Summary from Entrepreneur….follow the program and have a positive attitude.  

Papa Johns is again offering incentives to new franchisees this year. This looks to be the same as last year. There are tight timing issues with opening to hit the incentives qualificaitons. No franchise fee ($25,000 value); $50,000 in equipment, including two Middleby-Marshall ovens, which may be purchased by the franchisee for $50 after operating for three years; A royalty waiver for up to 18 months; and A $3,000 food credit with PJ Food Service, which operates Papa John’s fresh dough and food distribution quality control centers, for each restaurant that opens at least 30 days prior to the scheduled opening date.

WorldWide Papa’s is going public on the heels of opening up its 5th store in Russia. But, there are people who claim to have invested with WordWide Papa in Russia but were ignored by the company once they received the investment. The whole story isn’t here, but a company that fails to communicate with its investors in a respectful manner must be avoided. I’ve seen a lot of investment fraud as an attorney, and I still am amazed at how often folks will steal from people they know.

Papa Johns is building “restaurant” style stores. Good idea. I still don’t understand why there are virtually no drive thru by-the-slice pizza franchises. There are plenty by-the-slice franchises in malls, but not stand-alones with drive thrus.

According to this 10-Q filed with the SEC by Papa John’s, average franchised store sales are 705k annually. Papa John’s franchisees did increase sales 3.9% last quarter (Jan-March) compared to the same quarter last year. Average weekly sales of franchised units: $13,563 ($705,276 annually) Average weekly sales of company-owned: $15,075 ($783,900 annually) * Why are the company owned stores outperforming franchisees by 11.15%? The 10-Q speaks of one franchisee who sold his 19 restaurants with total annual revenues approximating $12.0 million ($631,578 per store) to a 3rd party. The restaurant sales were lower than the average by 11% or $70K, enough to obtain a loan writeoff from Papa John’s. This isn’t good: Domestic commissary sales increased 6.7% to $100.9 million for the first quarter of 2005, from $94.5 million in the comparable period, primarily due to higher cheese prices that were partially offset by lower volumes resulting from decreased restaurant transactions. and this: the first quarter 2004 operating margin was negatively impacted by the increased sales of lower margin promotional products and this: One group of 4 franchisees owning 33 franchises generated a $25,000 loss on $5.2 million of revenue, $4.6 million in operating expenses and other expenses (including G&A, depreciation and interest) totaling $600,000. Papa John’s also provided them with a large loan. I do love their garlic dipping sauce for the crust that is included with each pizza! Update 6-18-2005: Thanks to “Accountant” who in the comments pointed out my miscalculations. The post has been updated, including the title. Update 6-19-2005: Thanks to “Ken King” who in the comments pointed out another miscalculation on my part. The post has been updated.

As you’ve probably heard, Papa Murphy’s was acquired by a private investment firm for $180 million, about $150,000 per store.  I think it will turn out to be a good acquisition even with the steep price.  Papa Murphy’s has a combination of economic advantages that no other pizza chain has – 1)  it doesn’t have the overhead and capital costs of in-store baking, AND 2)  it is gaining strong penetration in grocery stores. I admit, from the consumer’s stand point, a take and bake concept is a little confusing at first. “You mean I have to bake my own pizza?”   But that impression soon fades.   The pizza in its raw form looks fresh and the final product cooked in the home oven is as good as pizza delivery.   One hurdle overcome by the industry was the difficulty of using a home oven to cook a pizza because it doesn’t brown up well with the ordinary pizza dough recipe.   To solve this, chains like Papa Murphy’s increase browning by increasing the sugar percentage and providing a disposable reflective baking tray. Another potential acquisition target is Homemade Pizza, a regional 25 unit chain in IL, MN and DC of classy take-and-bake stores where the average price of an “unbaked” large pizza is almost $20.   It seems to be doing well and has great branding.  Homemade Pizza pizzas are still priced on the high end because it is made with fresh and local ingredients.  The dough is prepared in a commissary to simplify store operations and reduce size requirements. _______________________________________________________ Update:  Below is more interesting history on Papa Murphy’s from a November 2009 article in Portland Business Journal.  Average store sales are about $535k. Papa Murphy’s is a holding of Charlesbank’s Equity Fund V, a $590 million private equity fund that …

Cheese Average block cheese prices continued to drop last week on the Chicago Mercantile Exchange, averaging $1.77 from $1.81 the previous week. Cheese reached its 3-month high of $2 on Nov. 15, but continues to drop on slowing demand. Wheat Wheat prices fell again last week on the Minneapolis Grain Exchange, averaging $8.43 from $8.54 the previous week. Two weeks ago, wheat was as high as $9.26. The current multi-month low is the result of a larger-than-expected grain output from China, and a positive jobs report from the U.S. Pizza company stocks Pizza stocks were boosted by lowering commodity prices and an upward trending stock market the past week. Pizza Hut parent Yum! Brands Inc. closed last week at $56.25, up nearly $4 from the previous week, which closed at $52.72. The company hit its 52-week high in August when shares were $56.72. Yum! traded as low as $46.40 in January. Domino’s closed last Friday at $33.56 up from $30.51 the previous week. DPZ hit its 52-week high earlier in the day on Friday, trading at $33.81. Shares remain substantially higher over this time last year when the company traded at $14.72. The company has a P/E ratio of 30.8, above the average leisure industry P/E ratio of 22.4 and above the S&P 500 P/E ratio of 17.7 Papa John’s closed last week at $37.25, up from $35.50 the previous week. PZZA hit its 52-week high earlier in the week, at $38.18. PZZA’s 52-week low was last December when it traded at $25.83. CEC Entertainment Inc., parent company of Chuck E. Cheese restaurants, closed out last week at $33.17, up from $32.35 the previous Friday. CEC hit its 52-week low of $27.42 in September. The company hit its 52-week high of $41.75 in July. Pizza Inn closed at $6.28 …

The pizza industry is in a larger downturn than I would have predicted.  Papa John’s is even delaying scheduled increases in their royalty:  Papa John’s, meanwhile, is extending sweeping financial assistance to its franchisees. The company is delaying for at least six months an increase in its royalty rate on sales to 4.5% from 4%. It also is rolling back the royalty it collects on Internet-generated sales, a fast-growing part of its business, to 2% from 3%, and markedly cutting the price of cheese it sells to franchisees. Finally, those franchisees suffering the most will get special marketing support.   While hamburger chain McDonald’s Corp. has posted consistent gains in its domestic same-store sales, with 4% growth in 2008, U.S. franchised same-store sales at Domino’s fell 1.7% in 2007 and 5.6% in the first nine months of 2008. Papa John’s is predicting its same-store sales will be flat to down 2% this year, and Pizza Hut, whose same-store sales slipped 1% in the fourth quarter of 2008, is off to a slower start than expected this year, according to Yum, which has called the division its biggest challenge.Pizza’s woes started before the current recession gripped the nation. Figures compiled by Chicago-based restaurant-consulting firm Technomic Inc. show that while the overall U.S. fast-food category experienced compounded annual growth of 6.4% from 2002 to 2007, pizza sales rose only 2.5% during that period.

Most of my friends order food online whenever possible, especially pizza like Domino’s and Papa John’s.  Online ordering is making up 20% this Papa John’s franchisee’s sales: In fact, Chesley estimated, about 20 percent of her store’s sales arrive via the Internet.Customers can insert exactly what they want and it saves on labor costs since the staff doesn’t have to spend as much time on the telephone taking orders, Chesley said. “We do great with online ordering.” Potential franchisees should make sure you are free to engage an online ordering network such as Order Network, CityWaiter, eHungry, Kudzu Interactive, or GrubHub.

The New York Times reported in an article by David Gonzalez that:There really is a John inside Johnny’s Pizza in Sunset Park, Brooklyn — John Miniaci Jr., whose father, John Sr., founded the neighborhood pizzeria in 1968. There will soon be another John right next door on Fifth Avenue — Papa John’s Pizza, a franchise outlet. John Jr. considers this as an insult to his own papa John, who died just one month ago. Of all the spots the franchise could have chosen, why, he asks, did it have to be on the other side of the wall where two centurion busts stand guard above customers waiting for zeppoles or Sicilian slices? “This is a neighborhood that has had businesses in the same family for two and three generations,” Mr. Miniaci said. “These big corporations come in and don’t see the value of that.” That’s why Johnny’s latest delivery is a petition — to Papa John’s corporate headquarters in Kentucky. Some 2,200 people — shopkeepers and customers, including other pizzeria owners — have come to Mr. Miniaci’s defense. They have signed a declaration “to stop the establishment of Papa John’s in our neighborhood.” This Brooklyn community has been grappling to maintain its character in the face of impersonal economic and residential development. The storefronts along Fifth Avenue near 58th Street have long been home to mom-and-pop stores and restaurants, patronized by the working families who live in the brownstones on narrow side streets. The stores have awnings that announce “Decent Dental Services” or “Spanish and American Food.” Many were here when the area was down on its luck and real estate values were low, and are determined to keep the neighborhood’s traditional feel, even as they see chain stores and fast-food franchises creeping in. Read the whole story: Let’s …

Pizza franchises throughout the U.S. are struggling with escalating costs of cheese. Block cheddar cheese – the benchmark for mozzarella and other cheeses – reached $2.08 a pound Thursday on the Chicago Mercantile Exchange, up 78 percent from $1.17 a pound a year ago. Industry observers attribute the price surge to strong demand and higher production prices – from the cost of milk to the cost for dairy farmers to feed their herds. Pizza Hut and Papa John’s International have raised their cheese-only pizza prices, and smaller restaurants, including Fat Jimmy’s in Louisville, Ky., have raised prices, too. Papa John’s uses about 100 million pounds of cheese each year, and the cheese typically makes up 35 percent to 40 percent of the food cost in making a pizza. Read the story “Pizza makers struggling with higher cheese costs” by Bruce Schreiner in the Daily Herald.Something tells me that America’s Desire for pizza will remain. According to Pizzaware .com Americans eat approximately 100 acres of pizza each day, or about 350 slices per second. Pizza is a $30+ billion dollar per year industry. There are approximately 69,000 pizzerias in the United States. Approximately 3 billion pizzas are sold in the U.S. each year. (Source: Blumenfeld and Associates) Pizzerias represent 17% of all restaurants. (Source: Food Industry News.) Pizza accounts for more that 10% of all foodservice sales. (Source: Food Industry News.) 93% of Americans eat at least one pizza per month. (Source: Bolla Wines.) 66.66% of Americans order pizza for a casual evening with friends. (Source: Bolla Wines.) Each man, woman and child in America eats and average of 46 slices, (23 pounds), of pizza per year. (Source: Packaged Facts, New York.) Italian food ranks as the most popular ethnic food in America. (Source: National Restaurant Association.) According to a …

Entrepreneur’s Franchise 500’s Best Franchise Businesses — Franchise 500 Top 10 Entrepreneur managezine’s best of the best. Subway Dunkin’ Donuts Jackson Hewitt Tax Service 7-Eleven (the recently bought out the White Hen chain in Illinois) UPS Store Domino’s Jiffy Lube Sonic Drive In Restaurants McDonald’s Papa John’s Pizza link to the the remaining 500. Here are a few I noticed in particular (some for good, some for bad reasons): 384. Nature’s Way Cafe: Healthy foods, salads, wraps, soups, smoothies 325. Cash Plus Inc. : Check cashing & related services 312. Rent-A-Wreck: Auto rentals & leasing 298. Steak n Shake: Steakburgers, fries, milkshakes 273. Nestle Toll House Cafe by Chip: Cookies, baked goods, coffee, ice cream 252. HomeVestors of America Inc. : Home buying, repair & selling system 225. It’s Just Lunch Int’l. LLC: Dating service 212. Pita Pit Inc.: Pita sandwiches 151. Super Suppers: Do-it-yourself home meal preparation 105. Bark Busters Home Dog Training: In-home dog training 87. Qdoba Mexican Grill :Fast-casual Mexican food 75. CiCi’s Pizza : All-you-can-eat pizza buffet 72. Sport Clips: Men’s sports-themed hair salon 58. Jimmy John’s Gourmet Sandwich Shops: Gourmet sandwiches 56. Edible Arrangements: Floral-like designs from sculpted fresh fruit Franchise 500 Criteria (important): All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years in business and length of time franchising, startup costs, litigation, percentage of terminations and whether the company provides financing. Financial data is audited by an independent CPA. We do not measure subjective elements such as franchisee satisfaction or management style, since these are judgments only you can make based on your own needs and experiences. The objective factors are …

Pizza Inn is ~400-unit buffet, delivery, carryout, sometimes-drive thru pizza chain in the soutwestern United States with a drama filled past few years that would make some soap opera’s jealous. In 2002, the then-CEO Rogers of Pizza Inn borrowed about $2 million from the company to buy company stock. The stock sank and Rogers couldn’t pay back the company’s cash loan. Rogers was fired as CEO and Pizza Inn wrote off the debt and moved Parker, then President, to CEO. Shortly thereafter, ex-CEO Rogers sold his 27% stake in Pizza Inn to a private investment firm escaping with a tidy profit. With the private investment firm holding a controlling interest, the current executives sought to protect their jobs by writing employment agreements with Pizza Inn. The employment agreements provide that if the four executives left for “good reason” or were removed from their posts, they would receive payouts totaling $7.4 million (Parker would have pocketed $5.4 million, Olgreen $630,000, Clark $605,000 and Preator $597,000), more than twice Pizza Inn’s 2003 profit of $3.1 million, which would have surely bankrupted the company. Eventually the private investment firm got their wish and the shareholders elected new candidates to the board of directors. Parker, the CEO with the parachute employment agreement, resigned and claimed this trigger the parachute and the company owed $5.4 million (he sold 98,000 shares a few days before). He eventually won a settlement of $2.8 million. Pizza Inn even sued its former legal counsel for its role in advising the company on the huge severance packages (the lawyers were supposed to work for the best interest of the company, not the executives). In the meantime, revenues of the franchisor fell due to lower franchisee sales which resulted in the franchisor suffering less royalties and less revenue from the …

1) Are You Franchisee Material? We asked franchisors what they want in franchisees, and 4 qualities rose to the top. 2) 2007 Franchise of the Year? (Entrepreneur Mag) #1: Subway #2: Dunkin’ Donuts #3: Jackson Hewitt Tax Service #4: 7-Eleven #5: The UPS Store/Mail Boxes Etc. #6: Domino’s Pizza #7: Jiffy Lube #8: Sonic Drive In Restaurants #9: McDonald’s #10: Papa John’s I’d personally choose in the following order: McDonald’s, 7-Eleven, Papa John’s, Dunkin’ Donuts, Domino’s Pizza. 3) Great comments from a few franchisees and people in the industry. You can listen to the segment with Real Player too. 4) Franchisee rebuffs new product offerings and promotions from Taco Bell. Some notable actions taken by Dalham since the opening of his franchise in 1990: • Refused to expand his menu beyond the basic, non-premium offerings such as the “Taco.” • Used plain white Styrofoam soda cups until the corporation forced him to use branded paper cups during an audit in 1999. • Furnished dining room with squeeze bottles of hot sauce to avoid purchasing branded sauce packets. • Failed to update logo – currently displays the red, green, yellow, and purple logo phased out in the 1990s. • Did not hang promotional posters featuring the talking Chihuahua when the campaign was introduced in 1997. • During the “Head for the Border” campaign, posted a banner that read “Americans Even Do Tacos Better.” Due to franchise regulations, Dalham was forced to adopt certain conformities, such as the display of the words “Taco Bell” on his backlit menu and identifying his restaurant as a Taco Bell in the local yellow pages.

Papa Johns down .6% four weeks ending Nov 19 Applebees down 3% four weeks ending Nov 19 Wendy’s: October same-store sales at Wendy’s franchised restaurants were 1.8% compared to negative 1.0% in October 2005. Cracker Barrel (not franchised): restaurant sales increased 1.4 percent and retail sales 4.4 percent for the first quarter that ended Oct. 27, compared with last year’s first quarter. Revenue was up 4.3 percent to $558 million for the same period. Limited’s (not franchised) November same-store sales rose 12%, Pacific Sunwear’s (not franchised) monthly comps declined 3.8%, and Bebe Stores (not franchised) had a same-store sales increase of 5.6%. Guess? (not franchised)said comparable sales were up 12.1% in November, and Wet Seal (not franchised) had an increase of 5.5% Pier 1 had another drop, with same-store sales falling more than 15%.

Middleby’s new $55,000 WOW! oven is quite an innovation, reducing pizza baking times from 7.5 minutes to 5.5 minutes. The WOW oven cuts a pizza’s “belt speed,” or cooking time, to five-and-a-half minutes from seven-and-a-half minutes. That means places like Jimmy John’s can serve more customers even as it advertises — and charges for — “gourmet” sandwiches, and Domino’s can deliver faster or to a wider area. The oven creates a more pleasant workplace, too, since the oven stays cooler on the outside. It’s helping Papa John’s with a “takeout pizza in 10-minutes or less or it’s free” program. For six years running, consumers have rated Papa John’s no. 1 in customer satisfaction among all national QSR chains in the highly regarded American Customer Satisfaction Index (ACSI). At March 26, 2006, there were 2,924 Papa John’s restaurants (509 companyowned and 2,415 franchised) operating in 49 states and 22 countries. Here’s another article about the oven. Quick trivia – What are the five most popular pizza toppings? 1. Pepperoni 2. Sausage 3. Mushrooms 4. Ham 5. Green Peppers