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Papa John's

Papa John's has well established its core menu equity around quality ingredients (Better Pizza. Better Ingredients.) and PJ's clean label ingredient initiative helps the cause. We like its 2018 strategic priorities which include: re-establishing brand differentiation by telling its quality story in a more relevant narrative; providing value that supports customer action; customer facing tech investments to improve product marketing, customer connection & digital ordering; in-store tech investments to increase unit efficiencies & profitability; and labor investments designed to attract the best employees. The chain is well positioned to build on the fact that 60%+ of its sales come from its online ordering platform which helps increase average ticket, frequency and customer satisfaction. To this end, new consumer insight & analytical capabilities will be applied to its Papa Rewards loyalty program and the goal is to leverage digital to customize 1-to-1 marketing capable of delivering the right offerings to the right customers at the right time. The brand recognizes that it's time to stop thinking in TV scripts, rather acting and marketing like an e-commerce company. Also, while Papa John's has historically focused on pizza, the brand is considering the addition of new food categories which will improve menu diversification and variety in order to better compete with the broad offerings available from 3rd party delivery aggregators as well as Domino's. However, the brand has work to do to reignite sales after a PR snafu with the NFL aggravated an already weakening sales trend. The big picture is that it is difficult for Papa John's to continue positioning itself around premium quality as opposed to value while facing such difficult pricing competition from peers, regional players, grocery stores and QSR sandwich players. While the brand has begun to search for a price point deal to connect to an everyday value positioning in the same way that Domino's "owns" the $5.99 price point, we will have to wait for a final decision while we also wait to assess the effectiveness of its new creative. System challenges are further reflected by an actual decline in 2017 net unit counts with the rate of growth for gross development steadily decreasing over the last 5 years (with 2018 development goals the lowest in 10+ years). In conclusion, while it appears that Papa John's has the right plan in place to build a more relevant infrastructure around its well established quality positioning, stake holders should consider that it could take some time for this turnaround to gain traction.  



Domino's is very well positioned as the largest US pizza chain (#1 delivery - #2 carryout) with a commanding 29% share of the pizza delivery market vs. 28% for the other big 3 chains combined and 43% for regionals & independents. The brand's strategy is to improve every aspect of its customer experience with leading-edge, digital ordering convenience, seamless payments and attractive every-day pricing. Its impressive 60%+ digital sales mix benefits from an extensive AnyWare ordering platform which generates digital orders that drive: higher tickets (less coupons & more add-ons); increased frequency & retention with an improved customer experience; greater order accuracy; and re-ordering ease. Plans to get to 100% digital ordering (including digital voice) will free-up staff to focus on further improving the customer experience rather than order taking. A menu broadened with attractive add-on options to its core pizza orders (i.e. salads, chicken, stuffed cheesy bread and desserts) helps increase check while oven baked sandwiches and pastas better address lunch. Domino's marketing benefits from extensive customer data capabilities generated by its online order platform and extensive use of social media marketing which provides the ability to track and analyze customers’ purchasing habits used to customize loyalty awards such that its successful Piece of the Pie Rewards loyalty program can effectively drive traffic growth. Reimaging and relocation initiatives help the brand to better address its low price point carryout business and also helps with its delivery image. Taken together, the chain's strong brand positioning is reflected by nearly +40% stacked 4-year comps through 2017 and it is notable that its +3% to +6% annual comp outlook for next 3 to 5 years suggests expectation that sales will eventually revert to the mean (a function of the law of large numbers). In conclusion, Domino's story is a real 21st century tale of how to an iconic brand is applying digital and big data to create an edge in providing convenient access of an affordable staple to American consumers who never grow tired of their pizzas. 



Wendy's is well situated as the 4th largest QSR sandwich player (by domestic system-wide sales), leveraging its “Quality is our Recipe” brand positioning which stresses a commitment to fresh, never frozen, North American beef. Wendy’s marketing claim is that its fresh beef, cooked-to-order burgers are juicier (better burgers) and aggressive marketing tactics have attempted to secure credit for its use of costly fresh beef (Wendy's is recognized by consumers as best-in-class vs. the top 5 hamburger chains for high-quality food, fresh food and food that tastes better). The brand's sensible menu strategy is to: reinforce its hamburger quality leadership; raise consumer expectations for how good chicken can be (with launch of new Chicken Tenders); drive unique visits through salads & beverages; innovate with on-trend flavors (like Bacon Queso); and continue helping customers with a multi-faceted approach to price/value. While the 4 for $4 promotional emphasis has helped support the brand's sales and traffic, Wendy's current challenge is to boost store-level profits by increasing its sales mix of higher margin menu items (in return for its premium positioning) while continuing to improve labor efficiencies. In any case, while it is notable that the brand's relatively low average check is inconsistent with its quality positioning (which could be partially compromised by its 4 for $4 promotional emphasis) and lack of low priced breakfast options (which also keeps it from addressing a key QSR daypart), the chain's system-high store level AUV exceeds the segment average. Further, the system's going forward AUV should benefit from remodels, store relocations, closures of underperforming stores and relatively high new build AUV levels. Also, traction with apps, kiosks and delivery should contribute to top-line growth. In conclusion, while Wendy's has progressed in its efforts to compete around value, the brand's ongoing challenge is to maintain traffic while layering in margin expansion by fully cashing-in on its fresh beef, high quality QSR+ halo (while it lasts).  


Menu & Promotions

  • RR’s Menu & Promotions analysis provides data for 56 chains (33 QSR and 23 FSR) including: (1) a 5-year history of total menu items (2013 – 2017); (2) new product intros; (3) average check; (4) daypart sales mix; (5) menu composition; and (6) monthly new product calendar.
Report Highlights
  • Average menu size contracted for the 3rd consecutive year, with QSR paring the most (-6.5% versus -2.3% for FSR). Operations continue to grow more complex with increased menu customization options, new digital ordering platforms and delivery. With speed, convenience and improved food quality at the forefront, the brands increasingly recognize that they can't raise the bar while also trying to be everything to everyone.
  • New product introductions and LTOs declined -4.5% for FSR due to a focus on value and efforts to reduce operational complexities but increased +8.8% for QSR (reflecting renewed innovation in the sandwich & coffee/bakery segments).
  • Average check growth moderated (+2.3% QSR and +1.8% FSR) due to less aggressive menu price increases and more discounting. Based on an RR survey, franchisees took +2.1% in price during 2017 and expect to take an additional +1.6% in 2018 which should help the industry’s relative positioning vs. grocery stores which are finally beginning to moderate their price declines.


McDonald's is engaged in an extremely ambitious modernization program with many moving parts. Brand strategy is built around its Velocity Growth Plan which is designed to: retain existing customers by bolstering core strength in family occasions & food-led breakfast; regain lost customers by improving food taste, quality, convenience & value; convert casual to committed customers by elevating & leveraging the McCafé platform and enhancing its snack & treat offerings. While this system upgrade is still in its early innings, strong 2017 comps with positive traffic for the first time in a long time suggest that these strategic initiatives are working. In any case, we think McDonald's could not lose by simply returning to its value roots which it has done very well (check is -19% below segment average which reflects that price value is a key accessibility strategy foundational to the brand’s identity). The menu emphasizes value with many options at different price points starting as low as $1 and increasing in single dollar increments until the 2 for $4 breakfast LTO price point. Building on this foundation, McDonald's is stretching with its: fresh beef initiative which helps the brand finally address the better burger segment; new Buttermilk Crispy Tenders which helps build the brand's chicken credentials; and the re-introduction of its espresso products which keeps McCafe in the game. On top of this, McDonald's is bolstering its access and convenience with its Experience of the Future, mobile order & pay and delivery initiatives. Fortunately, all-time high unit level sales and cash flow can help fund all these investments (including the remodels). However, it is important to note that the system's operational complexity is already challenged by capacity constraints given a very high AUV and can only be aggravated by all these new initiatives. Notably, speed comes a close second to value in terms of brand equity for this iconic chain and its drive-thru times are already challenged which is a concern given that this old fashioned channel still drives the vast majority of its business. In conclusion, while McDonald's means to take no prisoners, it must remain aware that at the end of the day, the game is its own to win so long as it can execute as advertised and only time will tell if its eyes are bigger than its stomach.