COLUMBIA, S.C. – In the very public battle between executives at Papa John’s International Inc. and the company’s founder, John Schnatter, franchise owners say they have been forced to address the controversy on their own. So, they hired a lawyer.
The Papa John’s Franchise Association (PJFA) recently retained the Miami-based law firm of Zarco, Einhorn, Salkowski and Brito to represent the interests of franchise owners and, they hope, stop the chain’s declining sales and profit losses.
For the most recent quarter, Papa John’s reported total revenue of $364,007,000, down from $431,709,000 reported in the third quarter of 2017. The company reported a loss of $13,033,000 for the third quarter compared with a profit of 21,817,000 posted in 2017.
System-wide North America comparable sales plunged 9.8 percent while international comparable sales retreated 3.3 percent.
“Our members have sustained tremendous financial losses and a decrease in sales at the store level after Mr. Schnatter’s controversial comments,” said Vaughn Frey, board chairman of the PJFA. “As the founder of the company and its CEO, Mr. Schnatter understood the significant investment that the company made in promoting the brand through the NFL and the sponsorship deals with several prominent sports organizations. His comments about the NFL during the earnings call and his use of a racial slur in the media training session with the company’s marketing firm have significantly harmed the brand and our membership’s store sales.”
Schnatter was forced out of the company he founded after news reports surfaced that he used a racial slur during a conference call in May. The revelation subsequently exposed a toxic workplace culture at Papa John’s. In July, a special committee of the Papa John’s board of directors approved and directed the company to terminate Schnatter’s founder agreement and a sublease agreement which enabled Schnatter to use certain office space at the company’s corporate headquarters in Louisville, Kentucky.
In August, the company announced a new assistance program for domestic franchised restaurants that included reduced royalty payments along with lower foodservice pricing and online fees paid by operators through 2018. Papa John’s also pledged to provide franchisees with funds to support new marketing and re-imaging programs. But steps taken by the front office weren’t enough to reassure PJFA members.
“The brand image has been severely tarnished by the continuing negative press coverage surrounding Mr. Schnatter and his dispute with the company,” Frey said. “He has put out his version of the truth on his website and has given several interviews on this issue which has kept the negative press coverage going. We are trying to move on from the controversy, but it is hard to do that when there is a new story being put out every other day about new developments relating to Mr. Schnatter and Papa John’s.”
Robert Zarco, founding partner of Zarco, Einhorn, Salkowski and Brito, has initiated an investigation into the ongoing conflict between Schnatter and Papa John’s to determine what action franchisees should take to recover their losses and to protect their businesses from future damage.
“The small businesses of the PJFA’s members and the lives of the owners and employees of those businesses are at stake here,” Zarco said. “The damage to the brand image and the franchisees’ businesses has persisted and continues to persist. The Papa John’s system continues to struggle as Mr. Schnatter remains in the press. I will not rest until I get to the bottom of this controversy, so I can assist the PJFA in conveying the concerns of its members to Papa John’s leadership and work with Papa John’s and Mr. Schnatter to reach a resolution in whatever forum necessary to serve the interests of the PJFA and its members.”