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FDD Talk 2015: The Papa John’s Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on May 11, 2015

in FDD Talk 2017: Food Franchises, Franchise Earnings, Pizza Franchises

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Papa John's Pizza Photo by JillOW

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the Papa John’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Papa John’s franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of Papa John’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average sales for the 649 company-owned traditional Papa John’s restaurants that were open the entire year of 2014
  • 2014 average sales for the 2,359 franchised traditional Papa John’s restaurants that were open the entire year of 2014
  • 2014 average food costs, labor costs and taxes, manager’s labor and taxes, mileage, advertising, controllables, rent and common area maintenance, other non-controllables, training costs, store bonuses, and pre-tax cash flows for the 659 company-owned traditional Papa John’s restaurants that were open the entire year of 2014

Section I – Background Information

Papa John’s Turns 30

Papa John’s celebrated its 30th anniversary in 2014, three decades after founder John Schnatter sold a dream car to sell pizza out of a converted closet in his dad’s bar.

Schnatter got $2,800 for his 1971 Camaro Z28 in 1984 and invested $1,600 in used pizza equipment, selling his pizzas in a converted broom closet in his father’s tavern in Jefferson, Kentucky. Jefferson, still the headquarters of the company, is a Louisville suburb, and Schnatter is still at the helm.

The first Papa John’s restaurant opened in 1985 and the first franchised restaurant in 1986. The chain celebrated its 100th restaurant in 1991 and now has more than 4,600 locations, including more than 1,200 in 34 foreign countries and territories. And Schnatter has his Z28 back, having paid $250,000 for it after finding the car in a national search.

Papa John’s is the third-largest takeout and pizza delivery restaurant chain in the world. It primarily offers carryout and delivery service, although some stores have seating.

Bill-Sharing Service Debuts

In April 2015, Papa John’s launched PayShare, an online digital service that allows customers to split their bills at the time of any online or mobile order. The chain saw PayShare as a win-win – helpful to customers, but also to restaurants, as customers could envision the smaller amount of a $5 meal rather than a share of a $20 order.

Same-Store Sales Milestone

Papa John’s International Inc. in February reported a 6.7 percent increase in North American same-store sales. The increase was the highest in 15 years.

No. 1 Again Among Customers

In June 2014, Papa John’s was rated No. 1 among all limited-service restaurants according to the American Customer Satisfaction Index. It was the 13th time in the past 15 years that the chain has achieved the highest rating.

Ritchie named COO

Steve Ritchie was promoted to the position of chief operating officer of Papa John’s International in May 2014. Schnatter, the company’s founder, chairman and CEO, took on the role of president.

Ritchie joined Papa John’s in 1996 and has held numerous positions within the company, most recently senior vice president, North and Latin American Operations & Global OST. He also has, since 2006, been a franchise owner and operator of several stores in the company’s Midwest Division.

Laurette Koellner was appointed to the board of directors of Papa John’s International in June 2014. She was most recently executive chairman of International Lease Finance Corporation, a subsidiary of AIG. She also had high-level leadership positions within The Boeing Company.

Philly Cheesesteak and Fritos Chili Pizza

Papa John’s brought back its Philly Cheesesteak Pizza in March 2015 for a limited-time offering. The pizza, which features thin-sliced steak and creamy garlic sauce, was originally offered in November 2014.

Also getting a short stint on the menu in October 2014 was the Fritos Chili Pizza, a pizza version of the famous Fritos Chili Pie that Frito-Lay introduced in the 1930s. Ingredients were chili sauce, beef, tomatoes and onions, topped with cheddar and mozzarella cheese and Fritos corn chips. The pizza was a partnership between Papa John’s and PepsiCo, which owns Frito-Lay and is the beverage partner for Papa John’s in the U.S., UK and Canada.

Other limited-time menu items:

  • In a nod to its previous Cheeseburger Pizza, Papa John’s in February 2015 added bacon to make a Bacon Cheeseburger Pizza.
  • Denver Broncos quarterback Peyton Manning helped Papa John’s kick off a limited-time Ultimate Meats Pizza in September 2014. The pizza boasted five kinds of meat. In a commercial, Schnatter talks to Manning about football strategy while he prepares the new pizza offering, and Manning suggests he should “stick to pizza.”
  • The Spicy Pulled Pork Pizza went on the menu temporarily in July 2014, with slow-cooked pork, Kansas City-style barbecue sauce, mozzarella and spicy pepper jack cheese and crushed red pepper. Another limited-time offering, a Greek pizza debuted in May 2014, featuring Papa John’s signature pizza sauce, basil pesto, tomatoes, pepperoni, feta cheese, mozzarella and banana peppers.

New Growth In India

Papa John’s, Avan Projects and Global Franchise Architects acquired Pizza Corner stores in South India in November 2014 to be rebranded as Papa John’s stores. Pizza Corner was the third-largest pizza chain in Southern India. At the time of the acquisition, Papa John’s had 15 restaurants in India; the Pizza Corner deal will increase that by at least 40 stores.

Section II – Estimated Costs

  • Please click here for detailed estimates of Papa John’s franchise costs, based on Item 7 of the company’s 2015 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis

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