In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Papa Johns franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Papa Johns 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 Johns franchise, based on Items 5 and 6 of the company’s 2021 FDD
- Section IV – Number of franchised and company-owned Papa Johns 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 Johns’ financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
- 2020 average, median, high, and low sales for the 577 company-owned traditional Papa Johns restaurants that were open the entire year of 2020
- 2020 average, median, high, and low sales for the 2,391 franchised traditional Papa Johns restaurants that were open the entire year of 2020
- 2020 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, imputed royalty fee, and pre-tax cash flows for the 577 company-owned traditional Papa Johns restaurants that were open the entire year of 2020
Section I – Background Information
17 Things You Need to Know About the Papa Johns Franchise
Unleashes New Brand Vision
1. In mid-November 2021, Papa Johns unveiled a fresh logo (the apostrophe is gone) and visual brand identity, as well as a customer-centric restaurant design that offers a streamlined, flexible environment for operators to capitalize on a changing restaurant world.
2. Kate Carpenter, senior director, advertising and design for Papa Johns, said, “Better has always been at the core of what we do at Papa Johns. In this next chapter, we are going to continue that focus on being ‘Hungry for Better.’ And that means challenging where we are and evolving to meet the needs of today and tomorrow.”
3. The new brand identity centers on Papa Johns’ premium-ingredient platform. It’s the DNA CEO Rob Lynch zeroed in on when he left Arby’s for the position. As he told QSR earlier in the year, “It was in that meeting, in that first week, where we made a strategic decision that we were going to get back to what had originally made the brand great.” Things like garlic dipping sauce and the pepperoncinis guests expect in each box, as well as Papa Johns’ six-ingredient, never-frozen original pizza dough.
4. The brand went as far in this effort as redesigning its typography to create a custom font inspired by the way dough moves and stretches when employees make pizza. The updated color palette includes hues like “Tangy tomato,” “Fresh basil,” “Fluffy dough,” which is off-white, “Punchy garlic,” a light purple, and “Pickled pepperoncini,” a bright, yellow-green. Papa Johns created “hand-drawn happiness” illustrations to reflect the company’s hand-crafted nature that it says will also offer information to guests.
5. The store design pops all of these colors and imagery, including “photos celebrating the best pizza moments – the ones shared with others,” and what it takes for employees to craft orders. Expect massive shots of ingredients, like mushrooms and pepperoncinis. “The interior design features elements intended to indulge the senses and provide visual cues that will reinforce those crafted premium quality products Papa Johns is known for. We wanted a fresh take on premium within the [quick-service restaurant] category,” Carpenter said. “So where better to draw that inspiration than our premium ingredients?”
6. Operationally, there’s a clear focus on purchasing and pickup experiences anchored by an open floorplan. Inside, Papa Johns added a pickup counter, which now boasts a self-service option for guests to grab their orders without waiting in line. Some also feature “Drive-Up Pick Up,” or essentially curbside pickup spaces. Others tout pickup windows as a drive-thru feature for consumers to order ahead and collect food out the window.
7. In the back, Papa Johns designed modular stations for employees to use the same space for different products at different times. For instance, as they cut pizzas and place the pepperoncini pepper and Papa Johns garlic sauce cup inside each box, they will be better equipped with a special space to add these final touches. Alongside modular make-lines, Papa Johns implemented cut-table improvements to enable higher throughput at peak times – a reflection, Carpenter says, of the fact demand has surged across the fleet.
8. As far as timing goes, the new design, logo, and visual identity will unfold in a “phased approach,” Carpenter said. The new logo officially launched in mid-November. The updated identity and store design will follow. “Given the scope of the changes, we’re intentionally taking a methodical approach to this implementation,” she said. “The duration of the rollout is going to cover an extended period of time, and we’ve actually taken that into consideration in designing the elements of this brand evolution to make sure that we considered a period of transition or overlap.”
Promotes Max Wetzel to Expanded Role as EVP, Chief Commercial Officer
9. In mid-October 2021, Papa Johns announced the promotion of Max Wetzel to EVP, chief commercial officer. Wetzel joined Papa Johns in November 2019 as its chief commercial and marketing officer, overseeing marketing, menu innovation, customer experience, and a transformation office. In his new, expanded role, he will add North America restaurant operations, technology, and insights to his responsibilities.
10. Rob Lynch, president and CEO of Papa Johns, said, “Over the past two years, Papa John’s has fully transformed itself from a turnaround story to an innovation-driven growth business with enormous development whitespace. Over the same period, the pandemic also accelerated changes in consumer behavior and expectations that were taking hold prior to 2020 – online ordering, adoption of delivery aggregators, robust loyalty programs and one-to-one marketing – which have contributed to Papa Johns’ consistent outperformance, thanks to the efforts of Max and his team.”
11. “More tightly integrating our commercial and marketing functions with our technology team as well as our restaurant operations, who play the critical role of delivering for our customers every day, allows us to better realize our long-term growth opportunity. In addition, we’ll be better positioned to take on bold, transformative projects that are enabled by our technology, growing first-party data capabilities and a company-wide innovation culture,” said Lynch.
12. Since joining Papa Johns almost two years ago, Wetzel has led Papa Johns’ successful efforts to strengthen perception of its premium, differentiated brand position in the pizza category, including launching successful menu innovations like Epic Stuffed Crust and Papadias, creating impactful marketing campaigns like Shaq-a-roni, and growing the popular Papa Rewards loyalty program to more than 20 million members. Most importantly, he has helped bring a data-driven approach to everything the company does, leading to smarter business decisions that have delivered positive results for the entire Papa Johns system.
13. Papa Johns (formerly Papa John’s) was founded in 1984 by “Papa” John Schnatter in Jeffersonville, Indiana. Schnatter began selling pizzas out of a broom closet in the back of his father’s tavern. The tavern’s customers enjoyed Schnatter’s pizza and within a year, Schnatter had made enough money to move into the space next to his father’s tavern. That same year, Schnatter developed Papa Johns’ dipping sauces, which are still a signature feature of the brand today.
14. Schnatter began franchising Papa Johns in 1986 and over the next few years, the brand grew quickly. By the mid-1990s, the chain had grown to more than 500 locations. Papa Johns’ growth continued over the next few decades. In 2001, Papa Johns became the first pizza chain to offer online ordering. In addition to growing around the United States, Papa Johns expanded internationally.
15. Until 2017, Schnatter continued to own, operate, and act as the face of Papa Johns until he was asked to step down following controversial behavior that reflected negatively on the brand. Since Schnatter’s exit, Papa Johns has worked hard to rebuild the brand’s reputation and distance itself from Schnatter.
16. In 2021, Papa Johns announced it was rebranding its logo (by removing the apostrophe and simplifying the design) and store locations. Today, there are Papa Johns locations all around the world.
Entrepreneur’s Franchise 500
17. Papa Johns ranked No. 127 on Entrepreneur’s 2021 Franchise 500 list.
Section II – Estimated Costs
- Detailed estimates of Papa Johns franchise costs, based on Item 7 of the company’s 2021 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Detailed information on Papa Johns’ 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
- Outlets at the Start of the Year: 2,606
- Outlets at the End of the Year: 2,554
- Net Change: -52
- Outlets at the Start of the Year: 2,554
- Outlets at the End of the Year: 2,544
- Net Change: -10
- Outlets at the Start of the Year: 2,544
- Outlets at the End of the Year: 2,546
- Net Change: +2
- Outlets at the Start of the Year: 708
- Outlets at the End of the Year: 645
- Net Change: -63
- Outlets at the Start of the Year: 645
- Outlets at the End of the Year: 598
- Net Change: -47
- Outlets at the Start of the Year: 598
- Outlets at the End of the Year: 588
- Net Change: -10
Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis
- Presented below are average restaurant-level sales revenues of domestic franchised and company-owned Papa Johns restaurants for the company’s fiscal year ended December 27, 2020, along with average restaurant-level cash expenses for company-owned Papa Johns restaurants only.
- The following revenue and cash flow data is drawn from Papa Johns’ financial books and records, which are kept on a basis consistent with Generally Accepted Accounting Principles (“GAAP”) in the United States.
- All information is based on actual historical costs and results. Thus, there are no material assumptions associated with the data, other than the principles of GAAP.
- A number of factors may affect the comparability of the expense (or cash outflow) data, which is drawn solely from company-operated restaurants, to franchised restaurants and the data’s effectiveness as a guide or template for potential operating results of a franchised restaurant. The most significant of these factors are discussed in the following notes.
- The following data refers only to standard (or “traditional”) Papa Johns restaurants. Performance data for Non-Traditional Restaurants varies widely, depending upon the nature of the non-traditional location, number of events or sales dates, and other widely-varying factors. Thus, this Item 19 is applicable to traditional Papa Johns restaurants only.
Full Year Only
- At the close of Papa Johns’ fiscal year, there were 3,289 total domestic (United States) Papa Johns restaurants, 588 of which were company-owned, including restaurants owned by franchisees in which Papa Johns has a majority interest (a total of 189 restaurants).
- However, the following data is drawn only from standard (or “traditional”) restaurants that were open the entire year of 2020 because including results from non-traditional restaurants and restaurants that were open only part of the year would skew the annual revenue and expense data.
- Therefore, the total number of restaurants included in the following data is 2,968, comprising 2,391 franchised restaurants and 577 company-owned restaurants.
Core Business Revenues
- The revenue figures for both franchised and company-owned restaurants include only sales of food and beverages arising in the ordinary course of retail operations. Non-recurring items, such as proceeds from the sale of used furniture or equipment, are not included.
- The cash flow data does not include depreciation expense or any other non-cash items.
- Over time, worn-out or obsolete restaurant equipment will have to be replaced and leasehold improvements, signage, computer systems, and restaurant furnishings may have to be refurbished, remodeled, upgraded, or replaced. The following cash flow data does not include any reserves for funding any of these types of improvements or upgrades.
- Company-owned restaurants do not pay a royalty. The expenses incurred by a franchised restaurant will include Papa John’s standard royalty of 5% (or, for a Small Town Non-Traditional Restaurant, 6%) of Net Sales.
Economies of Scale
- Because Papa Johns operates more than 585 company-owned restaurants, it is able to achieve certain economies of scale and operational efficiencies that may not be available to a franchisee operating one restaurant or a limited number of restaurants, as is the case for the typical franchisee.
Restaurant and Market Maturity
- Sales of a particular restaurant may be affected by how long the restaurant has been in operation and how successfully the surrounding market has been penetrated. Typically, sales “ramp up” as the restaurant and market develop. Greater penetration (the greater the number and concentration of restaurants) in a market also may affect performance.
- The following company-owned restaurant data represents averages for all of Papa Johns’ company-owned domestic restaurants, some of which are long-established in their location and some of which are relatively new. Most of the company-owned restaurants are in highly-developed and highly-penetrated markets.
- Papa Johns’ company-owned restaurants are typically clustered in and around major metropolitan areas, such as Atlanta, St. Louis, and Nashville. Many franchised restaurants are operated in less densely-populated areas, with more limited access to advertising media.
Table 1 – Average Restaurant Revenues
Company-Owned Restaurants (577 Restaurants)