Papa John's: From A Broom Closet In A Bar To 485 Pizza Restaurants

John H. Schnatter always felt he knew how to make a better pizza. As a teenager, he worked at a number of pizzerias, learning a lot about the art of creating a magnificent pie. So a decade ago, after graduating from Ball State University with a business degree, Schnatter, then 21, decided to put his knowledge to use. While running Mick's Lounge, a bar co-owned by his father in their hometown of Jeffersonville, Ind., he tore down a broom closet, installed an oven and began selling pizza. From such humble origins was born Papa John's International Inc., the Louisville pizza chain that is No.1 on BUSINESS WEEK's 1994 list of Hot Growth Companies.

From its start at Mick's Lounge, Papa John's has grown into a 485-strong network of company-owned and franchised stores across 19 states from Michigan to Florida. And in an industry dominated by Pizza Hut, Domino's, and Little Caesar's, it has carved out a profitable niche. Last year, Papa John's earnings rose 60%, to $4.9 million, as its sales climbed by 80%, to $89.2 million. Even Frank L. Carney, who founded Pizza Hut with his brother in 1958 and sold it to PepsiCo Inc. in 1977, recently signed a deal to open 62 Papa John's outlets in Houston. "I think it's a very, very competitive product," he says.

What's Papa John's secret? For starters, it appeals to value-conscious households. It includes a small tub of garlic butter and two hot peppers with each pie--a little lagniappe that helps give the "perception of more bang for the buck," says Gerry Durnell, editor and publisher of Pizza Today, a trade magazine. Another reason for success: "You have to keep things simple and focused," says Schnatter, now 32. For Papa John's, that means no salad bars that add to costs. Its menu is limited to pizza, breadsticks, cheesesticks, and soft drinks. And in-store dining is rare. Papa John's specializes in takeout and delivery.

BOUNCY STOCK. To hold down costs even more, Papa John's has three centralized commissaries that provide fresh dough and sauce mix. Each Pizza Hut prepares its own dough. And because they sell ingredients to franchisees, the commissaries produce revenue. They accounted for 46% of the chain's sales last year.

Despite its growth, the pizza chain's stock has bounced around since Papa John's went public in June at 13. It's now trading at 251 4, down from January's high of 331 4. Some of the drop had to do with the severe winter weather that held down restaurant traffic.

A bigger question for investors, however, is whether the company can continue its torrid growth. Schnatter has ambitious plans to open 215 stores this year and 220 more in 1995. Analyst Steven A. Rockwell of Alex. Brown & Sons Inc. estimates that Papa John's earnings could increase 45% this year, to $7.1 million, with revenue climbing by 67%, to $149 million. There aren't too many pizza parlors that can make their dough rise like that.

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