With Papa John’s founder John Schnatter on his way off of the company’s board, Papa John’s path back to positive store sales will rely on a new marketing strategy, according to CEO Steve Ritchie.
On Tuesday, the fourth-largest pizza chain by net sales, announced a settlement with its former chairman in which Schnatter will help the company select an independent director to replace him on its board. Schnatter, who still owns about one-third of the company’s shares, also agreed to drop his lawsuit against Papa John’s filed in Delaware after he was ousted last July.
Papa John’s spent the latter half of 2018 eliminating Schnatter from its branded assets after he uttered a racial slur, while also advertising limited time offers, a new loyalty program, and highlighting existing franchisees — as part of its Voice of Papa John’s campaign. Beginning this month, the chain will shift towards marketing the ingredients used in its products.
“We firmly believe that our ingredients are what differentiate Papa John’s from our competitors,” said Ritchie during the company’s fourth quarter earnings call with analysts last week. “We will be launching TV and digital campaigns that show Papa John’s leaning into the story of our products and ingredients, and doing it in a way that is relevant to millennial and Gen Z consumers.”
The marketing push will coincide with the chain’s six new menu offerings expected to launch this month, including Meatball Pepperoni, Philly Cheesesteak, and Fiery Buffalo Chicken pizzas. Papa John’s will also introduce a Hot and Honey Chicken and Waffle pizza later this year, a special request of customers.
Papa John’s pumped $10 million into advertising in the fourth quarter. And for 2019, the company expects franchisees to contribute nearly 5 percent of sales to its national marketing fund. The company added that a portion of Papa John’s recent $200 million investment from Starboard Value LP last month will be earmarked towards marketing efforts.
“It is not just about spending more on advertising and promotions. We need to do a better job of showcasing our quality as a real product differentiator while making it easier for our customers to purchase our pizza whenever, wherever, and however they want,” Ritchie said.
Schnatter Playing Nice
Papa John’s new board member will replace Schnatter in time for the company’s annual shareholder conference at the end of April.
“I’m sure [Papa John’s] is relieved, and it’s time to go on with the business,” said Charles Elson, the Edgar S. Woolard Jr. Chair in Corporate Governance at the University of Delaware. “It’s a good, healthy thing to bring new blood in. They have to figure out how to change the company’s fortunes.”
In a prepared statement, Schnatter said he is, “thankful that I’ve been able to resolve these important issues, and that we can all focus on the company’s business without the need for additional litigation.”
He added that he’s excited to work with Starboard’s CEO Jeffrey Smith, also Papa John’s new chairman, to identify the new board member and “help Papa John’s regain its strength and market position.”
Papa John’s declined to comment on its next steps following the settlement with Schnatter, and its joint search for the new independent director. The company reported system-wide sales losses of seven percent in 2018, along with a 12 percent drop in revenue.
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