Todd Penegor had better sharpen his fix-it skills.
The former Wendy’s CEO was named to the same role at Papa Johns just last week, taking over the job immediately. On Thursday morning, it became clear just how much work he has cut out for him.
The Atlanta-based company reported that its same-store sales fell 4% in the second quarter. That is a bad number for a pizza chain at a time when consumers are searching for value. It is even worse given the context.
Rival Domino’s, for instance, just reported 4.8% same-store sales growth, a huge gap in performance. What’s more, Papa Johns’ numbers came during a period in which the chain had hoped for much stronger results.
The company under former CEO Rob Lynch talked franchisees into spending more with the national marketing fund in exchange for reduced local marketing. The increased spending, featuring a new marketing campaign with a new tagline, “Better get you some,” has not been enough to offset whatever is ailing consumers right now.
“We have to get more people to show up at Papa Johns,” Penegor told analysts on Thursday. “If we can get them to show up, we can get them to try other things on the menu.”
What’s more, the company warned that it may close a "slightly" higher number of underperforming restaurants than it expected this year.
Papa Johns closed 17 restaurants in the first half of the year. That was more than offset by 31 new locations. But by contrast, the much larger Domino’s has closed just three locations this year, compared with 55 new openings.
Company executives laid the blame for its sales performance on its focus on premium items. Papa Johns has for the past few years promoted higher priced, premium pizzas such as New York-style pizza and stuffed-crust pizza. That worked for a time, helping it gain market share when consumers were freely spending excess cash at restaurants.
But then the company doubled down on that premium positioning in April when it shifted to national advertising. Customers, however, were no longer such spendthrifts and the push hurt the chain’s value perception.
Papa Johns “put a really big bet on a national plan, pulled a little back on the local advertising, the new agency, and at the time we’ve focused a little bit more on our premium, quality messaging,” Penegor said. “It’s a great plan. But it’s probably at the wrong time for the consumer environment.”
The shift away from local marketing also reduced markets’ ability to introduce offers more in tune with their markets. Penegor suggested the company could move away from that national marketing shift, engineered by former CEO Rob Lynch, who is now with Shake Shack.
The company “didn’t have enough focus on value,” Penegor added. “We needed balance at the local level to compete with some of the regional differences. One for me is, as we move forward, do we have the right balance between the national message that’s very efficient and effective, supplemented and then complemented with some local strong messaging along the way?”
Penegor also suggested that the company could make improvements to its loyalty program, Papa Rewards. Domino’s sales have improved of late because the company gave customers the ability to earn rewards at lower price levels.
Papa Johns hasn’t provided a lot of details, noting that work has started on the upgrade. CFO Ravi Thanawala did say the company recently updated its app to improve navigation and better showcase deals.
“We’ve got a little bit of work to do to optimize what the program truly looks like and then work through the internal technology work to make sure the program sets itself up to deliver on that promise,” Penegor said.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.