Papa John's (NASDAQ:PZZA) has seen its same-store sales fall steadily over the past year. Its worst quarter came a year ago when it lost its deal with the National Football League. Now, the chain has money to spend and a new message to deliver as it tries to convince consumers to come back to the embattled brand. That's a major challenge for new CEO Rob Lynch and brand ambassador/board member Shaquille O'Neal.
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This video was recorded on Sept. 3, 2019.
Nick Sciple: Another concerning thing, or something to think about with Papa John's, particularly as NFL season is beginning this week, Papa John's two years ago lost their NFL contract. They've really had, as you mentioned, very poor comparable sales. But, as we move into Q3, they are going to lap that NFL deal rolling off. Any optimism that, they've lost this marketing bump from the NFL, but now that those numbers aren't compared to that year-over-year, maybe the narrative can turn around?
Dan Kline: I think it's a challenge. In all the places where you used to see, "Hey, Papa John's" -- you and I on Sunday are watching a game in your apartment, which might actually happen this Sunday, that we'll probably go out somewhere. We're watching the game, and we're like, "We're hungry," and we see a Papa John's commercial, so we order a Papa John's pizza. That just sense. Well, those are going to be Pizza Hut ads this year. So that's a gain for your competitor. And in general, with pizza, you don't eat a pizza, and then go, "Oh, hey, I should get another pizza from another company." There is a huge captive audience of people watching football on their couch.
On the other hand, that was a big, expensive sponsorship. If they strategically use that money to advertise and go after other audiences that eat pizza, you can make that up. Maybe the NFL was a bit of a toxic place to be for a couple of years. There were a lot of controversies, and sort of every move any company made was politicized. So, it might make more sense for Papa John's, which is trying to de-politicize its brand, to really just be everywhere. Throw it around to some basketball games; throw it to some baseball playoffs; whatever it is. Look for different audiences. I'll be curious to see what these commercials are. Is it Shaq endorsing the brand and saying, "Hey, these are good people"? I hope they drop the "better pizza" idea and maybe even make fun of it a little and spread convenience. "Better pizza" was a counter to Domino's and Pizza Hut. You could argue that maybe their pizza is better than those, but you can't argue that it's better than, say, Blaze Pizza, or any of the local places where pizzas are handmade and well done. They could make some progress if they're very selective and careful about how they spend their money.
Sciple: Sure, yeah. I think this is very much a turnaround story. You see the board getting shaken up in a really significant way, when you see the No. 1 shareholder -- Papa John himself -- continuing to sell down shares, you have a whole new marketing strategy, a whole new brand ambassador. Really, a lot of question marks up in the air with this company. But, as I mentioned earlier, the ability to shift your marketing strategy has been proven to work in the past by other pizza operators.
Kline: You mentioned that they're lapping their comps. Just to give you an idea how bad it was, they were off 9.8% in that quarter at a time where Domino's was gaining share. You would expect when they report this quarter that they will have gained. But, what you really have to look at is, if they're 2% up over last year, that's great; but that still leaves them 8% from where they were. So the question is, the next four quarters, they should probably report some pretty positive results, but can they actually get back to the point where they were? I'm not so sure. There's ever-increasing competition. Shaq is a great spokesperson, but, I don't know, I like his commercials, I think The General is a funny character, but I'm not switching my car insurance.
Sciple: Yeah, I totally agree. I think in these next couple of quarters, you may get misled a little bit with these numbers as they lap comps that are maybe more favorable year over year.
Dan, as you watch this company over the next couple of years, what events would have to take place for you to change your mind and overcome that skepticism that you have?
Kline: Well, I'd like to see the new CEO really make the company feel like it's a new company. You mentioned the Domino's turnaround. Domino's came out and did a very bold, like, "Hey, we know our pizza's not that good and we're working on it." You've sort of gotten some mea culpas from Papa John's. They ran those commercials where it showed how diverse their ownership was. But I don't want them to keep apologizing. I want them to own it and be something different. What is the brand identity for Papa John's? Is it the cheap pizza place? The convenient pizza place? The best pizza place of the chains? Is it the pizza place that's open until 04:00 AM so they can capture that 02:00 AM to 04:00 AM market that Domino's doesn't get? I don't know what it is. I don't have any feelings about this brand. And I didn't grow up with Papa John's. It's not a New England brand. It was new to me when I first lived in New York. And in New York, who's eating pizza at Papa John's? It seemed unfathomable to me that the place existed. So, I want to see them come out and have their "We have the meats" moment, where you go, "OK. Shaq just delivered a tag line for Papa John's, and that changes everything about the brand." That's not easy to do, but it is possible.