This article is based on a video originally recorded on Vetted Biz Youtube Channel
Papa John’s is a quick-service restaurant devoted primarily to the sale of pizza and other related food products. The majority of these restaurants are franchised, and operators of Papa John’s are considered independent contractors.
Papa John’s is a Delaware corporation incorporated on July 25th, 1991. It was originally founded in 1984 by Bam Inc., an Indiana corporation that operated a restaurant and tavern. In 1985, it was acquired by Schnatter & Ehringer Inc. In 1989, Schnatter & Ehringer Inc. changed their name to Papa John’s International, Inc., but are referred to as PJ Indiana in the FDD. By 1991, PJ Indiana was merged with Papa John’s, changing their corporate location from Indiana to Delaware. As a result of the merger, PJ Indiana ceased to exist.
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Papa John’s Franchise Information
This article provides insight into Papa John’s franchised units. As of 2021, according to their 2020 FDD, there are 3,164 total domestic (United States) Papa John’s restaurants, 600 of which were company-owned, including restaurants owned by franchisees in which Papa John’s has a majority interest (a total of 189 restaurants).
Robert Lynch was appointed as President and Chief Executive Officer in August 2019. He joined Papa John’s from Arby’s Restaurant Group where he served as president from August 2017. Jim Norberg was named Papa John’s Chief Restaurant Operations Officer in 2019. From 2016 to 2019, Jim worked as an independent consultant for JN Consulting in Los Angeles, California.
How is Papa John's Franchise Positioned in the Food and Beverage Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people are employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
If a pizza shop is doing in excess of $450,000 annually, the multiples will increase. Social media and reviews are important factors and can affect the value of goodwill of a pizzeria.
A new pizzeria owner needs to have knowledge of the regular restaurant stuff like delivery choices, packing of delivery food to show clean and safe transport and needs to embrace new technology. The bigger the part of the community the place is, the higher the price received by it – community pizzerias are well-liked. When purchasing an existing pizza shop, it is important to go through all purchases and expenses of the store. During due diligence, all of these expenses will help to project future results. Pizza experience is important for a prospective pizza shop owner. Experience along with marketing are important skills to have in this business. A buyer should expect to work the business. Owners that run pizzerias are more successful than those who run absentee. Diversifying with some other pasta and sandwich items helps the overall business as it’s hard to get regular patrons to eat pizza on a more than weekly cycle. With other offerings, you will increase the regular customer returns.
Papa John’s competes in the Food and Beverage market against big brand companies such as Domino’s, Pizza Hut, etc. Papa John’s franchisees also compete against other nearby Papa John’s locations.
How Much is a Papa John’s Franchise?
The initial Papa John’s Franchise Fee is a $25,000 – a $5,000 deposit per restaurant on signing the Development Agreement and the balance of $20,000 upon signing of the Franchise Agreement. You have to pay this upfront fee when opening a Papa John’s franchise.
Papa John’s Franchise Cost
The estimated total investment necessary to begin the operation of a Papa John’s Franchise ranges from $200,130 to $788,930. The following costs are part of the upfront costs included in the initial investment for a Papa John’s. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Papa John’s franchise in 2022.
Your Estimated Initial Investment for a Standard Restaurant
| Expenditures | Estimated Amount or Low-High Range | Whether Refundable | To Whom Paid |
|---|---|---|---|
| Initial Franchise Fee | $25,000 | No | Us |
| Real Estate Brokerage | $0 to $10,000 | No | Real Estate Broker |
| Professional Fees | $500 to $12,000 | No | Attorneys and Accountants |
| Construction/Leasehold Improvements | $50,000 to $400,000 | No | Outside Suppliers |
| Furniture, Fixtures, and Equipment | $68,000 to $150,000 | No | Outside Suppliers and Affiliates |
| Information System | $20,000 to $30,000 | No | Us |
| On-Site Support Fee | $2,500 | No | Us |
| On-Site Installation Fee | $2,000 to $5,000 | No | Us |
| Help Desk Service Fee | $210 | No | Us |
| Technology Maintenance Fee | $720 | No | Us |
| Signage | $5,000 to $20,000 | No | Outside Suppliers |
| First Months Rent | $1,200 to $5,000 | No | Landlord |
| Security Deposit and other deposits, Insurance Premium | $500 to $8,500 | Yes | Landlord |
| Opening Inventory and Supplies | $3,000 to $10,000 | No | Us, Our Affiliates or Outside Suppliers |
| Opening Advertising | $3,000 to $10,000 | No | Third Parties |
| Training Expenses | $1,000 to $30,000 | No | Third Parties |
| Miscellaneous Opening Costs | $2,500 to $20,000 | No | Third Parties |
| Additional Funds – 3 months | $15,000 to $50,000 | No | Third Parties |
| TOTAL (PRE-OPENING AND FIRST 3 MONTHS OF OPERATION) | $200,130 to $788,930 |
Papa John's Franchise Requirements
Net Worth and Capital requirements for a new franchisee:
- Minimum net worth of $750,000
- Minimum of $250,000 in cash or liquid assets
- These are minimum requirements and do not represent the total potential costs to open and operate one or more Papa John’s units.
Additional franchise qualifications:
- Business professionals with management experience
- Restaurant or retail experience preferred
- Multi-unit management experience preferred
Owning a Papa John’s Franchise Requires Ongoing Fees
Royalty: 5% of Net Sales of the restaurant for each Period; 6% for Small Town Non- Traditional Restaurants.
Marketing Fee: Minimum – 2% of Net Sales. The franchisee can opt to take the Cooperative contribution rate down to the minimum amount of 2% to make the total Marketing Fund contribution rate 7% of Net Sales. This can be done with a majority vote of restaurants in the Cooperative or by agreement. Co-op members may opt to pay the higher amount, so the current highest contribution rate may well exceed 2.5%. Non-Traditional Restaurants pay 25% of the co-op’s contribution rate for standard restaurants.
Local Marketing: Minimum – 8% of Net Sales, fewer amounts contributed to the Marketing Fund and Cooperative; Minimum 2% of Net Sales for Small Town Non-Traditional Restaurant.
How much do Papa John’s franchise owners make?
Corporate Store and Franchise U.S. Restaurant Sales For our fiscal year 2021
| Franchise | |
|---|---|
| Average Unit Sales | $1,120,496 |
| Median Unit Sales | $1,101,127 |
| Range of Unit Sales | $364,154 – $3,177,600 |
2021 Papa John’s Median Franchise Sales: $1,101,127
| Initial investment (midpoint) | % Profit margin of median franchise sales | Estimated Profits | Time to recoup investments- |
|---|---|---|---|
| $494,530 | 10% | $ 110,112 | 6 years |
| 15% | $ 165,169 | 4.5 years | |
| 20% | $ 220,225 | 3.75 years |
Based on the median sales provided by Papa John’s franchise locations, at an average of a 15% profit margin it will take around 4.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.
Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Food and Beverage stores; the extent of market penetration and brand awareness that Papa John’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Papa John's Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Papa John’s Pizza, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the pizza franchise industry’s selling price multiples to determine Papa John’s resale value.
Under $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.34
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.86
When you go to sell a Papa John’s franchise based on the median multiple of .34 and net sales in 2021 of $1,101,127, it would sell for $374,383. This is lower than the midpoint investment of $494,530.
However, as an owner of multiple Papa John’s franchises, you do have the ability to make a massive profit. Owners in the Pizza Industry with over $5 million in sales have a median multiple of .89. So, if you had 5 Papa John’s franchises this would be ~$5,505,635 in sales. They would sell for $4,900,015. This is a massive profit on the estimated initial investment of $2,472,650.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators. Below are some examples of Papa John’s franchises for sale:
Papa Johns Franchise for Sale with Amazing Earnings
| Jefferson County, AR |
|---|
| Asking Price: | $350,000 | Cash Flow: | $147,679 |
| Gross Revenue: | $715,149 | Inventory: | N/A |
| EBITDA: | N/A | Rent: | $1,200 |
| FF&E: | $0 | Established: | 2015 |
Papa Johns Franchise with Fantastic Sales Trend
| Lehigh County, PA |
|---|
| Asking Price: | $900,000 | Cash Flow: | $260,028 |
| Gross Revenue: | $1,019,985 | Inventory: | N/A |
| EBITDA: | N/A | Rent: | $2,174 per Month |
| FF&E: | $0 | Established: | 2013 |
EBITDA multiples for Papa John’s franchises can range from 2.5 – 3.5x.
Papa John's (Franchisor) Income Statement Key Insights:
Consolidated Statement of Comprehensive Income (Loss)
| Years Ended in | |||
|---|---|---|---|
| December 26, 2021 | December 27, 2020 | December 29, 2019 | |
| Net income before attribution to noncontrolling interests | $124,955 | $60,614 | $5,657 |
| Other comprehensive income (loss), before tax: | |||
| Foreign currency translation adjustments | (1,397) | 2,344 | 1,638 |
| Interest rate swaps | 6,848 | (7,517) | (10,783) |
| Other comprehensive income (loss), before tax | 5,451 | (5,173) | (9,145) |
| Income tax effect: | |||
| Foreign currency translation adjustments | 321 | (539) | (377) |
| Interest rate swaps | (1,575) | 1,729 | 2,480 |
| Income tax effect | (1,254) | 1,190 | 2,103 |
| Other comprehensive income (loss), net of tax | 4,197 | (3,983) | (7,042) |
| Comprehensive income (loss) before attribution to noncontrolling interests | 129,152 | 56,631 | (1,385) |
| Less: comprehensive (income) loss, redeemable noncontrolling interests | (2,609) | (824) | 519 |
| Less: comprehensive (income), nonredeemable noncontrolling interests | (2,330) | (1,858) | (1,310) |
| Comprehensive income (loss) attributable to the Company | $124,213 | $53,949 | $(2,176) |
Papa John’s is a very profitable business for the franchisor with retained earnings of $124.2 million in 2021. After controversies in 2019 and 2019, the company was doing very badly, but new management seems to have restored some growth.
How many Papa John’s units have opened and closed?
Systemwide Outlet Summary for Years 2018 to 2020
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 2554 | 2544 | -10 |
| 2020 | 2544 | 2546 | 2 | |
| 2021 | 2546 | 2564 | 18 | |
| Company- Owned | 2019 | 645 | 598 | -47 |
| 2020 | 598 | 588 | -10 | |
| 2021 | 588 | 600 | 12 | |
| Total Outlets | 2019 | 3199 | 3142 | -57 |
| 2020 | 3142 | 3134 | -8 | |
| 2021 | 3134 | 3164 | 30 |
Over the last three years, the company has been in decline. Company-operated stores have decreased and franchises have marginally grown. Over the last three years, only 10 franchises have opened in total.
Conclusion
The toll of the 2018 controversy has been significant on franchisees, according to one article published in 2019 by Restaurant Business. So, the pizza market is extremely competitive, with the determining factor for consumer loyalty being price.
However, Papa John’s in 2019 instituted new management by naming Robert Lynch CEO and Jim Norberg Chief of Restaurant Operation. Its new management will need a couple of years to see if they can gain customer and franchisee loyalty back but the early signs are good.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage Industry.
