Things may finally be looking up for Papa John's following a damaging upheaval caused by a racist outburst by its founder which was caught on tape.
The troubled pizza chain's stocks jumped over 8 percent on Monday on news that it received a $200 million lifeline from Starboard Value LP. The company also announced that Starboard CEO, Jeffery Smith has become its new chairman as part of the deal which promises to draw a line under what has been a damaging period for the business.
It will be recalled that in July 2018, founder and former Chairman John Schnatter was forced to resign after it emerged that he used the N-word during a conference call between company executives and a marketing agency. Responding to a question about efforts to dissociate the company's brand from racist online groups as a result of his public criticism of the NFL anthem protests, Schnatter reportedly responded:
"Colonel Sanders called blacks n-----s".
In a subsequent attempt to bolster his "I'm-definitely-not-racist" credentials, Schnatter then launched into a rambling narrative about his childhood in Indiana, citing the prevalence of lynchings of African-Americans using the unique method of tying them to moving trucks.
Shareholders Decide Against "Racist Grandpa" Brand
In Schnatter's opinion, as with a number of older right-leaning caucasian Americans, the NFL anthem protests were apparently disrespectful to the flag, and an unacceptable form of public protest against racially motivated civil rights violations. While the majority of people within that demographic were content to express their outrage privately and on semi-anonymous internet forums, Schantter upped the ante by publicly slamming protesting footballers and the NFL, blaming them for falling pizza sales and eventually ending a partnership between Papa John's and the NFL.
An unintended consequence of this maverick move was that overnight, Papa John's became something of a flagbearer among online white supremacist groups and the older "not-racist-but-back-in-my-day" crowd. This happened in part because Schnatter himself was central to the branding of Papa John's, having built the business from a small family-themed pizza shop into a nationwide franchise.
For marketing and PR purposes, however, this was an unmitigated disaster because while supporting a right-wing talking point might have won brownie points with people who had a nostalgia for the 1950s, and tattoo parlour artists who specialised in drawing swastikas, it actually hurt the fundamental purpose of the business, which is to sell pizzas to everyone with an appetite.
A social media campaign to delete the Papa John's pizza app quickly gathered steam, and in just a few days, Schnatter was forced to resign, with more than 5,000 Papa John's stores quietly expunging all images of him and removing all traces of his personal branding.
Papa John's Bounces Back
Under the terms of the deal announced yesterday, CEO and former Pinnacle Entertainment chairman, Anthony Sanfilippo takes a seat on the board alongside current CEO Steve Ritchie retains his position. In a statement, the company said that it plans to use $100 million to settle its debts and invest $100 million into the business. Starboard has also indicated that it will be investing in the brand instead of cutting costs. PZZA shares bounced sharply on the news yesterday.
According to Wall Street Journal sources, although new CEO Smith and founder Schnatter had not spoken before the board meeting, Smith planned to work with him. Schnattter on his part, who remains Papa John's largest single investor with 31 percent, voted against the investment during the board meeting.