Papa John’s expects momentum to continue in 2014

Papa John’s expects momentum to continue in 2014

The company attributes robust same-store sales in the fourth quarter to several factors.

Papa John’s International Inc. officials said the 4,428-unit chain’s robust same-store sales performance in the fourth quarter could not be attributed to any one strategy, but they nonetheless expressed confidence that the brand’s momentum would continue throughout 2014.

During the Dec. 29-ended fourth quarter [4], en route to an 8.3-percent gain in net income, Papa John’s same-store sales rose 9 percent at its 3,286 locations in North America and 7 percent in its 1,142-unit international system. Several domestic initiatives were in play, from a new television campaign on The NFL Network for special Thursday night promotions, to the Mega Chocolate Chip Cookie dessert, but brand officials mostly credited consistent performance in the fundamentals.

“The fourth quarter was a composite of a lot of things, not any single one thing,” said president and chief operating officer Tony Thompson. “It’s continued momentum from prior quarters, as we continue to talk about, but first and foremost, our continued excellence in execution from our operations team. We’re continuing to break records on sophisticated measurements of quality and service, and that’s what it’s all about. We’re ‘Better ingredients, better pizza,’ so our product and service are the foremost focus for us.”

Thompson gave some additional commentary for the fourth quarter, noting that the cookie item proved to be accretive to the average check, and that Papa John’s took a few new directions in its TV commercials.

He also said the chain’s partnership with the National Football League continued to get stronger in the fourth quarter, which coincided with the 2013 regular season, during which brand spokesman Peyton Manning led the Denver Broncos to the best record in the team’s conference.

John Schnatter, the chain’s founder and chief executive, noted that Papa John’s has seen some of its biggest two- and three-year increases in same-store sales since it first became involved with Manning at the end of the 2011 NFL season.

“Peyton’s been a big part of our success,” Schnatter said, pointing out that “a larger competitor who spent three times more [advertising] money than we did” — meaning Pizza Hut — had a 4-percent decrease in same-store sales during the same period, all while having its own NFL quarterback as a spokesman, Aaron Rodgers.

“In the same quarter, for us to spend one-third as much and run plus-9-percent, we’re very keen on the association and the success we’re having with Peyton,” Schnatter continued. “When we first got involved with Peyton Manning, the market cap of Papa John’s was $900 million, and today’s it’s over $2.2 billion. Any organization that has an opportunity to get involved with Peyton Manning or the Manning family should jump all over it.”

Steve Ritchie, Papa John’s senior vice president of global operations, added that the NFL partnership is one of the places where the brand asserts its leadership in online and digital ordering, from the national sponsorship often tied to the Papa Rewards loyalty program down to its sponsorship of 19 individual NFL teams in certain markets.

“The activations that we apply to those sponsorships at the local level are continuing to drive market share gains for us in our business,” Ritchie said.

Thompson added that Papa John’s recently surpassed more than $5 billion in sales placed all-time on the brand’s digital-ordering platforms, which began with its online-ordering portal in 2001 and expanded with the launch of Papa Rewards in 2010. The chain now rings up 45 percent of its domestic orders through its digital channels.

In the coming year, the brand would look to differentiate itself further from national competitors by reinforcing its quality positioning. Its current promotion demonstrates that as the Double Cheeseburger Pizza is being offered nationally for $12, well above the $10 price point many of the large chains have advertised for the past several years, Thompson said. This week, Papa John’s chose Grey as its new advertising agency of record, tasked with fitting its creative strategy around the brand’s longtime positioning.

“2013 was more of a transition year, and we’re looking at 2014 as more of a transformational year,” he said. “2014 is a really good opportunity to break away from being viewed in a grouping of pizza restaurants that are typically value- and price-oriented.”

Staying the course internationally

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The recent performance in same-store sales growth would not necessarily bring about an increase in unit growth in 2014, executives said, as the guidance for unit expansion calls for between 220 and 250 new restaurants, down slightly from the 265 opened in 2013.

The majority of new units scheduled to open over the next six years are located outside North America, including many in China, a market where Papa John’s is close to achieving profitability.

“We’re not going to put an exact time frame around when we’re going to get profitability in China,” chief financial officer Lance Tucker said. “What we can tell you is that it takes a while to build out a big market. … We feel good about China long-term.”

Schnatter agreed, saying major international markets like China would develop with consistent operations over the long term like the United States did.

“There’s nothing happening in China or internationally that we didn’t experience in the U.S.,” Schnatter said. “The big markets — Atlanta, Dallas, L.A. — always take more time. Even though we don’t like it, it’s pretty predictable.”

However, Schnatter added, a major competitive advantage he feels Papa John’s has in international markets is its product quality and marketing prowess.

“We’re very consistent, and that consistency is what makes us competitive over the long term,” he said. “The difference between us and our competitors worldwide on product and image is stronger than it is in the U.S. because we’ve spent the money and we’ve taken the time to implement the gold standards on consistency. We think that’s applicable to China.”

Louisville, Ky.-based Papa John’s operates or franchises 4,428 units in all 50 states and 34 foreign markets.

Contact Mark Brandau at [email protected] [8].
Follow him on Twitter: @Mark_from_NRN [9]