Finance4U

Why Is Papa John’s Closing Down 43 Stores?


The Italian flag is flying at half-mast today, after US-based pizza chain Papa John’s announced it will close 43 branches in the UK this spring. The news has added to concerns about Britain’s vanishing high street.

Chris Phylactou, the managing director at Papa Johns UK has said the move will allow Papa John’s to invest in “the right locations with the right partners”.

Affected outlets will close in mid-May, but Papa John’s UK has stayed taciturn about how many sites will be closed and jobs affected. We explore what’s behind the closures, and why it might be saying ‘ciao’ to in-store sales.

Franchise and finance failings

For a pizza joint, Papa John’s UK has been short on dough. Its latest financial figures, taken from a Companies House filing in 2022, show that sales declined by a huge 21.8%.

The fault does not entirely lie with Papa John’s. As a US company, the pizza giant outsourced management for almost all of its UK outlets to franchise operators.

That includes Renz Restaurants Ltd, which controlled 10 Papa John’s pizza takeaways, including three outlets in Plymouth. The firm was forced to appoint liquidators and was wound up at the end of last year after “underperforming”.

In this context, Phylactou’s comments about finding the ‘right partners’ for Papa John’s look more pointed. But while the company’s UK arm and its franchise partners report poor performance, the Papa John’s board has been eyeing up a bigger slice of the market.

Buoyed by the end of COVID lockdowns, and perhaps predicting a return to previous sales figures, Papa John’s began a run of rapid expansion. According to the Companies House report, it opened an additional 24 outlets in the UK during 2022, taking its total to 531.

The brand’s optimism was sadly misplaced, however. High street footfall has failed to return to pre-pandemic levels and in today’s poor economy, takeaways are a premium purchase.

Just two years later, the total number of Papa John’s pizza joints in the UK stands at 450, with 43 more stores due to shut up shop.

Out of office

The surge in remote working across the UK has been catastrophic for brick-and-mortar brands in many different ways.

Workwear brand Ted Baker went into administration this month as fewer people bought office clothes, while cafes and restaurants have also suffered due to declining footfall.

Papa John’s GB is not immune to these problems. Its Companies House report offers some insight into the impact, with the firm acknowledging that “our consumers are working from home and not frequenting cafes and sandwich shops as much as they were pre-pandemic”.

In-store transactions specifically, according to the filing, declined by 28.1% at the end of 2022. The company launched a new range of Papadias (its sandwich-pizza hybrid) to try and encourage workers to order Papa John’s for at-home lunches instead.

The effort gave Papa John’s an incremental boost of profits. However, a premium price point of £5.99 means it has struggled to gain traction among UK workers grappling with the cost of living crisis.

Smaller market slice

Despite flattened sales volumes and obvious franchise partner failings, Papa John’s has also been slower to innovate in an important area of takeaway services: online deliveries.

Domino’s has a reputation for being a leader in pizza delivery technology. Its website and app are user-friendly and offer access to Domino’s DXP (Domino’s Delivery Tracker) that lets consumers see the progress of their order in real-time.

Where Papa John’s had historically pulled ahead was in third-party partnerships. It joined third-party apps like Uber Eats in 2019, four years earlier than other brands.

However, Domino’s began experimenting with an Uber Eats partnership earlier this year. Pizza lovers were able to trial ordering through the platform as the pizza giant debates whether or not to sign up with Uber full-time.

The announcement has rattled Papa John’s. Shares of Domino’s are outpacing its older rival as investors praise the former for its customer technology refresh.

The decision to close 43 stores could be evidence that Papa John’s is attempting to now prioritise online orders over in-store.

Toxic leadership

Behind every business failure is a disgraced CEO. As has been the case with almost every recent company flop, Papa John’s public reputation has suffered dramatically from various controversies connected to its leader.

It’s no exaggeration to say that John “Papa John” Schnatter has terrorised his own organisation. Among the oven fires his PR team has been forced to put out, Schnatter argued against offering US employees bare-minimum health insurance and used the n-word during a conference call about racial sensitivity.

Schnatter was finally forced to step down as chair of the pizza chain in 2018. He was barred from the pizza chain’s corporate headquarters and told to stop making media appearances – but not before Forbes reported on multiple sexual harassment allegations levied against him.

Boardroom battles will often cause friction and slow down company growth. It’s what caused WeWork’s fall from grace and Superdry’s sales to slump.

But when your disgraced boss is literally the embodiment of your brand, it’s much harder to convince consumers that your brand has changed. Undoubtedly, Schnatter’s reign of terror has done much to damage the company’s reputation and stalled its profit recovery efforts.

Consumer demand a concern for businesses

Papa John’s troubles (excepting its controversial CEO) will be familiar to today’s business owners. Remote working has lessened lunchtime appetites and in-store sales are falling across the board for retail and hospitality businesses.

In fact, in a recent Startups survey, 15% of UK firms said “fluctuations in customer demand” were their biggest concern for this year.

Papa John’s consolidation and focus on ecommerce shows it is listening to changing consumer habits. Properly actioned, it could cook up a relative meat feast of robust online ordering, smart delivery partnerships, and a stronger customer base.

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