Papa John’s International, Inc.

: Its
Strategy in the Pizza Restaurant
Industry

A. J. Strickland Christopher Harrington,

The University of Alabama MBA 2013
Joyce Meyer The University of Alabama
The University of Alabama

P
apa John’s International, Inc., had become the The company was performing at a high level in
world’s third-largest pizza chain by focus- 2014, with average sales per restaurant slightly exceed-
ing on a high-quality product made from the ing $1 million, operating income averaging $186,000
best ingredients, responsive customer service and per unit, and cash flow averaging $127,000 per loca-
convenient ordering systems, extensive marketing tion. Corporate revenues had increased from $1,218
campaigns, employee training and development, million in 2011 to $1,439 million in 2013. Papa John’s
and franchising. In 2013, the company operated net income had increased from $4.7 million to $69.5
723 company-owned and 3,705 franchised estab- million over the same time period. However, the com-
lishments throughout all 50 states and in 34 coun- pany faced considerable challenges from its rival pizza
tries. Papa John’s had opened 265 new restaurants chains and from external trends in the marketplace,
in 2013, of which 82 were in North America and including greater health awareness among consum-
183 were in international markets. The addition ers, the growing use of technology in the industry,
of 183 new international units pushed the total and unstable economic conditions in many countries’
number of Papa John’s restaurants in interna- markets where Papa John’s did business. As 2015
tional locations to 1,159. The company planned approached, Papa John’s top management needed to
to open more than 1,000 new units over the next develop new strategies to strengthen the company’s
five years, with about 95 percent of these units competitive position in the industry and continue its
being franchised and 70 percent being located in impressive rate of growth. A summary of Papa John’s
international markets. Papa John’s management International’s financial performance for 2009 through
believed that the company could support as many 2013 is presented in Exhibit 1.
as 4,000 units in North America and thousands
more internationally. Copyright © 2014 by A. J. Strickland. All rights reserved.
 Papa John’s International, Inc.: Its Strategy in the Pizza Restaurant Industry

EXHIBIT 1 Financial Summary for Papa John’s International, Inc., 2009–2013

(in thousands, except per share data)
Dec. 25,
Dec. 29, 2013 Dec. 30, 2012 2011 (52 Dec. 26, 2010 Dec. 27, 2009
(52 weeks) (53 weeks) weeks) (52 weeks) (52 weeks)

Income statement data

North America revenues:
Domestic company-owned
restaurant sales $ 635,317 $ 592,203 $ 525,841 $ 503,272 $ 503,818
Franchise royalties 81,692 79,567 73,694 69,631 62,083
Franchise and development fees 1,181 806 722 610 912
Domestic commissary sales 578,870 545,924 508,155 454,506 417,689
Other sales 53,322 51,223 50,912 51,951 54,045
International revenues:
Royalties and franchise and
development fees 21,979 19,881 16,327 13,265 11,780
Restaurant and commissary sales 66,661 53,049 42,231 33,162 28,223

Total revenues 1,439,022 1,342,653 1,217,882 1,126,397 1,078,550

Operating income 106,503 99,807 87,017 86,744 95,218
Investment income 589 750 755 875 629
Interest expense (983) (2,162) (2,981) (4,309) (11,660)

Income before income taxes 106,109 98,395 84,791 83,310 84,187

Income tax expense 33,130 32,393 26,324 27,247 26,702

Net income before attribution to

noncontrolling interests 72,979 66,002 58,467 56,063 57,485
Income attributable to
noncontrolling interests (3,442) (4,342) (3,732) (3,485) (3,756)

Net income attributable to the

company $ 69,537 $ 61,660 $ 54,735 $ 52,578 $ 53,729
Net income attributable to common
shareholders $ 68,497 $ 61,660 $ 54,735 $ 52,578 $ 53,729
Basic earnings per common share $1.58 $1.31 $1.09 $1.00 $0.97
Earnings per common share—
assuming dilution $1.55 $1.29 $1.08 $0.99 $0.96
Basic weighted-average common
shares outstanding 43,387 46,916 50,086 52,656 55,476
Diluted weighted-average common
shares outstanding 44,243 47,810 50,620 52,936 55,818
Dividends declared per common
share $0.25 — — — —
Balance sheet data
Total assets $ 464,291 $ 438,408 $ 390,382 $ 417,492 $ 396,009
Total debt 157,900 88,258 51,489 99,017 99,050
Mandatorily redeemable
noncontrolling interests 10,786 11,837 11,065 9,972 10,960
Redeemable noncontrolling
interests 7,024 6,380 3,965 3,512 3,215
Total stockholders’ equity 138,184 181,514 205,647 195,608 173,145

Source: Papa John’s International, Inc., 10-K report, 2013.

THE HISTORY OF PAPA The company rolled out its online ordering pro-
gram nationwide in 2001, added text orders in 2007,
JOHN’S PIZZA launched apps for iPhone and Android in 2010 and
John Schnatter’s interest in the pizza business began 2011, respectively, and launched an online ordering
in high school when he worked part-time as a dish- app for Kindle Fire in 2012. By 2014, more than 50
washer in a Jeffersonville, Indiana, pizza and sand- percent of Papa John’s orders were made digitally.
wich shop. He enjoyed working in the restaurant and As of 2013, with a market share of approximately
dreamed of one day owning his own pizza restau- 6 percent, Papa John’s was the world’s third-largest
rant. While attending Ball State University, Schnat- pizza chain, trailing only Pizza Hut and Domino’s,
ter continued to be involved in the pizza industry by whose market shares were 11.5 and 10 percent, respec-
working as a delivery driver for another pizzeria. tively. Headquartered in Louisville, Kentucky, Papa
Working there solidified his dream of opening his John’s operated 723 company-owned and 3,705 fran-
own pizza place one day. chised establishments in all 50 states and 34 coun-
After graduating with a bachelor’s degree in tries. Schnatter owned roughly 20 percent of the
business, Schnatter returned home to Jeffersonville company’s shares and served as chairman, having
to work in his father’s tavern—Mick’s Lounge. The stepped down as CEO in 2005. He remained actively
tavern was struggling, and Schnatter ended up sell- involved in the company’s marketing campaigns
ing his most prized possession, his 1972 Camaro and often appeared in the company’s commercials,
Z28, in order to pump more money into the busi- always touting the slogan “Better Ingredients. Bet-
ness. It was then that he saw an opportunity to sal- ter Pizza. Papa John’s.” Also, in 2009, Schnatter was
vage his father’s business for good while pursuing able to track down the Z28 that he had sold to fund
his lifelong dream. the company’s startup, and he purchased it back for
In 1984, at the age of 22, Schnatter invested $250,000.
$1,600 in a used pizza oven and began selling piz-
zas out of the back of Mick’s Lounge. Combining OVERVIEW OF THE PIZZA
his years of experience in the pizza industry with the
strong work ethic instilled in him by his father and
RESTAURANT INDUSTRY
grandfather, Schnatter’s start in the pizza business Pizza was the number-one meal of choice for
was almost immediately successful. Later in the year, Americans, with 93 percent of them eating pizza
he was able to realize his dream when he opened the at least once a month. Pizza was consumed so fre-
first Papa John’s restaurant. Schnatter slowly began quently that in the United States alone people ate,
to expand but kept the business plan simple. His on average, 100 acres of pizza every day at a pace
early success was founded on the ideas of superior of 350 slices per second. In 2012, the pizza indus-
customer service, a quality product, and a limited try recorded worldwide sales of $42.8 billion, with a
menu. Schnatter began franchising the Papa John’s total of 74,400 pizzerias, and was projected to grow
concept in 1986, and in 1993 he launched a success- to $49.5 billion in worldwide industry sales by 2017.
ful initial public offering that raised $12 million. By The number of pizza establishments worldwide was
1996, the 1,000th Papa John’s location was opened. expected to increase to 86,493 by 2017.
The company expanded internationally, with res- The industry comprised two segments: pizza
taurants in Mexico and Puerto Rico in 1998, and by chains and independent pizzerias. Independently
1999 it had expanded to 2,000 locations. owned restaurants accounted for 57 percent of
In addition to maintaining a focus on superior locations and 48 percent of industry sales. The four
product quality, the company applied marketing largest pizza chains were Pizza Hut, Domino’s, Papa
innovations that contributed greatly to its success. John’s, and Little Caesars, which together accounted
Papa John’s had consistently achieved the highest for 32 percent of industry sales and 28 percent of
customer satisfaction ratings among pizza chains, locations.
and its frequent advertising during NFL games made There were four channels of distribution for the
it the most identified NFL sponsor in 2013. Also, the industry, with some pizzerias falling into multiple
company had been a pioneer in online food order- categories. The first was the traditional sit-down
ing, with its first online order accepted in 1997. option. A big portion of the sit-down establishments
 Papa John’s International, Inc.: Its Strategy in the Pizza Restaurant Industry

consisted of independent pizzerias along with many disposable income of patrons and to the economy as
Pizza Hut locations. Delivery was another form that a whole. When the economy was down and people
was associated with all of the major chains. Cus- faced financial uncertainty, consumers were more
tomers typically had the option of calling in their likely to use takeout and delivery options for pizza.
order or placing it online. Although this was the As the economy turned around and people began
most convenient option for consumers, it involved to make more money, consumers had an increasing
a trade-off because most pizzerias charged a deliv- tendency to dine out for pizza. However, regardless
ery fee. Carryout allowed consumers to place their of the economy, those strapped for cash took advan-
order via phone or online and pick it up in person at tage of the cheaper takeout and delivery services
the pizzeria. This correlated with the delivery option with coupons and discounts, while those with high
but had the opposite trade-off: It was more incon- incomes typically satisfied their pizza cravings by
venient for customers but was cheaper since they dining out at a gourmet pizza restaurant.
did not have to pay a delivery charge. Little Caesars
was the most well-known pizzeria that allowed only Health Concerns Affecting
carryout. The final option was a somewhat newer
concept known as take n’ bake, in which pizzerias Pizza Restaurants
provided premade, uncooked pizzas for consumers In recent years, a trend within the entire restaurant
to bring home and bake at their own convenience. industry was that consumers were seeking out health-
Many pizzerias fell into multiple categories, and of ier menu choices. In a 2010 survey conducted by the
these four means of obtaining a pizza the most pop- National Restaurant Association (NRA), 7 out of 10
ular option was carryout. Establishments combining consumers stated that compared to two years earlier,
both carryout and delivery accounted for 66.2 per- they were now trying to eat healthier when eating out.
cent of pizzerias. In the same survey, two-thirds of restaurant operators
Pizza restaurants also competed against the responded that their guests paid more attention to the
frozen-pizza selections found in outlets such as nutritional content in their food and ordered healthier
Kroger and Walmart stores. According to market items compared to a few years earlier.
research firm Mintel, more than 1,100 new frozen- The pizza industry took notice of this growing
pizza products were introduced between 2005 and trend toward healthier eating and responded in vari-
2009. Also, more food retailers were offering partially ous ways. All of the major pizza chains posted their
baked (par-baked) pizzas in the refrigerated section nutritional content on their websites. Some made it
and touting them as having high-quality, restaurant- easier for the consumer and included a calorie coun-
style flavor and ingredients. These products were par- ter so that consumers could see how their custom-
ticularly popular among price-conscious consumers izable pizzas and orders stacked up in nutritional
who wanted quality pizza but at a lower price. content. Some pizzerias that offered sit-down dining,
The biggest consumer demographic for the pizza such as Pizza Hut and Cici’s Pizza, started to offer
industry was the 25-to-44 age group, which made up salad bars for consumers. In addition, some pizze-
46.3 percent of all consumers. Many consumers in rias began to add gluten-free and low-carbohydrate
this segment had young children, and pizza, whether items to their menus and cut down on trans fat in
delivered or picked up, provided busy parents with a their menu items.
meal option for the whole family that took very little Pizza is not an awful food choice as long as one
time. At 22.8 percent, the second-largest group was doesn’t overindulge. The problem lies in the choice
patrons between the ages of 45 and 64, followed by of toppings and crust; some pizzas can have as many
consumers under 25 and those over 65, at 16.2 and as 750 calories per slice. However, pizza can actu-
14.7 percent, respectively. ally be a good source of vegetables, calcium, and
A big determinant of success for a pizza res- protein. The key for consumers is ordering the right
taurant was location. A prime location not only kinds of pizza, those that avoid unhealthy toppings
allowed for easier pickup options for consumers and and crusts. As a result, many of the higher-end piz-
shorter driving distances for deliveries and suppli- zerias began to offer organic, locally grown, and
ers but also improved restaurant visibility. The pizza whole wheat products in an effort to attract more
restaurant industry was also strongly linked to the health-conscious consumers.
Expanded Menu Options industry and social media users are much more active
and likely to dine-out, to connect with restaurants
Traditionally, pizzeria chains served the obvious:
online and post reviews.” Utilizing social media sites
pizza. Over the years they began to add some items
such as Facebook and Twitter also allowed pizza
that would go hand in hand with pizzas, such as
franchises to broaden their marketing campaigns and
breadsticks. But a trend that emerged in recent years
reach more potential customers. These sites provided
was expanding the menu even further to include all
customers with an opportunity to interact with the
sorts of items. All of the main players in the pizza
franchises in a multitude of ways, including through
industry added chicken to the menu. Wings became a
promotions and games. Also, besides using traditional
staple on any menu, with multiple flavors available.
mailing lists, some pizzerias began to dabble in using
In addition, each chain had its own unique offerings
text messaging and e-mails to inform consumers
of chicken, from chicken tenders to chicken bites.
about the latest specials and promotions.
Some chains also began to add pasta and sandwiches
to their menus, as well as a multitude of desserts.
Most establishments added bottled soft drinks or Delivery Driver Safety
water. Long gone were the days when ordering from Pizza delivery drivers were put in harm’s way
a pizzeria meant you had to actually order a pizza. every time they delivered a pizza. These drivers
These increases in menu items served not only to were appearing at total strangers’ homes, often after
differentiate pizza chains from one another but also dark. According to the U.S. Bureau of Labor Statis-
to expand their customer base. Pizzerias were consid- tics, pizza delivery drivers fell into the category of
ered a part of the quick-serve industry and competed “drivers-sales workers,” which was ranked as the
with fast-food giants like McDonald’s and Burger fifth most dangerous job category. The top four were
King. By expanding their menus, pizzerias were able military personnel, police officers, stunt perform-
to attract new customers who wanted to choose from ers, and firefighters. There were many instances in
a broader selection of menu items than just pizza. which a pizza delivery driver was robbed or killed
Along with offering new items, pizzerias tried while making a delivery. Pizza chains had to take
to differentiate from one another by expanding their steps to protect their drivers by creating some “do
actual pizza options. Every chain allowed custom- not deliver” zones. These were areas where it was
ers to customize their pizzas with different crusts, deemed too dangerous to send pizza delivery drivers
sauces, and toppings. In addition, many pizzerias due to high crime rates or previous instances of a
featured specialty pizzas ranging from Hawaiian delivery driver being assaulted or killed.
Barbeque Chicken to Bacon Cheeseburger. Some A controversial issue was whether pizza delivery
of these pizzas remained staples on the menu, while drivers should be allowed the right to bring a concealed
others were offered for limited periods and then weapon with them when making a delivery. Some
dropped to make room for new ones. pizza chains allowed this, while others were completely
Originally, to place an order, a customer went against it. In one instance, a Pizza Hut driver shot and
to a pizzeria in person or telephoned the establish- killed a man who was trying to rob him at gunpoint.
ment. Over the years, to provide more options for The driver was acquitted of any wrongdoing, as the
ordering, the pizza industry took advantage of the courts found that he acted in self-defense, but it was
ever-increasing advances in technology. Most of against Pizza Hut’s policy to carry a firearm and he was
the major pizza chains instituted order placement fired. Afterward, the driver delivered pizzas for a com-
via their websites, with a few pizzerias allowing petitor that allowed its drivers to carry a weapon.
customers to track their order online. Pizza chains
also designed apps for smartphones to provide yet
another way for customers to order. Ingredient Costs
Social media was also a growing trend in society, During the early 2000s, pizza restaurants faced
and the pizza industry began to utilize this medium increasing operating expenses, particularly in the
as well. According to Hudson Riehle, the senior vice cost of ingredients. Between 2007 and 2012, the world
president of the Research and Knowledge Group for price of wheat increased an average of 3.4 percent
the National Restaurant Association, “Social media per year. Also, the price of milk, the main ingredi-
has become very important to the [entire restaurant] ent used in making cheese, increased 27.3 percent
 Papa John’s International, Inc.: Its Strategy in the Pizza Restaurant Industry

in 2010 and 9.2 percent in 2011. These commodities and print advertising internationally only when the
influenced the price of making pizza; therefore, as local market was of sufficient size to justify such
their costs increased, profit margins for the indus- expenditures.
try declined. Operators tried to offset the costs by The company’s franchising system was a major
increasing product prices, but price sensitivity by component of its strategy. Papa John’s actively
consumers did not allow all costs to be recovered recruited operators with experience in the restaurant
through price increases. In 2012, it was estimated industry or retailing to open one or more new estab-
that the average profit margin for U.S. pizza estab- lishments. After meeting the financing qualifications,
lishments was 6.4 percent of revenue. franchisees were charged $25,000 for each unit, plus
a royalty fee of 5 percent of net sales each month.
In addition, franchisees were required to pay a mar-
PAPA JOHN’S STRATEGY keting fee of 7 percent of monthly sales to support
Papa John’s International’s strategic intent was to corporate marketing. In 2014, the typical initial invest-
build the strongest brand loyalty in the pizza indus- ment required to franchise a Papa John’s restaurant
try. The company expected to achieve that objec- was $280,000. Also in 2014, the company initiated a
tive through a strategy with five major components: development incentive plan that waived the $25,000
high-quality menu offerings, efficient operating sys- franchise fee, reduced the royalty fee, provided
tems, employee training and development, effective two pizza ovens at no charge, and allowed a credit
marketing programs, and a strong franchise system. that was applied to the franchisee’s first food order.
Papa John’s believed that high-quality pizzas and The incentive package lowered the initial startup cost
side items such as breadsticks, chicken poppers and for a Papa John’s unit by $60,000. The company was
wings, and dessert items were essential to its suc- recognized by Quick Service Restaurant as one of the
cess. The company used only fresh dough, 100 per- best franchise opportunities in the restaurant industry
cent real mozzarella cheese, vine-ripened tomatoes in 2013.
rather than tomato paste, and 100 percent beef and Papa John’s opened 265 new locations in
pork in its pizza products. Franchisees were required 2013—82 in North America and 183 in international
to purchase all ingredients from Papa John’s Quality markets. The company closed 121 units in 2013.
Control Centers to ensure consistency across loca- Papa John’s management believed that an opportu-
tions. The Quality Control Centers also specified nity for 4,000 units in North America existed and
operating practices and restaurant layouts for fran- planned to add 220 to 250 new units per year. Sev-
chisees to facilitate efficient restaurant operations in enty percent of the new units would be located in
all locations. Papa John’s Quality Control Centers international markets. Exhibit 2 presents financial
were operated in the United States; Mexico City, information for Papa John’s International’s domes-
Mexico; the United Kingdom; and Beijing, China. tic company-owned and franchised restaurants, its
The company recognized that employee perfor- international restaurants, and its commissaries in
mance affected the profitability of company-owned North America.
and franchised units and provided regular training
and development programs to its team members.
In addition, the company created opportunities for Community Service
advancement for restaurant personnel and offered Papa John’s was very active within the community
performance-based financial incentives for employ- across a wide range of causes. It chose to sponsor
ees at all levels. organizations that aligned with the company’s core
Papa John’s marketing approach varied by geog- values. Junior Achievement (JA) Worldwide and
raphy, with its marketing program in the United Papa John’s formed a nationwide partnership. Junior
States consisting of national television, print, and Achievement was an organization that focused on
social media marketing and advertising as well as providing kids with the tools and skills necessary
locally targeted promotions. In international markets, to succeed once they started on their career paths.
the company focused its marketing effort within a In addition to providing financial donations, certain
small radius of areas where Papa John’s restaurants Papa John’s locations offered “job shadow” events at
were located. The company used television, radio, which students could witness what it would be like
EXHIBIT 2 Revenue and Income before Tax Contribution for Papa John’s
Operating Divisions, 2011—2013
2013 2012 2011

Revenues from external customers

Domestic company-owned restaurants $ 635,317 $ 592,203 $ 525,841
Domestic commissaries 578,870 545,924 508,155
North America franchising 82,873 80,373 74,416
International 88,640 72,930 58,558
All others 53,322 51,223 50,912
Total revenues from external customers $ 1,439,022 $ 1,342,653 $ 1,217,882
Intersegment revenues
Domestic commissaries $ 191,756 $ 171,212 $ 151,423
North America franchising 2,222 2,267 2,163
International 280 229 215
Variable interest entities — — 25,117
All others 14,197 11,606 10,468
Total intersegment revenues $ 208,455 $ 185,314 $ 189,386
Income (loss) before income taxes
Domestic company-owned restaurants $ 34,590 $ 38,114 $ 28,980
Domestic commissaries 37,804 34,317 30,532
North America franchising 70,201 69,332 66,222
International 2,803 3,063 (165)
All others 3,490 2,889 (441)
Unallocated corporate expenses (41,025) (48,958) (39,727)
Elimination of intersegment profits (1,754) (362) (610)
Total income before income taxes $ 106,109 $ 98,395 $ 84,791

Source: Papa John’s International, Inc., 10-K report, 2013.

to own and run a Papa John’s franchise. Employees naming its football stadium the Papa John’s Cardi-
were encouraged to volunteer to teach JA classes nal Stadium in 1996. In addition, every year Papa
within their communities. John’s sponsored the Papa John’s 10 Miler. The pro-
Papa John’s was also an avid supporter of The ceeds from this running event benefited the WHAS
Boy Scouts of America. This organization worked Crusade for Children, an organization that aided in
to foster character development, worldwide citi- improving the lives of children with special needs in
zenship, and moral, mental, and physical fitness the states of Indiana and Kentucky. Papa John’s also
among young people. Papa John’s chose this orga- encouraged its employees to suggest events or pro-
nization to inspire kids and help provide them with grams the company could sponsor within their local
a more well-rounded education. In 2010, Papa John’s communities.
donated a significant portion of profits to the Make-
A-Wish Foundation, an organization that helped PAPA JOHN’S RIVAL PIZZA
make dreams come true for ailing children across
the nation. CHAINS
Papa John’s, along with John Schnatter person-
ally, has donated over $20 million to the University Pizza Hut
of Louisville, primarily to the athletic facilities. This Yum! Brands, based in Louisville, Kentucky, was
led to the University of Louisville constructing and the parent company of the Pizza Hut, KFC, and Taco
 Papa John’s International, Inc.: Its Strategy in the Pizza Restaurant Industry

Bell quick-service restaurant chains. Yum! Brands personal pan pizzas and pizza parties if they met
recorded 2013 system revenues and net earnings of their reading goals.
approximately $11.2 billion and $1.1 billion, respec- Yum! Brands’ net earnings declined by 9 per-
tively. In 2014, its Pizza Hut division operated and cent during 2013, but the company expected earn-
franchised restaurants in 88 countries, with 7,846 ings to increase by 20 percent in 2014. The decline
units in the United States, 1,264 units in China, and in sales in 2013 was primarily related to declining
5,490 units in other international markets. KFC sales and profits in China that resulted from an
Pizza Hut was known for its dine-in restaurant avian flu outbreak and declining Pizza Hut and KFC
locations but had begun to open more units dedi- revenues in the United States.
cated to delivery and carryout only. Between 2011
and 2013, 600 of its new locations did not offer dine- Domino’s
in seating. The company had also expanded the num- Domino’s Pizza operated and franchised more than
ber of its Express (carryout-only) units in shopping 10,800 carryout and delivery pizza units in all 50
malls, large retail chains, travel centers, and military states and in more than 70 countries in 2014. The
bases. However, the majority of its new locations, company added 631 units in 2013, 573 of which
especially those in international markets, were dine- were outside the United States. The company’s rev-
in pizza restaurants. Pizza Hut had also developed its enues had increased from $1,652 million in 2011 to
WingStreet subbrand in the United States that deliv- $1,802 million in 2013. Same-store sales for its U.S.
ered chicken and complete chicken dinners. units increased by 5.4 percent from 2012 to 2013,
Among the “Big Four” pizza chains, Pizza Hut while its same-store sales in international markets
was unique in that, in addition to its takeout and increased by 6.2 percent over the same two-year
delivery options, it had many locations that offered period. The company’s global retail sales exceeded
a dine-in option for consumers. The dine-in menu $8 billion in 2013. Net income for the company had
included a lunch buffet that offered healthy options increased from $105.4 million in 2011 to $143 mil-
and featured a salad bar. Pizza Hut’s signature lion in 2013.
dish was its Pan Pizza. In addition, it had a variety Domino’s sales were primarily generated through
of other types of crusts including Thin n’ Crispy, its pizza delivery business. As such, the company
Stuffed Crust, Hand Tossed, and Sicilian. Pizza Hut focused on securing its number-two ranking among
also offered one of the widest menu selections and pizza chains by acquiring convenient store locations
constantly innovated by serving pastas, wings, cal- and operating an efficient supply chain. The focus on
zones, stuffed pizza rollers, breadsticks, desserts, operations and convenient locations also benefited
and drinks. Catering was also available. Nutritional carryout sales. Domino’s strategy includes expand-
information for every product was provided on the ing its global presence to take advantage of emerg-
company’s website. ing markets outside the United States. The company
Like most major pizza chains, Pizza Hut fran- operated and franchised 5,900 international units
chised its restaurants, with only 15 percent being in 2013.
company-owned. It offered online ordering for con- Until the late 1980s, Domino’s was known for
sumers, and it was the first to take advantage of smart- keeping its menu very simple in an attempt to ensure
phones by creating the first pizza ordering app in the utmost consistency. At the time, the company
2009. The company was heavily involved with social offered only one type of pizza in two sizes with 11
media, providing links from its website to its Face- toppings to choose from and Coke as the only drink
book and Twitter pages, along with other interactive option. Since then, the menu expanded greatly to
social media outlets like Tumblr, Flickr, and YouTube. many types of pizzas, including four types of crust,
Pizza Hut gave back to the community with var- artisan pizzas, specialty pizzas, four types of sauce,
ious programs. One of these was the Share a Slice of and 26 toppings. In addition to its wide pizza selec-
Hope campaign, in which the company raised almost tion, Domino’s also offered pasta, bread bowls, sand-
$2 million and supplied 8 million meals during the wiches, wings, breadsticks, stuffed bread, bread bites,
World Hunger Relief campaign in 2011. Pizza Hut chips, desserts, and six drink selections. Nutritional
was also an avid sponsor of the Book It! National information was provided online for every prod-
Incentive Reading program that offered kids free uct, and Domino’s website pointed out “healthy”
selections on its menu by recommending certain method. Domino’s website included a link to company-
items for health-conscious consumers. created pizza games consumers could play and a
The year 2010 marked the 50th anniversary section where consumers could voice their opinions
of Domino’s. Shortly after, the company changed or suggestions. Domino’s also had a large presence
its entire pizza recipe “from the crust up” by mak- on Facebook and Twitter, where consumers could
ing changes to the sauce, dough, and cheese used interact with the company.
in each pizza. It marketed the changes by admitting
that its pizza quality and taste had not been up to par. Little Caesars
The company listened to its customers and came up
Little Caesars was the fourth-largest pizza chain,
with the current recipe. The changes to the recipe
with a 4.7 percent share of the market and opera-
were received well by the majority of consumers.
tions in more than 20 countries with over 2,500
Domino’s marketing campaign relied heavily on
units. The company was founded in 1959 in Garden
TV commercials in which its CEO, J. Patrick Doyle,
City, Michigan, by Michael and Marian Ilitch when
informed consumers that the pizza chain had heard
they put their life savings of $10,000 into opening
their complaints and responded with big changes.
the first restaurant. It was immensely successful,
The campaign started in 2009 by filming custom-
and they expanded the business through franchising.
ers complaining about the poor taste and quality
Over the years, franchises grew to account for about
of Domino’s pizzas and showing chefs working to
80 percent of the company’s locations. As of 2014,
fix the recipe. Simultaneously, chefs really were
Little Caesars remained privately held by the origi-
working to fix the recipe, and the chain completely
nal founders.
revamped its pizza. Commercials then touted the
The majority of Little Caesars restaurants offered
new recipe and focused on how customers spoke
only a takeout service. They were well known for
out and the company listened. The campaign was
offering Hot-N-Ready pizzas, which were large piz-
immensely successful.
zas with standard toppings for only $5 and were con-
Domino’s partnered with St. Jude Children’s
stantly being made so that they were ready as soon
Research Hospital in 2004, and through 2012 it
as the customer ordered. Customers could order a
raised more than $12 million for the hospital. St.
custom pizza as well by calling ahead or ordering
Jude was an organization dedicated to exhaustive
in the restaurant. A few other specialty pizzas were
research and treatment for children affected by can-
also available. Apart from pizza, the menu was rela-
cer and other catastrophic diseases. Domino’s also
tively simple for the industry, with product offerings
allowed people to go online and submit a request for
of breadsticks, cheese bread, and wings. The website
the company to supply pizzas for a charity function
provided nutritional information for every product.
or event. In 2011, this resulted in Domino’s donating
The company tended to focus on cutting down costs
more than $400,000 in monetary and in-kind gifts
rather than expanding its product line.
to local and national organizations. Domino’s also
Little Caesars was synonymous with the catch-
took care of its team members via the Partners Foun-
phrase “Pizza! Pizza!” This phrase originally came
dation, established in 1986. This program provided
about because the company offered two pizzas for
financial aid to team members who were affected by
the price of one. The company also had its own mas-
extreme tragedies such as fires, natural disasters, med-
cot, “Little Caesar.” Most of its advertising focused
ical emergencies, immediate family member deaths,
on touting its Hot-N-Ready pizzas and emphasizing
and on-the-job accidents. After 25 years, Domino’s
the ease for the consumer of being able to walk in
had provided team members in need with over
and have a pizza already waiting. The chain utilized
$6 million.
modern technology by providing consumers with a
Domino’s utilized the ever-increasing advances
smartphone app and having its own Facebook and
of technology to its advantage. Domino’s offered
Twitter pages.
consumers the ability to order online and even
track their pizza, seeing where their order was in
the process and when it was ready for delivery or Other Competition
pickup. Consumers also had the option of ordering Besides the Big Four chains, there were many
via smartphones or the traditional over-the-phone other pizza chains that together had a 19.6 percent
 Papa John’s International, Inc.: Its Strategy in the Pizza Restaurant Industry

share of the market. These chains all varied on their What Course of Action
pizza offerings and were located all over the coun-
try. Independent pizzerias made up 48 percent of
Should Papa John’s Take?
the market share and operated 57 percent of pizza John Schnatter grew his company from a broom
stores. A good portion of these independent pizze- closet to the third-largest pizza chain in the United
rias were sit-down restaurants that offered higher- States. But how was he going to overtake the other
end pizzas and a wide variety of menu options. two big players—Pizza Hut and Domino’s? Did
Additionally, there were many small pizza stores Schnatter have to expand his company’s product line
that relied solely on delivery and takeout. It was as the other two chains had? How would he adapt to
expected that there would be an increase in inde- the new health-conscious trend? Keeping these and
pendent sit-down pizzerias that offered healthier other issues in mind, “Papa” needed to make a deci-
products and more diverse products that could sat- sion fast because, on average, Americans were eat-
isfy complex tastes. ing 350 slices of pizza every second.