How strong are the competitive forces confronting Papa John’s in the pizza segment of the quick serve restaurant industry? Do a five-forces analysis to support your answer.
What does your strategic group map of the pizza segment of the quick serve restaurant industry look like? Is Papa John well positioned? Why or why not?
What do you see as the key success factors in the pizza segment of the quick serve restaurant industry?
What does a SWOT analysis reveal about the overall attractiveness of Papa John’s situation?
What are the primary components of Papa John’s value chain?
By the end of 2013, Papa John’s International (Papa John’s) was poised to celebrate its 30th anniversary in the pizza business, having begun as a $1,600 investment in a pizza oven in the back of a tavern in Jeffersonville, Indiana. Over the years, the company had expanded to over 4,400 establishments in all 50 US states and in 34 countries, of which 84 percent were franchises. Corporate revenues reached $1.4 billion and profits increased to $69.5 million in 2013.
Over the most recent four-year period, Papa John’s corporate revenues had grown at an annual compound rate (CAGR) of nearly 8 percent, fueled by growth in international franchise fees (17 percent CAGR) and international restaurant and commissary sales (24 percent). Earnings per common share (undiluted) had also grown at impressive 13 percent on a compound annual growth basis. The company’s stated objective was to add an additional 1,000 units over the next five years, via franchising agreements (95 percent of all new units) and expansion into international markets (70 percent of all new units).
Papa John’s and its peers benefitted from a challenging economy because of the relative value of pizzas versus other food categories. Papa John’s had grown its market share due to the quality of its ingredients, as consumers became more health conscious. The company had significant growth opportunities in international markets, given that it had about 1,000 restaurants outside the U.S. and Canada. Papa John’s franchise business model reduced the impact of rising commodity costs and price discounting because the company generated a significant percentage of its operating profits from royalties and fees, which were not affected by franchisees’ operating margins. Papa John’s enjoyed higher contributions from international revenues, which had wider margins than domestic revenues.
Papa John’s nevertheless faced considerable challenges. Rivals commanded a 94 percent share of the $43 billion worldwide pizza market. Papa John’s remained a distant third behind the top two chains, Pizza Hut (12 percent share) and Domino’s (10 percent). Little Caesars, the number-four pizza chain, held a 5 percent share and appeared poised to catch up to and possible overtake Papa John’s. Other external trends might impact Papa John’s future growth trajectory and competitive position, including: increasing consumer health and diet awareness, the growing use of technology in the industry (e.g. social media, on-line ordering via mobile apps), unstable prices for raw materials and ingredients, as well as political and economic instability in the countries where Papa John’s was operating or sought to expand operations.
What are the key elements of Papa John’s strategy?
Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Papa John’s is employing?
Based on careful examination of the data in case Exhibit 1, how would you assess Papa John’s financial and operating performance?
What 3–4 top priority issues does Papa John’s management need to address?
What recommendations would you make to Papa John’s management team? At a minimum, your recommendations should cover what to do about each of the top priority issues identified in question 9.