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– 290 –
TEACHING NOTE
CASE 4
Papa John’s International, Inc.
Overview
By the end of 2013, Papa John’s International (Papa John’s) was poised to celebrate its 30th anniversary
in the pizza business, having begun as a $1,600 investment in a pizza oven in the back of a tavern in
Jeffersonville, Indiana. Over the years, the company had expanded to over 4,400 establishments in all 50
US states and in 34 countries, of which 84 percent were franchises. Corporate revenues reached $1.4 billion and
profits increased to $69.5 million in 2013.
Over the most recent four-year period, Papa John’s corporate revenues had grown at an annual compound
rate (CAGR) of nearly 8 percent, fueled by growth in international franchise fees (17 percent CAGR) and
international restaurant and commissary sales (24 percent). Earnings per common share (undiluted) had also
grown at impressive 13 percent on a compound annual growth basis. The company’s stated objective was to add
an additional 1,000 units over the next five years, via franchising agreements (95 percent of all new units) and
expansion into international markets (70 percent of all new units).
Papa John’s and its peers benefitted from a challenging economy because of the relative value of pizzas versus
other food categories. Papa John’s had grown its market share due to the quality of its ingredients, as consumers
became more health conscious. The company had significant growth opportunities in international markets,
given that it had about 1,000 restaurants outside the U.S. and Canada. Papa John’s franchise business model
reduced the impact of rising commodity costs and price discounting because the company generated a significant
percentage of its operating profits from royalties and fees, which were not affected by franchisees’ operating
margins. Papa John’s enjoyed higher contributions from international revenues, which had wider margins than
domestic revenues.
Papa John’s nevertheless faced considerable challenges. Rivals commanded a 94 percent share of the $43
billion worldwide pizza market. Papa John’s remained a distant third behind the top two chains, Pizza Hut (12
percent share) and Domino’s (10 percent). Little Caesars, the number-four pizza chain, held a 5 percent share
and appeared poised to catch up to and possible overtake Papa John’s. Other external trends might impact
Papa John’s future growth trajectory and competitive position, including: increasing consumer health and diet
awareness, the growing use of technology in the industry (e.g. social media, on-line ordering via mobile apps),
unstable prices for raw materials and ingredients, as well as political and economic instability in the countries
where Papa John’s was operating or sought to expand operations.
*
*This teaching note reflects the thinking and analysis of Professor Armand Gilinsky, Sonoma State University. We are most grateful
for his insight, analysis and contributions to how the case can be taught successfully.
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Suggestions for Using the Case
This case pairs well with material covered in Chapters 3–5. It is particularly useful for illustrating the following
concepts:
n How to evaluate the macro- and competitive environment in which a company operates (covered in
Chapter 3)
n How to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities
for growth and profitability (also covered in Chapter 3)
n How to assess a company’s internal resources and capabilities, including its value chain (covered in
Chapter 4)
n How to determine the major avenues for improving a company’s competitive position based on its generic
strategy—and why some of these strategies work better in certain kinds of competitive conditions than in
others (covered in Chapter 5).
Videos for Use with the Papa John’s Case. There is an 11:45 video entitled “Domino’s CEO on Chain’s
Image, Italy Prospects” that would be best viewed after students have read the case and become familiar
with the industry. You may prefer to have students watch the video on their own. It can be accessed at
http://www.youtube.com/watch?v=DQbf4wathbl. There is also a 6:57 video interview with John Schnatter
that can be accessed at http://www.youtube.com/watch?v=641dsz7jTPU.
What to Tell Students in Preparing the Papa John’s Case for Class. To give students guidance in
what to do and think about in preparing the Papa John case for class discussion, we strongly recommend they
master and then apply many of the concepts and analytical methods in Chapters 3–5. Be sure to:
n Provide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the Papa John case are
presented in the next section of this TN. You may wish to have class members concentrate their attention on
a subset of these questions, depending on what you want to emphasize during the class discussion.
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
we pose. Moreover, students often find that a set of study questions is useful in helping them prepare oral
team presentations and written case assignments—in addition to whatever directive question(s) you supply for
these assignments. Hence, we urge that you provide students with assignment questions—either those we have
provided or a set of your own questions—for all those aspects of a case that you believe are worthy of student
analysis or that you plan to cover during class discussion.
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Guide is particularly helpful to students if your course is their first experience with cases and they are unsure
about the mechanics of how to prepare a case for class discussion, oral presentation, or written analysis.
n
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Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe that, as pizza is quite popular with students and they are familiar with the industry, the Papa John’s case
is quite well-suited for written assignments and oral team presentations. Our suggested assignment questions are
as follows:
n Papa John’s management team has employed you as a consultant to assess the company’s overall situation
and recommend a set of actions to improve the company’s future prospects. Please prepare a report to
Papa John’s management that includes: (1) an evaluation of the competitive forces in the pizza segment of
the quick serve restaurant industry, (2) an assessment of Papa John’s strengths, weaknesses, opportunities
and threats, (3) an identification of the primary components of Papa John’s value chain, (4) an evaluation
of Papa John’s financial and operating performance as displayed in case Exhibit 1, and (5) a set of action
recommendations that Papa John’s top executives should initiate in order to sustain the company’s growth
and performance. Your report should not exceed 5–6 pages, plus an assortment of charts, tables, and exhibits
that support your analysis and recommendations.
n Prepare a brief 1–2 page report to Papa John’s founder and Chairman John Schnatter outlining the 3–4
top priority issues that Papa John’s management needs to address. Make explicit the actions you thinks
management should initiate to address these issues and sustain Papa John’s future growth and profitability.
Your report should contain detailed and convincing reasons in support of each one of your recommendations.
It is imperative that the support offered for each of your recommendation be based on (a) conclusions drawn
from application of the concepts and analytical tools discussed in Chapters 3, 4, and 5 and (b) the content of
Chapters 5–7 regarding strategic moves that may be suitable for Papa John’s.
Assignment Questions
1. How strong are the competitive forces confronting Papa John’s in the pizza segment of the quick serve
restaurant industry? Do a five-forces analysis to support your answer.
2. What does your strategic group map of the pizza segment of the quick serve restaurant industry look like? Is
Papa John well positioned? Why or why not?
3. What do you see as the key success factors in the pizza segment of the quick serve restaurant industry?
4. What does a SWOT analysis reveal about the overall attractiveness of Papa John’s situation?
5. What are the primary components of Papa John’s value chain?
6. What are the key elements of Papa John’s strategy?
7. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Papa John’s is employing?
8. Based on careful examination of the data in case Exhibit 1, how would you assess Papa John’s financial and
operating performance?
9. What 3–4 top priority issues does Papa John’s management need to address?
10. What recommendations would you make to Papa John’s management team? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in question 9.
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Teaching Outline and Analysis
1. How strong are the competitive forces confronting Papa John’s in the pizza segment of
the quick serve restaurant industry? Do a five-forces analysis to support your answer.
Below is a representative five-forces model of competition for companies that make and serve pizza in
Suppliers
Rivalry
Among
Competing
Pizzerias
market position
and competitive
advantage
Competitive pressures coming from the
Competitive pressures coming
Substitutes
for Pizzerias
Threat of New
Entry into the
Pizza Industry
Consumers
Competitive
pressures
stemming
Competitive
pressures
stemming
n Rivalry among competing pizzerias—a moderate to strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.4 in Chapter
3 (and the related text discussion).
The pizza category of the U.S. fast-food industry is large and enjoying moderate growth of 6% to 8%
per year. U.S. sales totaled $32.5 billion in 2013; global sales were recorded at $42.8 billion. The pizza
delivery component accounted for $9.6 billion, or about 30% of the total pizza category in the U.S. The
top four pizza chain companies use franchising extensively, and have captured about a 52% share of
the U.S. market, with the remaining 48% attributable to regional chains and individual establishments.
Independents control about 57% of locations. Distribution channels include dine-in, carry-out, delivery,
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• Location
• Menu breadth and customization
• Brand image and brand reputation (for both customers and prospective new franchisees)
Although the narrative in the case suggests that Little Caesars, with its smaller footprint outlets, carry-
Students should be pressed to identify the following rivalry-related competitive pressures at work:
• The top four pizza chains have captured an approximate 32% share of the market, so competition to
• Intensity of competition is exacerbated by the fact that consumers remain cautious about dining
• Profitability for independent owner-operators is unknown, but it could be surmised that they are
• Independents also do not enjoy the higher margin cash flows from collected from franchisees.
In market circumstances where rivalry is very strong or even fierce, then the profitability of rival sellers
is definitely adversely impacted and industry profitability tends to be more modest than what we see
n Competitive pressures associated with the threat of new entry into the market for pizza restaurants
and take-out establishments—a moderate to strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.5 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify the threat of entry:
• Nearly 48% of the industry is comprised of independent operators of pizza establishments, as
• All food establishments are equally subject to government regulation (licensing) and safety
• Access to prime locations such as a strip shopping center or freestanding building that provides
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Factors that are acting to weaken the threat of new entrants:
• To compete at the level of the top four chains, however, capital and know-how required to provide
• To compete internationally requires the ability to learn quickly about international markets and deal
n Competitive pressures associated with substitutes for pizza restaurants and take-out establishments—a
moderate to strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.6 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify competitive pressures from substitute products:
• There are numerous alternatives to eating pizza, and there are many quick-service restaurants and
• Buyers can purchase frozen pizza as well as ready to serve (and in some instances freshly-prepared)
• Pizza lovers can choose to make their own pizza at home using prepared crusts and toppings or by
n Competitive pressures associated with the bargaining power of suppliers to pizza restaurants and
take-out establishments—a weak to moderate competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.7 in Chapter
3 (and the related text discussion).
Factors that are acting to strengthen competitive pressures from suppliers to pizza restaurants:
• Electricity or gas (or wood) is needed to bake pizza.
• Due to commodity price inflation, prices for flour, cheese, and paper have been trending upwards in
• The major raw materials and ingredients for making pizza are commodity products—flour, yeast,
• Commercial pizza ovens and furnishings and fixtures for dine-in are readily available from restaurant
• Unless labor markets are unusually tight, there is generally a steady supply of entry-level workers
• While independent operators are most susceptible to changes in commodity and other prices, pizza
chains that are primarily engaged in franchising are not, as input costs are borne by franchisees
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■ Competitive pressures associated with the bargaining power of buyers for pizza—a moderate to strong
competitive force, depending on the location of buyer
In assessing this competitive force, students should draw upon the information in Figure 3.8 in Chapter
3 (and the related text discussion).
Factors that are acting to strengthen competitive pressures from customers for pizza restaurants:
• Concerns about health and diet and use of natural versus artificial ingredients, or gluten-free versus
wheat crusts tends to be important only for the most discriminating pizza aficionados.
Factors that are acting to weaken competitive pressures from customers for pizza restaurants:
Conclusions concerning the Overall Strength of All Five Competitive Forces in the pizza
segment of the quick-serve restaurant industry: The collective strength of the five competitive
forces facing Papa John’s, Pizza Hut, Domino’s, Little Caesar’s, and other sellers of pizza is moderate to
2. What does your strategic group map of the pizza segment of the quick serve restaurant
industry look like? Is Papa John well positioned? Why or why not?
Strategic group maps are beneficial for determining relative company placement in the industry. A good
Students can choose among any of several strategic variables to divide the pizza industry into strategic
We have chosen to employ breadth of product line (in terms of menu offerings) and the type(s) of distribution
channel used for pizza sales. Other possibilities for axes might include scope of geographic coverage (i.e.
To set the stage and help students provide some context and data for creating a strategic group map,
Table 1 presents operating characteristics for competitors in the pizza restaurant industry, followed
by a listing of current strategies being pursued by Pizza Hut, Domino’s, Little Caesars, and the
independent operators—Papa John’s primary rivals in the domestic and global pizza market.
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TABLE 1. Operating Highlights and Key Strategies of the Major Rivals
in the Pizza Industry in 2013
—# of Outlets— —FY 2013—
Company Total U.S. Int’l
Revenues
($ billion)
Net
Earnings
($ billion)
Market
share,
%
Pizza Hut 14,582 7,846 6,736 $11.2 (1) $1.1 (1) 11.5%
Domino’s Pizza 10,800 4,900 5,900 $1.8 $0.1 10.0%
Papa John’s 4,428 3,269 1,159 $1.4 $0.7 6.0%
KEY STRATEGIES OF PIZZA OPERATORS
Pizza Hut
n Innovator/first-mover in use of technology—created 1st pizza ordering mobile app in 2009
n Realize format efficiencies—domestic Express units (no dine-in)
Domino’s
n Expand global presence in emerging markets via franchising (93% of new unit openings in 2013 outside
US)
n Acquire convenient store locations
Little Caesars
n Pursue narrow focus and simplicity
Case 4 Teaching Note Papa John’s International, Inc.
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Independent operators
n Offer higher-end pizzas and wider diversity of menu items
Figure 1 provides a representative strategic group map for the pizza restaurant industry.
FIGURE 1. A Representative Strategic Group Map of the
Operators in the Global Pizza Industry
Papa
John’s
Wide
Distribution Channels Utilized
Narrow
Dine-in
eastablishments
Both dine-in &
carry-out
Carry-out and
delivery only
Pizza
Hut
Independent
Pizzerias
Domino’s
Little
Caesars
Once students have come up with a map, then we think you should press them for their evaluation of what
we learn from the map. Any of the following questions can be posed to help draw out their views:
n How well is Papa John’s positioned?
n Which other industry members are well positioned?
n Which industry members are weakly positioned?
The point here is that students should not stop their analysis with just drawing a strategic group map. The
most important part of strategic group mapping is to draw some conclusions about the story the map tells.
