Papa John's Tries to Hold the Price of Its Pies

While Other Pizza Makers Lean Heavily on Discounts, No. 3 Chain Grows Sales With Mostly Modest Deals

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In the $30 billion pizza category, aggressive discounting and price promotion are a way of life. Except at Papa John's.

Papa John's website advertises a limited-time-only $11 pizza. It's been trying to hold the line on discounting.
Papa John's website advertises a limited-time-only $11 pizza. It's been trying to hold the line on discounting.
The No. 3 pizza chain has been trying hard to hold the line on discounting, instead sticking with its long-held premium-products-at-premium-prices message. While leader Pizza Hut pushes its $10 Dinner Box (one medium one-topping pizza, five breadsticks and 10 cinnamon sticks), No. 2 Domino's markets its new artisan pizzas for $7.99, and fourth-ranked Little Caesars continually offers $5 large carry-out pizzas, Papa John's has largely resisted drastic discounts and mostly relied on milder deals, such as $11 large pizzas.

Its conundrum is faced by many marketers, especially in this economy: How do you gain share without relying on heavy discounting, a move that could harm long-term brand image?

Deep discounting "doesn't build loyalty or consistency -- it's cheapening your product," said David Hale, CEO of Good Eats, a fast-food consultancy. "The problem with discounting is that people will buy the products while the prices are down, but if they go back up, they'll [hold off on buying] until prices come back down again."

"The challenge is , if you're not going to be the lowest price point, what can you offer?" said Mary Chapman, director of product innovation at industry consultant Technomic. "Where Papa John's is concerned, hammering home the

The company has stood by its better-product strategy.
The company has stood by its better-product strategy.
ent message and being consistent with it has been an asset in maintaining the consumers who are looking for value but still need that quality component."

Papa John's is acutely aware that competitive pricing is a real threat. During a recent earnings call, Chief Marketing Officer Andrew Varga said, "We're always looking at pricing just to see what's going to make sense for the consumer and how they're resonating with our brand." He told Ad Age that the chain has been able to grow sales by sticking with a "premium price point," which gives Papa John's "a lot of encouragement against the competitive set."

Papa John's, whose agency is Zimmerman Advertising in Fort Lauderdale, Fla., was discounting more than it is now. In the first half of 2010, the chain ran a $10-for-any-pizza promotion. Later that year it offered $10 three-topping pizzas before turning to promoting $11 pizzas, which it has offered since February 2010. Though it's raising the cost by only a dollar, "an extra dollar makes a big difference," said Mr. Varga.

Papa John's resolve may become even harder to keep because its rivals seem, at least in part, to be benefiting from their cut-rate offers. Domino's domestic same-store sales grew 6.8% during the fourth quarter and 3.5% for the full year. Pizza Hut in the U.S. had fourth-quarter same-store sales gains of 6%, while the full year was flat.

Meanwhile, Papa John's North American same-store sales, were up 1.7% in fourth-quarter and 3.4% in full-year 2011, but the chain missed Wall Street 's expectations. Janney analyst Mark Kalinowski noted in a recent report that "positives include strategic emphasis on high-quality pizza." His risk factors included "losing market share to larger competitors and unfavorable commodity costs."

During its fourth-quarter and full-year earnings call, Papa John's founder John Schnatter said rivals' deep discounting created uneven results for the company in 2011. "Our competitors are so big and they spend so much money that from time to time they do things that make [it] ... not as easy to be as consistent as we'd like," he said.

Mr. Varga said that even though Domino's overhauled its pizzas, Papa John's isn't concerned about the competition, adding that consumer satisfaction and brand impressions are at "all-time highs."

But, like Domino's, Papa John's couldn't resist the lure of discount promotion for a new product. On the heels of its 2011 results, the chain last week unveiled a limited-time offer for a $10 five-sausage large pizza. A spokeswoman for the company said this does not go against plans to avoid deep discounting, as it is a limited offer.

Papa John's, which last year spent $112 million on media in the U.S., is significantly outspent by Pizza Hut and Domino's. Last year those two spent $219.6 million and $185.5 million, respectively, on U.S. measured media, according to Kantar. Mr. Varga said the chain is hiking its spending, particularly in TV and in digital, but declined to provide details. He said it will allow the chain to "take advantage of the direct-response nature of the category."

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