Can Pappa John's Find Prosperity in a Booming Global Pizza Market?
Peter Lynch popularized the investing philosophy of "Invest in what you know." There are few things in life more local to the everyday consumer than pizza delivery. Dominos, Pizza Hut & Pappa John's represent the 3 leading North American Pizza chains by market share. In a market where the overall growth was 12% in 2018, this seems to be an area ripe for investment? Furthermore, China saw pizza sales jump an astounding 28%, offering an enormous growth market.
Shares of Dominos have nearly quadrupled over the past 5 years while rival Papa John's has seen their shares fall from a high of $90 to a current price of $38. Why have these two rivals received such different fortunes? Did Papa John's have a health scare or start producing an inferior product? No. According to a Washington Post blind taste test performed in January of 2018, Papa John's received superior scores by the judges to both Dominos & Pizza Hut. What occurred was a pr nightmare. Their chairman was caught using a racist term on a business phone call. The subsequent public outcry and negative reaction has hurt sales and decimated the stock price.
But, consumers are fickle. And when it comes to hunger people will return to to food they crave. In fact the European Society for Human Genetics found that specific cravings for food such as artichokes, coffee or mozzarella cheese is in fact our DNA. With new management there is a good chance they can bring back those customers who were upset and turned off by the chain, especially when you consider the underlying pizza is tastier than either of its rivals. However, the popular product does not always win. RC Cola beat Coca Cola in a blind taste test. In fact, RC Cola was the first corporation to create the idea of blind taste tests to market their product but, I think you know how that story ended.
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Written by Alexander Fleiss & Edited by Rachel Weissman