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Prepared by:
Francis Flores
Professor Mike Shelton
GBA 490
July 6, 2016
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TABLE OF CONTENTS
Executive Summary 3

External Environment 5

Five Forces 7

Rivals and Industry Leadership 9

Internal Environment 10

SWOT 11

Financial Analysis 13

Final Analysis Recommendations 14

Appendix 17

Exhibit 1: Papa John’s Pizza External Environment 17

Exhibit 2: Competitive Forces in the Pizza Industry 19

Exhibit 3: Pizza Industry Strategic Group Map 20

Exhibit 4: Papa John’s Industry Rivals 21

Exhibit 5: Key Success Factors 22

Exhibit 6: Assessment of Papa John’s Strategy 23

Exhibit 7: SWOT Analysis 24

Exhibit 8: Weighted Competitive Assessment 25

Exhibit 9: Financial Analysis 26

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EXECUTIVE SUMMARY

To: John Schnatter

Chief Executive Officer

Papa John’s Pizza

The purpose of this report is to assess the pizza industry, as well as Papa John’s industry

outlook. To begin with, an industry analysis will be included, analyzing the following:

 Industry’s strategically relevant macro-environmental components

 Five forces evaluation of competitive forces in the pizza segment of the quick

serve restaurant industry

 The forces driving change in the industry

 Identification of Papa John’s main rivals and a high level overview of their

strategy and market position

 The industry’s key success factors

The examination will continue with a company and financial analysis of Papa John’s; this

will include:

 An evaluation of Papa John’s strategic and financial performance

 An identification and critique of the company’s strategy and business model

 The basis of Papa John’s competitive advantage

 An assessment of Papa John’s strength, weaknesses, opportunities, and threats;

most commonly known as a SWOT analysis

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The process of examination will end with final recommendations made to help Papa

John’s maintain their position as a market competitor in the industry, and continue to maintain a

strong competitive advantage in the pizza industry. This recommendations include:

 Identification of strategic issues and problems that need to be addressed by Papa

John’s

 Set of recommendations to deal with these issues and problems, including any

changes in the company’s generic competitive strategy

This report concludes that Papa John’s is a great competitor in this industry by focusing

their efforts in offering high quality products made from the best ingredients; responsive

customer service and convenient ordering systems; extensive marketing campaigns; employee

training and development; and franchising.

However, with peoples’ lifestyles changing toward the healthy trends, Papa John’s should

focus on expanding their product offering line, including something more than pizza and chicken

wings. Second, they should increase their international and domestic market share; increase their

marketing efforts, besides just sponsoring NFL games; and finally; one of Papa John’s strategic

intents is to build the strongest brand loyalty, but in their intents, the customers are not their main

focus. Therefore, a final recommendation for Papa John’s is to recognize the customers and their

needs.
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EXTERNAL ENVIRONMENT

According to the case analysis Papa John’s International Inc., Papa John’s is the third

largest pizza chain restaurant in the world, only behind Pizza Hut and Dominos with a market

share of 6% in comparison to 11.5% and 10% of its biggest competitors. Together they

accounted for 32% of industry sales, including Little Caesars in fourth place. As of 2013, the

company operated 723 company-owned and 3,705 franchised establishments in all 50 states and

34 countries. The company’s former CEO, John Schnatter owned approximately 20% of the

company’s shares.

The pizza industry is made up of two segments: pizza chains like Papa John’s and

pizzerias. This are independently owned restaurants that accounted for 57% of locations and 48%

of industry sales. The pizza industry was also comprised with 4 channels of distribution; these

are:

 Traditional sit-down: mostly made up of pizzerias and Pizza Hut locations

 Delivery: calling in and placing an order

 Carryout: allowed consumer to place their order via phone or online and pick it up

in person at the location. Little Caesars is well known location that permits only

carry outs

 Take n’ bake: provided pre made pizza for customers to take home and prepare

themselves at their best convenience

Pizza industry success is also accountable to location and economy stability. Having a

good location allows customer easy access to pick up their orders. Economy determines peoples’
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affordability power. For instance, when the economy was down and people faced financial

uncertainty, consumers were more likely to use take-out and delivery options, instead of sitting

and dining in the restaurant.

The pizza industry is currently being threat by the new health trends. Consumers now a

days seek out healthy choices in menus. In response to these event, a lot of the pizza chains

included their nutritional content on their website, on their advertisements, packages, etc.

Additionally, some pizza restaurants included salad bars in their locations. Another trend

growing in today’s society is technology and social media. The pizza industry, as well as Papa

John’s, began utilizing social media to reach and connect with their customers. Furthermore,

Papa John’s has been a pioneer in online food ordering since 1997.

FIVE FORCES

The rivalry among existing competitors in the pizza industry is high. Papa John’s is not

only competing against the two giants of the industry, Pizza Hut and Dominos, but as well to

local pizza restaurants. Most of these competitors sell similar products to Papa John’s at better

prices, but Papa John’s key distinction strategy is offering superior quality with their fresh

ingredients. For instance, they use only fresh dough, 100% real mozzarella cheese, vine-ripened

tomatoes, rather than tomato paste, and 100% beef and pork in its pizza.

The threat of new entrants to the industry is moderate, especially from small locally-

owned pizzerias. Even though Pizza Hut, Dominos, Papa John’s and Little Caesar’s dominate the
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industry, it is really easy to start a pizza business now a days. The initial investment pays off

quick because it is a cheap and legendary meal among people from every background.

The threat of substitution is high as there are other alternatives for customers to obtain

pizza. For instance, customers could choose to buy frozen pizzas at their local grocery stores for

a lower price than Papa John’s. It is the same way for the threat of bargaining power of buyers.

The threat is high because customers have many options to choose from when it comes to pizza.

Like mentioned before, there are many other places where one can get pizza at a cheaper price.

Buyers have the power to determine their affordability to this product.

The bargaining power of supplier’s threat is high since Papa John’s and all their

franchisees are required to purchase all ingredients from Papa John’s Quality Control Centers to

ensure consistency across locations.

The strategic group map in Exhibit 3 is based on product-line breadth and the use of

distribution channels. The top 4 competitors basically offer the same product line, except for

Pizza Hut, that offers salads, calzones, pastas, sandwiches, chicken, desserts, and more; Dominos

offers a variety of pizzas, pasta, bread bowls, sandwiches, wings, breadsticks, desserts, and

others. Papa John’s and Little Caesars both have a simple menu of pizza, chicken, desserts and

wings. The second characteristic is distribution channels, be it through dine in, carry out, or take

out. Papa John’s, Little Caesars, and Dominos is mostly carry out and take out. Pizza Hut is the

one known for its dine in locations.

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RIVALS AND INDUSTRY LEADERSHIP

Papa John’s main rivals are listed in Exhibit 4. As of 2013 Papa John’s holds 6 percent of

the market share. Pizza Hut, the number one rival holds 11.5 percent of the market share,

followed by Dominos with 10 percent of the market share. Independent pizzerias made up 48

percent of the market share and operated 57 percent of pizza stores. In addition to holding the

number one place in the industry, Pizza Hut was known for not only its takeout and delivery

options, but for its dine in locations. On the other hand, Domino’s sales were mainly generated

through its pizza delivery business. Hence, they always acquire convenient locations.

With the health trends invading the industry, all main players expanded their menu,

except Papa John’s, including all sorts of items like salad bars, sandwiches, chicken, and pasta.

In addition to expanding their menu, every chain allowed its customers to customize their pizzas,

offering a variety of crusts and pizza toppings. For instance, according to the Case, many

pizzerias featured specialty pizzas ranging from Hawaiian Barbeque Chicken to Bacon

Cheeseburger.

Furthermore, with the nonstop advancements of technology, most of the major pizza

chains included order placements via their websites, created smartphone apps, and even some

included a feature where the customer could track their order.

In order for Papa John’s to continue being successful and eventually overtake the other

two big players, they should be aware of key success factors, identified in Exhibit 5. One of the

most important key success factors for this industry is location. Having a good location permits

customers easy access to pick up their products and shorter driving distances not only for the
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delivery staff, but for the customers too. In addition, constant monitoring rival’s strengths and

weaknesses is key for Papa John’s to find loopholes and overcome their competitors.

Some other key success factors in this industry are flexibility during economic

downturns; high engagement in social media platforms to create greater brand awareness, as well

as advertisement and the offering of promotions/coupons; with the health trends taking over the

industry, it is imperative to let your customers know the nutritional content of the product; and

finally, training and development of your staff is key to offer great customer service.
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INTERNAL ENVIRONMENT

Papa John’s strategy is outlined in Exhibit 6. John Schnatter build Papa John’s literally

from the ground up. He started it in a broom closet at the back of his dad’s tavern to the world’s

third largest pizza chain restaurant. John Schnatter started the business with a simple business

model:

 Superior customer service

 Quality product

 Limited menu

Today, Papa John’s growth strategy focuses on:

 High quality menu offerings

 Efficient operating systems

 Employee training and development

 Effective marketing programs

 Strong franchise system

Furthermore, Papa John’s marketing innovations have contributed greatly to their

success, achieving the highest customer satisfaction ratings among pizza chain. Papa John’s

marketing innovations resulted in advertising during NFL games, and made them the most

identifiable sponsor of the NFL in 2013.

Aside from having great and innovative marketing strategies, Papa John’s is also a

forerunner in the online food ordering segment. They accepted their first online order in 1997,

and the rest is history. Since then they have added online ordering to their website, text orders,
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launched apps for smartphones, and an ordering app for kindle. By 2014, more than 50% of their

orders were made digitally.

Papa John’s franchise system is a great part of their growth strategy. In 2013 the

company had 3,705 franchise establishments. Papa John’s management team is very dedicated

into finding the right franchisee. They actively recruit operators with experience in the restaurant

industry so they can have the opportunity to open one or more Papa John’s establishments. The

franchisee has to first meet some financing requirements in order to proceed with the business.

SWOT ANALYSIS

Exhibit 7 represents Papa John’s strengths weaknesses, opportunities, and threats. Some

of Papa John’s strengths are:

 The use of only fresh ingredients – Papa John’s requires its franchisees to

purchase their ingredient from their quality control centers to maintain their high

quality standards

 Convenient ordering systems – Papa John’s allows their customers to order

online; through their app; or through their kindle

 National and global exposure – 723 owned restaurants, 3,705 franchised, and

exposure in 34 foreign countries

 World’s third largest pizza chain, trailing only Pizza Hut and Dominos

Papa John’s weaknesses include a limited menu; the company only offers pizza, chicken

wings, sides and desserts. This limits them because aside from being a pizza restaurant, they are

also considered a fast food chain restaurant and are going up against competitors like Burger
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King and Mc Donald’s that offer a variety of foods in their menus. Another weakness considered

for Papa John’s is their poor international exposure. Currently they are only present in 34 other

countries. If they want to continue to grow they should consider introducing Papa John’s to more

countries.

Papa John’s is faced with some good opportunities in the industry, some of them are:

 The addition of more items to their menu, this will position them higher in the

competition with their rivals that have already made this move

 Papa John’s should increase their franchisee opportunities, but as well as

company owned restaurants and venture into new countries around the world

introducing the Papa John’s brand

 Papa John’s should create more brand awareness by focusing more on their

customers, sponsoring other sports events, and targeting other age groups

Papa John’s faces several threats in the industry, for instance; they continue to be third in

the race with their top rivals Pizza Hut, and Dominos. Additionally, the health conscious trend

could harm them because pizza is stereotyped as an unhealthy dish. Finally, economy instability

not only in the US, but as well as in the other countries they are present, varies with time. This

instability causes changes in peoples’ buying power.

Exhibit 8 represents the Weighted Competitive Strength Assessment in which Pizza Hut

beat the rest of the remaining player. Even though Papa John’s has superior customer service,

this still does not beat the fact that Pizza Hut can accommodate all of its customers despite the

economic conditions. If they want to dine in, they can, since they have dine-in establishments.
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FINANCIAL ANALYSIS

Papa John’s financial analysis is shown in Exhibit 9. In 2014, the company achieved sales

per restaurant exceeding $1 million, operating income averaging $186,000 per unit, and cash

flow be close to $127,000 per location. Over the time period of 2011 to 2013, Papa John’s net

income increased from $4.7 million to $69.5 million.

We can see that Papa John’s gross profit margin decreased in 2010 to 2012 from 23.3

percent to 22.7 percent. The operating income also decreased from $95 million to $87 million.

Papa John’s revenue saw an increase of $57 million but then in the period of 2010 to 2012 it fell

to $52 million.
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FINAL ANALYSIS AND RECOMMENDATIONS

In order for Papa John’s to continue in the race for the best pizza chain restaurant in the

world, it must create some change to their growth and intent strategy. To begin with, Papa John’s

should expand its product line and include healthier menu options. Thus, adapting every type of

consumer, from vegetarians to meat cravers, to their brand. This move has been made by all of

its main rivals, resulting in great success. For instance, Pizza Hut attributes its incredible victory

to its dine-in menu. They offer lunch buffets, salad bars, calzones, pastas, and many more. Even

though pizza is the number one meal of choice for Americans, in recent years a trend that

overtook the whole restaurant industry emerged. According to the Case, a survey in 2010 by the

NRA concluded that 7 out of 10 consumers wanted to eat healthy when eating out. Expanding its

product line and including healthier options is an imperative course of action for Papa John’s.

Second, Papa John’s should increase their domestic and international market share,

creating a healthy ratio among the two. Currently, Papa John’s is only present in 34 other

countries. They operate 723 company-owned restaurants and 3,705 franchised establishments.

According to the Case, the company plans to open more than 1,000 new units over the next 5

years, with 95 percent of these units being franchised. This is going to create an unbalanced ratio

between company-owned and franchised. If somehow Papa John’s could venture into other

countries by purchasing/partnering with smaller pizza restaurants, this will not only introduce the

brand to new countries, but also it will increase their revenues since company owned restaurants

produce more revenue. In 2013, domestic company-owned restaurants had a revenue of

$635,317 in comparison to $82,873 from North American franchising.

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Third, Papa John’s is known to be one of the official sponsors of the NFL, and their

advertisements and promotions are big through them. Papa John’s should consider expanding

their marketing efforts. Currently, Papa John’s marketing strategy varies by geography, in the

U.S it consists of television, print, and social media marketing and advertising, as well as locally

targeted promotions. Internationally, Papa John’s only focuses on a small radius surrounding an

establishment; and they use television, radio, and print advertising. Internationally, Papa John’s

should get rid of their advertisements through radio, since nowadays no one really listens to the

radio, they just play music from their phone. Instead they should partner with big grocery stores

where they can target everybody and offer in store promotions. This form of direct marketing

will help Papa John’s increase their brand awareness among other people from different

backgrounds. In the U.S new social media trends have arisen, like the promotion app “Hooked.”

Papa John’s should partner with apps like this, where people can find their promotions. People

nowadays like the thrill of finding good promotions and coupons. Also, instead of marketing by

location, Papa John’s should focus its resources by doing it nationally. This will not only save

them money in the logistics department, but it will reach a greater market. Finally, Papa John’s

should market their pizza as a healthy pizza.

A final and most important recommendation for Papa John’s is to include their

customers’ needs and wants into their intent strategy. According to the Case, and it was

mentioned before in this case analysis; John Schnatter build Papa John’s on three basic key

success factors: superior customer service, limited menu, and quality products. Today, that

superior customer service factor is not part of their strategic intent. In order for Papa John’s to

strive and overtake its competitors, they need to focus their business around consumers. They

could do this by employing a link in their website that would take costumers to a place where
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they could voice out their opinions online. Dominos established this and it has been extremely

successful for them. Additionally, one of Papa John’s key success factors is employee training

and development. This is a very good way for management to instill this into their employees.
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APPENDIX

EXHIBIT 1: Papa John’s External Environment

Pizza Industry in the U.S  Take n’ bake

 Catering
Market Share Leaders:

Revenue: $42.8 billion

 Pizza Hut: 11.5 percent market share

 Dominos: 10 percent market share Projected Annual Growth: $49.5 billion

 Papa John’s: 6 percent market share by 2017

 Little Caesars: 4.7 percent market

Segments:
share
 Pizza Chains
Establishments growth: 86,493 by 2017
 Independent Pizzerias: 57 percent of

Products: locations and 48 percent of industry

sales
 Pizza

 Healthier options Key External Drivers:

 Chicken
 Online ordering: today, most of the
 Dessert pizza orders are made electronically.

Services:  Product line expansion: the addition

of more items to their menu to

 Dine in
satisfy every costumer out there
 Carryout

 Delivery
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 Healthy trends: expanding their more dine in establishments will

marketing efforts towards presenting benefit them greatly

their products as healthy  Location: accommodating and

 Distribution Channels: adding more acquiring establishments were

ways to provide the costumers with costumers have easy access to them

the product, for Papa John’s; adding

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EXHIBIT 2: Competitive Forces in the Pizza Industry

Threat of Substitute
Products: High
 Grocery stores selling
frozen pizzas
 Other fast food chains
 Lower prices
 New pizzerías are
emerging

Threat of Bargaining Power Threat of Bargaining Power

of Suppliers: High of Buyers: High
Rivalry Among Competing
 Franchisers are required  Switching costs are low
Seller: High
to purchase their
 High exit barriers  Buyers have the ability
supplier from the to postpone purchases
 Diverse strategies
Quality Control Centers  Buyers are price
 Similar product line
 Suppliers products are sensitive
 Numerous competitors
critical to industry  Smaller pizzerias
 No better substitutes for  Competitive prices
these suppliers

Threat of New Entrants:

Moderate
 Entry barriers are low
 Existing members are
looking to expand
their product line
 Smaller pizzerias
emerging
 Buyer demand is
growing
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EXHIBIT 3: Pizza Industry Strategic Group Mapping

3.5 Pizza
Hut
3 Dominos
Distribution Channels

2.5 Papa Johns

Little Caesars
2

1.5

0.5

0
0 0.5 1 1.5 2 2.5
Product Line Breadth
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EXHIBIT 4: Papa John’s Industry Rivals

Pizza Hut: Pizza Hut operates and franchises restaurants in 88 countries plus the United

States. Pizza Hut is famous for its dine-in establishments, although they are starting to open only

carry out and delivery establishments. Pizza Hut’s dine in menu includes a variety of options;

from pizza to salads. Another service provided by Pizza Hut is catering. In 2013, Pizza Hut held

an 11.5 percent of the market share.

Dominos: Dominos in 2013 had 10 percent of the market share. They also have a very

high international exposure. In 2014, Dominos was present in 77 countries plus the United

States. They franchised more than 10,800 carryout and delivery units. In the period of 2011 to

2013, its revenues increased from $1,652 million to $1,802 million. Company’s global retail

sales exceeded $8 billion in 2013. Dominos was mainly known for its pizza delivery service;

they mainly focus on acquiring convenient locations for customers. In addition to offering a

variety of pizzas with different crusts and toppings, Dominos also offers pasta, bread bowls,

sandwiches, and others. Dominos also offered its customers the ability to track their orders.

Little Caesars: Little Caesars hold the fourth place after Papa John’s. They own 4.7

percent of the market share. They operate in more than 20 countries with over 2,500 units. Little

Caesars is mainly famous for its takeout service; their main business was having Hot-N-Ready

pizzas for customers. They were constantly being made so they were ready as soon as ordered.

Like Papa John’s, its menu is simple; it consists of a variety of pizza, chicken, cheese bread,

desserts, and sodas. They are mainly focused on cutting costs than expanding its product line.
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EXHIBIT 5: Key Success Factors

Location: with every pizza chain restaurant offering some type of carryout or delivery, it

is important for the restaurants’ location to be centric to the target market the company is looking

to acquire or target.

Flexibility: with the economy constantly changing, not only in the US, but as well as in

other countries, it is important for players in this industry to adapt their customers’ needs

according to the situation.

Social Media Engagement: with the great technological advances coming our way,

staying ahead of this is required for big companies to reach their target audience. Through these

social media platforms companies are also engaging more with customers, letting them express

their opinions and make them feel heard, as well as offering them coupons and promotions.

Health: 7 out of 10 people said they are looking to eat healthy every time they eat out. In

order to be successful in this industry, players must accommodate customers’ demands. Showing

their nutritional content nowadays is a must, as well as showing customers a calorie counter for

better understanding of what they eat.

Training and Development for better customer service: this is the most important

factor in every industry. Train your employees to love their company and it will be easier for

customers to love it as well.

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EXHIBIT 6: Assessment of Papa John’s Strategy

Papa John’s ultimate goal is to provide its customers the freshest ingredients possible.

The company’s strategy is comprised around five major components: high-quality menu

offerings, efficient operating systems, employee training and development, effective marketing

programs, and a strong franchise system. Papa John’s has been successful so far because of its

fresh ingredients, convenient ordering systems, extensive marketing campaigns, and franchising.

The company’s franchising segment is strong; they plan to open more than 1,000 new stores in

the next five years, with 95 percent being franchised and 70 percent being in international

markets.

Furthermore, Papa John’s superior customer service has given them the highest

satisfaction ratings in customer service. With the industry changing towards more health

conscious consumers and trends, Papa John’s responds to this by informing their customers

about their products’ nutritional value on their website. Papa John’s is currently only present in

34 countries; by venturing into other countries they will gain constrict the gap between its

competitors that have more international presence

Since Papa John’s was first started its main value has been a strong work ethic and

excellent customer service, this was instilled to John by its father and grandfather. If Papa John’s

continue to fulfill this core values, they will continue to be successful, gain a higher market

share, and outcompete its rivals.


EXHIBIT 7: SWOT Analysis
Strengths
 High quality products
 Convenient ordering systems
 Marketing innovations
 NFL sponsor
 Strong training and development
programs
 Active within the community
Opportunities
 Expand menu
 Market their pizzas as healthy
 Venture into new countries
 Incorporate more dine-in
establishments
 Better marketing strategies and brand
awareness
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Weaknesses
 Limited menu
 Low distribution channels – limited
dine in establishments
 Unbalanced company owned-
franchised ratio
 Poor international exposure
 Franchise management
Threats
 New Pizzerias emerging
 Competitors’ lower prices
 Health trends
 Competitors expanding their menus
and distribution channels
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EXHIBIT 8: Weighted Competitive Strength Assessment

Key Success Weight Pizza Hut Dominos Papa Johns Little Caesars
Factors
Rating Score Rating Score Rating Score Rating Score

Location .25 8 2 10 2.5 6 1.5 7 1.75

Social .10 8 .80 7 .70 9 .90 6 .60

Media
Engagement
Flexibility .20 10 2 7 1.4 6 1.2 6 1.2

Health .20 10 2 7 1.4 5 1 4 .80

Conscious
Customer .25 8 2 8 2 8 2 8 2
Service
Total
1 8.80 8 6.6 6.35
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EXHIBIT 9: Financial Analysis

Compound Annual Growth

2013 2012 2011 2010 2009

Revenue $1,439 mill $1,343 mill $1,218 mill $1,126 mill $1,106 mill

Gross Profit 58% 23.6% 22.7% 23.3% 21.6%

Operating 7.4% 7.4% 7.1% 7.7% 8.6%

Expenses
Operating $107 mill $100 mill $87 mill $87 mill $95 mill

Income

Net Income $70 mill $62 mill $56 mill $52 mill $57 mill