Papa Johns International 1

Papa Johns International

Case Study 4

Strategic Management

Lekha Gupta

Monroe College
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Introduction

Papa Johns, was founded by CEO John Schnatter. From a young age he knew he wanted

to start his own pizza chain. After graduating from Ball State University with a degree in

business, John decided to fulfill his dream. On October 2, 1984, he opened his first Papa Johns

operating out of the back his family owned bar (About Papa John's).Within the next year,

business took off becoming a big hit and the Papa Johns we now know today. Papa Johns

operates in all 50 states with 4,200 locations and internationally in 35 countries (About Papa

John's). They are very active in the community and donate to several charities including: The

American Red Cross, Children Miracle Network, and Special Olympics. Papa Johns is the third

largest pizza chain in the United States behind Pizza Hut and Domino's (About Papa John's).

They are ranked number one in customer service and satisfaction every year. Their slogan

Better Ingredients, Better Pizza is what they stand by providing only the freshest to each

customer.

Papa Johns International, Inc. began operations in 1985 with the opening of the first

Papa Johns restaurant in Jeffersonville, Indiana. At December 28, 2008, there were 3,380 Papa

Johns restaurants in operation, consisting of 615 Company-owned and 2,765 franchised

restaurants. Their revenues are principally derived from retail sales of pizza and other food and

beverage products to the general public by Company-owned restaurants, franchise royalties,

sales of franchise and development rights, sales to franchisees of food and paper products,

printing and promotional items, risk management services, and information systems and related

services used in their operations.

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Mission Statement

Papa John's will create superior brand loyalty, i.e. "raving fans," through (a) authentic,

superior-quality products, (b) legendary customer service and (c) exceptional community service.

Pizza Industry

The estimated North American growth rate for the pizza industry for the years 2014-16 is

2.35%, and the total number of stores is expected to increase by 2.35%, to 74.8 thousand. 2015,

however, was a slight down year in terms of both overall revenue and average same store sales.

2015 revenue was $38.5 billion, 0.05% down from the previous year. Average same store sales

declined $514.7k, a loss of 2.34%. These numbers, however, conceal an interesting shift in pizza

market share: away from independent businesses and towards chain operators. Chains have been

stealing market share from independents for years, and 2015 saw a 2% shift in their direction.

Chains now account for 61% of the total market.

Much of this continuing shift can be attributed to the flexibility of bigger companies to

meet the changing requirements of the consumer. More of todays pizza eaters want to be able to

order online or from their smartphone - both of which are prohibitively costly to implement for

the typical mom-and-pop slices shop. Not only do people prefer the convenience of digital

ordering, studies show that people spend more when they order online. They are also more likely

to order again - once theyve ordered, chain stores can market directly to these consumers again.

Theyve also likely saved their payment information and possibly stored delivery preferences.

Its estimated that 50% of Dominos sales come from this type of ordering. Higher sales per

ticket and repeat business are crucial to restaurants and many independent operators are

missing the boat.

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Among the many chain pizza businesses in the country, market share is seriously

concentrated among the top ten 43.8% of the total market belongs to them. The Big 4 dominate

the scene:

SWOT Analysis

Strengths

The use of only fresh ingredients Papa Johns requires its franchisees to purchase their

ingredient from their quality control centers to maintain their high quality standards. Convenient

ordering systems Papa Johns allows their customers to order online; through their app; or

through their kindle. National and global exposure 723 owned restaurants, 3,705 franchised,

and exposure in 34 foreign countries. Worlds third largest pizza chain, trailing only Pizza Hut

and Dominos.

Weaknesses

Papa Johns weaknesses include a limited menu; the company only offers pizza, chicken

wings, sides and desserts. This limits them because aside from being a pizza restaurant, they are
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also considered a fast food chain restaurant and are going up against competitors like Burger

Flores 12 King and Mc Donalds that offer a variety of foods in their menus. Another weakness

considered for Papa Johns is their poor international exposure. Currently they are only present in

34 other countries. If they want to continue to grow they should consider introducing Papa Johns

to more countries.

Opportunities

The addition of more items to their menu, this will position them higher in the

competition with their rivals that have already made this move. Papa Johns should increase their

franchisee opportunities, but as well as company owned restaurants and venture into new

countries around the world introducing the Papa Johns brand. Papa Johns should create more

brand awareness by focusing more on their customers, sponsoring other sports events, and

targeting other age groups.

Threats

Papa Johns faces several threats in the industry, for instance; they continue to be third in

the race with their top rivals Pizza Hut, and Dominos. Additionally, the health conscious trend

could harm them because pizza is stereotyped as an unhealthy dish. Finally, economy instability

not only in the US, but as well as in the other countries they are present, varies with time. This

instability causes changes in peoples buying power.

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Financial Analysis

In 2014, the company achieved sales per restaurant exceeding $1 million, operating

income averaging $186,000 per unit, and cash flow be close to $127,000 per location. Over the

time period of 2011 to 2013, Papa Johns net income increased from $4.7 million to $69.5

million. We can see that Papa Johns gross profit margin decreased in 2010 to 2012 from 23.3

percent to 22.7 percent. The operating income also decreased from $95 million to $87 million.

Papa Johns revenue saw an increase of $57 million but then in the period of 2010 to 2012 it fell

to $52 million.

Strategy

Papa Johns ultimate goal is to provide its customers the freshest ingredients possible.

The companys strategy is comprised around five major components: high-quality menu

offerings, efficient operating systems, employee training and development, effective marketing

programs, and a strong franchise system. Papa Johns has been successful so far because of its

fresh ingredients, convenient ordering systems, extensive marketing campaigns, and franchising.

The companys franchising segment is strong; they plan to open more than 1,000 new stores in

the next five years, with 95 percent being franchised and 70 percent being in international

markets.

Furthermore, Papa Johns superior customer service has given them the highest

satisfaction ratings in customer service. With the industry changing towards more health

conscious consumers and trends, Papa Johns responds to this by informing their customers about

their products nutritional value on their website. Papa Johns is currently only present in 34

countries; by venturing into other countries they will gain constrict the gap between its
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competitors that have more international presence Since Papa Johns was first started its main

value has been a strong work ethic and excellent customer service, this was instilled to John by

its father and grandfather. If Papa Johns continue to fulfill this core values, they will continue to

be successful, gain a higher market share, and outcompete its rivals.

Success Factors

Location: with every pizza chain restaurant offering some type of carryout or delivery, it

is important for the restaurants location to be centric to the target market the company is looking

to acquire or target. Flexibility: with the economy constantly changing, not only in the US, but as

well as in other countries, it is important for players in this industry to adapt their customers

needs according to the situation.

Social Media Engagement: with the great technological advances coming our way,

staying ahead of this is required for big companies to reach their target audience. Through these

social media platforms companies are also engaging more with customers, letting them express

their opinions and make them feel heard, as well as offering them coupons and promotions.

Health: 7 out of 10 people said they are looking to eat healthy every time they eat out. In

order to be successful in this industry, players must accommodate customers demands. Showing

their nutritional content nowadays is a must, as well as showing customers a calorie counter for

better understanding of what they eat. Training and Development for better customer service: this

is the most important factor in every industry. Train your employees to love their company and it

will be easier for customers to love it as well.

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Recommendations

In order for Papa Johns to continue in the race for the best pizza chain restaurant in the

world, it must create some change to their growth and intent strategy. To begin with, Papa Johns

should expand its product line and include healthier menu options. Thus, adapting every type of

consumer, from vegetarians to meat cravers, to their brand. This move has been made by all of its

main rivals, resulting in great success. For instance, Pizza Hut attributes its incredible victory to

its dine-in menu. They offer lunch buffets, salad bars, calzones, pastas, and many more. Even

though pizza is the number one meal of choice for Americans, in recent years a trend that

overtook the whole restaurant industry emerged. According to the Case, a survey in 2010 by the

NRA concluded that 7 out of 10 consumers wanted to eat healthy when eating out. Expanding its

product line and including healthier options is an imperative course of action for Papa Johns.
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References

Technical Difficulties. (n.d.). Retrieved February 26, 2017, from

https://www.papajohns.com/?esvt=338098GOUSp340191430&esv

Thompson, A. A. (2018). Crafting and executing strategy: the quest for competitive advantage:

concepts and readings. New York, NY: McGraw-Hill Education.