- The Papa John’s Franchisee Association has hired industry attorney Robert Zarco for representation in discussions with the company and former chairman John Schnatter, according to a news release. The group represents close to 44% of franchised locations in North America.
- The franchisees say that they have suffered "tremendous financial losses" after Schnatter's widely publicized ouster in July.
- The group hired Zarco after it reported third-quarter earnings, which included a total operating loss of $14 million, a 15.7% decline in revenue year-over-year. North American same-store sales fell nearly 10%.
Though Papa John’s recent “Voices” marketing campaign has helped the company distance itself from the Schnatter controversy, news of its franchise group lawyering up can be counted as a major step back.
Steve Ritchie, CEO of the beleaguered pizza chain, said during the restaurant's earnings call that consumers have responded positively to the advertising blitz, which launched in September and spotlights real franchise owners and other Papa John's workers. Consumer sentiment toward the company has improved from mostly negative to neutral or positive, and the company gained a "modest improvement" in traffic following the campaign.
Papa John’s has also done quite a bit to take care of its franchisees as sales hemorrhaged — offering royalty reductions and kicking in ad funds. Still, Zarco's hire shows that the company's efforts so far have not been enough. Franchisees are clearly growing impatient with the process, claiming that they’ve been “left to fend for themselves.”
“Having exhausted all other options, the association feels it has been left with no choice but to conduct an investigation and rectify the root causes behind the steady decline in its members’ store sales,” Vaughn Frey, chairman of the association’s board, said in the group's statement.
Zarco told Restaurant Business that his objective is to investigate whether or not Papa John's franchisees could take legal action to recover the financial losses that they’ve incurred throughout the past year. He also noted that it's unclear if the dispute will need to escalate "to another forum."
The timing is never right for potential litigation, but for Papa John’s, it's especially unfortunate. Amid its continued sales struggles, the company will now have to pony up additional funds to cover legal actions should they arise and, as rumored buyers have an eye on the company, any added drama could be a turnoff.
The Papa John’s franchise group is the latest example of franchisees banding together to address issues with their parent companies. McDonald’s, for example, met to form an owner's association to better work with corporate on rectifying shrinking cash flow and the cost of the company’s remodel program. And if Robert Zarco’s name sounds familiar, it’s because he is also the attorney recently hired by the Jack in the Box Franchise Association, which has asked the chain’s CEO Lenny Comma to step down and for a board seat.