Papa John's (NASDAQ:PZZA) has been in the news over the past year for mostly bad reasons. The pizza chain's founder, John Schnatter, no longer has any formal role with the company but is still associated with the brand. That's a problem that his hand-picked successor, Steve Ritchie, could not get away from, leading to him being replaced by former Arby's President Rob Lynch -- the man who coined the slogan, "We have the meats." It's a smart move by Papa John's that may help it reposition its brand.
In this segment from Industry Focus: Consumer Goods, host Nick Sciple and Fool.com contributor Dan Kline discuss Papa John's new CEO.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on Sept. 3, 2019.
Nick Sciple: Let's talk about Papa John's now, Dan. Big news coming out of Papa John's last week. We've heard that they named their new CEO, Rob Lynch, the former president of Arby's. What are your thoughts on this news, just off the top?
Dan Kline: I think it's a great hire. Now, that said, I'm not sure Papa John's needed to replace its CEO. The previous CEO had worked his way up through the system. You can't really blame him for any of the issues going wrong. But he kind of got sacrificed to circumstances. Coming from Arby's is a brilliant play. What was Arby's? It was kind of the restaurant that wasn't Burger King or McDonald's. And this is the guy who created "We have the meats," a slogan that perfectly explains what Arby's is. It doesn't tell you it's good, it just gives you a place. It's like, "All right, Arby's has meats. It has roast beef, brisket. It has things that are not what you get at other fast-food chains." And that breathed life into the brand.
Sciple: Yeah. There's very few company mottos that become a meme. I think "We have the meats" is probably one of those. Looking at Papa John's, this is a company that, after the controversy with the original Papa John Schnatter that has played out of the past several years, he's continued to sell down his stake, this is a continued evolution of the company to de-position itself away from his presence. We've also seen Shaq has been added to the board. We saw Starboard Value take a stake in the company. As you see the company starting to reposition itself, good signs so far?
Kline: Yeah, it's great signs. The problem is, Papa John is a real guy, and he's a real guy who's done some controversial things. He's had some anti-labor practices. We all know some of the racism controversy without rehashing that. The problem is, his name is still on the door. Even though he doesn't have anything to do with the company, he likes to be on the news. Papa John gave an interview saying how he had said that they should replace the CEO -- a CEO he picked, by the way -- that they should have replaced him sooner. And he likes to insert himself in the conversation. And what the company is doing by naming a new CEO with no connection to the company, and hiring Shaq as a brand ambassador -- which, we've talked about before, is a little bit of a clumsy move. Like, "Hey, we were accused of some racist stuff. Here's a guy who's going to now say nice things about us." That said, people love Shaq, and the company does seem to truly want to reform. This is a way to get you to forget that the guy the company is named after is a real guy, and turn it to, "Papa John's, it's a pizza place, and it's not a cult of personality anymore."
Sciple: Sure. It's all part of trying to turn this business around, reshape its image. Another exciting thing, I mentioned that earlier that Starboard Value came on in February, purchasing $200 million in preferred stock. Their CEO and chief investment officer Jeff Smith is now the chairman of the board at Papa John's. They have a strong history of activist shareholding, particularly in the restaurant space. In 2014, they had the entire Darden board replaced, and that stock is up over 170% since that move. They're going to be using some of those funds injected by Starboard Value to advance their turnaround priorities. $100 million of those funds will go into the turnaround plan of the business.