In this FDD Talk 2016 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 2016 FDD
- Section III – Presentation and analysis of Papa John’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
- 2015 average sales for the 671 company-owned traditional Papa John’s restaurants that were open the entire year of 2015
- 2015 average sales for the 2,389 franchised traditional Papa John’s restaurants that were open the entire year of 2015
- 2015 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 671 company-owned traditional Papa John’s restaurants that were open the entire year of 2015
Section I – Background Information
John Schnatter’s first job at age 15 was in a local pizza restaurant in his hometown of Jeffersonville, IN. When things got busy, he would stop washing dishes and help make the pizzas, and he paid attention to what was going on, dreaming of opening his own pizza shop one day.
After studying business at Ball State University, he worked in his father’s tavern, Mick’s Lounge. Learning in 1984 that the business was close to bankruptcy, he sold his prized possession, a 1972 Camaro Z28 for $2,800 to keep the place open. (In 2009 Schnatter offered a $250,000 reward to find his beloved Camaro. Needless to say, it was found in short order!) He converted the broom closet into a pizza-making area, purchasing $1,600 worth of used restaurant equipment.
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One thing he realized was that although national chains offered home delivery, most of the independent shops did not. This became a key feature of his business model. He realized he was onto something and opened the first Papa John’s next door to his dad’s tavern in 1985. Soon he was doing $9,000 in weekly sales, whereas the comparable national chains were only doing $6,000 a week. That’s what led him to start franchising in 1986.
The number of locations has been growing steadily over the past nine years. Back in 2007 there were 2,331 domestic locations, with 648 of those being company-owned, and 390 locations scattered around the globe. In 2016 there are 3,335 domestic locations (752 of which are company-owned) and 1,558 international locations for a grand total of 4,893 locations, making it the third largest pizza chain behind Pizza Hut and Domino’s by number of locations, and fourth in terms of annual sales.
Here’s how Papa John’s keeps the ovens hot in the highly competitive pizza segment:
The Football Connection
In 2010 Papa John’s became the official pizza restaurant of the National Football League. It also courted famous quarterback Peyton Manning, who became a franchisee in the Denver area and bought 21 locations. He also appeared in TV commercials for the chain.
This was a brilliant move that served the chain well when Manning led the Broncos to victory in Superbowl 50 in what was probably his last game. Schnatter also managed to be one of the first to embrace Manning as he walked off the field from the game, all caught on camera. The result – a 25% bump in Papa John’s stock price since the big game.
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Superbowl 50 also saw the launch of a smart promotion that included a quality guarantee – if for some reason you weren’t satisfied with your pie, it would be replaced free of charge.
Given that most people are not going to order from Papa John’s unless they already have an affinity for its pizza, it’s an attention-grabbing promo that probably resulted in very little payout on the part of the chain. After all, if a new customer decides they don’t like Papa John’s pizza, why would they order a replacement?
Papa John’s has done well in improving its online and mobile ordering technologies, and in fact more than half of its sales now come through digital channels. It claims to be the first pizza chain to hit that historic milestone.
But Papa John’s is used to being on the leading edge of digital ordering, as it was the first U.S. pizza chain to offer it back in 2001. Its more recent integration with Google Wallet Instant Buy is keeping it on that leading edge.
Section II – Estimated Costs
- Please click here for detailed estimates of Papa John’s franchise costs, based on Item 7 of the company’s 2016 FDD (updated).