Why Papa John's Is Investing $100 Million a Year For Healthier Pizza Ingredients

Healthy pizza usually sounds like a contradiction in terms - or in tastes - but aging, weight-conscious boomers and health-obsessed millennials are demanding the change.

Given that the company will not be able to increase charges to cost-conscious consumers, this provides an insight into the margins of the pizza business. JL

Craig Giammona reports in Bloomberg:

Papa John’s International Inc. is spending $100 million a year to eliminate artificial ingredients and other additives from its menu, underscoring the cost of the restaurant industry’s shift to more natural foods.The company removed MSG and pulled trans fats. Now (it)’s homed in on14 ingredients, including corn syrup, artificial colors and preservatives, by the end of 2016
Papa John’s International Inc. is spending $100 million a year to eliminate artificial ingredients and other additives from its menu, underscoring the cost of the restaurant industry’s shift to more natural foods.
The company removed monosodium glutamate, or MSG, from its ranch dressing last year and pulled trans fats from its garlic sauce. Now Papa John’s has homed in on a list of 14 ingredients, including corn syrup, artificial colors and various preservatives, that will be banished by the end of 2016. The ingredients are mostly in the chain’s dipping sauces, which some customers use for pizza, and other items like chicken poppers.
After high-profile moves by Chipotle Mexican Grill Inc. and Panera Bread Co. to purify their menus, restaurant chains are under pressure to go all-natural -- and make sure consumers notice. Papa John’s started posting its ingredients online this year, shining a spotlight on its food.

But the push to remove artificial ingredients comes at a cost. In addition to the $100 million in added expenses each year -- the result of using higher-priced natural ingredients -- the shift has affected the taste of some items, said John Schnatter, the company’s founder and chief executive officer.
“It’s hard to remove some of these things and still get the flavor and functionality you want,” said Schnatter, the “Papa” in the company’s name. “We gave up flavor on the ranch dressing because I wanted to get the chemical out.”

Blogger Criticism

Papa John’s latest push on menu transparency started after a food blogger criticized the chain’s ingredients in 2013. To track its progress, the company created an internal color-coded “Clean Label Scorecard” that compares it to Chipotle and Panera, two chains seen as standard-bearers for the natural-food push.
Panera has spent the last year removing artificial additives from its food and reformulating its salad dressings. Chipotle, meanwhile, has eliminated genetically modified organisms from its ingredients. It also debuted a marketing campaign that touts its use of simple, unprocessed ingredients.
Larger fast-food chains are getting into the act as well. Taco Bell said last month it would eliminate unnatural ingredients, and McDonald’s has pledged to stop serving chicken raised with some antibiotics.
Papa John’s is the third-largest pizza chain in the U.S. by sales, trailing Pizza Hut and Domino’s Pizza Inc. Pizza Hut, owned by Yum! Brands Inc., said last month it would remove artificial colors and flavors from its “nationally available” pizzas by the end of July. The chain previously eliminated trans fats and MSG.

General Mills

The movement has spread to the packaged-food industry too. General Mills Inc. said on Monday that it was removing artificial flavors and colors from its full lineup of breakfast cereals.
Schnatter said his effort to clean up Papa John’s menu has nothing to do with moves by competitors. It all started back in 1996 after he visited a factory in Kansas and didn’t like how the sausage was being made, he said.
Over the years, Schnatter made changes like removing fillers from the meat used for toppings and improving the pizza dough. The company also previously pulled cellulose, an anti-caking agent, from its mozzarella cheese. Each adjustment has boosted food expenses, he said. It costs more than $2 million just to serve pepperoni free of the preservatives BHA and BHT, Schnatter said.

Getting Credit

Papa John’s, which has more than 4,600 restaurants worldwide, has long marketed its menu under the tag line “better ingredients, better pizza.” Its pizza is generally more expensive than the other major chains, according to Michael Halen, an analyst at Bloomberg Intelligence.
“Customers already give Papa John’s credit for quality ingredients, as shown by their willingness to pay a dollar or two more for their pizzas,” Halen said. Still, the bet on natural ingredients may not be a “game changer” the way the switch to digital ordering was, he said.
Ten of the ingredients marked for elimination at Papa John’s will be gone by the end of this year, with the final four following by the end of 2016, the company said. That will put the chain in a position that’s hard for competitors to match, Schnatter said.
“Everybody wants Papa John’s quality, but they don’t want to take the time or spend the money to do it,” he said. “They’re going to have to spend a bunch of money to get where we’re at. And if they don’t, we’ll let the customers make the decisions