CHICAGO What a long, fulfilling trip it’s been for Papa John’s founder and chief executive John Schnatter. Since selling his beloved 1972 Z28 Camaro 25 years ago to fund his business, Schnatter has grown Papa John’s into the country’s third-largest pizza chain, which boasts more than 3,400 locations worldwide. To celebrate, he embarked on a cross-country tour in a brand-new Camaro to visit customers and employees as part of the “Papa’s in the House” campaign, which stopped in Chicago Wednesday.
Since the campaign began in late May, Schnatter has visited seven cities and has thrown out the first pitch at a St. Louis Cardinals game, waved the green flag at the Coke Zero 400 race in Daytona, Fla., and parked the new Camaro — with a “PZZA” license plate — in New York’s Times Square.
Louisville, Ky.-based Papa John’s, which is operated and franchised by parent Papa John’s International Inc., is offering $250,000 to anybody who can help locate Schnatter’s original Camaro that he sold a quarter-century ago in Jeffersonville, Ind.
In Chicago, Schnatter wanted to talk with customers and franchisees, hand out online-ordering gift cards, and personally meet Steve Walker, a Papa John’s delivery driver from suburban Chicago who was beaten and carjacked in June while working. Walker’s neighbors raised $16,000 for him to buy a new car to replace his stolen and wrecked vehicle.
He also wanted set a world record for the highest pizza delivery, taking more than 100 slices of pizza up to the 103rd floor of Chicago’s Willis Tower — formerly the Sears Tower. Just prior to that attempt, Schnatter spoke with Nation’s Restaurant News about the challenges franchise-dependent businesses face and the rewards of getting out of the office to meet customers.
What have you been hearing the most from customers on your trip? The thing we hear is, “I love your pizza,” and when I hear that, then I go, “Job well done.” At the end of the day, it’s all about the food. We spend a lot of time and a lot of money to make that pizza better, and when people take notice and become loyal customers, again, that’s a job well done.
In the past year, commodity prices have come down a little. How does that help you accomplish your “better ingredients, better pizza” positioning? Well, Papa John’s doesn’t operate in a vacuum. The market dynamics and price elasticity, the ebb and flow, with commodities — 40 percent of our costs is cheese. I have a saying about the franchisees: When cheese is low and sales are up, they’re happy, and when cheese is high and sales are low, they’re unhappy. That’s the base of our business.
Ilike cheese to be at about $1.40 to $1.50 [per pound] because the dairy farmer can make good money. At $2 a pound they’re making way too much, and at $1.10 they’re losing their shirts. I’m very concerned right now about the survivability of the dairy farmer, very much so. If they continue, if cheese stays at $1.10 a pound, the farmer will continue to lose money, and they will go out of business, and you create a supply-demand problem the other way. That’s not good for anybody. We’ve tried to contract out to $1.40 a pound with individual farmers, but the dairy associations won’t let us do it. So at $2 a pound, when they’re making hay, they’re making hay. It’s a lose-win, and I don’t like that.
You guys have been aggressive in helping out your franchisees. We’ve pushed, easy, $12 million to $16 million back out into the system this year. I’m a young guy, so I like to look 10 years to 15 years out. You know, my son’s 11, so in 15 or 20 years, he’s probably going to be in the business, so I like to think long term. The shareholders have to win, the employees have to win and the franchisees have to win. You can’t have a win-lose situation. The lifeblood of Papa John’s is the health of our franchisees.
Idon’t look at Papa John’s as 3,430 stores. I look at it as one store 3,400 times, because if that unit economic side’s not healthy, you don’t have a sustainable franchise. Right now our franchisees are making more money than they ever have — ever.
How’s their access to capital now? Is credit still not moving very fast? Credit’s tight, but the good operators are not having problems opening their stores. Seventy-five percent of stores come from existing franchisees, but that being said, we have an incentive this year where you don’t pay royalties for a year, you don’t pay any fees, and if you get your store open early, I’ll pay you $10,000.
Is that a long-term strategy? How long can you guys afford to do that? Again, I look at franchising a little bit different. I look at a franchisee as a partner. Once that franchisee is up and going, if you take the average unit, they’re paying us about $35,000 a year. Well, that’s an annuity I have for the rest of my life, so why would I charge them to pay me? Why wouldn’t I pay them to get in business, get open and get successful.
What about your competition? A lot of take-and-bake brands are doing well because people want something a little faster, cheaper and easier. We think take-and-bake is definitely increasing and frozen pizza is increasing. We also know for a fact that last quarter the whole [pizza] category was about negative 7, or between negative 6 and negative 8 [in same-store sales]. We were actually positive, so we bucked the category every week for the whole quarter. I wish the category were healthier, but we are staying positive in a negative category, which is still pretty good.
Marketing-wise, pizza’s always been at the forefront of innovation. Your two big competitors have launched smart-phone applications. Is that something in the pipeline for Papa John’s? I think the world’s moving toward smart phones. I think the desktop’s got a chance to be obsolete sooner rather than later. All the channels, from smart phones to Blackberries to any type of mobile channel, you have to have the capability to handle that.
What’s been your favorite part of the road trip so far? There was an autistic child in St. Louis that touched my heart. There also was an 8-year-old boy selling soda pops out on the corner, an entrepreneur, and I got to spend 10 minutes with him and he reminded me of myself when I was young. So I really got to enjoy meeting him, an entrepreneur selling Cokes on the side of the road. Then this other young man with autism, he was a 21-year-old guy, and he had a big smile on his face and he was jumping up and down, and I took him for a ride in the car. That touched my heart.
There have been a couple things. I was at a birthday party for this girl, and the kids were jumping up and down, and I signed things for them and we took pictures. She was a beautiful little girl and had a beautiful family, had a nice little house, the whole nine yards. Her dad came by and said, “You just made our week,” and I told him, “No, your daughter’s special. She made my week.” But then he said, “You don’t understand. My wife has cancer, and this is the last birthday.”
We visited another person in Houston, a 13-year-old girl who has cancer. I said, “Do you want my autograph?” She said, “No, but you can have mine. One day I’m going to be rich and famous just like you.” She’s supposed to have been dead for six years, but she’s still going at it and she still believed in herself.
This whole road trip is for your brand’s 25th anniversary. When all of this is over, are you thinking five years out or 10 years out? What do you do next? Well, the biggest problem we had with me as the spokesperson was people thought I was an actor. That’s why they dressed me down. So with the “Papa’s in the House” campaign, people will know that there is a founder and there’s a person behind the brand. So that was goal No. 1.
If we didn’t get any press at all, and there is a major element of publicity to it, the franchisees and employees, we get all the bang for the buck just out of those two publics. The press, and the kids coming up to me to ask for their picture with me, well that’s just icing on the cake.
What’s the next big thing for the pizza segment, do you think? I think you hit it: smart phones.
Contact Mark Brandau at [email protected].