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The New Economy

Papa John's pizza controversy: Another fast-food chain embroiled in culture war

Papa John's CEO stepped into a political minefield when he said Obamacare would raise the cost of a pizza 15 to 20 cents. But is all the criticism justified? 

By Business editor / August 8, 2012

Papa John's founder, chairman, and CEO John Schnatter signs a crew hat for Deondre Jones in Burbank, Ill., last year to celebrate the opening of the chain's 3,000th restaurant in North America. His comments early this month about Obamacare are raising hackles.

Ross Dettman/AP/File

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What is it about fast food and politics? Maybe it’s the super-charged presidential election or shoot-from-the-hip company executives. For whatever reason, fast-food companies are developing a knack for parachuting into the middle of political minefields.

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Business Editor

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First it was Chick-fil-A, whose president disparaged gay marriage in print and on the air, igniting a new battle in the culture war over chicken sandwiches.

Now, Papa John’s chief executive John Schnatter has criticized President Obama’s health-care law and said it will raise costs by 15 to 20 cents a pizza.

The blow-back has been fierce:

Papa John’s pizza extortion,” ran the headline for a story Wednesday from Salon, a news website.

 

Vote for Romney or we'll raise our prices” was how Daily Kos, a liberal news site, topped its story , which went on to illustrate Mr. Schnatter’s links to the GOP presidential candidate..

Some Twitter users are urging a boycott of the Kentucky-based pizza chain.

But such reactions may be overdone. Was Mr. Schnatter making a political threat – or simply explaining the economics of the pizza business? You be the judge.

In the middle of an Aug. 1 conference call with reporters and analysts to discuss the chain’s second-quarter results, Schnatter was asked about the impact of the new health-care law on Papa John’s. Here’s what he said, according to a recording of that call on the company’s website:

“Our best estimate is that the Obamacare [law] will cost about 11 to 14 cents per pizza – or 15 or 20 cents per order from a corporate basis. To put that in perspective, our average delivery charge is $1.75 to $2.50 – or about 10-fold our estimated cost of the Obamacare [law] to Papa John's. We're not supportive of Obamacare, like most businesses in our industry. But our business model and unit economics [are] about as ideal as you can get for a food company to absorb Obamacare…. We have a high ticket average with extremely high frequency of order counts – millions of pizzas per year. To give you an example, Peter, let's say fuel goes up, which it does from time to time, and we have to raise delivery charges. We don't like raising delivery charges. But the price of fuel is out of our control, as is Obamacare. So 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 the consumer in order to protect our shareholders' best interest.”

Several points stand out: The 15 to 20 cents he’s talking about are costs, not prices. If he was making a political statement, would he really make the point that delivery charges, based at least in part on fuel costs, are 10 times the size of the hit from Obamacare? And he is promising to cut or “shallow out” the costs of healthcare before passing any price increase to the consumer.

Is that a threat? Really?

Schnatter is certainly no fan of the president or the health-care law. Who knows? Perhaps he’ll cut health-care costs by shafting his employees. But he deserves to have his words quoted in context, before another battle of the culture war is fought over fast food.

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