The legend of Papa John's Pizza is well known: John Schnatter made pizzas in the back of a tavern until customer demand grew so large he opened his first unit in 1985. For the next 15 years, the chain raced to become the country's third-largest pizza chain, but along the way, it nearly ran out of gas. Schnatter even feared correcting the slide might mean the closure of 1,000 stores.
Schnatter, now Papa John's chairman, recently talked with PizzaMarketplace about leading the company through toughest challenge it has ever faced and helping reverse its fortunes in the process.
PizzaMarketplace: What so negatively impacted Papa John's in the late 1990s that started its slide?
Schnatter: I think all the stars were lined up against us. Frozen pizza was doing well, Outback started doing curbside service and Domino's and Pizza Hut were running really good numbers.
PM: What was happening — or not happening — internally that caused problems?
Schnatter: Our system was asleep. We were on our boats, on our yachts on our golf club memberships, but we weren't paying attention to the fundamentals of the business. That's how we got our tit in the ringer.
PM: How seriously in trouble was Papa John's at that time?
Schnatter: In '01 and '02, I thought we were going to close 1,000 stores. It was that bad. (Our comparable-store sales) were negative 3 in '01 and negative 3 in '03. Domino's was plus 7 and Pizza Hut was plus 3.
PM: How stressful was that time?
Schnatter: Believe it or not, that was probably the most fulfilling, gratifying, humbling and proud experience of my life. To wake up every day to negative 4 comps but know if we stuck to the fundamentals of taking care of the customer, taking care of our people and taking care of the product, sooner or later, we'd do well.
PM: How did you stay positive when things were so tough?
Schnatter: I like it when the chips are down and people don't give up. When they're down as low as they can go, that's when they can pull themselves up by their bootstraps and say, "I'm not letting the ship go down."
PM: What did you focus on to get the ship back on course?
Schnatter: Any time you're having troubles, you've got to find out what's solid — in business, in life, in relationships. The one thing that Papa John's had that was solid was that people thought we had a better pizza. So we focused on that.
PM: What needed fixing?
Schnatter: We score our pizzas on a scale of 1 to 10. Our lowest possible score for a pizza is supposed to be an 8, but we we're averaging 5.1 back then. People were being put on hold for an average of two-and-a-half minutes and 24 percent of our pizzas took longer than an hour to be delivered. And that wasn't all of it.
Heck, in 1996, I just knew we were going to blow this whole thing up (because we) could not figure out how to measure 2 million pizzas a week. It wasn't until we figured it out in '01 that we got a handle on things. Once we had a way to measure our performance, we had the science, we had the facts. We knew what to fix.
PM: How did operators respond to the standards?
Schnatter: When things weren't good, some of them told us, "You caught us on a bad day." Well, when you have the analytics, they can't deny it.
So we started measuring and rewarding along those measurements, and our performance started trending positively. Fewer customers were getting put on hold, fewer busy signals ... we fixed the customer experience.
If we could have measured from 1996 to 2000, we'd be a 4,000-store chain today. We'd have never lost momentum. But we didn't shoot ourselves in the foot back then, we shot our leg off.
PM: In Papa John's investor conference calls during that time, you were openly critical of the system's operators. You also later questioned your own leadership, saying if you couldn't get things headed the way they should, you'd go looking for new talent.
Schnatter: Some of that fear came out as anger. It was a tough time.
PM: But somebody had to lead, right?
Schnatter: I always say that the captain of the ship is not the captain of the ship if he has to be the captain of the ship. A good captain always has two or three other captains around him who can run the ship just as well as he can.
That was a time when I had to be the captain. There was a time when we had to develop other captains. And now we're in a time when we have several captains who can run the ship just as well. Nigel (Travis) is a great example of that. (Travis succeeded Schnatter as chief executive and president of the chain in 2005.)
I like it when the whole world is falling apart. I liked fixing Papa John's when it was broken. There's always a storm, but better managing that anxiety in a way that's more collaborative and more supportive is the right way. But when the ship's sinking, somebody's going to have to grab the wheel. Then, when you get the ship afloat, you can get back to a collaborative alliance.
Editor's note: Though not covered in this story, Schnatter praised his board and his top officers for their guidance and support during Papa John's revival. PizzaMarketplace will visit this issue in future conversations with Schnatter and Papa John's executive team.