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The prices charged by Papa Johns are driving away some consumers.

Papa Johns is feeling the effects of consumers’ reduced spending on luxuries.

High costs at the chain’s franchise locations contributed to a 1% decline in sales at outlets in North America operating for at least a year in the quarter ending June 25 compared to the same time previous year.

During a Thursday call with analysts to talk about the company’s quarterly results, Papa Johns CEO Rob Lynch said that some of the prices were higher than what customers were willing to pay. “April was the worst month we’ve had at Papa Johns (PZZA) since I’ve been there,” he said about sales at stores that have been open for at least a year. In 2019, Lynch became a part of Papa John’s (PZZA).

Lynch said that franchise owners “have been raising their prices faster than our company-owned restaurants” over the past year to keep their profit margins even as inflation has gone up. Recent months have seen inflation fall from its 40-year high seen in June of last year. They have consequently seen a greater reduction in transactions this past quarter when compared to our company-owned eateries, he explained.

Out of the 3,400 Papa John’s locations in North America, the great majority are franchises. This accounts for around 2,900 locations. Franchisees have complete autonomy over menu pricing, however the parent corporation may impose limits during limited-time promotions.

Franchised locations saw reductions in sales during the quarter, but company-owned locations with at least a year in business saw growth. The chain had a decline of 2% in overall sales from the previous year’s second quarter.

Companies have been increasing prices over the past few years to offset rising costs and boost or maintain profit margins. They said that, for a time, a surprising number of consumers continued to buy despite the high prices.

However, people are starting to fight back, and not only against Papa John’s.

Kraft Heinz (KHC) has seen price increases of around 11% across the board this year. This includes the likes of Lunchables, Capri Sun, Philadelphia cream cheese, Oscar Mayer, Kraft Mac & Cheese, Velveeta, and many others.

According to Kraft Heinz CEO Miguel Patricio, sales volumes dropped in the second quarter as the company’s cold cuts, cream cheese and kids’ single-serve beverages lost market share to reduced or lower-priced competitors.

When discussing the company’s performance during the second quarter, Patricio said, “We priced above the market.” The good news is that we have completed pricing. “In order to preserve our profit margins in certain product categories, Kraft is employing a disciplined and meticulous strategy,” Patricio averred, “noting that share loss was a headwind we anticipated.”

In a conference call with analysts in July, James Quincey, CEO of Coca-Cola (KO), stated the business had “seen some willingness to switch to private-label brands in certain categories” in the United States and some parts of Europe. He noted at the time that the majority of the water and juice sales in those locations were of the store brand variety.

High prices have hurt sales for Kellogg (K) as well.

Steven Cahillane, the CEO of Kellogg’s, stated during a Thursday analyst call that “volumes were in line with our expectations.” “It doesn’t mean we’re happy about it, but with the prices we’ve set, you have to see elasticities going up,” he said, referring to how quickly people change their spending habits when prices change.

Despite this, the quarter’s sales were up despite the increase in selling price. During that time period, Kellogg saw a rise of around 5% in net sales year over year.

Papa John’s management is trying to increase business at franchises.

Lynch explained that one goal is to inspire franchisees to use discounting strategically. He explained that they wouldn’t simply be telling restaurants to lower rates across the board. It’s the manner in which “e-deals” are implemented and discounts are provided “through the digital channels.”

Lynch elaborated by saying pizza shops are at a pricing disadvantage versus fast food franchises because they lack drive-thrus.

He explained that the price listed on the menu board is the one you’ll pay at a drive-through. For us, pizza delivery operates more like an e-commerce business, with orders placed in advance and actual purchases being made.

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