Papa John’s International Inc. is cutting royalties and other fees charged to franchisees in the United States and Canada in response to flagging sales, the parent company said Friday.
“The assistance program for domestic franchisees includes certain reductions in royalties, food-service pricing and online fees through 2018,” it said in a news release. “In addition, funds will be provided to support new marketing and re-imaging initiatives consistent with the Company’s new brand direction,” it added.
Those re-imaging plans were announced last month and involve removing founder John Schnatter’s image from marketing materials and removing him as spokesman.
Schnatter resigned as chairman of the board of directors last month after revelations on July 11 that he had used inappropriate language in a conference call in May.
Since then, sales and Papa John’s stock price have slid, as they did in November after then-CEO Schnatter sparked controversy for blaming the chain’s already declining sales on the National Football League’s failure to quell its players’ silent protests during the national anthem.
Papa John’s was an official sponsor of the NFL at the time. It has since been replaced by Pizza Hut.
In the aftermath of that, Schnatter moved aside as CEO and was replaced by his anointed successor, Steve Ritchie.
But Schnatter later said his resignation as chairman was a mistake. He has sued the company to get access to records to see the decision-making process behind his removal as company spokesman.
He also released a statement on Aug. 7, when Papa John’s announced disappointing quarterly earnings, blaming the sales decline on poor management by his successors, who in turn have blamed them on Schnatter.
During the conference call announcing quarterly sales, Ritchie said the company was considering offering relief to the franchisees in the aftermath of what he called the “very inexcusable and irresponsible comments from Mr. Schnatter.”
North American same-store sales for the quarter ended July 1 were down by 6.1 percent, but for the period between July 2 and July 28 they were down 10.5 percent.
In the release announcing the assistance program, Vaughan Frey, president of the Papa John’s Franchise Association voiced his support for the current management and suggested that Schnatter stay away from the company.
“We believe it is time for the founder to move on.” He said. “Steve [Ritchie] is pursuing the right initiatives to reinvigorate growth and recognizes the importance of working together to move forward successfully. We appreciate the assistance being extended to our franchisees and believe the assistance program will help mitigate the impact that the founder’s inexcusable words and actions have had on franchisees.”
Papa John’s did not respond to a request for more details about the assistance program, but Forbes, which said it obtained an internal memo from Papa John’s, said that for the third quarter, royalties would be reduced by two percentage points for franchisees whose current royalty rates were between 3 percent and 5 percent, and by 1 percent for franchisees currently paying a 2 percent royalty fee. For the fourth quarter, royalty rates would be reduced by 1 percentage point for franchisees paying a royalty of 2 percent or more.
Forbes also reported that the parent company was committing $2.5 million in reduced food prices.
Wall Street cheered the assistance announcement: Papa John’s shares opened up by 2.75 percent Monday morning.
As of July 1, there were 5,247 Papa John’s locations in 50 states and 46 other countries and territories, including 3,407 units in North America, of which 2,729 were franchised.
Contact Bret Thorn at [email protected]
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