Papa Johns Strategic Analysis Essay

Papa John’s is the fourth-largest pizza chain in the US, and 20th-largest quick service restaurant overall (QSR, 2018). Its total revenues for 2018 were $1.573 billion, with net income of $1.64 million, according to the company’s latest 10-K. In terms of sales per unit, QSR Magazine (2018) lists Papa John’s with $968,000, higher than Little Caesar’s and Pizza Hut, but lower than Domino’s. The company has over 3300 units in total. According to the company’s website, it has over 5000 locations total, in 45 countries. Founded in 1985 in Jeffersonville, IN, the company began franchising the next year, and has grown steadily since then, although there was a decline in the number of stores in 2017 (QSR, 2018).

According to IBIS World, the pizza industry in the US is worth $47 billion, which gives Papa John’s a 3.3% share. The largest competitor, Domino’s, has a 12.5% share, so there is only moderate concentration in the industry. IBIS (2019) shows slow growth of just 1.6%, indicating a mature business, and the number of new businesses is growing faster than the industry as a whole, meaning that pizza is getting more competitive.

Using Porter’s Five Forces analysis (Kenton, 2019), the pizza industry does not have good profit potential. Competition is intense and there are low barriers to entry, the bargaining power of buyers is high because of this. The bargaining powers of suppliers is moderate, and will be lower for a major chain like Papa John’s that has some buying power. However, intensity of rivalry is high, and as a result most companies make only marginal profits. Papa John’s has a net margin of less than 1%.

There are several critical success factors in pizza. First, a good brand helps a company to stand out among the crowded field of competitors. Quick service is another factor – consumers expect pizza to arrive quickly and will switch if this is not the case. Convenient locations in highly-visible places help get drive-by and walk-by traffic, and allow delivery drivers to arrive quickly. For any major chain, the ability to replicate a consistent experience across franchises is an essential component of supporting the brand. Thousands of pizza restaurants come and go each year as a result of failing to deliver on these critical success factors. Others include affordability, the quality of the pizza, and the overall customer experience (McCormick, 2018).

Political and legal forces are relatively minimal on the pizza business, as most ingredients are sourced domestically. Tax policy can affect businesses where profit margins are this tight. Economic forces certainly can impact the pizza business, as eating out is something done with disposable income, so people need to have some of that. Papa John’s saw same store sales increase during the 2009 recession, owing to the strength of its brand and affordability of its pies (Navellier, 2009).

Pizza exists in a state of monopolistic competition, so brand can be one of the more reliable differentiators to combat hard economic times. This market structure means that the quality of the food, the service, and the overall brand value are the key means of differentiating from competitors. Firms that survive tend to excel in at least one of these dimensions, if not more, and firms that fail seem to struggle with each. This industry structure, especially in a mature market, is not conducive to weakness.

The industry is also impacted by social forces such as trends towards healthier eating, gluten-free eating, online ordering and turns towards more local goods. Founder and then-CEO John Schnatter was forced to resign after using a racial slur during a meeting, something that maybe wouldn’t have happened in 1985 but definitely would happen in 2018 (Halzack, 2018). Technological shifts, such as the use of apps for ordering, have affected the industry and it is imperative that competitors in the business keep up with such changes in consumer behavior.

The current corporate level strategy is a bit muddy. While the chain originally focused on quality,…

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…quality, with a differentiated offering in the market. Pizza is a highly competitive business, and margins are certainly slim, so there is a risk that the company cannot do this profitably, but Papa John’s needs to define its brand in a new way, and this is the best approach to the post-Schnatter brand definition. The company can also focus on international growth, as there appears to be more promise there than the domestic market. All told, by giving the company a sense of strategic focus, it can shift the conversation away from its problems of the past several years, and start to build a little bit of optimism. The strategy must be executed well, but there are still a lot of people who believe in the brand, and 5000 stores with which to bring this new product messaging to the market.

The company has already experienced a major crisis event, but should still anticipate some sort of economic downturn. While Papa John’s fared well during the last downturn, it should not expect that to happen again. The company must plan for another downturn, given its weak financial condition. By investing in its success now, Papa John’s can help to put itself on the right track. Improving profitability will be essential to riding out the next recession, whether it happens next year or ten years from now.

The future prospects for Papa John’s, as of right now, are not that great. Companies in highly competitive, mature industries can easily fail, should they lose their way strategically. The company’s brand has taken a beating and its finances are a mess. Without clear and focused action, Papa John’s will be hard-pressed to thrive going forward. However, if the company has learned anything the past year, it is that there is a commitment right from the Board to move swiftly in the event of crisis, and take dramatic action to strongly counter any problems that the company has. If it can apply that approach to its corporate strategy,…