Exclusive – Papa John’s UK posts £2.9m loss as lfl sales decline by 21.8%, loses second biggest franchisee: Papa John’s UK & Ireland posted a pre-tax loss of £2,908,000 in the year ended 25 December 2022 (2021: £6,704,000) as it reported a 21.8% decline in like-for-like system sales during the period, which saw the exit of its second largest franchisee. The company, which finished the year with 531 sites (2021: 507), posted turnover for the period of £95,149,000 (2021: £102,339,000), as it said its performance was adversely impacted by largely prior year changes in the VAT rate on hot food. The company said: “The home delivery pizza sector of the wider quick service restaurant (QSR) market as a whole declined in the year as the societal and consumer behaviour changes brought about by the pandemic began to return to pre­pandemic norms, including re-establishing routines such as dining in at pubs and restaurants and socialising outside home settings. The gradual and continued return to the workplace also meant less time spent at home and therefore a reduced requirement to order food delivered into the home. Q1 22 saw store transactions like-for-like decline 10.2% and store sales decline 15.1%. This proved to be the least reduction in order volumes and sales of the year despite a tough comparable to a time when the UK was still on strict lockdown conditions in the prior year. Q2 22 saw VAT on hot food shift to 20% and pressures build on household incomes and a severe decline in consumer confidence, both factors that would continue to put pressure on consumer demand for the remainder of the year. We introduced a delivery fee to support profitability for our franchise partners from April onwards. Q3 22 store sales saw a decline of 28.1 % driven by a tough prior year comparable in lapping the Men's UEFA European Championship from June/July the previous year. Record high temperatures and heat wave conditions also adversely affected sales demand at several points in July and August. Q4 22 benefitted from some targeted value promotions across October and November, whilst the Men's FIFA World Cup held in November and December further enhanced the busy pre-Christmas trading period. The company continued to open stores during the year and finished the year with 531 Papa John’s stores in the UK, all operated by franchisees. Whilst royalty revenue has decreased by 14% year-on-year given the like-for-like drop in store sales, there has been less of a reduction in Quality Control Centre (QCC) income due to price inflation, and rental income is 7% higher than in 2021. The change from an operating profit of £7.7m to an operating loss of £4.2m was reflective of the introduction of a new intellectual property agreement between Papa John's (GB) Limited and Papa John's International Inc. which resulted in an intercompany royalty charge of £4.6m. Profitability was also impacted by a franchise portfolio restructure and general store sales performance when compared to 2021. Given the post pandemic economic headwinds, we have also faced some legacy store underperformance where the market hasn't allowed for profitable store economics. During the year we took the difficult decision to close 10 stores. We saw some disruption as the result of our second largest franchisee exiting the system at short notice. Although the experience saw some disruption to store opening times and staffing, by the end of the year the stores returned to much stronger trading positions. In the light of margin erosion and lower franchise profitability, we undertook significant time to review our pricing, channel and discounting strategies. The work sets up with a solid foundation for margin improvements into 2023 with optimisation of our pricing approach. During the year we saw changes to VAT, which normalised from 12.5% to 20% in April 2022. In addition, the industry, including Papa John’s UK implemented delivery fee charges as a result of increasing fuel and staffing costs, with comparable changes being levied within the aggregators.” Earlier this summer, the business announced a shift in its UK strategy with the acquisition of 91 sites previously operated by the M25 division of Drake Food Service International to form a portfolio of company-owned restaurants. It subsequently added a further 27 sites to its company-owned estate in the UK, bringing its total ownership to 118 restaurants. The company said: “During the year work started on a key initiative of corporate store ownership. Through our strategic investment and operation of our own stores, we seek to demonstrate an unwavering commitment to the UK as a key market for Papa John’s. As a leadership team, we are confident the business is well-positioned to take advantage of the supportive long-term trends. We have embarked on a transformative journey, aimed at effectively navigating the current market challenges and positioning Papa John’s UK for the long-term. By operating corporate restaurants, we have the opportunity to harness our global resources and operational expertise to establish exemplary standards in operations, marketing, products, and innovations that can be utilised by our franchisees worldwide. By operating corporate stores, we can collaborate closely with our franchise network, exchange best practices and maximise the benefits of our purchasing and operating scale. We plan to implement best practices from our successful US corporate-owned stores to the UK market, including revenue management, innovation, operating practices, store design and technology. In 2023, we have launched our corporate stores in the UK, which is a newly incorporated subsidiary, PJ Corp Stores Ltd. PJ Corporate Stores is a stand-alone business which will leverage our global expertise and share best practices throughout our franchise network worldwide. Our intention is to ensure the UK business retains a franchise­ owned model; and this approach allows us to better comprehend the challenges and opportunities within our franchise estate, facilitating long-term sustainable growth.” The business said it had recently begun to develop a new store technology platform, PixelPoint, which is part of its “ambitious journey to deliver the best operations technology in the sector”. It said: “We are exploring the use of sophisticated AI and predictive analytics models in conjunction with live order analysis to encourage customers to order products during times when the store's capacity and local conditions are most likely to yield a delivery within 30 minutes. This cutting-edge technology will allow us to enhance our customer experience even further, making it easier for our customers to access our products and services at their convenience.” During the year it also launched a new range called Papadias. It said: “Now more of our consumers are working from home and not frequenting cafes and sandwich shops as much as they were pre-pandemic, we wanted to explore the possibility of increasing lunchtime trade for both collection and delivery. We launched a new range of Papadias: part-sandwich, part-pizza and full of flavour to fill that lunchtime need state. In September we added two new flavours to the range in partnership with Weight Watchers that provided pizza fans with a lunchtime treat with under 650 calories a portion.” Papa John’s features in the Propel Turnover & Profits Blue Book, the latest edition of which was sent to Premium subscribers on Friday (13 October). Its turnover of £95,149,000 for the year to 25 December 2022 is the 91st highest in the database. The Blue Book ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email kai.kirkman@propelinfo.com to upgrade your subscription.

 

Exclusive – Wendy’s UK’s FY turnover tops £21m, records £1.1m loss from site closure: Wendy’s, the third-largest quick service restaurant chain in the US, saw turnover for its UK business increase to £21,266,567 in the year to 31 December 2022 (£6,864,280) on the back of new site openings. The business, which relaunched in the UK in summer 2021, reported a pre-tax profit of £1,473,507 during the year versus a pre-tax loss of £68,258 in 2021. The company ended 2022 with 12 company-operated restaurants versus six company-operated restaurants at the end of 2021. Gross profit during the year increased £3,290,215, primarily due to higher management fees for UK restaurant services. The business said its turnover is derived from three principal sources: sales at company-operated restaurants, franchise-related revenues, including royalties, advertising income and other franchise fees received from Wendy's franchised restaurants, and management fees for UK restaurant services. For 2022, management fees for UK restaurant services stood at £9,580, 210 (2021: £4,046,679), with restaurant sales at £11,416,535 (2021: £2,692,207). During the period, the business closed a site, understood to be in Ilford, against which it recorded a loss of circa £1.1m. The business currently operates 30 sites in the UK, through a mixture of restaurants (20 sites) and delivery kitchens. Wendy’s has so far approved six franchisees in the UK, who will take on territories including Scotland and Wales. In August, Todd Penegor, chief executive of Wendy’s, said the brand’s UK business has been “growing like-for-like sales really nicely”. At the same time, Gunther Plosch, Wendy’s chief financial officer, said the company was “really happy” with the progress it was making in the UK. On the performance in the UK, he said: “We are now trending towards an average unit value of about $1.9m (£1.49m) in the second quarter. We have improved our profitability by about 500 basis points. Unfortunately, we had catch-up accounting to do of expenses from prior year that depressed our profitability in consolidation a little bit. We do absolutely expect that we are sequentially improving. There's a good amount of interest from franchisees to further build out restaurants, and we expect to have 40 sites in the UK by the end of this year.” It has further openings lined up in Guildford and Cambridge. 

 

Kbox Global placed into administration: Kbox Global, the host kitchen business, has been placed into administration. Founded in 2015, Kbox is a brands and performance food tech business. The Company operated via a cloud kitchen, or ‘dark kitchen’ model, utilising spare kitchen capacity in restaurants, hotels and pubs, and licensing a suite of delivery-only brands to its client base. The company also provided a one-stop solution platform for training and performance management. Nick Holloway and Will Wright from Interpath Advisory were appointed joint administrators of Kbox Global on 11 October 2023. They said that the business had experienced trading difficulties which led to pressure on its liquidity. The administrators said: “After exploring a number of options, including the possibility of a sale of the business, it became clear that a solvent solution was not available, and as such, the directors took steps to seek the appointment of administrators. Regrettably, immediately following the appointment of the joint administrators, all 18 employees were made redundant. The joint administrators will be supporting employees in making claims for monies owed to the Redundancy Payments Office.” Nick Holloway, managing director at Interpath Advisory and joint administrator, said: “This is a challenging time for many dark kitchen operators, as cost inflation continues to impact margins. We will now be exploring the rapid sale of both the brands and platform, and would ask that any interested parties make contact with us at the earliest opportunity.” Among Kbox Global’s shareholders are respected venture capital funds such as Balderton Capital, an early backer of Revolut, and Hoxton Ventures, which has backed a string of British unicorns, including Darktrace and Deliveroo. Kbox has worked with brands including SuperRico, a Mexican street food operator, and MrBeast Burger, which was launched by Jimmy Donaldson, a prominent YouTube personality. Kbox Global turned over £5,008,824 in the year to 26 December 2021, its most recent reported year (2020: £4,811,553). It made a pre-tax loss of £10,116,888 in 2021 compared to a loss of £3,258,924 the year before.