One of the steepest growth curves in franchising history

One of the steepest growth curves in franchising history

Piping-Hot Performance: How Papa John’s founder John Schnatter negotiated one of the steepest growth curves in franchising history

Recently, patrons of the Papa John1s pizza franchise in downtown Louisville got a big surprise. The man serving them their pies wasn’t just any old chef. It was John Schnatter himself, the highly visible CEO and founder of Papa John’s. Seems he’d dropped by to say hello to the store1s owner – his wife, Annette – and discovered that, thanks to a sudden cold spell, an unexpected crowd had decided to order pizza. So, Schnatter did what any self-respecting, slightly obsessive CEO would do: he rolled up his sleeves and spent the next hour and a half making pizzas. Says Schnatter, “I was just doing what was needed to get those pizzas out the door.”

That sort of drive is what helped Schnatter do the impossible: turn an upstart local pizza business into the fourth-largest chain in the country. With 1,855 units in 46 states, Washington, D.C., and Mexico, the 13-year-old company has consistently experienced double-digit growth in an industry expanding at a rate of just 2 to 3 percent a year. Earnings rose by 40 percent per share in 1997 and are expected to have increased by at least 40 percent in 1998. Since the firm went public, in 1993, the price of the stock has quadrupled. And, get this: Frank Carney, the founder of archrival Pizza Hut, who sold his business to PepsiCo in 1977, is a major franchisee. “The business just has a great operating model,” says Roger Lipton, chairman of Lipton Financial Services, a New York investment-banking firm specializing in restaurants. “The system works – and it works beautifully.”

What’s Schnatter’s secret? Simply put, it1s a mix of smart positioning, relentless perfectionism, and careful planning. Here1s a look at the ingredients in his recipe for success.

Don’t run with the pack

Little Caesar’s is known for its discounts; Domino’s, for fast delivery. To compete, Schnatter knew he had to take another route. Hence the company’s motto: “Better ingredients, better pizza.” “Schnatter said, ‘We’re going to do one thing – offer a better product than any other chain – and if we don’t pull it off, we won’t make it,'” says Ron Paul, president of Technomic Inc., a food-industry consulting firm in Chicago.

Not surprisingly, Papa John’s is all about quality control. The company uses only premium mozzarella and purified water; franchisees have to remake any pizza that rates lower than an 8 on a 10-point scale. (A low grade may be based on such factors as an excessive number of air bubbles or an insufficiently crunchy crust.)

That’s not all. To obtain the best dough, Schnatter has built 10 regional kitchens around the country. At each one, 15 to 20 “dough technicians” make the dough, then send the stuff refrigerated – not frozen – to nearby restaurant locations. “They now own the quality niche in the take-out and delivery category,” says Mitchell Speiser, an analyst at Lehman Brothers who follows the restaurant industry.

Step with care

Those regional kitchens do more than contribute to producing top-notch pizza. They also enforce a disciplined approach to growth. All new units must be located within striking distance of a kitchen. That means they open up only in adjoining states rather than in potentially big markets chosen at random. “They haven’t played hopscotch all over the country,” says Technomic’s Paul. “They’re too smart for that.”

When it comes to deciding precisely where and when to open a unit, Schnatter applies a measured method. Before a single pizza hits the ovens, franchisees spend six months to a year assessing an area’s potential. “We don’t just move into an area and open up 200 stores,” says Karen Sherman, a corporate spokeswoman. “We do it one store at a time.”

Once a store is up and running, Papa John’s puts enormous effort into forecasting. Franchisees project demand one to two weeks in advance. They factor in anything from forthcoming promotions to the next big high-school football game. “We look carefully at upcoming community events and everything else we can,” says Annette Schnatter. “If a big game is on TV, we know we’re going to be doing a lot of deliveries that night.”

Posted by on March 24, 1999

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