What changed in this filing

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Item 1. Business

2023-02-23 compared with 2022-02-24 · 94 added, 69 removed, 144 unchanged (53% of the section changed)

Papa John’s International, Inc., a Delaware corporation (referred to as the “Company”, “Papa John’s” or in the first person notations of “we”, “us” and “our”), operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark “Papa John’s”.

Papa John’s began operations in 1984.

Papa John’s International, Inc., a Delaware corporation (referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first person notations of “we,” “us” and “our”), operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark “Papa John’s.” Papa John’s began operations in 1984.

At December 25, 2022, there were 5,706 Papa John’s restaurants in operation, consisting of 522 Company-owned and 5,184 franchised restaurants operating in 48 countries and territories.

Our Company-owned restaurants include 188 restaurants operated under four joint venture arrangements.

All of the 2,311 international restaurants are franchised.

Our Company-owned restaurants include 98 restaurants operated under three joint venture arrangements.

All of our International restaurants are franchised.

In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America.

We are committed to delivering on our brand promise “BETTER INGREDIENTS.

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® ” and a business strategy designed to drive sustainable long-term, profitable growth.

Papa John’s is driven by five strategic priorities:

Build a culture of leaders who believe in diversity, inclusivity and winning.

A diverse, inclusive environment is essential to attracting the talent that makes Papa Johns the world’s best pizza delivery company.

See the “Human Capital” section below where we discuss our ongoing initiatives in this area.

Re-establish the superiority of our pizza via commercial platforms.

We believe that using high quality ingredients leads to superior quality pizzas.

Our original crust pizza dough is made from six simple ingredients and is fresh, never frozen.

We also top our pizzas with real cheese made from mozzarella, pizza sauce made with vine-ripened tomatoes, and meat free of fillers.

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

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 also top our pizzas with our signature pizza sauce made with vine-ripened tomatoes, real cheese and meat full of flavor, not filler.

Our marketing and menu strategies focus on menu innovations that provide both value and variety to our customers, but importantly, do not add significant complexity to our restaurant operations or to supply chain needs.

Over the past three years, we have made purposeful additions to our menu, ensuring these additions are well-timed for our growth, without sacrificing our premium quality.

This deliberate strategy focuses on innovation that adds value to our system rather than short-term discounts, contributing to more productive ticket growth and, most importantly, higher customer satisfaction.

We believe in the importance of providing options that appeal to our customers’ diverse dietary needs and preferences, and our nutritionists and food innovation teams are continuously looking for ways to reflect this in our menu.

Our product innovations form the foundation of our strategy for growing comparable sales and improving unit economics.

Improve unit-level profitability and performance of our Company and franchisee restaurants .

We have been intent on taking proactive steps to drive profitable growth, especially under the current challenging operating environment.

This includes growing ticket and transactions through menu innovations, customer insights and strategic pricing actions.

In addition to increasing average unit volumes, our strategy focuses on further sharpening our execution and driving BETTER customer experience for faster service while optimizing labor allocation, enhancing operational efficiencies and effectively managing margins.

Leverage our technology infrastructure to drive our business operations.

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

Approximately 85% of our Domestic sales are through digital channels, including website, apps, third party aggregators, and centralized call centers, providing a significant competitive advantage when compared with other QSR models.

We are continuously investing in technology to enhance our digital capabilities for both our customers as well as our employees.

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.

Our integrations with the aggregator marketplaces and our nationwide integration with a third-party delivery service provider have been key tools allowing us to continue to meet our customers in the channel of their choice.

Profitably expand our footprint domestically and internationally.

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.

We partner with large local investors to expand into new regions and markets, seeking to ensure our partners are aligned with our strategic priorities and committed to the Papa Johns brand.

Nearly all of our top-25 North American franchisees now have development agreements in place.

Internationally, our teams

are laying the groundwork for the future by accelerating growth in our established markets, identifying attractive new markets to enter and attracting new well-capitalized franchisees to partner with.

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

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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, North America franchising, North America commissaries (Quality Control Centers), 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, 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 and derives its revenues principally from retail sales of pizza, Papadias, and side items, including breadsticks, Papa Bites, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

Of the total 3,376 North American restaurants open as of December 25, 2022, 522 units, or approximately 15% , were Company-owned.

In 2022, the 514 Domestic Company-owned restaurants included in the full year’s comparable restaurant base generated average annual unit sales of $1.3 million.

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 Papa John’s system.

North America franchising

The North America franchising segment consists of our franchise sales and support activities and derives its revenues from the sale of franchise and development rights and the collection of royalties from our franchisees located in the United States and Canada.

Our North American franchised restaurants, which included 2,472 restaurants in the full year’s comparable base for 2022, generated average annual unit sales of $1.1 million.

These sales, while not included in the Company’s revenues, contribute to our royalty revenues, franchisee marketing fund contributions, and commissary revenue.

North America commissary

The North America commissary segment comprises 11 full-service regional dough production and distribution Quality Control Centers (“QC Centers”) in the United States (“U.S.”), which supply pizza sauce, dough, food products, paper products, smallwares and cleaning supplies twice weekly to each traditional restaurant served.

The North America commissary segment comprises 11 full-service regional dough production and distribution Quality Control Centers (“QC Centers”) in the United States, which supply pizza sauce, dough, food products, paper products, smallwares and cleaning supplies twice weekly to each traditional restaurant served.

This system enables us to monitor and control product quality and consistency while lowering food and other costs.

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To ensure consistent food quality, each Domestic franchisee is required to purchase dough and pizza sauce from our QC Centers and to purchase all other supplies from our QC Centers or other approved suppliers.

North America franchising

Our North American franchised restaurants, which included 2,384 restaurants in the full year’s comparable base for 2021, generated average annual unit sales of $1.1 million.

These sales, while not included in the Company’s revenues, contribute to our royalty revenues, franchisee marketing fund contributions, and commissary revenue.

International

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.

As of December 25, 2022, there were 2,330 International restaurants, all of which are franchised.

The Company currently operates one International QC Center, which is in the UK.

Other QC Centers outside the U.S.

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”.

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.

Other QC Centers outside North America 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.” 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 23.

Segment Information ” of “Notes to Consolidated Financial Statements” for financial information about our segments.

At December 25, 2022, there were 5,706 Papa John’s restaurants operating in 48 countries and territories , as follows:

Domestic Company-owned

Franchised North America

Total North America

International

Domestic Company-owned Franchised North America Total North America International (a)

Beginning - December 26, 2021 600 2,739 3,339 2,311 5,650

Opened 10 76 86 292 378

Closed — (49) (49) (85) (134)

Sold — (2) (2) — (2)

Acquired 2 — 2 — 2

Refranchised (90) 90 — — —

Suspended (a)

— — — (188) (188)

Ending - December 25, 2022 522 2,854 3,376 2,330 5,706

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.

Net unit growth/(decline) (a)

(78) 115 37 207 244

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(a) As previously disclosed, the Company has suspended corporate support for all franchised restaurants located in Russia.

These suspended restaurants are excluded from net unit growth calculations.

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.

Our experience in developing markets indicates that market penetration through the opening of multiple restaurants in a particular market results in increased average restaurant sales in that market over time.

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North America Development and Franchise Agreements.

We enter into development agreements with our franchisees in North America for the opening of a specified number of restaurants within a defined period of time and specified geographic area.

We enter into development agreements with our franchisees in North America for the op ening of a specified number of restaurants within a defined period of time and specified geographic area.

The franchise agreement is generally executed once a franchisee secures a location.

Our current standard franchise agreement requires the franchisee to pay a royalty fee of 5% of sales, and the majority of our existing franchised restaurants have a 5% contractual royalty rate in effect.

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 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.

Such incentives included the following for 2021 traditional openings:

(1) waiver of all or part of the standard one-time franchise fee;

(2) waiver of all or part of the 5% royalty fee for a period of time;

(3) credit for new store equipment;

and (4) credit to be applied toward a future food purchase, under certain circumstances.

We believe development incentive programs have accelerated unit openings, and we expect to continue to utilize such development incentives.

Incentives to franchisees offered from time to time may reduce the contractual royalty rate paid.

Substantially all existing franchise agreements have an initial 10-year term with a 10-year renewal option.

We have the right to terminate a franchise agreement for a variety of reasons, including a franchisee’s failure to make payments when due or failure to adhere to our operational policies and standards.

We have the right to terminate a franchise agreement for a variety of reasons, including a franchisee’s fai lure to make payments when due or failure to adhere to our operational policies and standards.

Many state franchise laws limit our ability as a franchisor to terminate or refuse to renew a franchise.

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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 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.

Franchise Operations.

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At December 25, 2022 , net loans outstanding totaled $28.1 million .

See “Note 2” of “Notes to Consolidated Financial Statements” for additional information.

S ee “Note 2.

Significant Accounting Policies” of “ Notes to Consolidated Financial Statements ” for additional information.

Marketing Programs

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The rate of contribution and uses of the monies collected are determined by a majority vote of the Co-op’s members.

The restaurant-level and Co-op marketing efforts are supported by media, print, digital and electronic advertising materials that are produced by PJMF, our national marketing fund.

The restaurant-level and Co-op marketing efforts are supported by media, print, digital and electronic advertising materials that are produced by Papa John’s Marketing Fund, Inc.

(“PJMF”), our national marketing fund.

PJMF is a consolidated nonstock corporation, designed to operate at break-even for the purpose of designing and administering advertising and promotional programs for all participating Domestic restaurants.

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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.

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.

At Papa Johns, we welcome a wide array of voices to our table.

A diverse, inclusive environment is essential to attracting the talent that makes Papa Johns the world’s best pizza delivery company.

As such, we welcome all entrepreneurial spirits, innovators and pizza lovers.

We are building a culture that both reflects our corporate values of People First and Everyone Belongs and creates a competitive advantage in attracting and retaining talent.

Across our restaurants, Quality Control Centers and corporate hubs, Papa Johns team members are valued for their contributions, treated equitably, encouraged to share their feedback and ideas, provided the tools needed to ensure their safety and total wellness and given ample opportunities to grow in their careers.

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 in 2022.

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

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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 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.

We’re implementing initiatives to diversify our workforce and leadership pipeline by attracting, recruiting, developing and supporting talent who represent our customers and communities, to embed policies and practices that ensure fairness, build trust and hold ourselves accountable, and to instill and reward behaviors across the organization that foster belonging and increase employee engagement.

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.

Our ability to attract and retain hourly employees in our restaurants has become more challenging, especially as the job market has become more competitive.

Our goal to help all Papa John's employees succeed begins with efforts to attract and recruit a wide range of people from different backgrounds, cultures, education experiences, religions and other indicators of diversity because we know a workforce that reflects the diversity of our customers and communities brings more innovative thinking and better ideas and solutions to our business.

In 2022, we expanded our efforts to recruit diverse talent by implementing anti-bias training for our recruiters.

To meet job candidates where they live, and gain a deeper understanding of their personal, educational and professional goals, we sponsor and attend job fairs, scholarship programs and university and professional organization events.

Our recruiting strategy aims to diversify the candidate pool for all manager level and above positions.

We offer our team members hiring and referral bonuses as well as expanded health, wellness and paid time off.

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.

Operations personnel complete our management training program and ongoing development programs, including multi-unit training, in which instruction is given on all aspects of our systems and operations.

In addition, to further support our team members’ development, we have established our Dough & Degrees program, which allows our team members to earn a college degree for free or at a reduced tuition in partnership with Purdue University Global and the University of Maryland Global Campus.

In addition, to further support our team members’ development, we established our Dough & Degrees program, which allows our team members to earn a college degree for free or at a reduced tuition in partnership with Purdue University Global and the University of Maryland Global Campus, among others.

In 2022, we made enhancements to the program, including expanded educational offerings and less restrictive eligibility requirements.

Employees working at least ten hours per week can now obtain their High School Diplomas, learn English as a second language, and earn associate’s, bachelor’s and/or master’s degrees.

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

Compensation and Benefits

One of our core values is People First.

As such, we are committed to providing competitive pay and benefits to attract and retain top talent, whether in our Domestic Company-owned stores, in our supply chain centers or in our corporate offices.

We pay competitive wages to our front line team members in our Domestic Company-owned stores.

Papa John’s offers a comprehensive benefits package to eligible team members.

We also make available to our team members several benefits designed to promote an inclusive workplace like paid parental leave, adoption support, and health

plans that are available to dependents, spouses, and domestic partners.

We offer eligible team members a 401(k) plan, with a competitive Company matching component to encourage retirement savings.

Beyond basic insurance programs, Papa John’s offers wellness services to help team members manage and optimize their health.

These no-cost programs include smoking cessation, diabetes and hypertension management, weight management, and mental health support through Papa John’s employee assistance program for all part-time and full-time team members and their dependents.

Papa John’s also makes available the “Papa Cares” program that provides corporate office team members an onsite health clinic that provides a wide range of primary care services for adults, adolescents and children.

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 offices to

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

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.

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State laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise.

Some foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship.

countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship.

National, state and local government regulations or initiatives, including health care legislation, “living wage,” or other current or proposed regulations, and increases in minimum wage rates affect Papa John’s as well as others within the restaurant industry.

We are also subject to applicable laws in each non-U.S.

jurisdiction in which we operate.

We are also subject to applicable laws in each non-US jurisdiction in which we operate.

Privacy and Data Protection

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The legal and regulatory landscape for privacy and data protection continues to evolve, and there has been an increase in attention given to privacy and data protection issues with the potential to impact our business.

This includes recently enacted laws and regulations in the U.S.

and in other countries which require notification to individuals and government authorities of breaches involving certain categories of personal information.

This includes recently enacted laws and regulations in the United States and in other countries which require notification to individuals and government authorities of breaches involving certain categories of personal information.

Any changes in privacy and data protection laws or regulations could also adversely impact the way we use e-mail, text messages and other marketing techniques and could require changes in our marketing strategies.

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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