For the second time in two years, customers prefer Domino’s Pizza as their favorite pizza over Papa John’s. The pizza delivery business is certainly getting more competitive post-lockdowns, but this result marks a real reversal of fortune for the company I founded from the broom closet of my dad’s tavern in 1984.
Recently, the 2020-2021 American Customer Satisfaction Index (ACSI) for the restaurant industry was released and showed thatDomino’s Pizza beat Papa John’s in customer satisfaction for the second year in a row. Papa John’s also received its lowest score since 2009, which was under the leadership of then-CEO, Nigel Travis.
When I first started making pizzas out of the broom closet, I took a job at Domino’s for two weeks to learn what they were doing — and how we could do it better. We grew Papa John’s from one store to over 5,000 stores over 34 years based on quality products and customer service.Before I stopped leading the company day-to-day in 2016, Papa John’s had won the ACSI award among pizza delivery companies for 16 out of 18 years – starting in 1999.
The ACSI report makes it seem as though Domino’s is now using Papa John’s techniques to improve their customer experience.
The biggest reason for this result is that the current management abandoned my matrix measurement system for quality and service. I’ve always believed that what gets measured gets done, and the company’s lack of quality measurement is resulting in a subpar customer experience. We were always in the people business, not just the pizza business. Now it appears to be a pizza company run for Wall Street and the benefit of executive stock options.
Due in part to the booster shot it got from the pandemic lockdowns, Domino’s has been experiencing strong top-line growth, strong bottom-line growth, and multi-year baseline performance growth — 2020 and 2021 to-date have resulted in double-digit growth for total revenue, gross profit, and operating income on top of their 10-year growth performance. This impressive track record is the result of big increases in year-over-year same store sales combined with store unit growth that began well before the pandemic.
Things have been very different for Papa John’s in recent years. The company suffered double-digit declines in transactions and sales, nearly ending up in default in the process, until the COVID crisis threw it a much-needed lifeline. As a result of the pandemic-era lockdowns and stimulus, sales have surged at Papa John’s over the past 15 months. While CEO Rob Lynch has largely attributed positive sales results to new product introductions (we had 20 new products introductions from 2014-2018), the truth is that without the lockdowns the company’s performance would be starkly different.
In 2020, the level of transactions was negative and net income was less than 60% of what it was in 2017. Despite the huge bump from COVID restrictions, 2020 EBITDA was still 30 percent lower than in 2017. Additionally, the company took a special charge in 2020-2021 of $15-20 million to account for the relocation of its headquarters to Atlanta. In the process, they ditched a bunch of good, long term, and hardworking people, many of whom were with the company from the beginning, negatively impacting hundreds of families.
Management has also overseen anemic new store unit growth at Papa John’s. New stores are a very important indicator for future financial growth — just look at Domino’s — but there are fewer domestic Papa John’s stores today than when I stopped managing the company on a day-to-day basis in 2016.
The truth is customer satisfaction has been dropping steadily because the founder hasn’t been around to fix management’s mistakes and misdirection. My departure in 2018 followed the actions of our former ad firm and certain board members, who allegedly conspired to set me up and create a false narrative about comments I made against racism on a media training call.
The trajectory of the past three years has resulted in a weakened relationship with the Papa John’s customer base. The low quality, low growth business model in place today is also likely to produce weaker results for the company’s mid-term and long-term future performance now that the lockdowns are being lifted and Americans are returning to their normal routines.
The pizza delivery business is highly competitive and will only be more so now that the lockdowns have been lifted. The Domino’s effect is certainly reflected in the latest customer satisfaction survey, showing who makes America’s favorite pizza today.
Yet, like I did when I was dumpster diving at Domino’s, Papa John’s needs to get back to measuring quality in each and every store and beating the competition with a superior quality product and excellent customer service to regain its standing as the favorite pizza for Americans who love quality.
Papa John Schnatter is the founder and former Chairman and CEO of Papa John’s International (PZZA).
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