Papa John’s may still be one of the most well-known pizza chains in the United States, but the company has certainly seen better days. Its founder, John Schnatter, is responsible for having built Papa John’s into a cheesy empire, but Schnatter has also harmed the company in a number of different ways.
Today, Schnatter is longer the big papa calling the shots at Papa John’s, but his mistakes have taken a heavy toll on the company’s franchisees. In the 1990s, Papa John’s was doubling in size nearly every year and opening a location was pretty cheap as far as franchise standards go, it cost only around $100,000. But the good times have come to an end, and opening a Papa John’s just isn’t what it used to be.
Given that Papa John’s was growing so fast only two decades ago, today’s earnings are disappointing. A report from Franchise.com estimates that Papa John’s franchise operators are making around $67,000 a year. Now, an annual salary of $67,000 is still considerably above the median wage for U.S. citizens. That said, it’s quite a bit lower than what other fast food franchise operators are making. Franchise operators from McDonald’s to Taco Bell and Five Guys all make considerably more. In pizza terms, that’s a pretty dinky slice compared to the rest of the industry.
And the worst thing is, many franchisees might actually make far less than $67,000. In February 2019, Restaurant Business reported that, because Papa John’s sales plummeted so badly in 2018, domestic operators were only making around $40,000 a year, and that’s before taxes. These low earnings are due to two primary factors, that are more or less congruent with each other. Sales have dwindled as much as 30 percent in some areas, and Papa John’s franchise operators simply can’t compete with the low-price deals offered up by the company’s rivals. Long story short? The pizza business can be brutal.
Normally, companies will help make up franchisee losses by helping out with things like marketing. But it’s never a good sign when franchise owners have to call on corporate for help in the form of financial relief. The 2018 fallout from John Schnatter’s downfall was so bad for Papa John’s that the company had to reduce its monthly royalty fees for franchise owners, as well as cut down on the cost of food materials. According to Forbes, owners were having to reduce employee hours because of dwindling sales, so financial relief was handed down from the company to soften growing franchise grievances. In the end, Papa John’s even pledged $500 per store to help franchise owners wipe clean any image of John Schnatter.
But there is some good news for potential Papa John’s investors. While the profits may be considerably less than some fast food franchises, so too is the cost of opening a unit. All in, opening a Papa John’s only costs around $300,000, mostly because you don’t need to pay for a large sit-in dining area. For comparison, you might have to shell out over $2 million if you want your own McDonald’s. Papa John’s also has a much lower net worth requirement, and only asks that franchise owners have a net worth of $250,000, with $75,000 of that in liquid assets. Even the $25,000 start-up fee is a lot lower than most other franchises, with the only lower fee out there being Chick-fil-A’s, at $10,000.
What’s more, in July 2018 Papa John’s actually waived that start-up fee altogether, and even reduced royalty fees for each franchisee’s first four years of operation. But whether this offer is still in effect isn’t known. All things considered, owning a Papa John’s franchise may not be the worst way to enter into becoming a fast food business owner. It’s certainly not as lucrative as it once was, but might prove an easier and cheaper way to get into the game. And, with sales recovering a little as of late 2019, there might be better days ahead, too.
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