Papa Murphy's more than raising dough

Through heated pizza wars, an IPO and lawsuits, Ken Calwell, CEO of Vancouver-based chain, stays focused on the future

By Aaron Corvin, Columbian port & economy reporter

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The future of Papa Murphy's, the take-and-bake pizza chain, rides on CEO Ken Calwell's leadership, and it's difficult to think he won't succeed when you witness him deliver his plan to win the 21st-century pizza wars.

The 52-year-old former competitive triathlete locks his eyes on you and wrestles your questions to the ground. A Midwesterner, he exudes the region's charm ("y'all need a value strategy") and adeptly unpacks anecdotes. Then he bounds from his conference-room chair to command a big-screen presentation. Speaking in rapid-fire fashion, wiry arms waving, he proceeds to reveal what's really going on in the $45 billion pizza market and why Papa Murphy's, headquartered in unassuming Vancouver, is on a path toward pizza-world conquest.

A datahead, he's as quick with industry statistics as he is with anecdotes.

"Fifteen to 20 percent of Americans say they're pan pizza lovers," says Calwell, who, in 2011, took the helm of Papa Murphy's International, with more than 1,400 stores in the U.S., Canada and the United Arab Emirates, all but about 5 percent operated by franchisees. "We didn't have a pan pizza before I got here."

He also knows which pizza chain is putting what on your pizzas, and how much. He snaps off another stat: Papa Murphy's' "base pepperoni pizza has about 30 percent more cheese" than those of the company's primary competitors: Pizza Hut, Domino's Pizza (Calwell previously held management positions at both of those chains), Papa John's Pizza and Little Caesars.

Of course, Calwell doesn't know all of this stuff just to dazzle fellow dataheads. What he knows is part of what he's working on: to vault Papa Murphy's, a popular brand well-entrenched in the Pacific Northwest, onto the national scene.

Problem is, naysayers stand in his way.

Some franchisees have sued the company in Clark County Superior Court, alleging it misrepresented sales volumes, made false representations to them and charged excess advertising fees, among other things. The company went public in May, making its costs and profits public for the first time. And while Wall Street analysts remain bullish on the company, skeptics say Papa Murphy's is weaker than it admits.

Calwell takes all of it seriously. But he says his is a growth company focused on the long term: stores in new markets, higher-performing stores, more sales, market-share expansion and, eventually, profitability.

"Sometimes you've got to be patient with these things," he says.

Although those long-term outcomes depend on Calwell's leadership, he's got a platoon of lawyers fighting the franchisee suit and public relations people ready to joust over the company's image. And he expects many missions accomplished from the company's 170 employees. The work force at Papa Murphy's is up 29 percent from 132 in 2011, when Calwell assumed control.

And it's not as though consumers aren't happy with the company's pies, fine-tuned in a test kitchen tucked inside the company's headquarters near Westfield Vancouver mall.

This year, Market Force Information crowned Papa Murphy's No. 1 in the pizza category, including food quality, healthy food and friendly service. Zagat bestowed laurels in 2012, 2011 and 2010, naming the company No. 1 among pizza chains. The list of glowing No. 1 rankings goes on.

Here's something else Calwell likely doesn't have to worry about: the commitment of his corporate lieutenants to both his and the company's success. Jayson Tipp, the company's senior vice president of marketing, strategy and technology, says he had other professional opportunities but chose Papa Murphy's because of Calwell. Sitting across from Calwell during a three-hour interview with The Columbian, Tipp choked back tears.

"He's the best boss … totally … real human being, here for the right reasons, and I sign up every day … to win, and the leadership team does, too."

After composing himself, Tipp, whose corporate management experience includes stints at Redbox and Starbucks, promised victory in the end.

"We'll take a lot of pleasure in proving naysayers wrong, and we're confident that we'll do that," he says. "I can't tell you what is going to happen in the future, but we're going to work our asses off to win."

'Best practices'

You can understand the siege mentality. After all, Papa Murphy's, considered a big fish in a regional pool that includes mom-and-pop pizza stores, faces not just naysayers but also an attack by four other big fish that swim in a national market: Pizza Hut, Domino's Pizza, Papa John's Pizza and Little Caesars.

Calwell unspools the context: In 2009, those four pizza chains, controlling about 38 percent of a $45 billion pizza market, decided to shift their focus from knifing each other over small percentage-point gains. Instead, they decided to gang up and gut-punch Papa Murphy's and other regional and mom-and-pop stores — which represent about 62 percent of the pizza category — to siphon market share away from them.

And why not? Especially when you're national and you control 89 percent of advertising dollars. Calwell appreciates the strategy.

"Why go after the 38 percent that has 89 percent of the advertising budget when you can go after the 62 percent of the category that has only 11 percent of the advertising budget?"

Over time, as Pizza Hut, Domino's and the others flashed TV ads with attractive, discount deals on carry-out pizzas — the heart of the Papa Murphy's model — their market share rose while the fortunes of Papa Murphy's sank. The situation came up later when Calwell, then the chief marketing officer and chief food innovation officer at Wendy's International, interviewed for the job of CEO of Papa Murphy's.

Calwell recalls the conversation:

"You guys have got to be getting killed right now," Calwell says.

"Yeah, we are getting killed," his interlocutor replied. "How'd you know about that?"

"You just gotta be. The math doesn't work. I mean, they're all growing."

After Calwell grabbed the steering wheel at Papa Murphy's, he set about turning it onto a new path: to not only beat back its competitors but to grow itself into a national brand capable of its own national advertising.

Tipp described the shift: "What comes with that talent is best practices and development of capabilities that didn't exist."

So how does Papa Murphy's win the 21st century pizza wars? It doesn't hurt that the company enjoys lower labor costs than its competitors. And that's partly because Papa Murphy's stores close by 9 p.m., while its competitors stay open until the wee hours of the morning. But those competitors are after up-all-night, pizza-hungry young males, Calwell says, while Papa Murphy's focuses on families (especially moms) who cook their pizzas well before 9 p.m.

"Young males aren't big on using their ovens," Calwell says. "Sometimes they use their ovens for storage."

Yet strategic changes in price and product offerings, and new performance measures and technological upgrades — all pushed by Calwell — are the bigger parts of Papa Murphy's' move to dominate more turf.

The changes include introducing Faves, a line of pies that maintains the same high-quality ingredients (including freshly made dough) for which Papa Murphy's is known but that offers fewer toppings to serve the foodies among us.

"I don't want that much cheese or meat loaded on my pizza," says Calwell, assuming the role of the young, picky pizza lover to which Faves aims to cater. "I want more of the taste of the toppings to come through."

Faves, with a quantity of ingredients lowered to match the amount on pies at Pizza Hut, Domino's and other competitors, also comes with a $5 price tag. It "brings traffic" to stores, Calwell says, and boosts sales.

As Calwell has diversified the company's offerings, he's also brought stores under a five-star rating system. The idea is to do better by consumers, drive up sales, reward store owners who meet the goals and coach those who struggle.

"I don't want it to be 'Everybody gets a trophy,' " Calwell says. "I want it to be like 'You have to earn it.' "

He also seeks to implement a companywide point-of-sale software system under which more transaction data are recorded. Again, the idea is relentless improvement, unyielding pursuit of data on which to build smart decisions.

"When you (have) point-of-sale systems," Calwell says, "it allows you to do online ordering in the future, so that's a long-term investment."

Next up: a makeover of Papa Murphy's stores to strengthen the message that the company uses fresh ingredients and cooks its dough at each store — complete with dough beater placed in full view of customers.

'An unknown quantity'

Not everybody's on board with the changes, though.

This month, the business magazine Forbes published a story about a survey, released in December, of more than 300 franchisees who control more than 1,000 of Papa Murphy's' stores. For perspective: The company had 1,429 stores on March 31, according to a recent filing with the U.S. Securities and Exchange Commission. That's 1,405 stores in the United States (1,336 franchised stores and 69 company-owned stores), 20 in Canada and four in the United Arab Emirates.

Forbes reported that the survey, conducted by the Papa Murphy's Franchisee Association, "paints a picture of owners unhappy with how the chain deploys advertising dollars, designs ad campaigns, determines product pricing, helps floundering stores and receives franchisee feedback."

Tipp says the survey is a months-old snapshot that, not surprisingly, suggests some franchise owners have been uncomfortable with some of the changes. The company responded, he says, by visiting and talking with franchisees. Also this month, a Clark County Superior Court judge decided Papa Murphy's franchise owners will be allowed to pursue some claims in their lawsuit against the take-and-bake pizza chain. At the same time, Judge Scott Collier also ruled partially in favor of the corporation, including determining that franchise owners who live outside Washington cannot seek fraud claims against the company under the state's Franchise Investment Protection Act.

Although the judge dismissed fraud claims by out-of-state franchise owners under one part of the state franchise law, he also said franchisees — including those living outside Washington — should be able to pursue certain allegations, including breach of contract and negligent misrepresentation, under another part of the law.

They're seeking at least $23 million in damages. In pursuing their allegations, Collier said, franchisees must bolster their complaints, adding and sorting crucial details.

"Our clients are excited to tell their story," Caroline Fichter, a Kirkland attorney for the franchise owners, told The Columbian after the judge's ruling.

The lawsuit involves an estimated 34 to 36 franchise groups mainly operating in the South and Southeastern United States where the brand is less well-known. Tipp predicts the company will score more victories as the case unfolds.

"We had a partial motion to dismiss," he says. "As more facts are brought to light, you will see more of that."

As the company attempts to fend off the suit, it's getting cautious reviews by some analysts. After Papa Murphy's went public in May, an analyst for The Motley Fool, the financial-services company, wrote that the company remains "a bit of an unknown quantity and its success is far from certain." Meanwhile, Seeking Alpha, the online investment researcher, recently indicated some investors are taking short positions in Papa Murphy's' stock, looking to profit from an anticipated decline in its value.

Bring these naysayers' comments up, and company officials and spokespeople push back. Anton Nicholas, managing director for ICR, a public relations firm working with Papa Murphy's, said Wall Street analysts "who do this for a living, who represent institutions, the vast majority of which control the stocks, all have much more favorable opinions on this."

Calwell strikes a tone that's equal parts pragmatic and optimistic. And he grounds his rebuttals in the language in which he's so fluent: data. Papa Murphy's has had "13 straight quarters of same-store sales growth," he says. "I'm growing market share versus my competitors."

Of the doubters and the short-sellers, Calwell says, "I can't do much about that directly, other than put my nose down, build the business, build the owners profitability, and I think the results will speak for themselves over time."