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    Papa Murphy’s Slows Growth, Ramps up Refranchising

  • The pizza chain closed 62 locations over the past year.

    Corey Coyle/Wikimedia Commons
    Papa Murphy’s is approaching its revitalization within the framework of two pillars: Consumer facing and non-consumer facing.

    Chief executive officer Weldon Spangler said Papa Murphy’s made progress on its “focus strategy” in the first quarter, a period that saw comparable same-store sales drop 3.9 percent versus the prior-year period. A key detail: the reshaping of Papa Murphy’s massive 1,504-unit footprint.

    The brand ended the quarter with 145 company-owned stores, a decrease of 23 units compared to Q1 2017. Sixteen restaurants closed over the last year, and seven were refranchised. Franchisees shuttered 78 units over that same period, while 32 opened.

    Overall, the chain has cut its unit count by 62 locations over the past year, down to 1,504 from 1,566 in the year-ago period. Spangler added that Papa Murphy’s franchisees expect to open only 10 stores in fiscal 2018.

    Spangler said in a conference call that Papa Murphy’s expects the growth slowdown to be a short-term move.

    “Over the long-term, however, we believe this system continues to have significant opportunity for franchise development, both in the U.S. and internationally,” he said.

    Spangler said Papa Murphy’s is committed to return to at least a 95 percent franchise system and is in “active discussions with both new and existing franchise owners to refranchise the company-owned stores.”

    The goal, he added, is for corporate to operate no more than 60 restaurants by the end of the year. This includes Papa Murphy’s definitive agreement with Fresh Take, LLC, an existing franchise owner, to refranchise company-owned stores in Colorado for a total of $7.7 million.

    Papa Murphy’s is hoping the shift jolts sales. The 3.9 percent decline followed a 5 percent comps drop in the year-ago period, representing an 8.9 percent decline on a two-year basis.

    Spangler said Papa Murphy’s was encouraged by sales performance in certain markets that adopted marketing initiatives “designed to improve brand relevance and customer value perceptions.” He said there were 18 domestic markets, or 22 percent of total domestic sales, showing same-store sales gains.

    “Overall, these positive results were more than offset by markets where comp store sales declined, including 63 markets representing about 20 percent of the system sales that were fully lapping the effects of the national media test in the first quarter of 2017, and this year had no television media in the quarter,” he said.

    Papa Murphy’s is approaching this revitalization within the framework of two pillars, Spangler said: Consumer facing and non-consumer facing.

    The first is focused on growing same-store sales, while the second revolves around execution through people and process, Spangler explained.

    To get there, Papa Murphy’s is spotlighting digital. During the first quarter, Papa Murphy’s completed its system migration to Olo’s digital ordering platform. On Pi Day and Love at 425 day, Papa Murphy’s drove online mix of total transactions at participating stores to 51 and 37 percent, respectively.

    “Overall, online results continued to be consistent with our previous experience, with check average 20–25 percent higher for orders placed online,” he said.

    Papa Murphy’s is also seeing higher conversion rates on the new site, “which means we are turning more site visitors into pizza buyers,” Spangler said.

    “Overall, we now have a stable online ordering platform that we are confident and can support our business needs,” he added. “As such, we will aggressively push more of our business online, and we'll be looking at store layout and design to ensure our stores are supporting the needs of the operation.”

    Papa Murphy’s is targeting the second half of the year to relaunch its mobile app and explore key attributes of a loyalty program.

    Additionally, the chain’s delivery capabilities through third-party vendors went live in nearly a quarter of stores—an increase of about 120 restaurants since the beginning of the year.

    “Delivery orders remained highly incremental, with attractive and profitable check averages. We will aggressively expand our delivery footprint and expect to offer delivery in about half of our stores by year-end,” Spangler said.

    Papa Murphy’s announced Mekanism as its new creative agency as well. The agency is strong in social media and digital marketing, Spangler said, and the company expects to launch a new messaging and creative later in 2018 highlighting the brand’s do-it-yourself positioning.

    “In a highly-franchised system, momentum is key, and though we aren't yet putting points on the board, I do believe we are building a groundswell of momentum that will move the business forward,” he said.