations have been an “Achilles heel,” and so the company has beefed up its operations support team and field support structure. During the Piper Sandler Growth Frontiers Conference Wednesday morning, Penegor said Papa Johns has also brought in “pizza experts” to be “brand standard coaches.”
“They not only do the restaurant evaluations, but they're spending some quality time in the restaurants, side by side, training, coaching, making sure that we're creating a great experience,” Penegor said.
There is plenty of motivation to improve operational consistency — Penegor said there is a 400-basis-point sales gap between the top and bottom operators, and that gap has been widening.
“Any brand is only as good as the lowest common denominator, and what we really need to do is raise the floor … and make sure we had more touch points with our restaurants,” he said.
The company hired Marc Richard in June to lead operations, reorganized its field team to support regions, and brought in senior directors to oversee those regions. It is also facilitating more mystery shops and evaluations within its franchise community, and Penegor said these structural changes have allowed the company to ramp up innovation and introduce new products like oven-toasted sandwiches and pan pizza.
“(There’s) a lot of work still to raise that floor, but it’s a big opportunity and we’re making progress,” he said.
Improving the value perception
With its marketing changes, including new leadership, Papa Johns is also working to improve its value position, which Penegor said has become a bit maladjusted. The company is working toward finding the right barbell strategy, so consumers continue to perceive the brand as “premium” while also ensuring entry points for price sensitive guests. The macroeconomic environment has hindered speedy progress as the quick-service category shifted toward deep discounting last year, which is why Papa Johns is urgently bringing back its local advertising co-ops.
“We were fighting the battle on value from a national calendar perspective. Our national promotions drive 20% (to) 25% of our business. We were running the high-low and the barbell from the national side of the equation, and with co-ops being disbanded, we weren't fighting the full barbell from both a national and local level,” Penegor said.
Papa Johns has since re-established 50% of its local co-ops, with more to come, and they’re contributing 2% local ad spend in their markets. The company is incentivizing the model further with a 1% contribution, which allows the brand to have a coordinated message, Penegor said. To support this messaging and improved operations, Papa Johns is also working to elevate its food quality.
“There’s a lot of work underway to elevate that experience to make sure it's not just about price, it’s about ‘is it worth what you pay?’” he said. “When you think about value for the money, it's always going to start with quality of the core, quality with the innovation. But we're going to have to be smart. How do we promote? When do we pulse in promotions? How do we do it from both a national and a local perspective? It complements one another when we're (spending) dollars to drive the restaurant economic model. The gift that'll keep giving — get the four walls working and everything else takes care of itself.”
Walmart partnership
Penegor also touched on Papa Johns’ new delivery partnership with Walmart announced last week. The partnership, which marks the first time Walmart will deliver from restaurants not located within its stores, was developed because Papa Johns saw a massive opportunity to expand its total addressable market.
“We started with some early discussions with Walmart to figure out where does our footprint sit, where's their footprint, is there some complementary opportunities where a brand with our quality halo could really help with their Walmart Express consumer,” Penegor said.
There was work to be done on the technology side, but the partnership fits a value equation that was worth the effort for Papa Johns to become what Penegor calls Walmart’s first “off-premises restaurant brand.”
“If you want a home prepared meal from Walmart, and you also want to pick up some other home essentials, but you want a pizza delivered, they will be that fulfillment arm for us to deliver that pizza to you at good economics,” Penegor said. “They're trying to make sure they've got pricing the consumer can achieve in that channel that would be similar to buying it from the restaurant and we think we're a really good partner to do that.”
Penegor added that Papa Johns has more pilots with Walmart expected to launch later this year that he expects will be a “nice tailwind for our business.”
Contact Alicia Kelso at Alicia.Kelso@informa.com
Follow her on TikTok: @aliciakelso
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.