Papa John's CEO: You can't make superior quality pizza for $5

Papa John's generated a systemwide comp store sales increase of 3.4 percent for North America and 6.8 percent for its international system during Q2. During this morning's earnings call, CEO/founder and chairman John Schnatter said much of the brand's results were driven by its quality messaging, a big differentiator from its largest competitors.

During the quarter, some national chains embraced the value-driven environment by dropping their large pizza prices down to $5 or $6.

"In my 36 years of doing this, I've never seen the bigger players at that low a price point," Schnatter said. "At the end of the day, the consumer recognizes that you pay what you get for. A $5 or $6 pizza is not really a pizza that reflects quality. You just can't make a superior quality pizza with superior quality ingredients for $5 or $6. It's impossible."

Schnatter added that in such a competitive environment, having a model that focuses on "exceptional quality is exactly where we need to be."

With the crowded pizza space in mind, Papa John's executives echoed Domino's sentiments last month on the large chains' market share gains from the regional and independent pizza brands.

"The big chains are growing because of share of voice, media weight and technology," said Tony Thompson, president and COO, adding that Papa John's is "bullish" on the use of digital channels as key part of its strategy.

International momentum

Papa John's hit its 1,000th international milestone during Q2 and continues to build on its global momentum from the past few quarters.

Executives said the main focus areas throughout the rest of this year and into next year include China, the Latin American region and parts of Europe, including Russia.

And while other brands take a different overseas approach with marketing, operations and menu, Papa John's is doing exactly the opposite.

"Six years ago we weren't making pizza (internationally) the way we were making it in the states. We let international franchisees have a little more leeway. And what we discovered through the school of hard knocks is that the brand the way we run it in the U.S. works throughout the world," Schnatter said. "The last three or four years, we've reined in franchisees on getting too far out of guardrails on what is the Papa John's way."

Dividend, Thompson promotion

Also, last week the Papa John's board of directors approved, for the first time in brand history, a quarterly cash dividend. Investors will see that 25-cent dividend on Sept. 20.

"This speaks to not only the consistent, strong operating performance from the past couple of years, but also the solid financial footing (of the company)," Schnatter said.

Finally, this earnings call marked Tony Thompson's debut as president and chief operating officer, a promotion from his previously role with the company as EVP, COO and president of PJ Food Service. Thompson will continue to report to Schnatter.

Thompson is responsible for leading the company's global operations and will continue to lead the operations of PJ Food Service Inc., Papa John's food manufacturing and distribution subsidiary; Research & Development/Quality Assurance, Development, Marketing and Information Systems functions.

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