Gosh, Papa John Schnatter didn’t just step in it this summer, he tracked it into the house and got it all over the carpet. You probably know what we are talking about so, at this point, we don’t need to rehash the messy particulars, but head here for the initial story and here for a postmortem if you require either. Yikes.
Now, before we get into a debate about free speech and political correctness, remember, this is a business blog. So, however you feel about the Papa’s nonsense (and it was gross nonsense, btw), I think we can all agree it was a pretty poor approach from a business perspective.
In fact, the business impact is not really up for debate. Since news of his comments broke, same-store sales have taken a 10.5% hit, and the hits are likely to keep on coming. Some analysts expect as much as a 14.5% same-store drop in the second half of the year and stock prices have already dropped 25%. So yeah, unfortunate words, unfortunate results.
But, regardless of what happens to Papa’s John’s Papa, the effects will be felt throughout the QSR pizza segment and really through the entire food industry. So let’s order up a delivery of food service market research insights as we survey the damage to Papa John’s brand, explore corporate-franchisee relationship, and speculate about the road to recovery.
Can A Papa Fail a Paternity Test?
Selling pizza to Americans is like selling sunlight to plants. The average American (whoever she is) eats, from cradle to tomb, 6,000 pizza slices. Yeah, that’s a lot and also why QSR pizza is a $41 billion/year industry. So even having just a small slice of that very large pie is incredibly lucrative, as was the case with Papa John’s.
Though often voted America’s favorite pizza, Papa John’s has long played third-fiddle in the nation’s pizza wars to the two market share gobblers, Pizza Hut and Domino’s.
Yet despite some early and even recent successes associated with their “better ingredients” campaign, Papa John’s pizza was already getting burned, so to speak. First, they have let some of their differentiators slip away thanks to a slower-to-develop digital game and lack of product innovation, meaning that with Domino’s being more convenient and Pizza Hut more cost effective, the Papa was already losing appeal.
Then there was that trouble with the NFL—for reasons that, as fans of both pizza and football pain us to recall, Schnatter proved himself a liability by publicly battling the NFL over patriotism and politics.
Quick note: around here, we own our mistakes and, wow, did we whiff when we celebrated the then-blossoming partnership between the Papa and the NFL Shield. But seemingly overnight, the companies’ two figure heads (Schnatter and NFL commissioner Roger Goodell) have, it appears, entered a race to squander every last drop of the goodwill for both organizations.
Beyond the NFL issue, Schnatter has, however unintentionally, led to Papa John’s becoming the unofficial (borderline official) pizza of the white supremacy movement. So, yeah, things were changing before that conference call that changed everything as Papa John’s brand had been associated with disgusting racist ideologies and a deteriorating product.
Thus, Papa John’s was already expecting a 3% same-store sales drop traceable to the aforementioned issues…and all of this was before all of that talk about the Colonel and growing up in Indiana, after which, it has only gotten worse.
If We Could, for a Second, Channel Madonna: "Papa, Don’t Preach"
Schnatter, who still has a seat on the BOD and owns 29% of Papa John stocks, has not gone away quietly, using his leverage and public profile to make his exit awkward and uncomfortable. Much like that drunk uncle who misbehaves at the family barbeque, Papa John is going to make a stink on his way out. In late July, he filed suit against the very company he founded, demanding to inspect documents related to his resignation.
Look, there are just some facts the Papa Schnatter will have to learn to accept, no matter whether he believes he was wrong or is being wronged. As Forbes rather aggressively noted, he will never be chair again. Ever. That’s just the way it is, and it’s time to move on—we all know this.
So let’s do the same and move on from the ousted chairman and, much more interestingly for a market research and strategic consulting blog, begin to speculate how Papa John’s (the institution, not the man) will recover. Because, oh boy, do they ever need to stop the bleeding.
For Papa John’s competitors, it’s raining market share as this misfortune has opened up room in the QSR pizza space, both in terms of cultural capital and market share. How much space? Before the troubles began, Papa John’s claimed a little over 7% of the nation’s QSR market share. Go ahead and do the math: what’s 7% of ~$41 billion?
Culturally, Pizza Hut was all too happy to step in for the now absent Papa, becoming the NFL’s official pizza soon after its very public breakup with Papa John. Pizza Hut has already taken a couple swings at going viral in the run up to the new NFL season, though neither proved particularly successful (Pi Pick? Doorbell Dance?), and it remains to be seen how thirsty the public will be for NFL 2018. Though, FWIW, this blogger very is ready for football to start (Pats 6-1 odds...let's go!).
But, despite the NFL-centric marketing efforts, Pizza Hut has problems in its own Hut. Seriously, when was the last time you or somebody you knew craved Pizza Hut? So, until it addresses its image as the post-industrial discount pizza, they may find it difficult to capitalize on the Papa’s slip.
But—with its improved ingredients, second-to-none marketing campaign and rewards programs, and first-in-class digital game—Domino’s seems well poised to attack the gap and expand their nation-leading 14.2% market share. Some analysts predict up to a 1.4% market share gain for Domino’s.
Barbra’s Turn: "Papa, Can You Hear Me?"
So, how to stop hemorrhaging customers to your largest competitor? First thing’s first: they must keep their franchisees optimistic and in line, which is a big ask considering the giant mess their founder and former chairman just tracked across their carpet.
The franchises, for the most part, want Schnatter gone for good. Vaughn Frey, president of the Papa John's Franchise Association—which controls roughly half of all North American Papa John’s franchises—did not mince words: "We believe it is time for the founder to move on.”
Frey is also frank about “the impact the founder’s inexcusable words and actions have had on franchises.”
Realizing that franchisees are bearing the brunt of the father’s sins, PJ corporate has instituted an assistance program to “help address the sales and operating challenges following comments made by the Company’s founder.”
This means reduced royalties and fees, breaks on ingredients, and—perhaps most importantly—help with updated marketing materials that are not Papa-centric (yeah, his face was on literally every box). But all that assistance adds up: conservative estimates have it at $30 million.
So, while franchisees are still cheesed off, corporate has done what it can to make it right.
Will it Take a Saint to Save John?
Next step: get the public back on board. But how and when can they forgive and forget?
Corporate has a plan for that too. Enter Bozoma Saint John of Endeavor Global Marketing (EGM), one of the nation’s preeminent marketers (and one of this humble blogger’s heroes), who has previously worked her magic with Uber and Apple. Suffice to say, if somebody in the business can save Papa John from its abusive father, it is Boz (no, sadly, we’re not yet on a first name basis).
Papa John’s only recently hired Endeavor (Saint John was the key to landing the account) and she’s already come out swinging. As she told Adweek, “This isn’t an apology ad campaign. It has to be cultural and deeply moving … the 120,000 employees of Papa John’s are not defined by one individual. How can we as EGM not just create a new narrative based on a value proposition, but convey what is truly inside Papa John’s?”
It’s already becoming clear how she intends to reposition the company—as a leader in a broader cultural shift towards inclusivity and ethics: “This is a really pivotal moment not just for Papa John’s, but for all corporate businesses and all brands that service a larger group of people. Our culture has become even more sensitive to anything we feel is outside of our moral compass, and as a brand we acknowledge that.”
In Beyoncé we believe, and in Teigen we trust...but Boz is boss. So maybe CNBC is right in forecasting that, if it can keep Schnatter quiet, the worst may be near over for the rehabbing pizza giant.
Papa, Panel Surveys, and Putting in the Qualitative Market Research
We love (love!) a great marketing campaign, and nothing is quite as exciting as doing battle on the frontline of public opinion for a distressed brand. It’s how marketers get their wings.
But, of course, all the marketing magic in the world can’t sell an inferior or unexciting product. Remember, that beyond Schnatter’s verbal diarrhea, they also have to contend with an unfavorable view of their product and platform. And with the public’s pizza appetite shifting over time and Postmates delivering things like Thai Curry Pizza (which is very real and very, very good—thanks, Greg!), they need to ensure that every level of their game is ready for the current market.
That’s why, in conjunction with renewed marketing efforts, Papa John’s needs to be putting in the dine-alongs, panel surveys, and other qualitative market research methodologies. They must ensure that, while they rehab their image, the tangible representations of their product are also beyond reproach. Otherwise, they may as well just serve lukewarm letters of apology in their pizza delivery boxes.
