Papa John's Intros Smaller Store Model

Papa John's gets rural makeover New store allows smaller investment

(Wednesday, August 08, 2007) - A business idea born out of a trip to New Orleans has executives at Papa John's International optimistic that they will be able to open more pizza stores in rural communities and developing markets.

The venture started when Nigel Travis, chief executive of the Louisville-based chain, met with franchisees earlier this year in areas along the Gulf Coast that are still recovering nearly two years after Hurricane Katrina. The franchisees wanted to redevelop the region, but a large chunk of the population was still missing due to storm damage.



After Travis returned to Louisville, the Papa John's development team came up with a scaled-back version of a new pizzeria that shaved about $30,000, or 13 percent, off the typical cost of $225,000 to $230,000 to open a new store.

"This investment model will be valuable not only in Louisiana, but also in developing and smaller markets, including rural areas with lower populations," Travis told investors yesterday in a conference call.

In fact, the first store to use the new model wasn't anywhere near Louisiana, but in Washington, Ind., halfway between Bloomington and Evansville.

Tim O'Hern, until recently the company's vice president of franchise sales and development, opened the Washington location on June 25 with several business partners at a cost of $205,000. He said the savings were achieved primarily through smaller ovens and less expensive kitchen equipment, although the counters also had a different design and there were fewer interior walls.

O'Hern, who lives in Louisville, is a joint owner in 20 Papa John's restaurants in Kentucky, Indiana and Illinois. He said weekly sales at the Washington store are running about 15 percent above the chain's average for domestic franchise restaurants. Although those figures may settle a bit in the coming year, the store could still be viable even with a lower-than-average sales volume because of the smaller investment.

And O'Hern predicted that Papa John's could use the lower-cost model to tap into dozens of other small markets with 7,000 to 9,000 households. In the past, the benchmark for a new store was about 12,000 households.

Several franchisees in the New Orleans area are still evaluating the new model.

Chris Sternberg, a spokesman for Papa John's, said the concept could be tweaked depending on the location.

Other features may include a smaller overall building size, or different floors and wall coverings.

Sternberg said stores that use those techniques could add some features or trade up to larger kitchen equipment as their sales grow.

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