A substantial portion of Papa Murphy’s customers received a significant cut in their benefits, and that hammered sales in the first quarter.
The take-and-bake pizza chain gets a substantial portion of its business from customers on SNAP benefits, or the Supplemental Nutrition Assistance Program, also known as EBT, because its product is cooked at home. Those benefits were cut last year, ending among the last of the federal government’s remaining pandemic-era incentives.
The result for the chain was a huge cut in business. A year ago, EBT represented nearly 15% of the chain’s sales. This year that was down to 8.75%.
That played a substantial role in Papa Murphy’s weak same-store sales in the first quarter, parent company MTY Global said on Friday. Same-store sales for MTY’s U.S. chains declined 3.6% in the period.
“Obviously, EBT is something we don’t control,” MTY CEO Eric Lefebvre told analysts on Friday. “So, we need to find a solution to make that up. And that’s what we’re trying to do now.”
Absent the impact from SNAP payments, he said, Papa Murphy’s would have been down slightly.
MTY is a Montreal-based collector of restaurant chains. Most of its sales now come from U.S.-based concepts, thanks to a series of acquisitions over the years of companies such as Cold Stone Creamery, Wetzel’s Pretzels, Papa Murphy’s and the parent company of Famous Dave’s.
Many of those brands had a tough experience in the first quarter, largely due to the weather. Lefebvre said weather was a particularly difficult problem for the company’s frozen treat brands, such as Cold Stone and Pinkberry. Weather also kept people out of the malls, he said, which hurt Wetzel’s Pretzels.
At the same time, however, consumer concern about inflation, particularly at restaurants, kept some people at home.
The combination of bad weather and a difficult consumer has made things tough on fast-food restaurants so far this year.
“Consumer spending is not what it was a year ago, for sure,” Lefebvre said. “But it’s not a disaster either.”
Papa Murphy’s is the company’s largest single chain. But it, like many other pizza brands, has struggled coming out of the pandemic. The franchised chain closed 3.5% of its locations and now operates 1,127 U.S. locations. System sales rose just 0.7%, according to Technomic Ignite data. Technomic is a sister company of Restaurant Business.
Lefebvre hinted that changes were coming to the brand, noting that there were changes in company leadership. “We did make some significant changes in Papa Murphy’s,” he said. “So a number of things are coming.”
Several pizza chains have seen sales weaken over the past two years, amid competition from third-party delivery and concern about the price of pizza delivery. That has led chains like Papa Johns and Domino’s to intensify their marketing efforts.
But the sector hasn’t necessarily shifted to value. “Pizza is always very competitive,” Lefebvre said. “There’s always various offers with different price points from our competitors. I suspect that will not change.”
“It is what it is,” he added. “We just need to find a way to respond without necessarily going too deep into these types of discounts, because ultimately we need our franchisees to make money.”
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