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PAPA JOHN'S: THE EASTERN FRONT
By Weihua Watson
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Visit PizzaTV.com for a video tour
of a Chinese Papa John’s store.
After more than 20 years of reform and opening themselves to international trade, China’s restaurant industry has witnessed rapid growth, and continues to grow with an increase in employment steadily promoting economic performance. China’s catering and restaurant industry has demonstrated great development potential.
In 2006, the total retail sales of China’s restaurant and catering industry amounted to RMB 1034.5 billion, with an increase of RMB 145.8 billion for 2005, a 16.4% increase. The increase rate within the restaurant industry was 2.7% higher than that of the total retail sales in the consumer good sector. (Source: Invest In China)
Papa John’s entered China in October of 2003. Papa John’s Shanghai has earned the eastern China area developing permit from Papa John’s International, which includes Shanghai, Jiangsu, Zhejiang, Shandong, Anhui, Fujian and Hubei province. Their first Papa John’s restaurant opened in Shanghai on October 25, 2003. Currently Papa John’s Shanghai has 42 restaurants including 35 corporate stores and seven franchise stores in Shanghai, Zhejiang and Jiangshu area.
Garrison Chu, the General Manager of Papa John’s Shanghai said, “Chinese like pizza, more and more consumers accept pizza. China, India, South America and the Middle East area will become the largest economic developing areas in the world, and China has the greatest potential in the market.”
John Schnatter, CEO of Papa John’s International, helped celebrate the opening of the 15th Papa John’s restaurant in Shanghai in September, 2005. “This is my first trip to China and I have to tell you, I’m amazed,” said Schnatter. “The restaurant we opened yesterday in Shanghai is the nicest restaurant in the Papa John’s system. Of course it is a dine-in restaurant. They do business differently here, which means, we do business differently here. Asian culture dictates that before you allow someone to deliver food to your home, you need to get to know that person first. To build relationships with our customers in this market, we’ve designed dine-in restaurants that provide an appealing atmosphere that is consistent with our quality ingredients.”
Chu said that as with Pizza Hut, McDonald’s and KFC, Papa John’s has its own development strategies within the Chinese marketplace. “We are developing our brand from the most metropolitan cities and then on to smaller, less populous cities,” Chu admitted. “When Papa John’s first came here, not many people knew this brand. We opened our first and second stores in high-income residential areas. More than 90% of our customers are foreigners and 10% are Chinese who speak English. These customers already knew Papa John’s and they helped introduce our restaurants to their friends. Very soon after, we opened several stores in the downtown area and city center of Shanghai. Our restaurants were well designed and decorated so they have a strong appeal to the customer. Gradually, Papa John’s became a very popular, new brand in Shanghai and our new customers became regular customers. Chinese has a proverb: seeing is believing. It’s an indispensable process to this market. Consumers must come into you restaurant, see your store, read your menu, and order your food. They will come back after they approve your products, services, and atmosphere. Now, more than 90% of our customers are local, and more median-income people have become our customers. Our average ticket is US$8.50.”
Papa John’s Shanghai operates differently than Papa John’s in the United States. Chu said, “First of all, our menu is different. We not only offer Papa John’s classic pizzas and soft drinks, but also offer other options such as pasta, soup, onion rings, potato logs, coffee and desserts. Secondly, our service is different. We offer carryout and delivery service just like Papa John’s of the U.S., but our restaurants also offer dine-in. Customers receive our great service and enjoy the atmosphere in our restaurants. We want the Papa John’s brand to become known more as a full-service and multi-service restaurant, not a fast-food chain.”
“Delivery is a huge business in America. Almost all of the Papa John’s stores in the United States only do carry out and delivery. But, delivery is a new concept to Chinese. If we want to create and develop this new market, our customers must know us, accept us, and like us first. Dine-in business still brings the bulk of our sales, but delivery is picking up. In our current market, 55% of sales come from dine-in, 7-10% of sales come from carryout; delivery is about 35%. We have set up the delivery hotline with a toll free number, and we offer free delivery service within a couple miles,” Chu said.
Papa John’s slogan is “Better ingredients, better pizza” and Chu says they are taking steps to affirm that brand in China. “From flour, pizza sauce, and toppings, we guarantee the best ingredients in our products. Our commissary has the best food suppliers and distributors supplying us with top quality foods to deliver to all of our locations. We also provide top quality equipment to all of our stores as well. We pretty much use the same ingredients as Papa John’s in the U.S., but our pizza sauce is lighter. People seem more concerned about eating healthier here, and are careful not to absorb too much salt.”
“At the beginning, our targeted demographic was between 16 and 40-years-old, but very soon, we realized the younger ages should be included too,” Chu explained. Most of his stores see 70 to 80% of their customers with children between the ages of four and 10 on the weekends. “Kids love our pizza and always like to have their little ‘pizza parties’ here.” Chu said especially during the school holidays such as summer and winter vacation, they always have events for children. One in particular, called ‘Little Pizza Master,’ the parents bring their kids to Papa John’s restaurants; the kids make pizza by themselves and they’ll receive a certification of ‘Little Pizza Master’ from Papa John’s. “We also have Papa John’s drawing contests where we hang their paintings on our restaurant’s walls. The kids love these events.” Since children are becoming a part of the pizza business for Papa John’s in China, Chu feels they will also grow along with the restaurant and become loyal customers.
Papa John’s Shanghai advertises in many different ways including radio, newspaper, and some television. “We also do some big-screen advertising, similar to Times Square in high traffic areas. When we have a new store about to open, we send direct mail to local residences through the post office.” Chu said their research and new product department does periodic market research and continues to develop new products to meet the market and consumer’s needs. “We market and promote our new products every four to six weeks. We use marketing materials such as mini menus, beautiful bookmarks and notebooks with our coupons, and we give those to our customers as a little gift. They can save them and use them next time.” The notebooks they give away include a calendar, so they will keep it for the entire year, using the various coupons throughout the year.
Management is one of the most important elements to success, but it’s not easy to find qualified personnel, Chu admitted. “We found some people who used to work for KFC and Pizza Hut. Their past experience in a similar business was a great asset, but gradually, we built our own training and management system to train our employees.” Through Papa John’s equal opportunity policy, they have been able to keep their employees working hard and to remain loyal. “Our staff is the foundation of our company’s culture. A good company and a good staff always stay side by side. We have been through more in the past three years than words can explain. The successful decisions we have made attribute to our great team, and I am very proud of them.”
As far as franchising goes, Chu said they are being cautious by choosing franchisees based on qualifications and devotion, not just deep pockets. “We must make sure that we are able to control the quality of our brand and our future direction.”
Chu said in closing with a few words of advice that team is the most important part of running a business. “To build a successful business in this market, you have to have a good system, a good team, the right people, and you should love pizza and love this industry.”
Papa John’s Shanghai will open their 50th store in August, 2007. They plan to open 200 total stores in eastern China area within the next decade.
To learn more about Papa John’s Shanghai, please visit www.papajohnshanghai.com. Visit PMQ China website at www.pmq.cn . Go to Shanghai, China with PMQ pizza pavilion to exhibit at FHC China 2007. Contact Weihua Watson at 662-234-5481 ext. 128 or send her an email at weihua@pmq.com