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Growth for the Louisville, Ky.-based pizza chain Papa Johns has stalled as the industry laps effects from the COVID-19 omicron variant.

Papa Johns’ growth stands still but there’s still a long runway ahead

Papa Johns reported flat Q1 same-store sales growth, but CEO Rob Lynch talks robust development pipeline, future menu innovation and AI data integration

At this time last year, Papa Johns International Inc. was outperforming its rivals and struggling to keep up with demand, but one year later, year over year growth for the Louisville, Ky.-based pizza chain has stalled as the industry laps effects from the COVID-19 omicron variant. Papa Johns reported flat same-store sales for the first quarter ended March 26, 2023. While momentum was somewhat boosted by continued menu innovation, it’s hard to compare current performance to last year’s record-breaking quarter.

“We were the only ones [in our category] to deliver positive comps last Q1 and last year, so we have a bit of a tougher hurdle,” Papa Johns CEO Rob Lynch told Nation’s Restaurant News. “But those hurdles will get a little easier as we get deeper into the year. We’re not resting on our laurels-- we have a great development pipeline… set up for the back half of the year. Between our product innovation and value platforms like Papa Pairings that we’re doing to meet the needs of the value-conscious customer, we’re bullish on the rest of the year.”

During the earnings call Thursday morning, Lynch said that although he thinks the pizza industry in general has been a slow growth category, Papa Johns was able to outperform the category last year and predicts that the company’s sales will grow 2-4% moving forward as Papa Johns looks to take a larger slice out of the market share.

Heading into the second quarter, Papa Johns will be relying on the presumed success of its partnership with Frito-Lay in launching the Doritos Cool Ranch Papadia, which, Lynch called “our biggest innovation ever.” The new Doritos seasoning-dusted Papadia aims to target a different, younger demographic, and is predicted to drive both ticket and transaction growth for the second quarter.

Churning out a steady stream of new and unique menu items has been a crucial part of the Papa Johns strategy over the last several years, with new categories like Papa Bowls launched last summer,  and the crispy parm pizza with a cheese-encrusted crust introduced earlier this year boosting sales.

“Menu innovation is definitely part of our DNA at this point,” Lynch said. “Our brand always stood for better ingredients, better pizza, but people didn’t know what that meant for a while because the company became more founder-focused and less food-focused. Now, we’ve tried to return to shining that spotlight on both our core food and on new ideas we can bring to the market.”

Besides menu innovation, one of the biggest opportunities for Papa Johns right now is digital innovation by using AI-informed data analysis to improve the loyalty program and customer experience. On the call, Lynch said that even though 85% of orders now come through digital channels, he does not think Papa Johns has fully captured the capabilities of its loyalty program yet. He admitted that the company needs to make more investment in infrastructure to get to that point, he sees it as a huge opportunity for improved customer experience down the line.

“I think we absolutely need to leverage AI and machine learning to automate the actions that derived from data analytics,” Lynch said. “Today, we have all of this data, and we’re able to manually pool and segment each market and see which people are spending this much how often. But we should be able to do something automatically in real time… That will be an upside for us if we can do that in a value-added way for our customers.”

This digital acceleration strategy will be boosted by Papa Johns’ newly hired chief marketing officer, Mark Shambura, who was able to complete similar projects at his previous positions with MOD Pizza and Chipotle Mexican Grill.  

Besides menu and technology innovation, Papa Johns also emphasized the importance of continuing to push development into new market white spaces, particularly internationally. In order to get around some of the economic challenges U.S. franchisees are facing with construction costs, the company will be providing construction services, including permitting, architectural designs, and general contractor management in order to lower some of the cost hurdles faced by current franchisees. Moving forward, Papa Johns will also be rolling out its new store prototype, which is easier to build.

For the first quarter ended March 26, Papa Johns reported total revenues of $527 million down 3% from the first quarter of 2022. Net income was $22.4 million or $0.68 earnings per share, up $11.9 million from the same quarter the year prior.

Papa Johns reported 27 net unit openings in the first quarter, largely within international markets for grand total of 5,733 stores systemwide.

Contact Joanna at [email protected]m

TAGS: Finance
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