Caixin
Jun 29, 2018 07:37 PM
BUSINESS & TECH

Papa John’s Sells Slice of Its China Business

Pedestrians walk past a Papa John’s advertisement in Beijing in August 2014. Photo: VCG
Pedestrians walk past a Papa John’s advertisement in Beijing in August 2014. Photo: VCG

American pizza chain Papa John’s International Inc. has sold its North China restaurants in a market heated by increasing competition.

Papa John’s said that all 34 locations in Beijing and Tianjin have been sold to Asia Gourmet Holdings (Shanghai) Co. Ltd., which operates the popular Beijing-based Korean food chain Zheng Yi Wei in China.

The financial details of the transaction weren’t disclosed.

“It’s taken well longer than what we ever anticipated it to take,” company CEO Steve Ritchie said during an earnings call in May, referring to the deal.

Rumors of Papa John’s selling its North China stores surfaced in 2015. At that time, the chain had nearly 60 restaurants in the region.

The company is still running more than 150 locations in other Chinese cities including Shanghai and Shenzhen.

Facing rising competition, Papa John’s said its global restaurant sales declined 1% year-on-year in the first quarter, excluding the impact of foreign exchange fluctuations, while a year before the figure rose 5.5%.

The chain entered the China market in 2003, 13 years after rival Pizza Hut. It was U.S. chains Pizza Hut and the now-rarely-seen Pizza Inn that popularized pizza among Chinese diners, said Huang Xiaobin, a branding director at Alibaba-backed catering company Xiyun International.

Papa John’s was unable to challenge Pizza Hut’s domination of fast-food pizza in China for two main reasons: it hasn’t invested heavily in marketing, nor has it succeeded in making its pizzas stand out, Huang said.

Huang said that Pizza Hut often refreshes its menu with seasonal themes, such as a Caribbean concept for the release of a “Pirates of the Caribbean” movie. Both brands make American-style pizza with a thick base, but Papa John’s has failed to impress customers, Huang said, adding that Papa John’s fresh, handmade dough should have had an advantage over the pre-made bases used at Pizza Hut outlets.

Pizza Hut is growing more popular in China and its number of restaurants will grow from 4,500 in 2017 to 6,000 in 2020, according to consultancy Frost & Sullivan.

However, holding onto a dominant position in the market is no easy task even for Pizza Hut, Huang said, adding that more and more operators, either chains such as Domino’s, Saizeriya and Pizza Marzano or independent pizzerias, have already cut into Pizza Hut’s market share.

Papa John’s Nasdaq-listed shares rose 1.31% on Thursday.

Contact reporter Coco Feng (renkefeng@caixin.com)

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