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Papa John’s CEO: ‘In a Bunch of Trouble’ for Obamacare Job Cuts

Papa John’s CEO John Schnatter is reducing workers' hours and raising the cost of pizza

Papa John’s profits are up 25 percent—that’s why CEO John Schnatter’s threat to cut workers’ hours and raise the price of pizza by up to 14 cents to offset the company’s cost of Obamacare resulted in a widespread boycott of the pizza chain.

I got in a bunch of trouble for this,” Schnatter said. “That’s what you do, is you pass on costs. Unfortunately, I don’t think people know what they’re going to pay for this.” The Affordable Care Act dictates that companies with 50-plus full-time employees must provide healthcare coverage to those workers. That means some companies will need to cut back on employee hours to avoid added healthcare costs, according to Schnatter.

Earnings Increased But You Can’t Afford to Offer Healthcare?

Schnatter’s announcement came right after President Obama’s reelection (Schnatter hosted a fundraiser for Mitt Romney), which signals that the Affordable Care Act should remain intact.

In the summer, Schnatter said he would have to raise the cost of pizza by 11 to 14 cents per pie because of healthcare reform, yet the company recently reported a 25 percent jump in earnings and is proudly touting that it will give away 2 million free pizzas during the NFL season.

Never mind that CNN refuted that figure, pointing out that many of Papa John’s employees already are part-timers who are not guaranteed company-sponsored healthcare coverage. The company’s own 2011 annual report states that “most restaurant team members [of which there are 14,400] work part-time and are paid on an hourly basis,” suggesting that only the approximately 2,100 full-time employees—who presumably already have coverage—would be impacted. Moreover, many of the chain’s restaurants are owned by franchisees who may not have 50 full-time employees and thus are not responsible for providing coverage.

But even if Schnatter’s estimated cost increases were accurate, this is a company whose adjusted earnings per share for the third quarter of 2012 surpassed the numbers from a year ago by 25 percent. Moreover, Papa John’s third-quarter total revenue jumped 6.5 percent year over year to $325.5 million and domestic company-owned restaurant revenue improved 11.3 percent to $143.4 million. Per its annual report, the company’s 2011 revenue was $1.22 billion.

Consistency in Messaging & Accountable Leadership

Schnatter’s comments recall this memo from David Siegel of Westgate Resorts, the CEO who is building the largest private residence in the U.S. In October, Siegel suggested that his employees vote for Mitt Romney because “if any new taxes are levied on me, or my company, as our current President plans, I will have no choice but to reduce the size of this company. Rather than grow this company I will be forced to cut back. This means fewer jobs, less benefits and certainly less opportunity for everyone.”

Siegel seems to have changed his tune post-election. He told Bloomberg Businessweek that not only had he not laid off any employees, but he “gave everybody in the company a raise this week—the average was 5 percent. I wanted to help them handle the additional burdens the government will put on them.”

The big difference between Schnatter and Siegel and CEOs who have inclusive workplaces is that the latter’s messages don’t vary and they stay true to values.

Schnatter likes to portray himself as a generous fellow who uses the profits he makes selling pizza to help others. After he made his recent comments in Naples, Fla., he told the audience that he was headed to a telethon to raise money for Hurricane Sandy victims, and his company pledged to donate $1 from every pizza sold last Wednesday to the American Red Cross.

But by using his political views to raise prices and slash employee benefits, he hurts his company’s image. In fact, online tweets are now calling for a boycott of Papa John’s.

To understand the importance of clarity of values—and communicating that consistently—see Ask the White Guy: Decision Making, Clarity of Values & What to Do When It Goes Horribly Wrong.

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68 Comments

  • Americans who talk a good talk need to start putting their money where their mouth is and to buy local and pay for quality products – this should be the philosophy of every community around the world – support your friends, families, and neighbors first. Stop shopping at Walmart and other similar places and patronize businesses that hire and manufacture locally. If employees were paid a living wage, our taxes wouldn’t have to supplement their income through food stamps and other government assistance.

    • Gary is 100% correct. Buying local is good for your community and good for everyone in it due to the multiplyer effect of spending you money locally.

    • i agree wholeheartedly …….bravo to gary and anyone else here who will shop to support the local economy…not some corporation!!!

    • Absolutely, Gary! I wish everyone felt this way and lived by this philosophy! The world would be a much different place.

    • Gary, we live in a global economy. I repeatedly asked this question to a friend of mine who shares your philosophy of buying local and he refuses to answer. Let me ask you: Why is it more virtuous to buy local instead of supporting someone in another state or another country. Why is a local business more deserving of your money than one 1000 miles away? I would understand it if the local business promised to spend that money back at your house buying something you sell but there is no such guarantee.

      • No there is no guarantee, but the odds are much more likely. By supporting local business they in turn gain the ability to grow which allows the workers a chance to prosper. Should this philosophy be perpetuated than those local workers will spend more money locally which in turn benefits the local economy and the effect is multiplied. If we were to increase local spending the people who are being subsidized by taxpayer dollars could instead afford to live without those subsidies and allow for a reduction in local taxes. The Global economy is still necessary to maintain growth, but it’s become too prominent and has had negative effects because of its prominence. To expand on that a little, we need the influx of outside income to bolster the local economy’s overall income, while supporting a majority of local businesses keeps the distribution of income with the people who need it. Different areas have different levels of need, for example in Utah $16 an hour is a modest income, but in Indiana one could have a decent living with those same wages. The Global economy doesn’t take that into effect.

      • Brett – I totally agree with you. Why is buying local better? We should all shop at whatever companies provide the best service for our dollar. If everyone bought from local, inefficient companies, the cost of our lives would go up dramatically. It is doubtful we could even feed ourselves with that model. There’s a reason the family farm and small clothing stores are going out of business…they are inefficient, and inefficient to the point of being unable to meet the needs of our population. There have been studies that show WalMart saves the average family $3,000 a year. This is huge for a family making $30,000. Other studies have shown that WalMart made more of an improvement to our productivity than anything else in the 90’s. Another study found that for every job they displaced, they created $3 million in value (the economy, low prices, jobs, i.e. for us, the people) annually. They provide a great service, and like it or not, they are one of the largest contributors to our economy, and thus our high standard of living. It feels good to think of going back to local businesses, but I wish people would look at the reality of how our economy really works, and thus understand what drives the standard of living we all enjoy. There are problems, but even our poor are far richer than the vast majority of the world. Don’t kill the goose (business) that provides the golden eggs.

    • I AGREE WITH YOUR ANALYSIS. I DO NOT UNDERSTAND THE POLICY OF THE GOVT PAYING FOR “EMPLOYEE BENEFITS” AND “COST OF LIVING” NECESSITIES.

      IF THE REPUBLICANS WANT TO REDUCE GOVT BENEFITS, GREAT BUT THE WORKER HAS TO HAVE A “LIVING WAGE” THIS IS HOW THE FREE MARKET USED TO WORK!!!

  • Phil Kupferman

    This is a sad commentary on American business. To use jobs and benefits as a political hammer to employees brings to mind a reason labor unions were formed. “Vote for my guy if you want to keep your job”

    • Great point Phil!
      The root issue here is greed..Maximum profits at any cost is the business mantra these days.
      A friend at my church was an exec for a grocery store chain back in the 70’s when the stores and the unions worked together very well and the employees earned a living wage..He told me that after Reagan got in office,younger executives coming in were anti-union and wanted change shifts to part time in order to not have to pay health care coverage. My friend finally quit in frustration.

      • Roon, greed is a good thing. Of course businesses want maximum profits at the minimum cost. Why would they not? Why are they in business? If it were not for greed, you would have killed or grown your dinner last night instead of dining at a restaurant or buying it in a store. You would not be living a lifestyle above a nomad if there was not greed in the world. Everybody is greedy and that is good for society.

        • Jim Kelly

          Greed is not a good thing; it is perpetual and can’t be sated not even briefly. If one has 99% of all, they would covet the remainng 1% and value it more than the aforementioned 99%. The Greed and Selfishness dynamic comsumes until consumes itself.

        • No greed is not good. Greed unleashes some of the nastiest and most horrific aspects of human nature. I’d suggest you take that Ayn Rand like nonsense you’re spouting and get lost.

        • Greed is good, in moderation. Else you are 100% correct and its the Nomads life for us. Alternatively In excess, it is Peanuts for us while CEOs live on millions from our labor…

      • GREED is not good. Profit is good but greed is not, because Greed is nasty. When a company profits 1 billion dollars and is not happy. THA’T GREED. So to make MORE PROFIT it GREEDILY slashes workers pay/raise “freeze”, cuts/reduces hours and health care and makes you work on Thanksgiving, Christmas Eve and the day after Christmas.
        That my friend is GREED. When 1 billion in PROFIT is not enough, the workers suffer. When 2 billion in PROFIT is not enough, the workers suffer. That is GREED.
        Millions of jobs have shipped overseas and people are still so poor that they are selling kidneys to get by………….THAT IS GREED.
        Making a profit is good. Anyone selling anything is in it to make a profit, but what is happening now is just GREED.

    • Kandy Herring

      I agree with you too, Phil. Shame on Schnatter and others like him. If we all work together, we can eliminate many of the problems in our country. When did we become so selfish and greedy, only supporting a cause when its either a tax break or a way to increase revenues with the illusion of concern?

  • Fine with me. I’ll use the local, small pizza businesses in my neighborhood. Thanks for the heads up.

    PS–Papa John’s is basically cardboard and ketchup.

  • Gotta love those assumptions about profitability that are indexed artificially, inflated by a legacy of slavery/exploitation/cheap labour.

    Very infrequently will some CEO think “I could layoff 10 people who really need these jobs or shave my package 2% and hardly notice it…I’ll shave my package and reinvest that money in benefits so my people are healthy, happy, loyal and will work hard to help my business grow.”

    No, they are ENTITLED to make millions of dollars per year, and if maintaining that income means putting people out of work, well than, bah! Humbug, that’s what has to happen….and then we can just blame the president for raising costs on us for something so silly as…(and I’m putting on my sour puss face here to say it) health care.

    Real smart, right? Yeah, no.

    • Brandon R

      Funny conversation, any business owner has the right to cut/slash employee wages for whatever reason. If you owned a business would you let your employees tell you how much they should get paid or how many hours they should work? BTW its a fast food spot, what do you expect? Everyone in the world has greed! If you see a Ferrari driving down the road and you say “I wish I had that car”, well that’s greed.

      • Luke Visconti

        Tellingly, Schnatter ended up deciding to give his employees healthcare after becoming humiliated over the bad publicity. The cost was estimated to be roughly one-half of one percent of his gross revenue. This isn’t about Ferraris, it’s about people—and children who die because they can’t go to the doctor. May you be extended the charity you so quickly deny others. Luke Visconti, CEO, DiversityInc

  • Mel Greene

    Shame on you Papa John.
    No more Papa John pizzas in my house. I would support your price increases if you were going to use the funds to provide health coverage for those employees currently without coverabe, but will not buy your products simply to boost your profits. I bet the money your’re payingfor the NFL campaign alone woruld cover any increase for their coverage.

    • Luke Visconti

      I’ve banned them from my office and home as well. Luke Visconti, CEO, DiversityInc

      • They will never get another $1 from me. And, I have been telling my friends the same thing; he wont get their money either!!!

    • Thank you to this post and all that replied. It is so refreshing to see people who are willing to spend a bit more money if it means that everyone can have healthcare. It is a crisis in this country and since there are no claws to control the insurance companies who are only concerned with profits, we all have to do our part tofix the problem ourselves. It begins with Obamacare. Is it perfect? NO, but it’s a freakin start. At least he had the courage to step up and start something instead of just talking about it.

  • I, for one, will be boycotting Papa John’s, Olive Garden, Red Lobster, McDonald’s, Burger King, Walmart, Home Depot and any other company that is following Schnatter’s lead.

    Even if raising the cost of each pizza $.11 to $.14 were true, I wouldn’t mind paying a bit more for a pizza to help defray the costs of health benefits for the employees. What I reject and despise are rich business owners who are more interested in keeping all the money to themselves than helping their employees obtain health care. Yet these same CEOs are the ones who make the highest salaries, bonuses and other perks; who pay a lower tax rate on some of their earnings than the average citizen; who have all types of tax loopholes to shield their money; and who don’t need anything like the ACA for their health benefits.

    CEOs who claim to care about others should put their money where their mouths are to prove they truly care, otherwise they reveal themselves to be nothing but liars. As for Schnatter, why is it that he can give away two million pizzas, but can’t ensure his employees have health coverage? In his case, he shows himself to be the biggest liar of all.

  • I am simply numb from this “entity’s” reaction. I say entity because his reaction is simply not human. He has no soul.
    Our society has become so distorted and out of balance that is acceptable for this man to do this? What happened to empathy, but happened to humbleness, what happened to: “by golly I will help me fellow human beings and employees” because I have been hyper-succesful and have all I need.

    Soulless people like him are the reason we are where we are. He is basically a Romney replicant with zero empathy.

  • This is exactly why I never thought Mitt’s plan would work. More money for the wealthy does not automatically translate to more jobs and better benefits for the not-so-wealthy. Individuals will do what they want with their money. There were no incentives in his plan to actually create jobs, just an assumption that people would.

    Schnatter has the means (and much more) to keep his people employeed and his pizzas affordable. He’s choosing not to and blaming it on the government. Unfortunately, his employees are the ones that will suffer. Some will lose their jobs, others will be forced to take up the slack.

    Maybe a good boycott will send the right message to his bottom line.

  • Sergio Barbarino

    As a Neapolitan, the place where pizza was invented, I would like to remind that it is made with Tomato sauce…not blood!

    Paraphrasing Romney, let Papa Joe go bankrupt if price is the only argument he has to sell his Pizzas.

  • MThompson

    I cannot believe the stance that some idiots will take just because their candidate did not win. Well, Papa John’s do not have to worry about me catering to their products.

  • Anonymous

    The CEO really should realize that his pizza is not really that good; that is what he should worry about.

  • grannybunny

    This is my third — and last attempt — to comment. Your Caption test is too difficult for the visually-impaired, and the audio one is impossible.

    In another interview, Schnatter was whining about how much he had been “hurt” by the negative repercussions from his — false — claim that his price increase was necessitated by Obamacare. Now this. The man has simply no remaining credibility, or integrity. Socially-irresponsible businesses have been cutting employee benefits and raising prices — despite record profits — since the Reagan Era. Don’t blame the current President. My family, too, is boycotting Papa John’s.

    • Luke Visconti

      You’re absolutely right—the test is really terrible. We’re searching for a new solution today and will implement it as soon as possible. Luke Visconti, CEO, DiversityInc

  • Steve Francis

    Had Papa John’s Pizza at a party once and it was NASTY!! Never purchased Papa John’s and never will. HELLO!!! healthcare for employees is a cost of doing business. Instead of firing people, how about hiring smarter people that can figure out how to compete in a fast-paced and dynamic business climate.

  • If you stop giving away 2 million pizzas and trying to restore that crappy car of yours then you would have the money to invest into your employees.

  • Does anyone know of any petitions being signed that will be sent to Schnatter to make him aware of how many customers he will lose for his politically-motivated, insensitive actions? I’d be happy to sign one.

  • WOW! I’m shocked at the responses this article has received, especially Luke’s. I have always respected this site for its mission and dedication to diversity. The range of responses from buying locally to politics to petitions to the quality of his pizza is confusing to me. Shnatter’s commentary is limited to his perspective of how a new healthcare policy will affect his business. However we as individuals assess Shnatter’s stand, shouldn’t this be viewed as an opportunity? I thought this site was more about education and inclusion than alienation and devisiveness. What a wasted opportunity for robust discussion to first understand what would drive Shnatter to comment (to the extent that we have been afforded, do we have the full context?) as he did and secondly to present the many and various other perspectives on this subject. The worst thing that happens is that we as a country and a society learn and progress. Really disappointed.

    • Luke Visconti

      I don’t think Papa John’s CEO is looking for a robust discussion. Rather, I think he’s hurting his workers by being selfish, and our readers seem to agree. This article happened to hit a chord with our audience, delivering record page views. The lesson here is that the public’s perception of corporate citizenship has been leveraged by social media. These kinds of gaffes can damage business and tank share price. Luke Visconti, CEO, DiversityInc

      • Luke – I get it and certainly don’t disagree but this isn’t going to change his mind. He might recant/rework in order to save his bottom line but it’s not likely to change his way of thinking or those in a similar position. My point was/is that he obviously has no appreciation for the plight of his workers and the countless others that can’t afford even basic access to healthcare. I’m less concerned with how he diseminates his message or the outcome of his company. I’d bet if he invested some research in how the health of his employees affects the bottom line he’d be more inclined to ensure they have have access and coverge.

        • Luke Visconti

          I see, I missed that point—and you’re right. Logically, employees who are in a proper health plan that stresses good health and regular checkups—and who are not stressed out about not having insurance and not worried about their children—are FAR more productive. I’m glad you posted another comment. Luke Visconti, CEO, DiversityInc

          • And think about the additional benefits of getting more people access: 1) Jobs, jobs,jobs. If we get access for the 40m people without coverage someone has to deliver the healthcare. We don’t have enough resources to so we create more jobs to deliver the care. Well you can’t just hire folks off the street to do that so we have to educate them (more jobs). Who’s available ?… all the people without the opportunity to afford the education, I’m all for using my tax dollars for this. 2) There’s more than enough research to support the notion that the more people with access to healthcare the more likely they are to significantly improve their health from improved diet and exercise, early diagnosis and intervention, adherence to medications and are less likely to have long term, expensive health problems. For 14 cents a pie, I’m in. I’d much rather pay as I go than give it up to the government to disperse. I want Papa John to thrive but for the right reasons.

    • grannybunny

      You’re giving Schnatter too much credit, Mark. He knows better, and is just using Obamacare as an excuse to raise his prices, while reducing benefits to his employees, in order to: generate even more profits, while venting his sour-grapes reaction to the election. This is America, and you are free to express your opinions and spend your money any way you want, but continuing to patronize Papa John’s is just endorsing Schnatter’s actions.

  • Is everybody crazy? Why are you blaming a business for doing exactly what businesses have to do to survive the ObamaCare stupidty, the unions, another wave moving us into deep socialism. Is everybody blind? This is what happens in an ecomomy where you demand business to pay more (Hostess for example) when they are being bombarded with price increases. It is a basic business principle. Has this country become so blind and hearing ‘gimme gimme’ in their ears? Time to wake up and find out what is facing this country. 14 cents is cheap compared to what is coming our way.

    • Mary,seriously? Your anwer to every problem facing business is to cut wages? Americans working at minimum wage jobs is the driving factor behind the “socialist” movement. Hostess is a classic example of mis-mangagement and profit-taking while ignoring the market, product innovation and supply chain investments. Will you be happy when there are only two classes of people – those who manage and those who make $8.00 an hour? Who will American companies sell to if American workers can’t afford the products?

    • @MaryB
      I want to congratulate you that you have such awesome healthcare already, that you don’t need ACA like 40 other million of your fellow citizens do. (I just hope you have no per-existing conditions.) And now some information for you, in the 80’s, about 79% of the working people had work-sponsored healthcare (and businesses weren’t any less profitable because of it), and yes, mainly because of unions or even groups of employees standing together. (oh, and you can thank unions for a 40 hour work week, safety regulations in the workplace, the concept of sick/vacation days, and more) I don’t call any of that “gimme, gimme” because people work hard and do deserve it – maybe *you* don’t think you deserve it and to me, that is very sad. You also mentioned the dangers of socialism -does that mean you want the VA to go away? that is the best example of socialized medicine but I for one, think our veterans deserve healthcare and more. How do you feel about the care about our veterans? I demand businesses to take care of their people – if they don’t take care of their people, how do I know they will treat me, a customer, just as well?
      One last thing, I am sorry you feel so terrified about the future of our country and you think it will be terrible, maybe you don’t read or watch the news, but if you did, you would know that good things are happening, slowly, but they are getting better. Maybe you just need to be more positive in your life rather than being so negative. I believe in my country and I believe in our president and I believe in my fellow citizens, that the US will be great, and always will be great.

    • Mary,
      If I may, where do you get your healthcare coverage from? If it is from your employer then everyone paying for their services is paying for your coverage. The bottom line is everyone should have medical coverage. We can either do it through the employer or directly by the individual, either way it needs to be paid for and we’re all going to pay either through the cost of products and services or through taxes. Note: We can actually drive down the cost of doing business and the overall healthcare spend with a healthy workforce! Do you have any alternative solutions to ensuring healthcare for 40m people currently without it? I certainly didn’t hear any from Shnatter.

  • Patricia Kayden

    No problem. Will not spend a penny at Papa John’s. He can keep his rightwing politics, and I’ll spend my pizza money elsewhere.

    • I totally agree with Patricia Kayden. I will NOT patronize Papa John’s pizza. I tasted that cardboard muck years before and vowed to never return. I haven’t. Politics aside, the pizza is subpar.

  • i would like to know if you can refer your readers to a website that lists employers who are doing right by their employees i.e. providing healthcare, not being punitive as a result of the election etc and ones that are not doing the right thing. i would really like to know so that i can vote with my wallet and my feet!

  • I wish I knew about Papa John’s sooner. I can’t express enough at how disgusting I find the company’s attitude, when they are making record profits and can afford to give away things, etc. Papa John’s also misrepresents Obamacare, too, as far as I can tell, so they simply want to make big profits off the work of what amounts to slave labor. I so wish I could vomit up the Papa John’s pizza I’ve had this year and give it back to them.

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