Papa Johns’ interim CEO Ravi Thanawala has said additional strategic closures and re-franchising opportunities will be considered in the UK, as he remains confident the market can become profit accretive in the second half of this year.
Speaking on an earnings call for the pizza chain’s Q1 2024 results, Thanawala said the business was “advancing efforts to optimise the UK business model.”
It comes after Papa Johns UK most recently announced plans to close 43 underperforming company owned restaurants later this month.
“We’ll continue to evaluate our amazing portfolio as well as our franchisee location, focusing on sales, overall profitability and their lease and loan obligations. Due to this process, additional strategic closures and re-franchising opportunities will be considered as we look to drive profitability and strengthen our franchisee base.
“We believe with these actions that the UK market will become profit accretive in the second half of this year,” Thanawala said.
In financial results for the first quarter ended March 31, 2024, Papa Johns’ international comparable sales were down 3% from the prior year period. Meanwhile, North America comparable sales were down 2% from a year ago as domestic company-owned restaurants were down 3% and North America franchised restaurants were down 2%.
Somewhat offsetting these declines was a net increase of approximately $10m of revenues attributable to the stores comprising the UK franchisee acquisitions.
Thanawala explained that in the UK, the business had seen “flat, to slightly negative” comparable sales through the first quarter, but that for restaurants that had changed hands to more “seasoned operators”, it is seeing double digit increases in terms of sales performance.
Papa Johns announced its Back to Better 2.0 growth strategy and international transformation initiatives earlier this year, which include a focus on deepened marketing investments, new franchisee incentives to accelerate North America development and optimisations to transform the brand’s international presence.
The CEO added that there was an opportunity to share learnings from these initiatives in the UK, where it has become “highly consumer-centric”, from both value and product innovation standpoints.
“We made sure we were positioning our franchisees to deliver a fantastic service and as we started to change hands between franchisees and continue to get our stores into seasoned operators, we saw meaningful sales lift.
“As we went back and remapped our trade zones, we saw opportunities where we should be making strategic closures because it makes the overall market more profitable, it improves unit economics and allows us to have really cohesive trade zones.
“So we’re partnering back with our franchisees across the world to take a similar playbook.”
Thanawala believes that service levels in the UK are also increasing: “When we look at delivery time, when we look at out-the-door time, we are seeing improvements.”
More widely, the business is investing in international consumer facing technology and digital infrastructure to improve purchase conversion, increase customer retention and deliver faster consumer insights to franchisees.
“There remains significant whitespace for the Papa Johns brand, internationally. And while we saw more foundational investments to make, we’re confident the actions we are taking are setting our largest international markets up for profitable market share gains over the long term.”
Across its international markets, Papa Johns saw 23 new restaurant openings on a gross basis during the quarter. These new restaurant openings were offset by 29 closures primarily in certain Middle East markets and in China, bringing total international restaurant count to 2467.
