How Papa Johns used menu innovation to fight against inflationary pressuresHow Papa Johns used menu innovation to fight against inflationary pressures

Joanna Fantozzi

Although during the pandemic, Papa Johns was one of the highest performing “pizza darlings” of the industry — taking advantage of consumers’ need for cheaper, easier to order for takeout during lockdowns — the restaurant industry and Papa Johns’ soaring sales have since stabilized. Since then, Papa Johns International Inc. has managed to keep its head above water despite inflationary wage and commodity pressures by tapping into its third-party delivery partnerships and constant stream of menu innovations.

For the fourth quarter of 2022 ended Dec. 25, 2022, Papa Johns reported same-store sales up 1% from the same quarter in 2021, but same-store sales were up 26% on a three-year basis, showing how far the Louisville-based company has climbed since its pre-pandemic low point, even though sales growth now is more of a trickle. Papa Johns CEO Rob Lynch said that the sales volume has now been more “normalized.”

“During the pandemic we continued to be asked if all of the sales we had garnered would go away once we came out of the pandemic, but I’m happy to say that last year we delivered positive comps and that’s the year we came out of the pandemic,” Lynch said during Thursday’s earnings call. “We are building on that foundation that we developed during the pandemic […] Three and a half years ago, this company was in a very different place and now in 2022, we persevered through a very tough year.”

Supply chain and wage Inflation was the main headwind for restaurants across the industry in all segments in 2022. But Papa Johns said they managed to stay in the black during this tough time mostly due to a mix of careful price increases of 7-9% throughout the year and a steady stream of new menu innovations that did not add complexity to the kitchens or ingredient cost, including Papa Bowls, Papa Bites (available in chicken parmesan, jalapno, and Oreo and soon-to-be-announced new flavors) and the newly introduced Crispy Parm pizza, with cheese baked into the bottom of the crust.

“We are introducing menu innovations that offer value and variety to our customers,” Lynch said. “But they also limit added complexity to our restaurant operations and our supply chain. Our menu innovation calendar is expansive, flexible and differentiated and allows us to adjust our offerings to customer preferences nimbly, whether that is extending a limited time offer are building upon existing platforms.”

Besides menu innovations, the company is also focused on operational improvements, including leaning into and strengthening third-party delivery relationships to compensate for continued staffing challenges, as well as lowering order times from 20 minutes to 10 minutes in their corporate restaurants.

Moving forward in 2023, Papa Johns is predicting that macroeconomic pressures will ease up and that the company will be able to open 270-310 net new units in 2023, with a growth rate of 6-8% over the next two years.

For the fourth quarter ended Dec. 25, Papa Johns reported total revenues of $526 million down less than 1% from the fourth quarter in 2021. Net income was $23.5 million $0.66 earnings per share, down $1.1 million from the same quarter the year prior.

Papa Johns reported 117 net unit openings in the fourth quarter, largely within international markets for grand total of 5,706 stores systemwide.

Contact Joanna at [email protected]