SUMMARY: Sometimes what we think is unique is not at all. It's history in new clothing —“déjà vu all over again.” That may be the case with Papa John's. By visiting history we realize that the Papa John's story may be a re-make of an old movie that most have forgotten. That movie is “The Wendy's Story,” except with different characters. This article describes the uncanny similarity between the histories of Wendy's and Papa John's, and ponders whether Papa John's denouement will be like that of Wendy's. (Written August, 2002.)

Let your mind wander for the next few minutes into the hypothetical possibility of the pizza industry being a “re-make” of the hamburger industry. Playing the role of McDonald's is Pizza Hut. Playing the role of Burger King is Domino's. Playing the role of Hardees is Little Caesars. And playing the role of darling Wendy's is Papa John's.

The Amazing Parallel
The similarities between the Wendy's and Papa John's stories are incredible. In both cases there's an industry behemoth, a healthy but much smaller second-place contender, a struggling third-place contender, and the fourth-place upstart. In both cases the fourth-place upstart bursts onto the scene with record-setting speed. In both cases the upstart bases its claim to the market on (a) product quality that it believes supercedes that of the competition, (b) commitment to limited menu and simplicity, and (c) value-added features not offered by the competition. In both cases the upstart claims superior product quality on the basis of “fresher, superior ingredients.” (With Papa John's it's “fresh” sauce, with Wendy's it was “fresh-beef” patties.) In both cases the upstart has a person's name and a warm, traditional, homey persona. In both cases the upstart is a public company with incredibly high-flying stock (initially). In both cases the upstart is the darling of the press. In both cases the upstart enjoys eye-opening per-unit sales. In both cases the company management is filled with hubris. In both cases the Big Three are flummoxed in the early years by the upstart and its success.

So, where is the story now? It appears that Papa John's in 1999 was where Wendy's was in 1979. So the question is: What happened to Wendy's after 1979? Specifically, what did McDonald's and Burger King do to neutralize Wendy's growth? How did Wendy's respond? And where did Hardees end up? Perhaps a review of Wendy's past will give us a glimpse of Papa John's future.

Back to the Future
After 1980, the Wendy's train came to a screeching halt. Sales slid, profits plummeted. What happened? Here's my recollected analysis.

1. McDonald's and others neutralized Wendy's competitive advantage by copying what Wendy's had and in some cases one-upping it. Three of Wendy's early competitive advantages were the marquee sign, the drive-thru window, and the quarter-pound burger. Wendy's introduced the marquee sign to the restaurant industry and used it during the 1970s as a sales-building advantage by promoting specials and posting humorous messages. Starting around 1980 McDonalds, Burger King, and Hardees erected marquee signs. Soon the marquee sign was universal and no longer a competitive advantage for Wendy's. Wendy's also pioneered the drive-thru window and used it for great competitive advantage during the 1970s. However, starting around 1980 McDonalds, Burger King, and Hardees began erecting drive-thru windows. In fact, they one-upped Wendy's at its own game by installing drive-thru operations that surpassed Wendy's. Today, Wendy's drive-thru experience is the most primitive in the industry. Wendy's also whetted appetites with its quarter-pound burgers made from square fresh-beef patties. The Big Three never duplicated the fresh-meat patty or the unique shape but McDonalds rolled out the Quarter-pounder. The result: Today Wendy's quarter-pound burger is passé. (For an interesting article on a related topic, see Differentiation-builders: The Antidote to Point-of-difference Diminution.)

2. By around 1981 Wendy's per-unit sales turned downward. In an effort to re-establish a competitive advantage, it took to menu expansion. First it installed the Salad Bar … then breakfast … then a chicken sandwich … then a Superbar. All of it greatly complicated operations and none of it had much impact on sales, although the Salad Bar was a success in some markets. (My partner in Pizzuti's at the time, who was a Wendy's franchisee, once remarked, “If Wendy's corporate tries to save us one more time, we're all going to be dead.”) Noting the success of the salad bar, McDonalds, Burger King, and Hardees soon countered with salad programs of their own, which neutralized Wendy's “salad advantage.” At that time Wendy's founder-chairman/CEO David Thomas strongly disagreed with the menu expansion strategy. But he was ruled out-of-order by the board, which was panicking by this time, and was then replaced as CEO by then-current COO Barney. (Several years later Barney was replaced because sales never rebounded during his tenure, either.)

3. In addition to having its distinguishing points of difference neutralized by the competition, I believe one other factor contributed to Wendy's downturn: Inconsistent service. As a regular Wendy's customer during the 1970s and early '80s, I discovered like many folks that Wendy's “got it right” only about three out of four times. On that fourth time your order was bungled or you had to wait an interminably long time for it. The result was that my wife and I got so fed up with it that we stopped going to Wendy's altogether for about ten years. I suspect that that scenario was repeated millions of times and was a major factor in Wendy's sales downturn.

4. What's the denouement? The salad bar was expanded into a Superbar with hot entrees, and then around 1996 the entire thing was scrapped. By installing a 99-cent Value Menu and improving operations, Wendy's eventually “recovered” around 1990 and began moving slowly-but-steadily upwards. David Thomas, as we know, was resurrected from retirement and “legendized” as company spokesperson and introducer of new products. History does have its ironies. In short, Wendy's emerged from its prior sales slump of the 1980s and early '90s to become the premier sales-builder of major burger chains by (a) a “return to operational basics,” (b) relentless promoting of its quality message, and (c) persistent use of the company founder as “new-product and quality spokesperson.” As a result, it recaptured its position in the public mind as being the premium-quality burger producer and is now out-stripping its competition, including formerly impregnable McDonald's, at sales and market share growth.

Is there anything to be learned in all this for Papa John's? Maybe a peek into restaurant history's rearview mirror could provide this young-and-scrappy upstart with further insight into how it has gotten to where it currently is at ... and, more importantly, what it needs to do to get closer to where it wants to be.

For an eye-opening, in-depth look at how all this could play out with Papa John's and its competition, see Re-discovering Differentiation (Part 2).

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This article was authored by John Correll.
Response may be directed to john@correllconcepts.com.