Getting back to the second part of Papa Johns’ path—keeping customers—the chain introduced a “back to better operations” initiative across company stores in 2022’s final quarter. It was a two-front directive: The chain wanted to control what it could amid so much uncertainty; and secondly, Lynch says, Papa Johns’ key performance indicators drifted a bit during COVID as operators zeroed on labor and doing what they had to just to say open and safe. “We lost some of that sense of urgency around the other KPIs that are so important,” he says.
Lynch describes the effort as “a relentless pursuit of better.” In Q1, out-the-door times at corporate units improved by more than 25 percent on a year-over-year basis. Food temperature is the No. 1 driver of product satisfaction for Papa Johns, he adds. So faster delivery and hotter products is something that instantly bumped satisfaction scores, which were up “significantly” against the prior year, Lynch says.
Chief restaurant officer Joe Sieve, who joined the company in early May after six years at Inspire Brands (his resume also including building a franchise portfolio of 58 Domino’s restaurants), and SVP of restaurant operations Kevin Koons, a former Wingstop and Domino’s exec who joined the team last July, have guided the effort. “They have been focused on returning to a level of disciple and surrounding those KPS,” Lynch says. “It’s become a mantra for our company operations. They’re focused on making sure that we’re delivering the same great pizza with a higher degree of accuracy in a shorter time.”
Although early, there are clear green shoots. While Papa Johns full North America system produced flat same-store sales in Q1, company-run units (there are 520 of those versus 2,864 franchises) reported growth of 3 percent, year-over-year.
For perspective, flat at Papa Johns is part of a 28 percent three-year stack and measured against an Omicron-influenced Q1 2022 that benefitted pizza as guests stayed closer to home.
“Obviously, our year-on-year margins have come down a little bit, because we haven’t taken enough pricing,” Lynch says. “But our customer counts are still really solid. And so that’s what we’re working with our franchisees on. Is how do we continue to keep our customers while starting to benefit from a better cost structure, which will drive incremental margin and therefore flow through more profitable?”
How Papa Johns is doing so webs through some different topics. Today, roughly 85 percent of its sales arrive via digital channels. The chain has nearly 30 million loyalty member accounts. Over the past few years, Papa Johns invested in technology and organizational infrastructure to operate an “industry leading” CRM platform, Lynch says, designed to drive brand engagement through relational and transactional experiences. Just this week, the chain tapped Mark Shambura, a former MOD Pizza and Chipotle leader (he helped spearhead the “Real Ingredients” brand strategy) as CMO to drive this topic further.
Something to watch will be how Papa Johns’ partnerships with aggregators factor in. Lynch says 50–60 percent of its third-party marketplace business is incremental. The goal is to bring in those new guests and convert them to loyalty members. “They love our products. They love the innovation, the new ideas that we bring. And then, they want to come back, because it is more economical to order Papa John's through our organic channel,” he said on Thursday’s earnings call. “That’s the business model.”
And more high level commentary on loyalty: “I know, I've got like a broken record here, but we still have not fully captured the value of that program,” he added. “We have not yet built out the capabilities to execute the level of one-to-one marketing and frequency building opportunities that I aspire for that program to achieve. And I take accountability for that, but I also get excited about it, because it continues to be upside.”
The way Lynch outlined this in the past is, if Papa Johns can earn one more transaction per year, with an average $20 ticket, we’re talking nearly $500 million in incremental sales on a $3 billion baseline. So there’s no shortage of allure in driving frequency.
Speaking to innovation, however, Papa Johns continues to carve a niche in the premium-product approach. For instance, it’s launched options like Epic Stuffed Crust and NY Style and Crispy Parm that live on the higher end of its spectrum. The idea being it’s not a major leap for Papa Johns customers to go up $1 or $2 for something new versus being asked to pay more for something they’ve historically paid less for, and associate with value.
But Lynch says that’s only one pillar. “You can’t win if you don’t have some form of value strategy,” he says. “It’s [quick-service restaurant] pizza. People are price sensitive. You’re always going to have the people willing to spend a little bit more to get the premium and new stuff, but the bread and butter is still large, one-topping pizzas. I believe we’ve walked that line really successfully.”
In corporate stores, Papa Johns offers an $8 carryout special and continues to promote entry-point offers for those who seek the lower end of the barbell. Yet what Papa Johns doesn’t do is market “those 50 percent-off deals,” Lynch says. Call it “sustainable value platforms” over deep discounting. A value architecture instead of a mailbox stuffed with coupons.
“We think we can do it with that bifurcated barbell strategy that delivers premium innovation and still meets the need of the value conscious customer,” he says. Papa Pairings, which arrived in late Q3, early Q4, is one example. The $6.99 price floor recently added new hot lemon pepper chicken wings.
More recently, on Thursday, Papa Johns introduced a Doritos Cool Ranch version of its handheld Papadias, starting at $7.99. There are chicken, steak, and beef versions. They all come with a signature Cool Ranch dipping sauce. “It’s a truly symbiotic collaborative relationship that I think both brands are going to be benefit from,” Lynch says. “I’m obviously biased, but I think our Papadias are literally the best handheld offerings anywhere. I would eat our Papadias every day if that was feasible.”