Papa John says he'll pass along Obamacare costs to consumers

[Robin Garr]

So “Papa” John, not long after hosting Mitt Romney to a little at-home fund-raiser at his Anchorage manse, is now declaring that the cost of providing his employees Obamacare will require him to pass along the costs to those who consume his pizza, in order to protect the shareholders’ interests?

I find this fascinating, first because of his apparent priorities: Shareholders first, employees second, and his customers, it seems, dead last. But it’s also curious because of his apparent limited command of simple business economics: Raise prices, sales drop off, shareholders suffer all the same. 
Deliver a quality product, John, and shareholder profits should follow.

I won’t speak of boycotts here. We’ve been down that road with Chic … er, never mind … and in any case, I’ve always gone more for the locals, Coals and Papalino’s and Danny Mac’s and Impellizzeri’s and Clifton’s and … well, you get the idea.


But seriously, folks, at the risk of another interminable political thread, let’s see a show of nonpartisan hands: Who thinks it’s a good idea for a corporate mogul as public as “Papa” to be getting so out front with his pro-Republican, anti-Obamacare ideas during an election year?

Papa John's Schnatter says health care law will raise pizza prices
Business First
Wednesday, August 8, 2012, 7:06am EDT

The founder of Papa John's International Inc. says President Obama's health care law will cost consumers more on their pizza.

John Schnatter, CEO of the Louisville-based pizza chain (NASDAQ: PZZA), told shareholders in a conference call last week that the health care law's changes — set to go into effect in 2014 — will result in higher costs for the company, which it intends to pass onto consumers, according to Politico, a political-oriented Web site.

The health care law could cost the company 11 to 14 cents per pizza, or 15 to 20 cents per order, said Schnatter, who supports Republican presidential candidate Mitt Romney.

Politico quoted Schnatter as saying, "If Obamacare is in fact not repealed, we will find tactics to shallow out any Obamacare costs and core strategies to pass that cost onto consumers in order to protect our shareholders' best interests."

Last week, Business First reported that Papa John's earned $14.6 million in the second quarter, on revenue of $318.6 million.

Full story here ...
http://www.bizjournals.com/louisville/b ... 2012-08-08

From what I hear, PJs has switched to paying drivers on a tip credit system in the past few years, so rather than minimum wage plus tips, drivers are now paid $3 per hour while they're on the road. That alone causes me to hold him in low esteem.

In politics (all parties) we have a cash and carry system. Case in point, Schnatter hosted a fund raiser for Romney at his manor in Anchorage. In return, Romney mentioned Schnatter and PJ's favorably in a nationally televised speech (the stock rose the next day thereby enriching Schnatter) and in return Schnatter campaigns for Romney by saying Obama's healthcare plan will raise the price of your PJ pizza by 11 cents. Not a pretty picture. Then again, I won't pay more for PJ's pizza no matter what because I think it's crappy pizza.

I will be the first to admit that I am woefully ignorant about Obamacare in general.

So please type slowly.....but is it that he will be required to offer health insurance to employees that he currently does not??

It's my first time responding to a hot-button issue. I've seen how things get around here. Take it easy one me.

I'm not quite sure how Obamacare translates into higher costs for Papa John's. I'm open to an education about this. However, if it means more people get health care then I can deal with 15 cents more for a pizza.

As for the pro-Republican stuff - he's got a lot of money and seemed to earn it in a relatively honest fashion. Who am I to tell him what to do with it? I'm not a fan of his pizza and now I have another reason not to give him my money. To me it's a good deal because I won't have to pick up the tab for all of his uninsured employees when they hit the emergency room and I have to foot the bill. The folks who buy his pizza will kick in to provide health care to his people at an undoubtedly lower cost. See how that works?

As for shareholders first - lots of people do it, but who comes out and admits it? THAT is a bad move.

So...instead of passing on a few cents per pizza which no one would ever even notice...he chooses to jump into the political arena and potentially alienate a wide swath of customers over a hot button issue.

Brilliant strategic move. Maybe he's hoping for a "Papa Johns appreciation day" from the conservatives.

[Robin Garr]

It's my first time responding to a hot-button issue. I've seen how things get around here. Take it easy one me.

I have ordered the Cone Of Safety placed over Alexis!

Seriously, good post.

It could be that he is getting on the Chick-Fil-A bandwagon. Good pubilicity/bad publicity either way it seems that Chick-Fil-A sales have risen recently.

I doubt that Papa John's will provide healthcare to those that the business currently doesn't provide it to. It will most likely be cheaper to pay the penalty/tax for not providing healthcare which they have already calculated. That is the cost that they will pass on. I don't believe that any corporation (small or large) will choose to entirely eat the penalty/tax without trying to pass it on the customers.

I'm no fan of his (or anyone else's) Republican boosterism, but I did spend my entire work life in the private sector. If I were a business owner, an increase in my operating costs would leave me with, as far as I can see, three options to keep on track towards my financial goals for a business in general, not specific to mass-market pizza:

1) Fire employees &/or do not fill positions when people leave and try to put the same amount of work on the employees remaining until the increased cost is offset . This was the default option everyplace I ever worked.

2) Institute across the board wage cuts; reduce, suspend or eliminate 401k match & profit sharing until the increased cost is offset. This is far more fair in terms of shared sacrifice. There were times my employer did some combination of this to meet financial goals and I certainly had a much better feeling towards management than when Option 1 is taken. And don't say there's no 401k or profit sharing. PJ's is a big company and some people are getting those things.

3) Preserve jobs and wages for company employees and raise prices to the customer.

This assumes they've worked down as far as they can on other variable costs and they probably have. Most businesses still around since 2000 have, so I don't include that as an Option 4.

As a more or less liberal, I'd rather see prices increased than the usual $+¢ Option 1. And since businesses have probably cut labor, or sent jobs overseas, as far as they can then the only place they have to go is raise prices. If any costs increased by the ACA affected only a few businesses in a given sector they'd be much more likely to try to avoid raising prices since that would be a competitive disadvantage. But since it applies to most comparable businesses then it is only a matter of when, not if, businesses increase prices.

I'll kick in my 15-20 cents on the one pizza per year that I buy there! Heck, I'll even buy two or three for that matter.

I have said that I don't visit here for the politics and it's true. Once here, it is sometimes hard to avoid and this is one of them.

Not long ago I visited my coffee shop and remarked to the barista that the price of a cup o'joe went up. Her answer to me was, we had to raise prices because of the increase in the minimum wage. The owner of the coffee shop was doing what he had to do, cover his cost of doing business and maintain an acceptable margin.

Schnatter, in his conference call simply said the same thing. He intended to do the best he could to maintain profit margins by passing along real costs to customers. His is a public company and he doesn't have the luxury of choosing to be less profitable without severe repercussions. I don't eat PJ's pizza so for me it's a good deal as a previous poster already stated. As for the coffee, I'm just paying more because I like it.

It was unclear to me whether Schnatter was asked about Obamacare cost in his conference call. If he were, he was pretty much bound to reply as his answer would affect analysts opinion and his stock price If he just jumped out there and raised the issue himself let's just say it was something I would not have done.

Schnatter, in his conference call simply said the same thing. He intended to do the best he could to maintain profit margins by passing along real costs to customers. His is a public company and he doesn't have the luxury of choosing to be less profitable without severe repercussions. I don't eat PJ's pizza so for me it's a good deal as a previous poster already stated. As for the coffee, I'm just paying more because I like it.

Oh boo hoo. Schnatter is worth between $250-$300 million, makes almost $3 million a year, and yet you're comparing him to a local coffee shop owner? Please.

http://investing.businessweek.com/research/stocks/people/person.asp?personId=325396&ticker=PZZA:US

http://www.pizzamarketplace.com/article/112647/Schnatter-ranks-no-17-on-Fortune-s-40-Richest-Under-40

http://www.celebritynetworth.com/richest-businessmen/ceos/john-schnatter-net-worth/

Dude is a disingenuous hack, and it's showing.

The statement is obviously true whether Shatner states it publicly or not. Any business has to raise the price of its products if their costs increase, it's basic business economics! Expenses for any business large or small are going to increase dramatically if Obamacare is not rescinded. Unfortunately it's going to hurt much worse for small businesses.

For Papa John's the cost increase will be small as shown by the small percentage increase in the cost of his pizzas. This is because the only changes that will affect them are things like covering preexisting conditions, children up to age 25, etc. However many small businesses are going to be hit much harder because they will be required to provide insurance for employees if they do not presently tried insurance for or else they will be forced to pay a significant TAX!

Also, I dunno about the "methodology" of this poll, Robin! The response about Obama not being popular in Kentucky is kinda pointless. Papa John's is a multi-national business, and Schnatter's comments could hurt his company in markets that are far more profitable/important than Kentucky.

Also, I dunno about the "methodology" of this poll, Robin! The response about Obama not being popular in Kentucky is kinda pointless. Papa John's is a multi-national business, and Schnatter's comments could hurt his company in markets that are far more profitable/important than Kentucky.

Why are you assuming that the comets will hurt their business?