Case 2-4: Papa John’s International, Inc: Twenty-First Century Growth Challenges Lydia Boyce March 1, 2011 Papa John’s is a $2 billion dollar firm with hundreds of locations in many countries worldwide. The main problem the company is facing is what their next step should be. There are four main avenues from which to choose. First, Papa John’s can expand into other food markets by developing or acquiring another chain. Second, they can expand their menu and include more items. Similarly, they can also expand into co-branding such as their partnership with Nestle for the desserts on their current menu. Lastly, Papa John’s might also continue International Expansion. In this analysis I will point out other challenges Papa John’s is facing, the resources they have to possibly overcome them and my recommendation for their next move. Other threats to the firm include vigorous competition, continuing quality control and prices of resources. Overall, the restaurant industry has seen a recent decline because people are cooking more and overall economic conditions. With increased competition, such as the option to get “to go” orders at restaurants, ready to serve items at the grocery store and improvements in frozen pizza, and decreased consumer spending, the pizza market is not expanding as rapidly as it once was. Papa John’s is known for using “better ingredients” and with expansion and less growth than expected, it is becoming more difficult to make sure each store and franchise is meeting company standards. Additionally, finding these better ingredients does come at a cost. From 2007 to 2008 there was a 20% price increase on food commodities. To combat these changing costs many firms are actively seeking forward pricing, however this can only lock in prices for a few months to a year. These short contracts make long-term costs volatile and relatively unpredictable. The most appropriate action for the firm would be to continue expansion in the form of a new chain of stores. This new chain should have a menu consisting of Tex-Mex and should begin expansion in the more Southern States. Expanding Papa John’s menu, or co-brand, would not be a good fit because this would not necessarily establish a competitive advantage and they run the risk of stretching their menu too far. By focusing on other parts of the menu, Papa John’s might lose sight of their primary business, making high quality pizza. They also must consider the probability of hurting their brand image by diluting their menu. Although international markets may have many opportunities, it would not be the best way to utilize Papa John’s current resources. For example, contracts with local growers in a small town in Texas will not help when opening a store in Hong Kong.
Papa John’s has many valuable resources that could be used to expand into a new chain and would be a good fit. The first is its strong ability for local and national advertising. With the acquisition of their own in-house printing company, Papa John’s is already equipped with the tools to promote a good local advertising campaign. This can also be done by continuing the same practices they are using for their current stores such as being active in community affairs and activities. Quality Control centers can also be utilized in any chain of food stores. Recently there has been a strong demand for more naturally grown products and a push for local farming. Papa John’s has the ability and the resources to fill this need. This same strong quality control will flourish in any industry. The acquisition of BIBP Commodities will also benefit Papa John’s in expanding into new markets. Since cheese and other dairy products are a strong ingredient in the Tex-Mex food industry, maintaining price control on these commodities will benefit the new brand. The overall positive brand image and mission that Papa John’s has demonstrated will help them establish themselves in any industry. Recent studies have indicated that the Hispanic population is set to become the largest minority in the United States. As many industries are looking to serve their consuming needs, this is also a prime opportunity for Papa John’s. In addition, the popular Mexican fast food brand “Taco Bell” currently faces many allegations against their quality of meat. Therefore, a high-quality fast food Tex-Mex restaurant will fill the needs of both the Hispanic population and general consumer looking for a quick burrito. As stated before, consumers are demanding fresher ingredients. Papa John’s is positioned to be able to provide these ingredients as it is currently doing that in their pizzas. To not lose sight of Papa John’s brand image, the new brand would need a new name and not be completely associated with Papa John’s because of the danger of confusing the consumer. What the new brand should take from Papa John’s is its marketing and ability to maintain a positive brand image. Implications of this action have tremendous probability of being very successful. With a new chain, Papa John’s will be able to serve a broader target audience and utilize their current resources. Expansion will increase Papa John’s market share in the overall restaurant industry and will make them more competitive. This change to emphasizing high quality ingredients in fast food could also spark other chains to attempt to move towards healthier menus. However, Papa John’s has its established contracts with local growers and quality control centers that will provide them lasting competitive advantage. Furthermore, Papa John’s history and reputation of high quality cannot be copied easily.