Papa John’s executive leadership has been trying to chart a better course for the company, but the pizza chain continues to struggle two years after its founder and namesake, “Papa” John Schnatter, dragged the company into a racially charged controversy.
Wednesday morning, the executive team will host its first analyst phone call under new CEO Rob Lynch’s tenure. It couldn’t come at a more pivotal time.
It’s been almost exactly two years since Schnatter first received public backlash following a November 1, 2017 analyst call. It was during that call when the Papa John’s (PZZA) founder blamed declining sales on the NFL’s handling of ex-49ers quarterback Colin Kaepernick and other players’ anti-police brutality protests. Papa John’s (PZZA) was then the official pizza of the NFL, a title now controlled by rival Pizza Hut.
A day later, the white supremacist website Daily Stormer declared Papa John’s the official pizza of the alt-right.
Schnatter made matters worse six months later by reportedly quoting KFC founder Colonel Sanders while using the n-word during an internal diversity training meeting. The session was taped in secret, and that tape eventually was leaked to Forbes.
Schnatter resigned as CEO shortly thereafter and has since sold most of his stock in the company he founded. But he has still maintained his status as Papa John’s largest shareholder, controlling more than 15% of the company.
In July 2018, then-acting Papa John’s CEO Steve Ritchie told analysts that the company’s ongoing sales slump, which has continued so far through 2019, stemmed from negative publicity due to Schnatter’s comments.
This year, Papa John’s stock price climbed about 43%, but an estimated 25-30% of its franchisees have failed to make a profit due to declining sales, according to restaurant industry analyst Peter Saleh of the global financial services firm BTIG.
“This company has lost maybe 10% of its total sales number since it started struggling back during late 2017. Things started to fall off a cliff for them,” Saleh told CNN Business on Monday. “Their franchisees are struggling. It’s a crucial time for management to step up and provide a game plan for the next 12-18 months on how they’re going to bring franchisees together.”
Papa John’s tried to turn the page on the issue in March by announcing its partnership with retired NBA legend-turned-businessman Shaquille O’Neal, who joined the company’s board of directors and became its new brand ambassador and the face of the company’s marketing campaigns – Schnatter’s old job.
But the 57-year-old former Papa John’s pitchman has refused to let his company completely move on from his tenure, repeatedly questioning its leaders’ strategy and direction in public statements, news releases and through the press.
Last week, Schnatter published a scathing op-ed in the New York Post, again blaming others for the racially charged incidents that led to his departure from Papa John’s executive team, while also trashing his own company, its current leadership - even its pizza.
“In August 2018, I tried warning my fellow directors and put out a news release that the performance of the company was bound to get worse,” Schnatter wrote in his October 29 op-ed. “What I’ve observed in the months since then is that the Papa John’s management may be emphasizing cost-cutting over product quality. Even the pizzas don’t appear to be made the way that I made them just a few years ago.”
Schnatter’s latest comments may have overshadowed Shaq’s plan to open Papa John’s franchises on the campuses of historically black colleges and universities across the United States.
The “Inside the NBA” analyst and investor had to postpone a scheduled October 26 rollout event at Miles College in Fairfield, Alabama, after the sudden and tragic death of his sister, Ayesha Harrison-Jex, 40, who lost a battle with cancer two days prior.
Papa John’s leaders have not returned repeated calls and emails from CNN Business requesting comment on Schnatter’s op-ed. A representative who works with corporate management said Lynch will discuss the company’s new direction on Wednesday, adding that Papa John’s new executive team – including new Global Chief Marketing Officer Karlin Linhardt, who was also hired in March – is focused on the company’s future, not its past.
Saleh doesn’t expect Schnatter to come up at all during Wednesday’s analyst call.
“They’ve kind of put that behind them and have moved on,” he said. “I don’t think they’ll address it, nor should they. They’ve got to start trying to bridge the divide.”
What may be more pressing is how the company is going to recover the ground it has lost to competitors like Domino’s, Pizza Hut, and Little Ceasars, according to Saleh, who likened Papa John’s image crisis to what Chipotle faced after its E. coli outbreak several years ago.
Saleh recommended Papa John’s focus on selling more of its chicken wings, noting double digit year-over-year sales growth for competitors like Wing Stop, and pay more for national advertising vs. local TV spots to regain lost ground, just as Chipotle (CMG) and even Domino’s Pizza (DPZ) did when it was clawing its way back to its current dominant position roughly a decade ago.
“It takes time to recover from these types of events,” Saleh said. “Chipotle didn’t really start to recover until a little over a year ago. It was consistent with one food safety issue after the next. Every time they took a step forward, they took two steps back - and then they got past it.”
