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Papa Murphy’s CEO: Company’s future lies in mobile ordering, delivery

Digital strategy: Seeking more dough online

By , Columbian staff writer
Published:
4 Photos
Vancouver offices of Papa Murphy’s are seen Tuesday. Papa Murphy’s new CEO, who started in July, said it expects its future will depend on mobile ordering and third-party deliveries.
Vancouver offices of Papa Murphy’s are seen Tuesday. Papa Murphy’s new CEO, who started in July, said it expects its future will depend on mobile ordering and third-party deliveries. (Amanda Cowan/The Columbian) Photo Gallery

Weldon Spangler said he is no stranger to the business of turning companies around, and he’s hoping a mix of technology changes and his role as freshly named CEO will lead Papa Murphy’s the same way.

Spangler, 52, is five months into running the Vancouver-based pizza company. Though he still struggles sometimes with the labyrinthine hallways at the headquarters near Vancouver Mall, he will cheerfully ask for directions before loping into a meeting.

“Whenever I have spare time, I just walk around, bump into meetings and say, ‘Sorry to interrupt; what are you working on?’ ” Spangler said of his day-to-day modus operandi. “The title scares people. So I try to make sure that Weldon doesn’t scare people.”

That amiability could help Papa Murphy’s, one of Clark County’s handful of publicly traded companies, as it rebuilds its relationship with franchisees. Spangler is tasked with unifying 550 franchisees, who run 1,540 stores employing a combined 2,000 people.

Franchise operators have reportedly been receptive to the new personality at the top desk; but sales have dived more than 5 percent this year and they hope to see changes that could bring in more dough.

Papa Murphy’s

Official Company name: Papa Murphy’s Holdings.

Headquarters: 8000 N.E. Parkway Drive, Vancouver.

Principal business: Take-and-bake pizza franchisor.

Stores: About 1,500 in the U.S. and 41 internationally.

52-week stock price range: $3.50 to $6.80 per share.

Friday close: $6.22 (FRSH, Nasdaq Exchange)

Revenues for the first nine months:

2017 — $87.9 million

2016 — $126.8 million

2015 — $120.2 million

2014 — $97.3 million

Comparable store sales, annually:

2016: –5.2%

2015: 1.9%

2014: 4.5%

2013: 2.8%

2012: 2.9%

• Comparable store sales, quarterly:

2017

Third quarter: –4.1%

Second quarter: –4.3%

First quarter: –5.0%

2016

Third quarter: –5.8%

Second quarter: –4.0%

First quarter: –2.8%

2015

Third quarter: 1.4%

Second quarter: 4.5%

“I think (under) Weldon’s leadership, we’re starting to all (move) in the same direction,” said Tom Lovelace, a franchisee with 85 locations in Washington, Michigan and Texas. He said franchisees by and large want to see more profits.

“Not just to grow sales at all costs or grow transactions at all costs, but to grow profitable sales. As an owner your ears perk up when you hear that, so we’re all in,” he said.

Spangler’s first orders of business are digital. Papa Murphy’s will roll out a new mobile app and implement third-party pizza delivery in the hopes of boosting sales. Meanwhile, he will guide the company as it resells its company-owned stores to franchisees.

“It’s going great so far. I’ve learned a ton,” Spangler said in a recent interview, sitting at a conference table on the third floor of company headquarters in a Vancouver office park. “The first 100 days are really about immersion, getting to know people, doing a lot of listening and really learning what’s going on. So I’ve done a lot of that.”

Spangler came to Papa Murphy’s from Dunkin’ Brands, where he said he learned how a company can dig itself out of debt and back to profitability. His tenure with the Japanese subsidiary of Starbucks went the same.

“I think getting groups working together in a coordinated fashion is something we’re spending a lot of time on,” he said. “And rebuilding that trust with franchise owners.”

For Papa Murphy’s, the biggest ingredient for a rebound will be to make it easier for customers to order pizza.

While competitors greatly expanded their digital access — Domino’s Pizza famously set up an ordering system for people who tweeted pizza emojis at them — Papa Murphy’s stayed analog. Its first mobile app only included store locations, not ordering, and was shelved after a year-and-a-half.

Papa Murphy’s in June announced it would partner with Olo, a New York-based technology firm, to revamp its online ordering. That partnership, which will also link its pizza sales with third-party delivery services such as GrubHub, will make it easy to order and receive a take-and-bake pizza, Spangler said.

“We’re trying to be more convenient for the guest. How do they want to order? How do they want to interact with us?” Spangler said. “Nobody wants to get on the phone with somebody. Ordering a pizza on the phone is a long-term, classic thing, but they prefer to do it online.”

Papa Murphy’s will launch its new online ordering platform beginning the first quarter of 2018. The app will follow.

The move should help Papa Murphy’s jump into on-the-go ordering, a growing subset of ways to place orders without having to call or order in person. Market research firm NPD Group reports digital ordering in the restaurant industry increased from 1.24 billion orders in 2014 to 2.25 billion in 2017.

Erik Thoresen, of the Chicago-based market research firm Technomic, said installing online sales is a proven successful strategy, but it’s not a panacea. Convenience is one factor, as is price or demographics.

“There isn’t going to be a single thing that helps energize their sales, but it’s certainly a very relevant, important part of the strategy,” he said.

Partnering with third-party delivery could also be a double-edged sword. Papa Murphy’s would have more drivers during peak hours, but they will also have to vie for drivers from Uber, Amazon and elsewhere.

“(Drivers) may also be driving a person or doing a delivery for Amazon all at the same time,” Thoresen said. “There is some potential inconsistency in driver availability that may be a threat to their model.”

Refranchising stores

Spangler’s other stated mission will be to reshape the company’s relationship with franchises.

To do so will mean reversing course from 2014, when Papa Murphy’s executive team announced plans to grow from 1,400 stores to 4,500. It opened 53 of its own locations across the country, many of which didn’t sell to franchisees, and introduced its now-defunct app.

“We spent a lot of time focusing on growth and maybe that focus should have been on the health of the company,” said Lovelace, the franchisee. “I think that’s something we’re still recovering from, too.”

In pursuit of that growth, Papa Murphy’s borrowed $132 million. That loan is due August 2019 and, as of Oct. 2, Papa Murphy’s still owes $98 million.

The corporate goal now is to largely get out of the pizza-making game and focus mostly on collecting fees and royalties from franchise owners.

“You can do both, but it’s hard to do both really well,” Spangler said of running stores and being a corporate franchisor. He said running stores is a logistical demand, handling shipments of ingredients and personnel, for example. “There are a lot of human resource demands involved.”

Papa Murphy’s announced in January it would partner with Franchise Performance Group to start selling those company-owned stores. It has closed 13 of its stores in the past three months and sold another seven.

“We’re making progress on that right now,” Spangler said. “We’re doing some work internally with some owners that should yield some sales. And also have engaged with a broker. … That process over the next few months should start yielding some results.”

Selling those company-owned stores would be easier if pizza sales were stronger, Spangler admits. Comparable store sales, which reflect sales at stores year-over-year, turned negative at the end of 2015 and have declined every quarter for the last two years. Papa Murphy’s has only said they hope to get that shrinkage in the low single digits soon.

“I think obviously it would be better if comp store sales were higher,” he said. “Still, I think there’s tremendous potential.”

If there is a lot of potential, there is also a lot of competition. According to NPD Crest, the quick-service pizza market is worth roughly $36 billion nationwide. Papa Murphy’s is the smallest of five firms who control half that market. The others are Domino’s, Pizza Hut, Papa John’s and Little Caesars Pizza.

Papa Murphy’s also faces increased competition from ready-to-bake pizzas sold at grocery stores, convenience stores and meal delivery services such as Blue Apron.

Spangler added that a lot of the franchise groups with whom they’ve negotiated buying company-owned stores have the foresight to see what Papa Murphy’s has coming down the road.

“Most franchise groups will see beyond that,” he said.

Columbian staff writer

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