Case analysis papa john's pizza group 1_final draft

Binus Business School,
MM Executive Batch 20
Presented by Group I
Alexander Christian (1342980602)
Dina Sandri Fani (1342981574)
Muhammad Irsan (1340001263)
Puntin Kulmongkon (1342980514)

8/5/2015PapaJohn'sCaseAnalysis
2
Table of Contents
Papa John’s Case
01 Case synopsis
02 Problem(s) identification
03 Related theories/
frameworks/models
04 Case analysis &
solutions
05 Recommendation

3
Table of Contents
Papa John’s Case
01 Case synopsis
frameworks/models
04 Case analysis &
solutions
05 Recommendation

1985
Case Synopsis
Papa John’s history
4
Year John Schnatter opened the first
Papa John’s. Generate US$
500,000,- revenue & open 8 stores
1986
Year
Sold its first franchise
1993
Year
Initial Public Offering on June 8,
1993
1998
Year
Internal expansion began with
opening units in Mexico & Puerto
Rico. Acquired “Perfect Pizza” in
UK 1 year later
1992
Year
Revenue closed to US$ 50 million
1998-2001
Year
Continuous growth unabated
2001
Year
Introduce online order pizza –
The 1st in pizza industry.
2006
Year
Begun introducing dessert
pizza – Papa Sweetreats.
Followed by Choco Pastry
Delight 2 years later
2001-2007
Year Online sales grow
exponentially by 50% a year.
Reached US$ 400 million in
2007

Case Synopsis
Papa John’s company snapshot
5
Company Snapshot
Stores (2010 data)  612 company-owned
 2,280 domestic franchise
 754 int’l franchise
% franchised 83%
Public/private Public
Headquarter Louisville
CEO Nigel Travis with John
Schatter remaining
chairman
Employees 16,336
International Yes
Internet Ordering Yes
2007 sales US$ 504 million

Case Synopsis
U.S Pizza Industry: Papa John’s competes among the famous pizza chains and ranked
3th in 2010
6

Case Synopsis
Papa John’s business structure (1)
7
Element Facts Year
Technology The first pizza company with online ordering & text messages ordering 2001 &
2007
Menu • Pan Pizza
• Added desserts to their carryout & delivery menu and chocolate pastry
delight
2006 &
2008
Company
growth
• High-quality pizza with side items. Proprietary blend of pizza (Menu)
• Lower operating cost & efficient QC center (Efficient Operating System)
• Training programs for corporate members & franchisee, performance-
based financial incentives (Commitment to Team Member Training and
Development)
• National advertising campaign, restaurant level-marketing, direct-mail,
store-to-door couponing, community oriented activities, cross marketing
activities with third party companies, sponsorship (Marketing)
• Attract franchisee with experience in retail business and financial
resources to open multiple location. Assistance in restaurant operations
2007
Cost
Management
• Net property & equipment value $2 million & property lease $22.4 million.
Leasing building space provide the flexibility to move locations quickly
• Leased the trailers used to distribute ingredients
• Cheese contribbute appx 35-40% of food costs
• Partnered with a third-party entity formed by franchisee, BIBO
Commodities, Inc. To reduce cheese price volatility
2007

Case Synopsis
Papa John’s business structure (2)
8
Element Facts Year
Operational
Support
System
• Created Operation Support Service and Training (OSST) for training
& development of team members
• Printing company for high-quality service
2007 &
mid-90s
Community
Affairs
• Sport team sponsorships
• College scholarships ($5 million)
• National FFA, Cerebbral Palsy K.I.D.S Center, Children Miracle
Network
Marketing
Partnerships
• Coca-Cola (sole supplier in Papa John’s store)
• Endorsement
• Blockbuster Video (30-day trial of free Blockbuster Video online)
Up to 2011,
Industry • Pizza industry is a mature and saturated industry
• Highly competitive, cost of entry was relatively low and produc
differentiation was difficult

Case Synopsis
Papa John’s combines internal and external resources to compete on quality product
9
“By using a combination of
internal and external
resources, Papa John’s
was determined to not
compete with its
competition on price.
Focusing on quality
product, active
participation in the local
communities, and product
branding enabled Papa
John’s to hold its own with
the other pizza chains” –
excerpt from the case study
+
 Product quality
 Active participation in the
local communities
 Strong product branding

10
Table of Contents
Papa John’s Case
01 Case synopsis
frameworks/models
04 Case analysis &
solutions
05 Recommendation

$900
$925
$969
$1,001
$1,064
2003 2004 2005 2006 2007
Problem(s) Identification
Papa John’s had enjoyed only incremental growth in the new century (1)
11
98.4% 98.3% 98.1% 97.7% 97.1%
1.6% 1.7% 1.9% 2.3% 2.9%
2003 2004 2005 2006 2007
Total Domestic Revenues Total International Revenues
Total Revenues
(in million USD)
CAGR: 4.3%
Revenues Distribution
 Domestic growth decreased dramatically to 1% contraction in 2003
 Picked up again in 2004 and reached a steady process for domestic growth
 International Revenue contributed the most of the average growth (21.3%) than
Domestic Revenue (3.9%) due to large and promising scale of international
opportunities

12
$34
$23
$46
$63
$33
3.7%
2.5%
4.8%
6.3%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
$-
$10
$20
$30
$40
$50
$60
$70
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Net Income Net income ratio
Net Income & Net Income Ratio
In mio USD
$55
$37
$73
$98
$52
J A N-03 J A N-04 J A N-05 J A N-06 J A N-07
Operating Income
(in million USD)
CAGR: -1.2%
CAGR: -0.5%
• Operating Income and Net income had been declining for the last 4 years
on average by -1.5% and -4.0%

13
Stock performance:
• The performance of overall F&B
business has been very poor
compared to the overall growth in
stock indices
• Despite a better performance
compared to its peer in the industry
(CAGR 10%)but Papa John’s stock
also under-performing compared to
the overall stock indices
• Meaning, Papa John’s investor
would create more wealth investing
in other company than pouring their
money in Papa John’s
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
CAGR
CRSP Total Returns Index Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 5-year 4-year
Papa John's International, Inc. 100.0 116.7 120.7 213.1 206.3 161.0 10.0% 8.4%
Nasdaq Stock Market (US Companies) 100.0 146.0 160.0 167.8 180.8 197.6 14.6% 7.9%
Nasdaq Stocks (SIC 5800-5899 US
Companies) - Eating and drinking places
100.0 137.8 202.4 209.4 225.5 150.3 8.5% 2.2%
Papa John’s

CAGR
CSRP Total Returns Index Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 5-year 4-year
Papa John's International, Inc. 100 96.76 75.55 58.74 81.52 92.26 -1.6% -0.9%
Nasdaq Stock Market (US Companies) 100 107.67 117.74 68.53 82.7 97.88 -0.4% -1.9%
Nasdaq Stocks (SIC 5800-5899 US
Companies) - Eating and drinking places
100 118.19 123.76 103.71 122.55 161.71 10.1% 6.5%
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
14
Stock performance:
 Papa John’s stock even performed
terribly after 2007
 Loosing its value from 2005 by 8%
while the restaurant industry has
grown 60% against 2005
Papa John’s

Papa John’s Key Performance Issues
15
Business Growth Operations Pizza Industry
01 Enjoyed only
incremental growth in
the new century (2000-
present)
02 International operation
suffered loss for
several years (AR 2010)
03 2010 stock performance
(vs. 2005 & 2007)
showed that the
company might destroy
shareholders wealth
01 Experience declining
operating income
02 Operating expense has
grown faster than the
revenue despite the
growth in revenue
03 Schnatter wanted to
see Papa John’s return
to the days when it
opened 200 to 300
stores a year
01 Restaurant analysts
believed that pizza
industry is a mature
and saturated industry
02 Labor cost & food
commodities cost were
rising in restaurant
industry
Food commodities rises
exceed 20% from June
2007 to June 2008.
Utility cost & delivery
fuel cost experienced
dramatic increased in
2007 & 2008

16
Table of Contents
Papa John’s Case
01 Case synopsis
frameworks/models
04 Case analysis &
solutions
05 Recommendation

Related theory
Product Differentiation
17
Mission
Objectives
Internal Analysis External Analysis
Strategic
Choice
Business Level
Strategy
Corporate
Level Strategy
Cost leadership
Product
differentiation
01 It is a business level strategy
“What is Product Differentiation?”
02 To create & exploit differences
between their products & those
offered by competitors
03 May lead to competitive advantage if:
• customers perceive the difference
• have a preference for the difference
04 Such differences will lead to
competitive advantage only if the
differences meet the VRIO criteria

Related theory
Bases for Product Differentiation
18
The notion of a base of differentiation is important
because it allows a firm to focus its efforts on
creating and exploiting a particular difference
between its products and competitors’ products.
Managers need to understand their own bases of
differentiation and the bases of differentiation of
competitors so that they can make informed
strategic choices
Bases for
Product
Differentiation
Product
Attributes
Firm-
Customer
Relationship
Firm Linkages
Product or Services
Attributes
Firm-Customer
Relationship
Firm Linkages
Preferences are created by actual
differences in the tangible product or
service offered by the focal firm vis-à-
vis competitors’ offerings
• product
features
• product
complexity
• timing of product
introduction
• location
Local firm develops & exploits
relationships with customers based
on what the focal firm’s target
customers want
• Product customization
• Consumer marketing
• Product reputation
Local firm combines the
competencies of different functions
within or across organizations to
produce tangible and/or intangible
differences between the focal firm’s
offerings and those of competitors
• linkages among
functions within the
focal firm
• linkages with other
firms
• product mix
• distribution
channels
• service and
support

Related theory
The implementation of V-R-I-Oto Product Differentiation
19
Valuable
Threat of Entry
Threat of Rivalry
Threat of Substitutes
Threat of Suppliers
Threat of Buyers
Rare
If the company has
established a
differentiated product,
which implies that the
product is rare
Imitability
Easy to duplicate. Such as
product feature
Maybe costly to
duplicate. Such as
product mix, links with
other firm, product
customization, product
complexity, consumer
marketing
Costly to duplicate. Such
as links between
functions, timing,
location, reputation,
distribution channels,
service and support
Organizing
Organizational
structure, management
control systems, and
compensation policies
can all be managed to
encourage customers to
have a preference for
the focal firm’s products
and/or services
Product differentiation
can neutralize the
threats of the forces
mentioned in the Five
Forces Model
If a product differentiation
strategy is costly to imitate, the
firm can reasonably expect to
enjoy a competitive advantage.

20
Table of Contents
Papa John’s Case
01 Case synopsis
frameworks/models
04 Case analysis &
solutions
05 Recommendation

CaseAnalysis
Papa John’s Business Model Canvas (1)
21
Customer Segments
Pizza lovers who prioritize
on quality & superior
pizza.
Take away pizza customer
who love high quality
pizza
Customer
Relationships
Community based
promotion
Direct mailing
Store to door coupons
Online promotion
Value Proposition
Better ingredients better
pizza
Giving back to community
Consistent product
Legendary customer
service

CaseAnalysis
22
Key Resources
Education & Training
Proprietary dough
Advance machinery
Skilled employee
Key Activities
Selling pizza & beverages
Quality control centers to
control superior quality
Continuous improvement
by maximizing the use of
cutting edge technology
Support & training
franchisee
Key Partners
Franchisee
Ingredient suppliers
Transportation vendors
College (scholarship)

CaseAnalysis
23
Channels
Papa John Outlet
(Domestic &
International)
Commissary
Delivery services
Online order
Marketing Partnership
Cost structure
Headcount cost
Ingredients – cheese
become main cost
Advertisement
Technology (latest
machinery)
Revenue Streams
Selling pizza
Selling beverages
Franchising
Quality control centers
(Commissary)

Papa John’s ExternalAnalysis
Porter Five Forces: determine the threats (1)
Rivalry
Potential
Entrants
Customers
Substitutes
Suppliers
High
There is large number of
competing firms that are roughly
the same size
The restaurant, pizza industry
has already mature and
saturated, leads to slow industry
growth
Pizza Hut
Domino’s Pizza
Little Caesar’s
6/19/2015CaseAnalysis-Walmart,Inc
24

Low
Though the restaurant industry
requires relatively low capital
requirements, there were relatively
high fixed costs.
Barriers to entry:
1. Though product differentiation is
difficult, Papa John possess brand
identification; its ongoing passion
to offer the perfect pizza.
2. There is cost advantages
possessed by Papa John;
favorable access to raw materials.
Papa John partnered with BIBP
Commodities, Inc. to reduce
cheese price volatility.
Rivalry
Potential
Entrants
Customers
Substitutes
Suppliers
25

High
Customers can easily choose
the pizza they want to buy as
there are a large number of
competing firms that are
roughly the same size.
Lot of substitutes
Thus, switching cost is low
Rivalry
Potential
Entrants
Customers
Substitutes
Suppliers
26

High
In restaurant industry, there
are so many variants of
product that can be
substitutes for pizza.
Rivalry
Potential
Entrants
Customers
Substitutes
Suppliers
27

Medium
To reduce the cheese price
volatility, Papa John’s partnered
with a third-party entity formed
by franchisees thus it allowed
Papa John’s to purchase cheese
from BIBP at a fixed quarterly
price
Profits and losses from BIBP were
then passed on to Papa John’s
Forward pricing to stabilize food
cost
Rivalry
Potential
Entrants
Customers
Substitutes
Suppliers
28

Determine the industry
29
Type of
industry
• Mature
Characteristic
• Earnings and sales grow slower in mature industries than in
growth and emerging industries
• earnings may be stable, growth prospects are few and far
between
What can the
company do?
• The company can differentiate established products by
“refining” the product - new and improved
• Or differentiate by offering new levels of service to
accompany the product

Papa John’s InternalAnalysis
Papa John’s Value Chain
30
Value Chain Activity Value for Customer
Primary
Inbound logistic • Online sales account for USD 400 million (2007). Papa John’s revenue in
2007 was USD 1.063 billion
Operations Store located in prime areas supported by commissaries as its suppliers
Outbound logistic Use delivery van
Marketing & sales • National advertising campaign through television, print media, internet,
store-to-door coupon, direct mail and in-store marketing
• Local communities sponsorship
• CSR program in the form of scholarship
• Pan Pizza proprietary & dessert
Service • Customer service available online and via telephone
Secondary
Procurement • BIBP Commodities procure the cheese for Papa Johns’s
• 10 regional Commissaries supplies Papa John’s store nation wide
Technology development • Papa John’s use IT and text messages for customer order
• Also use IT & mobile technologies for promotional services
Human resources
management
Papa John’s operates Operation Support Service and Training (OSST) for its
human capital development
General adminsitration

VRIOAnalysis
31
Value
High quality pizza with fresh
ingredients (proven with Pizza
Hut lawsuit)
Rarity
The high quality resources are
not rare and can be found
easily since flour, dough,
cheese, and other spices and
ingredients are common even
in the supermarket.
Commissary system is
common among restaurant
industry because it is part of
food service system.
Imitability
Lots of Papa John
competitor tried to copy
however they ended up
doing price war instead of
quality war with Papa
John.
Organization
Organizational structure
available to support owned
& franchised stores both
domestic & international
“Temporary Competitive Advantage”

Do Papa John’s products own an edge compared to its competitors?
32
Products
Is it
Valuable?
Is it
Rare?
Costly to
Imitate?
Organizing Conclusion
Pizza Yes Yes No Yes
Despite its rarity, Papa John’s
pizza is not costly to imitate
Sides Yes No No Yes
Papa John’s side dishes can be
found anywhere else
Drinks Yes No No Yes No differentiation at all
Desserts Yes Yes No Yes
The dessert is quite rare but not
costly to imitate and the variation
is not enough
Extras No Yes No Yes
Rare but not too valuable as
they’re considered to be “extras”
& cannot produce too much value
Despite its Pizza uniqueness,
Papa John’s products are not
unique enough to be
considered sustainable

Papa John’s Business Level Strategy
Applies differentiationstrategy
33
What is it?
Action used by the firm to gain a competitive advantage by exploiting core
competencies in specific product markets
• Papa John’s applies
differentiation strategy as its
business-level-strategy
• They reject the idea of
competing in price
• Their focus is on customer
experience with Pizza made
out of better ingredients &
prepared better thus the
marketing slogan came about
(Better Inggredients, Better
Pizza)

Application of differentiationstrategy
34

35

36

Conclusions
Perceived not to have a sustained competitive advantages due to several factors
37
• Papa John’s Key valuable activities are not considered to be distinctive
or special thus the company does not have a sustainable competitive
advantage
• Despite the uniqueness of the products itself (better ingredients,
better pizza), the startegy seems to be not to costly to duplicate
• The firm implement its strategy by doing 2 major activities:
• Focus on product quality (Better Ingredients, Better Pizza)
• Marketing Campaign through advertising, publicity, etc
• Expanding through franchise and expanding internationally
• Its international strategy seems not to work out very well. The number
showed that the international business experienced loss for several
consecutive years
Conclusion on the Analysis

Conclusions
Key consideration points
38
• Papa John’s weaknesses in the industry are: the
business does not have a difficult barrier to enter.
Anyone can open a pizza joint and being a food
industry meaning that customers have a lot of
choice of substitutes in the market
• The industry itself is mature meaning that in order
to have an edge, the company must differentiate
its level of services and refine its existing products
• In order to have a product which is costly to
imitate than Papa John’s must improve its link
between functions, build brand reputation,
conduct innovation in its distribution channels and
service support
Key points for Papa John’s
consideration
“What should
Papa John’s be
considered to
obtain
sustained
growth?”

39
Table of Contents
Papa John’s Case
01 Case synopsis
frameworks/models
04 Case analysis &
solutions
05 Recommendation

Recommendations
Let’s revisit Schnatter goals
40
Opening 200-300
stores per year
4,000 stores in 5
year from 2007
6,000-7,000
worldwide
Reduce company-
run stores
Ensure steady
stream of revenue
despite difficult
environment

Recommendations
How the firm plan to bring about?
41
Internation
al
Expansion
• Partner with local
producer
• Franchise
• Accomodate sit-
down dining are
Grow &
Maintain
domestic
markets
• Co-branding
efforts
Diversific
ation
• Develop or
acquire additional
restaurant chain
Papa John’s sets-out these
strategy to achieve its goals
(stated previously)

Recommendations
Critics to Company’s Goals
42
Goals Critics Advise
International
Expansion
Despite its experience in international
market, the opportunity looks very
promising but the company will have to
sacrifice its identity as a carry-out &
delivery pizza restaurant
The company should maintain its core values
of producing quality pizza at a premium price
and its business model which is a carry-out &
delivery
Despite the lure of international opportunity,
the company should refrain from going into
asian market since the characteristic are very
much different. Other option would be to focus
on North America (Canada & Mexico) which
share resemblance
Maintain
domestic
market
Reducing company-run store would turn
disastrous because the company will
lose its sense of the business.
The company should maintain a healthy ratio
between company-run & franchisee store
because it needs to make sure that the
franchisee business remain profitable
Co-branding with renown brand
New business
(acquisition or
development)
Acquisition, based on various studies
often failed because the differences in
the culture and over-pricing the value of
acquiree
If the business is totally different from
Pizza business then the company needs
to acquire new knowledge in the new
industry
Acquisition can be done for expansion to
international market. By acquiring brand that
already established in the international market.
It can be a pizza restaurant or any restaurant
business

Recommendations
Business-level strategy recommendation
43
Strategy Implementation Example
New & improved products • Pizza with high quality
inggredients, imported
inggredients
• Health concious
• Diversifying from pizza
• Original Pizza, the one that
originates from Italy
• Create 2nd store chain selling
healthy/low calories pizza
• Diversifies through acquisition.
Chooses F&B business using
almost the same ingridients
New level of service and
support
Catering services For private parties or birthday party
Links between functions Store expansion through
tripartite (Bank, the company &
franchisee)
Using the company’s guarantee, help
franchisee expand their business
through stores opening
Location Expand to Canada & Mexico.
Market that resembles US.
Open new franchise; integrates with
local culture
Distribution channels Modern outlet (supermarket) Sell “create your own pizza” and
“ready to make pizza” in
supermarkets
Reputation Health conciuous, not only
better Pizza
Marketing campaign that focus on
healthier Pizza, not only better

44

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