Landlords Could Seize Opportunity If Papa John’s Shuts Stores
It’s not often that commercial real estate landlords want to lose tenants, but that may be the case with the criticized pizza chain Papa John’s as it faces the prospect of closing 250 restaurants across the country.
Landlords throughout the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – are concerned the chain’s highly publicized missteps by its former chief executive, who received swift criticism after using a racial slur on a recent conference call, could dissuade shoppers and they may hope the chain shuts stores, an industry spokesperson said recently.
“There’s a need for that size of space in the market and there’s not that much of it,” the spokesperson explained. “They (landlords) may be able to get higher rents from other tenants.”
This report on U.S. and Philadelphia commercial properties from the CoStar Group research organization is being made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Papa John’s, the country’s third-largest pizza chain, has suffered public blows this past year from, among others, owners of national and Philadelphia commercial real estate properties. Founder and former Chairman and Chief Executive John Schnatter — who still owns about 30 percent of the company — this summer used a racial slur to describe African Americans on a conference call. Last fall, he blamed NFL leadership for allowing players to kneel during the National Anthem and complained the controversy was hurting the chain’s sales. At the time, Papa John’s was an NFL sponsor. It has since been replaced by Pizza Hut.
In a recent earnings call, Papa John’s Chief Executive Steve Ritchie said the chain was struggling and may be forced to close some locations.
“We’re going to evaluate all the options as they’re presented to us, if there is some sort of increase in closures that exist here because of the declines in the sales,” he said.
A Papa John’s spokeswoman declined to comment.
If the chain does close stores, a new commercial real estate report providing insight into the national and Philadelphia commercial real estate market offers clues as to which businesses might replace them. The report said non-retail and non-restaurant space in shopping centers increased to 23.1 percent this year from 19.2 percent in 2012. Forty-four percent of shoppers say they prefer to visit shopping centers that have a wide variety of non-retail tenants.
“The growing focus on experience has led to a rising share in non-retail tenants, including food and beverage, salons, movie theaters, fitness centers and medical clinics,” the report said.
Most Papa John’s stores are in shopping and strip centers, and industry observers believe two popular concepts — Mediterranean or taco restaurants — could backfill the space in these U.S. and Philadelphia commercial real estate listings and drive traffic.
Rival pizza chain Domino’s, the country’s second-largest pizza chain, in particular is taking advantage of Papa John’s woes, said Henry Renaud, president of retail brokerage Renaud Consulting. In contrast to Papa John’s, Domino’s Chief Executive Richard Allison said this summer that the chain was preparing to build about 2,500 restaurants in the next decade or so and two supply chain centers in the next two years to keep pace with growth.
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