Papa John's: Goals Achieved Despite Challenges

Papa John's International Inc., the parent of 3,883-unit Papa John's Pizza, grew its unit counts and same-store sales in North America and overseas in 2011, despite aggressive discounting among competitors and commodity inflation.

John Schnatter, the company's founder and chief executive, credited the chain's positioning around product quality, reinforced by advertising specialty pizzas around the $11 price point, while rivals Pizza Hut and Domino's Pizza fought each other with price points of $10 and less.

"We're pleased that since early 2011 we have been able to command a little bit higher price for our pizza, while others in the category continue to emphasize discounting and low price," Schnatter said. "As I've said on many occasions, quality always pays in the long run, and it's gratifying that our consumers, even in this tough economic environment, recognize that 'better ingredients, better pizza' does make a better product."

Environment remains competitive

Papa John's same-store sales rose 3.4 percent for the full fiscal year in North America in 2011, compared with flat results in 2010.

"Having a smooth approach for the long term is how we approach the business," said Tony Thompson, Papa John's executive vice president of North America operations. "Maintaining a premium throughout the year says a lot about our brand quality positioning."

The quarterly improvements in same-store sales were choppy, however, due to changes in the competitive landscape, officials said. The chain's 1.7-percent same-store sales increase in North America followed previous quarterly gains of 5.3 percent, 0.4 percent and 6.1 percent in the third, second and first quarters, respectively.

"We don't like to run the business in any kind of a sporadic way," Schnatter said. "While it's very complex, it's quite manifold. If our competition pulls one lever, or if commodities go this way, it kind of always hangs together."

Papa John's remained consistent in its operations and advertising strategy, even while its larger competitors broke national advertising campaigns around new promotions, he added.

"The bad news is when they go out and spend $40 million [to promote] a $9 pizza, we feel that," he said. "The good news is the next year we get to go over an easier number on our comp. We like continuity, but this is just the competitive nature of the beast."

International approaches profitability

Succeeding by focusing on operations and adopting Papa John's branding standards applies to the chain's international system as well, Thompson said.

"The competitive environment is just as tough around the world," Thompson said. "At the end of the day, our brand position, whether it's in China, India or wherever, is resilient with the consumer."

The company's 822-unit international system nearly broke even in 2011, ringing up a $165,000 loss, chief financial officer Lance Tucker said. The division is on pace to be profitable in 2012, he added.

"I just can't tell you, as a founder, how proud I am of the job we've done on our international front," Schnatter said. "Now we have continuity throughout the world. The pizza tastes the same in Chile as it does in China and the U.K. We've made tremendous progress, not only on profitability but also on the fundamentals and the framework that make our brand great. I'm finally seeing some light at the end of the tunnel internationally, which I didn't see three years ago."

Louisville, Ky.-based Papa John's expects to open between 130 and 150 locations abroad this year.

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