Papa Murphy’s – Case Study

History of Papa Murphy’s

Papa Murphy’s pizza franchise started in 1995 through the merger between Papa Aldo’s Pizza and Murphy’s Pizza. Over the years, the franchise grew to 1200 units and in 2010, was sold private equity company, Lee Equity Partners. The company continued to grow and in 2014, Lee Equity Partners spun off the company through an IPO.

However, the take-and-bake pizza franchise was not ready for rigor of being a publicly traded company. Faltering performance led to new suitors eyeing the chain. As a result, in 2019, Canadian based food company, MTY Food Group Inc., took Papa Murphy’s private for USD $190 million.

The Pizza Franchise Industry in the United States

In the United States, the Pizza Franchise Industry has grown in the past five years at an annual rate of 2.9%. This is faster than the broader Pizza Restaurant Industry, which has grown at a lower rate of 1.6% annually.[1] One main driver of growth is the increase in consumer confidence, leading to an increase in spending. Additionally, changing consumer preferences for convenience has also driven spending in this industry, along with other quick serve restaurants.

Over the next five years, the industry will continue growing, however at a slower rate of 1.5%. This will put the industry at $38.4 billion in 2024.[2] The industry will continue to face competition from standalone pizza companies and other food service restaurants that offer a value proposition based on convenience. Consumers will also continue spending more on health-conscious diets, potentially hindering the pizza restaurants and franchises industry’s growth.

Customers and competition

Within the industry, the competitive landscape is moderate. The top four pizza franchise companies making up approximately 49% of the market. Domino’s leads in market share with 19.3% of the market, followed by Pizza Hut with 14.4%. Despite being the 5th largest pizza chain in nation, Papa Murphy’s hold only 2.1% of the market.

The industry’s customers range all individuals who are looking for convenience. Consumers aged 25 to 44 make up the largest group of consumers in the market at 38.4%.  However, the number of K-12 students is also a key customer indicator. This is because schools typically choose to cater pizza for lunch. This segment will continue growing over the next few years.

Papa Murphy’s business model

Like other pizza franchises, Papa Muprhy’s generates revenues by collecting franchise fees. For potential franchisees, the company provides the unique product offering in an industry dominated by ready to eat delivery. The take-and-bake pizza model allows for franchisees to focus on a limited number of business functions. It also enables the company to be flexible in their variety as the only thing they need to change are the ingredients.

For customers, Papa Murphy’s allows them a customizable pizza that is fresh ready when they are. This is because the customer bakes the pizza at home.

Papa Murphy’s success Factors

Papa Murphy’s pizza franchise has two significant factors that make it successful, namely their take-and-bake model and their low-cost operating model.

Firstly, the company’s take-and-bake model has allowed it to differentiate itself from its competitors. It does this on the values of quality and freshness. Inadvertently, this differentiator also gives rise to Papa Murphy’s second success factor, its low-cost operation.

By having a take-and-bake model, franchise stores do not have to provide dine-in service. This allows them to focus on providing fresh ingredients and building relationships with customers. Additionally, due to the limited tasks required for operating the business, franchisees do not need a large amount of space for their store. These factors compound together to provide a low-cost model for franchise owners.

Looking ahead

The company’s greatest success factor is also a potential pitfall; as consumer trends continue to move towards convenience, Papa Murphy’s unique product offering goes completely against this because customers still have to do the work of baking the pizza. They will need to find other ways to provide customers convenience. Digitalization of customer services is one way to give customers convenience. Features such as apps and online ordering are ways to streamline operations while improving customer service delivery.

 

[1] Rachel Hyland, “Pizza Restaurant Franchises,” IBISWorld, December 2019.

[2] Rachel Hyland, “Pizza Restaurant Franchises,” IBISWorld, December 2019.

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