What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-02-25 · 53 added, 39 removed, 160 unchanged (37% of the section changed)

11 unchanged sentences

Our marketing and menu strategies emphasize the quality of our ingredients and our new product innovations to accelerate sales.

Our menu innovations in 2020 included Garlic Parmesan Crust, toasted handheld “Papadias” flatbread-style sandwiches, and Jalapeno Popper Rolls, followed by Epic Stuffed Crust Pizza in the first quarter of 2021.

New product innovations are designed to increase sales without adding costs or significant operational complexity to our restaurants.

One of our most recent menu innovations, the new Epic Stuffed Crust pizza, was officially launched in the first quarter of 2021 and has been one of our most successful launches to date.

The Epic Stuffed Crust pizza, and other menu innovations like our recently announced New York Style pizza, along with Garlic Parmesan Crust, toasted handheld “Papadias” flatbread-style sandwiches and Jalapeno Popper Rolls launched in 2020, demonstrates our commitment to building new long-term sustainable menu products on which we can continue to innovate.

These products form the foundation of our growing comparable sales and improving unit economics.

We utilize technology to deliver a better customer experience, improve operational efficiencies and inform our decision-making.

Our loyalty and one-to-one marketing platforms help us retain loyal customers and attract new ones.

We also partner with three of the four top domestic delivery aggregators to meet customer demand for our products.

The novel coronavirus (“COVID-19”) pandemic has accelerated customer demand for our products through alternate delivery channels, and these changes have enabled us to meet customer demand during the pandemic, especially during peak times when our delivery teams are working at full capacity.

We care about the health and safety of our team members and customers.

The Company has taken steps to mitigate the impact of the COVID-19 pandemic by implementing extra health and safety measures across our business, including No Contact Delivery and enhanced cleaning and sanitization measures.

We offered virtual doctor’s visits for team members and paid special bonuses to many of our front-line employees in addition to existing benefits such as no-cost mental health support and affordable health plan options.

We continue to expand our footprint, both domestically and internationally.

Our growth is dependent on maintaining a strong franchise system and improving unit economics.

We seek to attract and retain franchisees with experience in restaurant or retail operations and with the financial resources and management capability to open single or multiple locations.

Our loyalty program (“Papa Rewards”) and one-to-one marketing platforms help us retain loyal customers and attract new ones.

As our loyalty program grows, it continues to deliver strategic benefits.

Papa Rewards customers are significantly more profitable than non-loyalty customers since we are able to directly engage them with targeted personalized offers that drive higher frequency, ticket price and satisfaction.

We also partner with top domestic delivery aggregators to meet customer demand for our products.

Aggregators have also helped navigate the labor shortage that the Company is experiencing by providing supplemental delivery drivers, especially during peak times when our delivery teams are working at full capacity.

We continue to pursue a growth strategy by expanding our footprint, both domestically and internationally.

In August 2021, we announced our expanded partnership with Drake Food Service International to open over 220 restaurants across Latin America, Spain, Portugal and the United Kingdom (“UK”) by 2025.

I n September 2021, we announced the Company's largest domestic development deal ever with Sun Holdings, who will open 100 new locations in high-growth markets in Texas and the South by 2029.

Most recently, in January 2022, we announced a partnership with FountainVest Partners, one of Asia’s leading independent private equity firms, to open more than 1,350 new stores across South China by 2040, the largest franchisee development agreement in our history.

A large majority of Papa John’s restaurants are franchised.

We believe a franchised model provides resiliency of earnings and presents us with an opportunity to enhance growth with less capital investment than a traditional company-operated restaurant model.

We seek to attract and retain franchisees with experience in restaurant or retail operations and with the financial resources and management capabilities to open single or multiple locations.

While each Papa John’s franchisee manages and operates its own restaurants and business, we devote significant resources to providing franchisees with assistance in restaurant operations, quality assurance, technology, training, marketing, site selection and restaurant design.

The COVID-19 pandemic has negatively impacted our ability to open stores, both domestically and internationally, but we have expended additional resources to drive our development efforts when the pandemic subsides.

We expect overall unit growth to come increasingly from international markets.

Our success depends on our ability to recruit, motivate and retain a highly qualified workforce in an intensely competitive environment.

We believe that increasing diversity in our workforce will also help us drive innovation that reflects and resonates with the increasing diversity of our customers domestically and globally.

Papa John’s franchise owners benefit from our award-winning brand, food service capabilities and the Papa John’s digital and delivery model.

Segment Overview

Papa John’s has defined four reportable segments:

Papa John’s has four defined reportable segments:

Domestic Company-owned restaurants, North America commissaries (Quality Control Centers), North America franchising and International operations.

Domestic Company-owned Restaurants

The Domestic Company-owned restaurant segment consists of the operations of all domestic Company-owned restaurants (“domestic” is defined as the contiguous United States) and derives its revenues principally from retail sales of pizza, “Papadias”, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

The Domestic Company-owned restaurant segment consists of the operations of all domestic Company-owned restaurants (“domestic” is defined as the contiguous United States) and derives its revenues principally from retail sales of pizza, Papadias, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

Of the total 3,339 North American restaurants open as of December 26, 2021, 600 units, or approximately 18%, were Company-owned.

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We are committed to maintaining sound restaurant unit economics.

Operating Company-owned restaurants allows us to improve operations, training, marketing and quality standards for the benefit of the entire system.

Operating Company-owned restaurants allows us to improve operations, training, marketing and quality standards for the benefit of the entire Papa John’s system.

North America commissary

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International

The International segment principally consists of distribution sales to franchised Papa John’s restaurants located in the United Kingdom (“UK”) and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees.

The International segment principally consists of distribution sales to franchised Papa John’s restaurants located in the UK and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees.

International franchisees are defined as all franchise operations outside of the United States and Canada.

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are operated by franchisees pursuant to license agreements or by other third parties.

All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all others,” which consists of operations that derive revenues from the sale, principally

to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all others”.

These consist of operations that derive revenues from franchise contributions to our marketing funds and the sale, principally to Company-owned and franchised restaurants, of

information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms, and printing and promotional items.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 22” of “Notes to Consolidated Financial Statements” for financial information about our segments.

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Ending - December 26, 2021

Net unit growth (decline) - 2020

Net unit growth

Although most of our domestic Company-owned markets are well-penetrated, our Company-owned restaurant growth strategy is to continue to open domestic restaurants in existing markets as appropriate, thereby increasing consumer awareness and enabling us to take advantage of operational and marketing scale efficiencies.

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We have co-developed domestic markets with some franchisees or divided markets among franchisees and will continue to use market co-development in the future, where appropriate.

As of December 27, 2020, we have development agreements with our franchisees for approximately 210 additional North America restaurants, the majority of which are committed to open over the next two years, and 1,250 additional international franchised restaurants, the majority of which are scheduled to open over the next six years.

Franchise Program

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Incentives offered from time to time, including new store incentives, will reduce the contractual royalty rate paid.

We provided financial assistance for traditional North America franchisees in 2018, 2019 and 2020 in the form of lower royalties, royalty-based service incentives, targeted relief as well as additional contributions to Papa John’s Marketing Fund (“PJMF”).

We provided financial assistance for traditional North America franchisees in 2020 and 2019 in the form of lower royalties, royalty-based service incentives, and targeted relief as well as additional contributions to Papa John’s Marketing Fund (“PJMF”).

This temporary franchisee assistance program concluded in the third quarter of 2020.

Over the past several years, we have offered various development incentive programs for domestic franchisees to accelerate unit openings.

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The remaining terms applicable to the operation of individual restaurants are substantially equivalent to the terms of our domestic franchise agreement.

Development agreements will be negotiated at other-than-standard terms for fees and royalties, and we may offer various development and royalty incentives to help drive net unit growth and results.

Development agreements will be negotiated at other-than-standard terms for fees and royalties, and we may offer various development and royalty incentives to help drive unit growth and results.

Franchise Operations.

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As of December 26, 2021, we employed approximately 14,000 persons, of whom approximately 11,500 were team members at Company-owned restaurants, approximately 700 were management personnel at Company-owned restaurants, approximately 700 were corporate personnel and approximately 1,100 were QC Center and our print and promotions subsidiary personnel.

Most restaurant team members work part-time and are paid on an hourly basis.

Our team members are non-unionized, and most restaurant team members work part-time and are paid on an hourly basis.

Our franchisees are independent business owners, so their employees are not our employees and therefore are not included in our employee count.

We estimate the total number of persons in Papa John’s system, including our team members, franchisees and the team members of franchisees, was approximately 130,000 as of December 27, 2020.

We estimate the total number of persons in the Papa John’s system, including our team members, franchisees and the team members of franchisees, was approximately 115,000 as of December 26, 2021.

Diversity, Equity and Inclusion

Our commitment to diversity, equity and inclusion is rooted in our belief that having a Papa John's family that fully reflects and celebrates the global nature of our brand is the right way to do business.

We are building a culture of leaders who believe in inclusivity, diversity and winning.

After being recognized by Forbes in 2021 as one of America's Best Employers for Diversity, Papa John's joined Forbes' annual list of the World's Best employers.

We were honored to rank #1 amongst all pizza companies and #2 in the entire restaurant category.

Also, for the second year in a row, we received a score of 100 on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index.

Creating an inclusive and diverse culture that supports and values team members is important to attracting and retaining talented, dedicated employees.

We’re implementing initiatives to diversify our workforce and leadership pipeline, embed policies and practices that ensure fairness and instill and reward behaviors across the organization that foster belonging and increase employee engagement.

Out of the 11 members of our Executive Leadership Team, four are female, one is Lesbian Gay Bisexual Transgender Queer or Questioning (“LGBTQ”) and two are Black.

We have also initiated multiple corporate initiatives over the past several years.

Some examples are our affordable healthcare plans and free virtual healthcare visits available to all part-time and full-time team members;

the launch of The Papa John’s Foundation for Building Community;

our inaugural Day of Service with Boys and Girls Clubs of America;

and the creation of eight employee resource affinity groups.

Out of the 19 members of our Senior Leadership Team and Board of Directors, nine are female, three are Black, and one is Hispanic.

We have also initiated multiple corporate initiatives over the past several years, including required unconscious bias training for team members, annual Diversity, Equity, and Inclusion training for all team members, the launch of The Papa John’s Foundation for Building Community, our Day of Service with Boys and Girls Clubs of America, and the creation of eight employee resource affinity groups.

Talent Attraction, Retention and Development

Our ability to attract and retain hourly employees in our restaurants has become more challenging, especially as the job market has become more competitive and COVID-19 related factors, especially the rapid spread of the Omicron variant, have prevented employees from being able to work due to illness or quarantine.

While we expect the impact of Omicron to subside, we expect labor and inflationary cost challenges to be a continued priority focus for us in 2022.

We continue to aspire to be the employer of choice in our industry, including through commitment to diversity and inclusion, and our investments in our team members.

In 2021, we announced new hiring, referral and appreciation bonuses.

We also made permanent the expanded health, wellness, paid time off and college tuition benefits that we rolled out during the pandemic, including free virtual healthcare visits for all part-time and full-time team members.

We intend to continue making these kinds of investments to ensure we support our team members as they support our customers.

To help our team members succeed in their roles and to ensure consistent operational execution, we emphasize continuous training and development opportunities, including providing innovative tools and materials for the operational training and development of team members.

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We also offer a tuition reimbursement program that provides another opportunity for our team members to advance their careers.

We also previously announced the planned 2021 opening of an office in Atlanta, Georgia to tap into the diverse, deep talent pool in the region.

Workplace Health and Safety

As part of the Company’s enterprise-wide safety management system, we invest in training, technology and people to protect both our customers and team members.

All Papa John’s team members, from those at our corporate office to those working in our warehouses and restaurants, receive annual safety training based on the requirements of their roles.

Both QC Centers and restaurant operations undergo annual safety audits, as well as random safety checks by regional safety managers and field safety coordinators.

All Papa John’s team members, from those at our corporate offices to

those working in our warehouses and restaurants, receive annual safety training based on the requirements of their roles.

Our QC Centers and restaurant operations undergo annual safety audits, as well as random safety checks by regional safety managers and field safety coordinators.

We have also taken steps to mitigate the impact of the COVID-19 pandemic on our team members and our customers by implementing extra health and safety measures across our business, including No Contact Delivery and enhanced cleaning and sanitization measures.

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The United States Quick Service Restaurant pizza (“QSR Pizza”) industry is mature and highly competitive with respect to price, service, location, food quality, customer loyalty programs and product innovation.

The QSR Pizza category is largely fragmented and competitors include international, national and regional chains, as well as a large number of local independent pizza operators, any of which can utilize a growing number of food delivery services.

The QSR Pizza category is largely fragmented, and competitors include a few large national chains and many smaller regional chains, as well as a large number of local independent pizza operators, any of which can utilize a growing number of food delivery services.

Some of our competitors have been in existence for substantially longer periods than Papa John’s, have substantially greater resources than Papa John’s and can have higher levels of restaurant penetration and stronger, more developed brand awareness in markets where we compete.

Competition from delivery aggregators and other food delivery concepts continues to increase both domestically and internationally.

Competition from delivery aggregators and other food delivery concepts also continues to increase.

Internationally, the pizza delivery model is not as mature as the domestic market and presents a growth opportunity for Papa John’s.

We believe demand from international consumers will continue to increase as the demand for pizza delivery and carryout continues.

We continue to execute on our growth strategy and expand throughout the world.

With respect to the sale of franchises, we compete with many franchisors of restaurants and other business concepts.

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In addition, we have registered and maintain Internet domain names, including “papajohns.com,” and country code domains patterned as papajohns.cc, or a close variation thereof, with “.cc” representing a specific country code.

Environmental Matters

We are not aware of any federal, state, local or international environmental laws or regulations that we expect to materially affect our earnings or competitive position or result in material capital expenditures.

However, we cannot predict the effect of possible future environment legislation or regulations on our operations.

During 2021, we had no material environmental compliance-related capital expenditures, and no such material expenditures are anticipated in 2022.

Impact of COVID-19

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business