To be successful in business today, it’s not enough just to design a high-quality product and sell it at the right price; you also have to build a brand that people can trust. Often, that means showing a real commitment to social justice—and there are real consequences for those who can’t deliver on that front. The pizza chain Papa John’s is currently learning that lesson the hard way, as the fallout from the ugly racist language used by founder John Schnatter has been even worse than expected.
Schnatter, who was caught using the N-word during a business call, promptly resigned from his position as chairman of the Papa John’s board. But there is still controversy over whether Schnatter will stay somewhat in the picture, and according to CNBC, this struggle will have real consequences. Analysts have speculated that Papa John’s should now be considered “not a trusted brand,” and that sales and employee morale will both likely plummet.
“The implications of the current situation are far-reaching,” said Chris O’Cull, an analyst at Stifel. “For example, employee morale is likely extremely low at the corporate office and in the field following media reports about senior executive behavior and with the likelihood compensation and continue employment could be at risk from the declining sales.”
Papa John’s stock has lost more than 30 percent of its value in the past year. In addition to the Schnatter scandal, there have been rumors about a toxic company culture within Papa John’s, and there are now major questions lingering about employee and franchisee commitment to the brand.
O’Cull, who uses comments on social media as one metric for gauging public opinion, estimates that the Papa John’s “brand sentiment score” is around negative 48 at the moment, a far cry from positive 56 for Domino’s and positive 46 for Pizza Hut. He has speculated that the damage to Papa John’s sales might be irreparable at this point.
“We believe the company is in a precarious position—needing a strategic savior but struggling to find one willing to underwrite a transaction given the brand damage,” O’Cull said.
Photo: A Papa John’s in Provo, Utah, by Ken Wolter / Shutterstock.com