Papa Johns is one of the familiar names across the case studies that we engage within our management courses. This American pizza restaurant franchise is the fourth largest pizza restaurant chain in the United States. However, the firm was unable to establish itself as it expected in India. In July 2017 Papa Johns had to shut down its remaining 33 restaurants. The people who were aware of the entire matter say that this plan was going on for over a year.
The Beginning of Papa Johns
Papa Johns Entry In India
Papa Johns Expansion in India
Challenges and the Fall of Papa Johns
FAQ
The Beginning of Papa Johns
Papa Johns was founded in 1984 by John Schnater. After his venture became a success the company went public in 1993. The growth of Papa Johns was so phenomenal that within a year after that it had 500 stores and by the year 1997 it had a total of 1500 stores. Various surveys including PMQ Pizza magazine found out that the net profitability of the fourth largest pizza chain in the United States was way behind its competitors.
Today Papa Johns has more than 5166 establishments in its name which is inclusive of both restaurants and company owned stores. The restaurant chain has opened its franchises in many countries across the globe including Russia, Spain, Colombia, United Kingdom, Mexico et cetera.
Papa Johns Entry In India
Papa John’s took its first step in India in 2006. They were run by Om Pizza and Eats. This firm was owned by the nephew of the steel baron Lakshmi Mittal - Atulya Mittal. Their main intention was to seize the pizza market in India and attract the customers of the already established pizza giants in India like Dominos and Pizza Hut. Papa John’s first opened four outlets in India.
They had very clear reasons for choosing India to expand their business. One of the main reasons was the immense efficiency of the consumer food market as far as national productivity, innovation and R&D was concerned.
The pizza segment was contributing a major part of India's gross fast food market. Along with this the scope for tourism and the presence of a mix and diverse culture opened up a wide range of opportunities in front of the company as far as experimentation and innovation in their products are concerned.
They were also sure about the much required glocalisation that has to be done to suit the Indian taste and culture. They also decided to promote their brands in different ways including advertisements in all kinds of media. They also ensured that the pricing of their products aligned with the capacity of the local people.
Shubham Kumar
Papa Johns Expansion in India
In June 2006, Papa Johns opened its first outlet in India in Noida. Aiming to take advantage of the rising middle class in India, it planned to open various outlets in all the prominent places in India. These places include Delhi, Haryana, Punjab, Himachal Pradesh, Rajasthan, Uttar Pradesh and Uttaranchal. The outlets were opened by Om Pizza Eats India, the master franchise for Papa John's.
Om Pizza had been operating more than 15 Papa John’s outlets across India and had a revenue of Rs.25 crores and expected an annual cash loss of Rs.10 crores. However, in December 2013 the controlling stakes in the major franchise were bought by Avan projects for Rs 25 crores.
Along with Avan Projects and Global Franchise Architects, Papa John’s announced a merger with the existing Pizza Corner stores in South India. This happened during the first quarter of 2015.
This merger helped Papa Johns to expand the number of stores in India by more than 40 stores. But it had its own downsides. Now they had outlets in major south Indian cities like Bangalore, Chennai and Hyderabad. By the end of 2015, they were operating in 11 cities in India. They were Mysore, Bengaluru, Hyderabad, Chennai, Vellore, Maddur, Pune, Hosur, Mumbai, Mandya, Tirupati. Do note here that by this time itself the first outlet at Noida was already closed.
Vibhavari Madki
Challenges and the Fall of Papa Johns
Unprepared for Competition
In India, Papa John’s had to face a lot of unprecedented challenges. Not all the challenges can be included in this category of unexpected, some of the problems were due to the lack of planning and vision of the firm.
The first one was its inability to compete with the giants in the industry like Pizza Hut and Domino's. Not only that, the other two really took advantage of the shortcomings of Papa John’s which made things harder for the company.
Although they trained their employees efficiently to use technology and build the name of the brand, they were unable to reach the lighter end of the tunnel. They lost literally all of their customers to the giants - Domino's and Pizza Hut.
As mentioned earlier the net profitability of Papa Johns was way behind that of Domino’s and Pizza Hut. Reports say that their net margin was only 4.6% of their total sales while Domino's Pizza and Pizza Hut had a net margin of 8.2% and 7.9% respectively. This was the data of 2014 and it was during this dangerous juncture that Papa Johns came into terms with Pizza Corner for the merger.
They did not consider the risk factors involved with such a merger and neither did they calculate the risk that is associated with a probable failure. When they took so much on themselves, the management was unable to operate efficiently in their newly opened stores.
Lack of First Mover’s Advantage
During this time Domino’s was expanding its outlets in India like wildfire. The company had only 364 stores in 2010. It rose to a whopping 1127 stores by the time it was 2017. As far as Papa John’s was concerned it had only 66 stores across 11 cities of India while Domino’s had launched their outlets in more than 265 cities.
They were also quick enough to become the first food service company that launched online and mobile ordering across India in a successful manner. The phenomenal growth of Domino’s crippled the expansion of Papa Johns. They were unable to compete with the extremely fast delivery and sophisticated technology of Domino’s.
One of the biggest setbacks that Papa Johns had to face was that they never got to have the first mover’s advantage. They were always the ones to watch Domino’s faring heights helplessly. This enabled Domino’s to sell its pizzas at a very low profit margin. They were able to bear the cost because of the wider presence they had across the nation. This further adversely affected Papa John's pizza.
Over Dependence on Technology
While most of the firms, especially in the fast-food market, prefer people who are warm and cordial to people, Papa John’s looks for employees who are technically sound.
It forgot the fact that the staffing in the stores plays a very important role in establishing any outlet. This along with the absence of good training and the lack of a sound employer-employee relationship put Papa John’s in a very dark spot. One must say that they were dependent more on technology than developing their human resources.
Unwise Choices
It is always important to watch the indicators such as exchange rate, interest rate, stock exchange, imports, exports and similar details that inform us about the world economy. By inferring the nature of these indicators every business firm should be able to improve and work upon their EBITDA. However, Papa Johns was more interested in building its brand rather than strengthening its foundation.
They did not pay enough attention to the existing stores while they were busy opening up newer outlets in South India. When things were going south instead of looking for ways to improve their business they went on for a merger with Pizza Corner which demanded a huge investment. The inability to choose the right choice among the available choices further paved the way to the exit of Papa John’s from the Indian market.
Customer Dissatisfaction
There is a very common phrase that never gets old in the business world – the customer is king. It can be observed that many times Papa John's pizza forgot this mantra. While they had planned glocalisation of the menu, it did not materialise well when implemented.
In India, pork consumption is not that popular. Papa John’s should have identified this cultural nuance and excluded or kept a low profile for their pork dishes. There are already existing examples where many international companies in the food business appropriate their menu depending upon the country if not the regional states. However, Papa John’s did not look into it and their dishes were not accepted as dearly as they accepted Domino’s and Pizza Hut dishes.
It is understood that it does not mean that the whole of India does not eat pork, the numbers were very less and this led to a situation where there was absolutely no demand for the pork varieties.
This again would not have been a problem had they been able to effectively popularise their other dishes. But they were very behind in the market while Dominos and Pizza Hut had an extremely localised menu that aligned with the likings of pizza lovers. This led to a rapid decline in sales.
Conclusion
It can be concluded that the inability of Papa John’s to analyse the existing market and the nuances of the local market made them highly incompetent. While they saw a diverse population as an opportunity to expand their outlets they did not foresee the challenges that are associated with it. Being in the business world they should have been more careful about the correct signs that we see around and should act accordingly.
The untimely merger also came as a blow to the fourth largest pizza delivery chain in the United States of America. Had they researched more upon the demographic distribution of the Indian population and the challenges and advantages of the Indian fast food market, they would have had better luck in this country.
The case of Papa John’s is an example for all the entrepreneurs out there to have a clear understanding of the existing market and clearer vision for their business in the future before getting on to it. .
FAQ
Who founded Papa Johns?
Papa Johns was founded by John Schnatter in 1984.
Why did Papa Johns failed in India?
The competitors of Papa John's, already started earlier and succeeded in analysing the local market. These companies not being Indian companies were successful in capturing the Indian market which Papa John's failed.
Who were the biggest competitors of Papa Johns in India?
Dominos and Pizza Hut were biggest competitors of Papa Johns, which were already successful in capturing the Indian market before Papa Johns.
Author: Anagha S
Source : https://startuptalky.com/papa-johns-failure-case-study/
Date : 2021-07-10T05:30:00.000Z