Papa Johns Franchise: Average Sales ($1.13M) vs. Cost ($188K-$975K)

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

Section I – Estimated initial investment (franchise costs) for a Papa Johns franchise, based on Item 7 of the company’s 2023 FDD

Section II – Initial franchise fee, royalty fee, and marketing fee for a Papa Johns franchise, based on Items 5 and 6 of the company’s 2023 FDD

Section III – Number of franchised and company-owned Papa Johns outlets at the start of the year and the end of the year for 2020, 2021, and 2022, based on Item 20 of the company’s 2023 FDD

Section IV – News updates on the Papa Johns franchise opportunity

Section V – Presentation and analysis of Papa Johns’ financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2023 FDD, including information on the:

• 2022 average, median, high, and low unit sales for the 496 company-owned traditional Papa Johns restaurants that were open the entire year of 2022

• 2022 average, median, high, and low unit sales for the 2,255 franchised traditional Papa Johns restaurants that were open the entire year of 2022

• 2022 average unit sales for the 2,751 company-owned and franchised (combined) traditional Papa Johns restaurants that were open the entire year of 2022

• 2022 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 restaurant EBITDA for the 496 company-owned traditional Papa Johns restaurants that were open the entire year of 2022

Section VI – Key ratios, comparables, computations, and analyses for the Papa Johns franchise opportunity (exclusive content for Platinum subscribers)

Section I – Papa Johns Franchise Costs

• Papa Johns franchise costs (standard restaurant), based on Item 7 of the company’s 2023 FDD:

• Initial Franchise Fee:  $25,000
• Real Estate Brokerage Fees:  $0 to $10,000
• GIS New Store Map Package:  $1,050
• Professional Fees:  $500 to $12,000
• Construction/Leasehold Improvements:  $65,000 to $405,000
• Furniture, Fixtures, and Equipment:  $37,000 to $320,000
• Information System:  $20,000 to $30,000
• On-Site Support Fee:  $2,500
• On-Site Installation Fee:  $2,000 to $5,000
• Help Desk Service Fee:  $240
• Technology Maintenance Fee:  $1,125
• Signage:  $8,000 to $30,000
• First Month’s Rent:  $1,200 to $5,000
• Security Deposit and Other Deposits, Insurance Premium:  $500 to $8,500
• Opening Inventory and Supplies:  $3,000 to $10,000
• Opening Advertising:  $3,000 to $10,000
• Training Expenses:  $1,000 to $30,000
• Miscellaneous Opening Costs:  $2,500 to $20,000
• Additional Funds – 3 Months:  $15,000 to $50,000
• Total Estimated Papa John’s Franchise Costs (Pre-Opening and First 3 Months of Operation):  $188,615 to $975,415

Section II – Papa Johns’ Initial Franchise Fee, Royalty Fee, and Marketing Fee

• Papa Johns’ initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2023 FDD:

• Initial Franchise Fee:  $25,000
• Digital Fee:  1.50% of Net Sales via digital/internet on-line ordering including aggregator orders
• Royalty:  5% of Net Sales
• Marketing Fund Contributions:  5% of Net Sales
• Cooperative Contributions:  minimum – 2% of Net Sales
• Local Advertising:  minimum – 8% of Net Sales, less amounts contributed to the Marketing Fund and Cooperative

Section III – Number of Franchised and Company-Owned Papa Johns Outlets

Franchised

2020

• Outlets at the Start of the Year:  2,544
• Outlets at the End of the Year:  2,546
• Net Change:  +2

2021

• Outlets at the Start of the Year:  2,546
• Outlets at the End of the Year:  2,564
• Net Change:  +18

2022

• Outlets at the Start of the Year:  2,564
• Outlets at the End of the Year:  2,658
• Net Change:  +94

Company-Owned

2020

• Outlets at the Start of the Year:  598
• Outlets at the End of the Year:  588
• Net Change:  -10

2021

• Outlets at the Start of the Year:  588
• Outlets at the End of the Year:  600
• Net Change:  +12

2022

• Outlets at the Start of the Year:  600
• Outlets at the End of the Year:  522
• Net Change:  -78

Section IV – News Updates on the Papa Johns Franchise

• Papa Johns’ Franchisees Struggle to Perform as Same-Store Sales Drop 1%

• Papa Johns Wants to Help Its Franchisees Open More Locations

• Papa Johns and Shaquille O’Neal Celebrate the Return of the Shaq-a-Roni Pizza

• Papa Johns Makes Executive Adjustments to Support Domestic, International Growth

• Papa Johns Ranked No. 37 on Entrepreneur’s 2023 Franchise 500 List

Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Papa Johns Franchise (Item 19, 2023 FDD)

• Presented below are average restaurant-level sales of domestic franchised and company-owned Papa Johns restaurants for the company’s fiscal year ended December 25, 2022, along with average restaurant-level expenses for company-owned Papa Johns restaurants only.

• The following sales and operational expense data and EBITDA 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.

• A number of factors may affect the comparability of the expense (or EBITDA) 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 tables and notes refer only to standard (or “traditional”) Papa Johns restaurants in the US. 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 3,180 total domestic (United States) Papa Johns restaurants, 522 of which were company-owned, including restaurants owned by franchisees in which Papa Johns has a majority interest (a total of 9 restaurants).

• However, the following data is drawn only from standard (or “traditional”) restaurants that were open the entire year of 2022 because including results from non-traditional restaurants and restaurants that were open only part of the year would skew the annual sales and operational expense data.

• Therefore, the total number of restaurants included in the following data is 2,751, comprising 2,255 franchised restaurants and 496 company-owned restaurants.

Core Business Sales

• The sales 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.

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 information in Part 2 does not include any reserves for funding any of these types of improvements or upgrades.

Royalty

• Company-owned restaurants do not pay a royalty. The expenses incurred by a franchised restaurant will include Papa Johns’ 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 520 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’ 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.

Market Location

• 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.

Part 1 – Corporate Store and Franchise U.S. Restaurant Sales (Fiscal Year 2022)

Company-Owned Restaurants (496 Restaurants)

• Average Unit Sales:  $1,324,372
• 237 U.S. company-owned restaurants (47.8 % of the total included in the data) achieved sales of $1,324,372 or greater in 2022.
• Median Unit Sales:  $1,313,059
• Low Unit Sales:  $538,748
• High Unit Sales:  $3,060,558

Franchised Restaurants (2,255 Restaurants)

• Average Unit Sales:  $1,133,480
• 1,070 U.S. franchised restaurants (47.5% of the total included in the data) achieved sales of $1,133,480 or greater in 2022.
• Median Unit Sales:  $1,105,208
• Low Unit Sales:  $232,647
• High Unit Sales:  $3,014,210

Combined (2,751 Restaurants)

• Average Unit Sales:  $1,169,228

Part 2 – Average Traditional Corporate Store Operational Expense Data and Corporate Restaurant EBITDA (Fiscal Year 2022)

Company-Owned Restaurants (496 Restaurants)

• Food Costs:  $409,029 (30.9%)
• Labor Costs and Taxes:  $318,688 (24.1%)
• Manager’s Labor and Taxes:  $64,864 (4.9%)
• Mileage:  $28,174 (2.1%)
• Advertising:  $103,237 (7.8%)
• Controllables:  $82,306 (6.2%)
• Rent and Common Area Maintenance:  $39,501 (3.0%)
• Other Non-Controllables:  $121,231 (9.2%)
• Training Costs:  $1,922 (0.1%)
• Store Bonuses:  $10,304 (0.8%)
• Imputed Royalty Fee at 5%:  $66,219 (5.0%)

• Average Restaurant EBITDA (without royalty):  11.0%
• Median Restaurant EBITDA (without royalty):  10.7%
• Low Restaurant EBITDA (without royalty):  -22.9%
• High Restaurant EBITDA (without royalty):  22.9%

• Restaurant EBITDA (with 5% royalty fee):  6.0%
• Restaurant EBITDA (without store bonus and with 5% royalty fee):  6.7%

• 238 company-owned restaurants (48.0% of the total included in the data) achieved greater than 11.0% EBITDA in 2022.

• Controllables includes: cash over and short, smallwares, repairs and maintenance, commissions, telephone and internet expenses, utilities, cleaning supplies, computer supplies, office supplies, laundry service, uniforms, equipment rental, postage, donations, dues and subscriptions, meals and entertainment, travel and lodging, employee incentives, professional fees, and special events.

• Other Non-Controllables includes: property taxes, management health insurance, general insurance, credit card charges, bank charges, business licenses, and worker’s compensation insurance.

• Restaurant EBITDA (without royalty) excludes multi-unit manager/supervisor allocation and royalties.

• Company-owned restaurants do not pay a Royalty fee. The Royalty payment in the chart is calculated at 5% of net sales. For a Small-Town Non-Traditional Restaurant, the royalty would be 6% of net sales. Advertising expenses are included in Part 2 above and are in place of (and exceed) a franchisee’s required marketing fund contribution under a Franchise Agreement.

• Restaurant EBITDA (without store bonuses and with 5% Royalty fee) means earnings before interest, taxes, depreciation, and amortization, with an imputed royalty of 5% but does not include store bonuses. In 2022, Papa Johns’ bonus plan paid out store bonuses which comprised 0.8% of its average annual sales in store bonuses. Individual franchisees determine their own bonus plans and do not utilize the same program that Papa Johns does for its corporate store managers since franchisees set their own compensation programs.

Section VI – Papa Johns Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️