11/14/2012 9:40 PM ET|
Papa John's doesn't care what you think
Spam texts and political statements have turned up the heat on the pizzamaker and its CEO.
Meanwhile, the pizza maker has renewed a multimillion-dollar sponsorship deal with the NFL, given away 2 million free pizzas just to acknowledge the start of the NFL season and hosted Republican candidate Mitt Romney at CEO John Schnatter's 40,000-square-foot Kentucky mansion.
Amid these mixed signals is one very clear question: Does Papa John's or its CEO care about its brand at all? The answer since election season kind of sounds like "no," especially when issues affect Schnatter's estimated $600 million fortune.
Back in August, Schnatter estimated that the new national health care plan would cost he and his franchisees $5 million to $8 million a year, forcing him to raise pizza prices by roughly 10 to 14 cents a pie (though Forbes put that number closer to 3 to 6 cents per pie). Depending on which number you believe, Papa John's $2 delivery fee will cost consumers 20 to 67 times more than Papa John's employee health care costs would.
After President Obama was re-elected, Schnatter doubled down said it was likely that some Papa John's franchise owners would likely reduce hours to avoid penalties under the Affordable Care Act -- which states that full-time employees at companies with more than 50 workers must be provided with insurance by their employer. Schnatter notes that about a third of Papa John's employees have health care coverage through the company, but rising health care costs have precluded him from bringing that number closer to 100%.
That's kind of interesting, since Schnatter is parting with an estimated $24 million to $32 million -- or about four to six times the additional health care costs he so fears -- to give away free pizzas during the NFL season as part of a customer loyalty program. He's also struck a deal with Peyton Manning to make the star quarterback the owner of 21 Papa John's franchises in the Denver area and paid to make Papa John's the official pizza of the NFL's Arizona Cardinals, Atlanta Falcons, Baltimore Ravens, Dallas Cowboys, Houston Texans, Indianapolis Colts, Miami Dolphins, Philadelphia Eagles, St. Louis Rams, Tennessee Titans and Washington Redskins.
The pizza CEO hasn't exactly been crying poverty in his private life, either. He has a net worth of more than $600 million. He likes to tell stories about hocking his prized 1971 Chevy Camaro to save his dad's bar and start his business, but paid $250,000 for that same Camaro back in 2009. His giant estate outside of Louisville features 16 acres of swimming pools, a golf course, a private lake, a 22-car multi-level underground garage with valet office, a car wash and a turntable driveway for limousines. The 6,000-square-foot guest house alone is valued at nearly $7 million.
"Who would've imagined pizza could build this," Romney said during a fundraiser at the mansion in August. "This is really something. Don't you love this country? What a home this is, what grounds these are, the pool, the golf course... Republicans come here and say everyone should live like this."
Like Romney, however, Schnatter's using a lot of money and words to finish short of first place. Fast-food industry publication QSR Magazine ranked Papa John's third among pizza franchises behind Domino's and Pizza Hut and 18th overall. Its $2.2 billion in U.S. sales last year lagged behind Domino's (DPZ) $3.4 million and Pizza Hut's (YUM) $5.5 million. The $786,000 it brought in per restaurant in 2011 not only trailed Pizza Hut's $875,000, but Cici's $895,400. Keep in mind, Papa John's has about six times more locations than Cici's.
The franchises Schnatter claims he's defending, meanwhile, were just targeted by a $250 million class action lawsuit alleging that Papa John's and marketing firm OnTime4U teamed up to send spam texts to customers who hadn't given their consent to be texted. The suit now includes thousands of customers who claim that Papa John's outlets sent hundreds of thousands of unwanted texts as a result.
This wouldn't weigh on Papa John's so heavily if the company had staked its success to the "better ingredients" in its motto. On overall quality, Papa John's gets hammered by another, smaller papa. Consumers polled by both Zagat and trade publication Nation's Restaurant News picked take-and-bake pizza shop Papa Murphy's as their favorite pizza chain, despite the Papa John's tripling the upstart Papa's sales and location count.
So how does it play out when a big pizza chain goes partisan and loses to smaller competitors on quality? Just ask Domino's, whose founder Tom Monaghan used his pizza fortune to fund Republican candidates and Catholic institutions and activism -- including anti-abortion efforts -- before selling the company to Bain Capital in 1998.
Domino's quality dropped to baked cardboard levels before the company retooled its pizza formula in 2009 and launched it with an ad campaign acknowledging the company's sullied reputation and years of subpar pizza. Domino's has now kicked "pizza" out of its name altogether as it focuses on reinventing its brand and expanding the menu.
Papa John's may face similar concerns about its brand in the near future. By the looks of it, though, its current CEO may not come down from his political soapbox and pile of money long enough to address them.
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