Nov. 19, 2008
LOUISVILLE, Ky. -- Papa John's International Inc. has unveiled a package of proposed domestic franchise system support initiatives in response to the current economic and consumer climate.
The proposed initiatives include:
- Providing continued cheese cost relief to the franchise system in 2009 by modifying the cheese pricing formula used by BIBP Commodities, Inc., the company's cheese purchasing entity
- Providing additional system-wide national marketing support for Q4 2008 and 2009
- Providing expanded targeted royalty relief and local marketing support for struggling franchisees or markets
- Convening a lender's summit, principally of regional banks and other lenders, to educate them on the Papa John's model with the goal of expanding credit availability to franchisees
- Providing company loans on a selected basis to assist financially and operationally strong franchisees with the acquisition of troubled franchise groups
- For the first six months of 2009, suspending collection of the 0.25 percent royalty rate increase scheduled for January 2009
With respect to the BIBP cheese cost relief, the modified formula will establish the price of cheese on a quarterly basis as the greater of $1.75 per pound or the expected average price per pound based on the futures market projections for the quarter, Papa John's officials said.
The proposed initiatives are conditioned upon certain actions being taken by franchisees, including their committing to certain cheese purchasing requirements and increasing the national marketing fund contribution rate by a nominal amount, officials said.
"Our solid financial position and conservative balance sheet allow us to offer this comprehensive support package to help our franchisees navigate through these challenging times," said president and CEO Nigel Travis. "We continue to believe that the real winners in our category will be those brands who have the fewest net unit closings during this time of significant consumer pullback. We believe this package will result in Papa John's gaining market share."
The company estimates the impact of the support initiatives on the company's operating income to be $3 million for the fourth quarter of 2008 and $8 million to $10 million for 2009. The ultimate impact for 2009 will depend upon the number of franchisees who choose to accept the proposed support program and company discretion with respect to support for struggling franchisees or markets.