FDD Talk 2021: Papa Murphy’s Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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

• Section I – Background information on the Papa Murphy’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Papa Murphy’s franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Papa Murphy’s franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Papa Murphy’s outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Papa Murphy’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, highest, and lowest net sales for the 57 company-owned, 1,193 franchise-owned, and 1,250 company-owned and franchise-owned domestic Papa Murphy’s Take ‘N’ Bake Pizza stores that were open and operating for all of the trailing 52 weeks ending on September 28, 2020

• 2019 average, median, highest, and lowest net sales for the 89 company-owned, 1,230 franchise-owned, and 1,319 company-owned and franchise-owned domestic Papa Murphy’s Take ‘N’ Bake Pizza stores that were open and operating for all of the trailing 52 weeks ending on September 30, 2019

• 2020 average gross sales, discounts (on gross sales), net sales, cost of goods sold, employee labor, management, payroll taxes and benefits, advertising, rent and common area maintenance, other store expenses, royalties, and store contribution for the 857 Papa Murphy’s franchised stores that were open and operating for all of the trailing 52 weeks ending on September 28, 2020, and submitted profit and loss statements in the appropriate format for this period

• 2019 average gross sales, discounts (on gross sales), net sales, cost of goods sold, employee labor, management, payroll taxes and benefits, advertising, rent and common area maintenance, other store expenses, royalties, and store contribution for the 659 Papa Murphy’s franchised stores that were open and operating for all of the trailing 52 weeks ending on September 30, 2019, and submitted profit and loss statements in the appropriate format for this period

Section I – Background Information

15 Things You Need to Know About the Papa Murphy’s Franchise

Launches New Plant-Based Pepperoni

1.  In mid-September 2020, Hormel Foods, the makers of Hormel Pepperoni and Happy Little Plants products, introduced new Happy Little Plants pepperoni style topping at select Papa Murphy’s locations across the country. The Happy Little Plants brand was introduced by Hormel Foods in 2019 and celebrates the power of plant protein while offering a great tasting solution for people looking to add more plant-based food into their diet.

2.  Anthony Panichelli, foodservice pizza toppings brand manager of Hormel Foods, said, “Chefs and restaurateurs are very aware of today’s dynamic food landscape and consumers’ desire to add more plant-based foods to their diets, and we are very excited to bring this great-tasting, plant-based option to our partners at Papa Murphy’s. The new Happy Little Plants brand pepperoni style topping was developed with foodservice operators to ensure pizzeria-level taste, convenience and quality, so much so, that many people may have a hard time tasting the difference between Happy Little Plants brand pepperoni style topping and traditional pepperoni. Our team worked closely with pizzerias, chefs, foodservice operators and pizza experts to develop a plant-based pepperoni style topping that cooks and tastes exactly like traditional pepperoni.”

3.  The new Happy Little Plants brand pepperoni style topping made its debut at select Papa Murphy’s locations in Austin and Dallas, Texas; Duluth, Minnesota; Fargo, North Dakota; and Las Vegas, Nevada.

4.  Kim McBee, senior vice president, customer experience and brand marketing of Papa Murphy’s, added, “We know our customers are looking for plant-based options to shake up their normal pizza routine and incorporating the benefits of plant-based foods into meals they’re familiar with. The new Happy Little Plants brand pepperoni style topping is perfect for our Cowboy pizza or as a switch to our traditional pepperoni pizzas.”

5.  Robbie Koons, Happy Little Plants brand manager, said, “We are excited for people to try our game-changing Happy Little Plants brand pepperoni style topping and our other plant-based pizza toppings. For anyone that wants to add more plant-based foods to their diet, our new Happy Little Plants brand pepperoni style topping is the perfect addition to any pizza at Papa Murphy’s. Made with the same spice blend as our beloved traditional Hormel pepperoni, it’s a quick, easy and delicious way to enjoy the great taste and benefits of plants.”

Debuts New Store Design and Logo

6.  In late June 2021, Papa Murphy’s announced the launch of two major rebranding initiatives: the new Kitchen Delite store design – an open-kitchen concept that enhances the in-store experience for consumers and employees alike – and a new primary brand logo that complements the evolution of the brand’s identity. This year marks Papa Murphy’s first introduction of a new store design since 2014 and the brand’s first logo update in more than a decade.

7.  Victoria Tullett, senior vice president of development and general counsel for Papa Murphy’s International, said, “Ensuring the retail environment at our stores conveys the brand’s equity and maintains relevancy is important for guest satisfaction and driving profitable sales. The ‘Kitchen Delite’ store remodel program is available for all stores nationwide, and we are so excited to showcase its many benefits. Our guests will love this forward-looking, safe and convenient design, which still allows them to experience all the sights and sounds of their fresh pizza being made on the makeline while they watch.”

8.  Kitchen Delite is compatible with typical 1,200-1,500 square-foot tenant spaces and adaptable to free-standing buildings and drive-thrus. The design facilitates online ordering, third-party delivery, and other in-demand consumer food-access models. Tullett added, “In order to be a brand that experiences transformational growth in the modern era, we must keep our brand ‘on the move,’ we must maintain the business we have, and the guest in-store experience must evolve.”

9.  The new primary brand logo – plus related, secondary logo options – is Papa Murphy’s red, with alternate black and white options. It will be visible in the new Kitchen Delite store remodels and in marketing and corporate messaging. “Papa Murphy’s is a fun and innovative brand, with a focus on being family-friendly. The brand is evolving its positioning to match the family mindset of today, and this new logo complements this evolution, rooting our identity in unconventional approach to meals,” said Kim McBee, senior vice president of guest experience and brand marketing for Papa Murphy’s.

Company History

10.  Papa Murphy’s began in 1995 after Terry Collins acquired Papa Aldo’s Pizza and Murphy’s Pizza. Papa Aldo’s was founded as a take-and-bake pizza concept in 1981 in Hillsboro, Oregon. A few years later, in 1984, Murphy’s Pizza, which had a very similar concept to Papa Aldo’s, was founded by Robert Graham in Petaluma, California. Graham wanted to create a pizza crust that could be baked properly in home ovens, and he tried hundreds of recipes before developing a dough that could be baked at 425 degrees in a conventional home oven.

11.  Over the next few years, Graham began opening more Murphy’s Pizza locations, but struggled to run the business as he did not have fast-food experience. In 1988, Graham met Terry Collins, who then bought a controlling 51 percent interest in the seven-store Murphy’s Pizza chain.

12.  In 1990, Collins acquired Papa Aldo’s, which had strong management but an inferior product than the one produced by Murphy’s Pizza. After Collins’ acquisition, he replaced Papa Aldo’s product with Murphy’s superior pizza and Papa Aldo’s began to regain market share. Papa Aldo’s and Murphy’s Pizza remained separate entities until 1995 when Collins merged the brands to form Papa Murphy’s.

13.  Throughout the next decade, Papa Murphy’s continued to expand around the United States. In 2010, the company was sold to Lee Equity Partners of New York. Growth continued and by 2012, there were 1,350 stores in operation. However, sales began to slump. Following a loss in Q3 of 2016, Papa Murphy’s launched its first national advertising campaign in 2017.

14.  In recent years, Papa Murphy’s has closed dozens of stores while sales continued to decline. In 2019, the company was sold to Canadian private food conglomerate MTY Food Group.

Entrepreneur’s Franchise 500

15.  Papa Murphy’s did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Papa Murphy’s franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Papa Murphy’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  1,334
• Outlets at the End of the Year:  1,291
• Net Change:  -43

2019

• Outlets at the Start of the Year:  1,291
• Outlets at the End of the Year:  1,256
• Net Change:  -35

2020

• Outlets at the Start of the Year:  1,256
• Outlets at the End of the Year:  1,231
• Net Change:  -25

Company-Owned

2018

• Outlets at the Start of the Year:  145
• Outlets at the End of the Year:  106
• Net Change:  -39

2019

• Outlets at the Start of the Year:  106
• Outlets at the End of the Year:  74
• Net Change:  -32

2020

• Outlets at the Start of the Year:  74
• Outlets at the End of the Year:  58
• Net Change:  -16

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

Part 1 – System Store Performance

• As of September 28, 2020, there were 1,296 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores open. As of September 30, 2019, there were 1,343 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores open.

• The statements in this System Store Performance section are based on information reported by:

• (i) the 1,250 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchise-owned and company-owned, that were open and operating for all of the trailing 52 weeks ending on September 28, 2020. These stores represent 57 company-owned stores and 1,193 franchise-owned stores (collectively referred to herein as “System Stores”). All 1,250 2020 System Stores offer substantially the same menu and product mix that your Franchised Store will offer; and

• (ii) the 1,319 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchise-owned and company-owned, that were open and operating for all of the trailing 52 weeks ending on September 30, 2019. These stores represent 89 company-owned stores and 1,230 franchise-owned stores (collectively referred to herein as “2019 System Stores”). All 1,319 2019 System Stores offer substantially the same menu and product mix that your Franchised Store will offer.

2020

System Stores (Franchised and Company-Owned Outlets)