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)

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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

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Table of Contents

Papa John’s Case

01 Case synopsis



frameworks/models

04 Case analysis &

solutions

05 Recommendation

1985

Case SynopsisPapa John’s history

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Year John Schnatter opened the first

Papa John’s. Generate US$

500,000,- revenue & open 8 stores

1986

Year

Sold its first franchise

1993

YearInitial Public Offering on June 8,

1993

1998

YearInternal 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

YearContinuous growth unabated

2001

YearIntroduce online order pizza –

The 1st in pizza industry.

2006

YearBegun 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 SynopsisPapa John’s company snapshot

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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 SynopsisU.S Pizza Industry: Papa John’s competes among the famous pizza chains and ranked

3th in 2010

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Case SynopsisPapa John’s business structure (1)

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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 SynopsisPapa John’s business structure (2)

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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 SynopsisPapa John’s combines internal and external resources to compete on quality product

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“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

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Table of Contents

Papa John’s Case

01 Case synopsis



frameworks/models

04 Case analysis &

solutions

05 Recommendation

$900

$925

$969

$1

,00

1

$1

,06

4

2003 2004 2005 2006 2007

Problem(s) IdentificationPapa John’s had enjoyed only incremental growth in the new century (1)

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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


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$3

4

$2

3

$4

6 $

63

$3

3

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

$5

5

$3

7

$7

3

$9

8

$5

2

J A N - 0 3 J A N - 0 4 J A N - 0 5 J A N - 0 6 J A N - 0 7

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%


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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 places100.0 137.8 202.4 209.4 225.5 150.3 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 places100 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


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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

Problem(s) IdentificationPapa John’s Key Performance Issues

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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 matureand 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

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Table of Contents

Papa John’s Case

01 Case synopsis



frameworks/models

04 Case analysis &

solutions

05 Recommendation

Related theoryProduct Differentiation

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Mission

Objectives

Internal Analysis External Analysis

Strategic

Choice

Business Level

StrategyCorporate

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 theoryBases for Product Differentiation

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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

RelationshipFirm 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 theoryThe implementation of V-R-I-O to Product Differentiation

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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 featureMaybe costly to duplicate. Such as product mix, links with other firm, product customization, productcomplexity, consumer marketingCostly 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.

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Table of Contents

Papa John’s Case

01 Case synopsis



frameworks/models

04 Case analysis &

solutions

05 Recommendation

Case AnalysisPapa John’s Business Model Canvas (1)

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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


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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)


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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 External AnalysisPorter 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

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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

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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

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High

In restaurant industry, there

are so many variants of

product that can be

substitutes for pizza.

Rivalry

Potential Entrants

Customers

Substitutes

Suppliers

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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

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Papa John’s External AnalysisDetermine the industry

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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 Internal AnalysisPapa John’s Value Chain

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Value Chain Activity Value for Customer

Pri

mar

y

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

Seco

nd

ary

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

Papa John’s Internal AnalysisVRIO Analysis

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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”

Papa John’s Internal AnalysisDo Papa John’s products own an edge compared to its competitors?

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ProductsIs it

Valuable?Is it

Rare?Costly to Imitate?

Organizing Conclusion

Pizza Yes Yes No YesDespite its rarity, Papa John’s

pizza is not costly to imitate

Sides Yes No No YesPapa 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 StrategyApplies differentiation strategy

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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)

Papa John’s Business Level StrategyApplication of differentiation strategy

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ConclusionsPerceived not to have a sustained competitive advantages due to several factors

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• 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

ConclusionsKey consideration points

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• 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?”

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Table of Contents

Papa John’s Case

01 Case synopsis



frameworks/models

04 Case analysis &

solutions

05 Recommendation

RecommendationsLet’s revisit Schnatter goals

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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

RecommendationsHow the firm plan to bring about?

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International

Expansion

• Partner with local producer

• Franchise

• Accomodate sit-down dining are

Grow & Maintain domestic markets

• Co-branding efforts

Diversification

• Develop or acquire additional restaurant chain

Papa John’s sets-out these

strategy to achieve its goals

(stated previously)

RecommendationsCritics to Company’s Goals

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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

RecommendationsBusiness-level strategy recommendation

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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

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