Buy Papa johns

There is a Papa Johns for sale here in Canada.

Its been open only for a year, but they made 650k in revenues last year. They also gave away another 200k worth of discounts, so their food costs for the whole year are about 40%. They spend a ton on local marketing too - about 20k/year.

The last few months, sales have been steady at 53k/month and additional 10k worth of discounts

A few questions:

Is 650k revenue in the first year, good?
Do you guys think that business could continue growing another 10% this year, considering that it went from 0 to 650k in first year?
I know they did heavy discounting and BOGO offers. You think customers would stop frequenting, without those offers?

Surprisingly, nearly 2/3rd of their business is from pick ups, and only 1/3rd from delivery. I find that surprising, compared to the other pizza shops I have checked out. I see that the seller had a carryout promotion going.

I also understand the head office is going through some rough transition, but I wonder if Canada is affected, judging by the seller making 650k revenues in the first year.

What do you guys think?

BOGOs aka TWOFERS (two for the price of one) In my opinion are never a good deal for the pizzeria because it leads your customer base to thinking that you’re still making a ton of money aka profit selling two pizzas for the price of one, then when you go back to normal pricing they turn away from you. Instead, bundling is always a better way to go. I can’t speak for Canada but 650K revenue in the first year is not a whole lot. To me it sounds like they are just barely breaking even if that considering their food costs and advertising.
Tom Lehmann/The Dough Doctor

650,000 in sales in first year sounds great to me. It took us quite a few years to get to that sales number. I bet a bunch of people on TT would love to be doing 650,000 a year. If you look at the annual summary reports for the top pizza chains, an average PJ’s did $8800 in 2016. PH $7479. Dominos 10,203.

Is 650k revenue in the first year, good?
I would say 650k is great for a first year, but that’s probably expected for a well known brand like PJs. That is what you pay franchise fees for isn’t it? Not sure what kind of margins PJs typically have, but 40% food costs seems very high to me. Make sure they are actually making money.

Do you guys think that business could continue growing another 10% this year, considering that it went from 0 to 650k in first year?
I think 10% growth is year 2 is definitely a realistic expectation.

I know they did heavy discounting and BOGO offers. You think customers would stop frequenting, without those offers?
Most likely. IMO nobody buys from the big 3 because the product is so good. It’s all about the deals and being cheap that gives it value. As for the discounts, that is just part of the pricing structure you can’t look at it as giving money away. Some places sell a $10 pizza while others sell a $12 pizza and discount it $2. Both are still $10 pizzas just different ways to get there.

Just my 2 cents. Good luck!

Why is it for sale?

Thats a great resource. Thanks.

I think it says Papa johns, 2016 sales per unit was $880k and Pizza hut was 748k.

I agree.

I think this was their promo when they opened the shop. The slowly cut it down over time I think.

Apparently the owner also owns another business and his wife used to run the shop. Now the wife is pregnant and the owner cant run the shop.

What part of Canada? It makes a difference based on location. Toronto or Vancouver 650k won’t keep the doors open but in Saskatoon or Red Deer you would be laughing all the way to the bank.

Another interesting bit, though. There are a LOT of Papa Johns for sale here. There are about 12 papa johns in the neighboring cities, and in the past 2 years, I have seen atleast 4 to 5 for sale. Most of them are for sale in the $250k range, although I dont know what their revenue is. This guy is asking 400k, and his revenue is about 650k

Also he has 2/3rd of his revenues from pick up/carry out. Which is opposite of what other pizza places I have seen. What do you make of that?

If you are keeping the Papa John’s name it might be worth more than $250k but if not I could build a new shop for that or less.

Unfortunately, I dont want give out location, cause I got NDA with broker.

But the business is making 100k in profits with 650k revenue.

My question was about

  1. There are tons of papa johns for sale around in nearby cities too. Over past 2 years, I see 4 to 5 out of the 10 or so stores, being put for sale, with asking price of 250k range. I dont know why. Is it possible for all the other locations to do bad, but this one location to be exception? Is it risky even if this one location happens to be an exception?

  2. Is it possible that this guys 650k sale was driven purely by his BOGO offers, and that once I stop it, I will have a big revenue fall??

  3. With turmoil in the leadership, will the franchises get screwed because of negligence, or anything else?

I definitely would be keeping the papa johns name. This store that makes 650k rev and 100k in profit is asking 400k.

But there was other store asking 250k. I also dont know if there is something wrong, that at least 4 to 5 stores, out of a total of 12 stores, are for sale in and around different cities around me.

Is the 650k in gross or net sales? I find it hard to believe with 5-7% in royalties plus 2% marketing co-op and 40% food cost for the year that they are even making any money let alone 100k. And is that 100k ebitda or net profit. Papa Johns is definitely struggling right now with the turmoil plaguing upper management. Things I would consider before purchasing

  1. Franchise agreement. If you purchase this location what would you inherit. Was this franchisee required to open additional locations in x amount of time. If so would you have to do the same
  2. In the US franchisees for Papa Johns in most of the country are required to purchase food products from PJ food service. If this is the case you will be spending a minimum of 1.5-2% higher in food
  3. How are the marketing co-ops in that market place. you stated the owner spent 20k in lsm which based on volume is 3% plus. Was that in addition to the royalties. If so why was he spending this? There is a good chance that PJ is not allocating the proper resources to that area and you will be forced to spend additional out of pocket marketing dollars.
  4. How many other PJ’s are in the area? What is your protected radius?
  5. Is PJ taking a portion of the delivery fee being charged to the consumer in addition to the royalties and marketing?

He does make 90k.
40% cogs
20% labor
8% royalties & ad fees
6% for credit card transactions, utilities, repairs etc
50k rent
20k local advertising

So about close 90k net income to owner.

Please find my answers

  1. No this is not a master franchise agreement. It is for single store. So I dont have to open new stores

  2. I know that the food costs are 40% (with all their aggressive promos). I wouldnt be surprised, if the franchisee has to purchase the products from the franchisor, so it is all factored in the 40%.

  3. You may be right about PJ not spending money on marketing in this neck of the woods. The seller is paying royalties (5.5%) and ad fees (2.5%) to PJ, and on top of that spends 20k in advertising locally, out their pocket.

  4. Protected radius is atleast a few 5 to 8 kms

  5. Not that I am aware of.

Big questions in my mind are

  1. Will the change in leadership in US, have a negative impact on PJ operations, that I should avoid buying this store?

  2. The seller had 650k in revenue in the first year, after running aggressive promos that cost his 40% in food cost. Will I be able to get another 10% increase in revenues in 2nd year

  3. Will I lose customers big time, if I get rid of the promos? Or is it normal to run promos in first year and get rid of them in 2nd?

  4. There are about 10 to 12 papa johns in the last 4 years, of them at least 4 have changed owners in the last years 2 years. Is that a big red flag??

  5. Of the papa johns that were sold, most of them are asking 250k range, but this guy is asking asking 400k with his revenues of 650k. Is it possible for a couple of papa johns to do well, but for majority to struggle, all within a 100 km of each other??

why Turmoil in upper management would affect their product? For average person on street who wants to buy their pizza makes no difference as long quality and price is stable.
Franchise owner may have to worry about that because of jump in fees or change in way of doing business.

The impact of bad decesions from upper management have lasting effects on their franchisees. Having worked with that brand for 10 years I know first hand.