Business

Papa Johns says customers are ordering less and choosing cheaper items

By Nina Zdinjak TheStreet

Updated May 8, 2026 2:36 PM

Earlier this year, Papa John's made several moves to win back and attract new customers, following a somewhat challenging 2025. Namely, the pizza chain's annual net revenues in the last year came out flat compared to 2024, while comparable sales declined 2%.

According to the company's 10K filing with the Securities and Exchange Commission (SEC), net income reached $32 million, compared to $84 million in 2024.

To reverse the declining trend, the chain expanded its menu beyond pizza, launching a new line of oven-toasted sandwiches. Starting at $7.99, these sandwiches are designed to offer a high-quality, "indulgent" meal for customers who want something different for lunch or dinner but still value the brand's focus on premium ingredients.

This move came at a time when many fast-food chains are struggling because customers are eating out less due to rising costs. By introducing these sandwiches, Papa John's hopes to compete with other value-driven brands and stabilize its sales.

While experts believe this could help attract more people in the short term, they also caution that it might not be enough to fix the company's bigger financial pressures, such as the high costs of labor and ingredients.

Moreover, Papa John's recently posted first-quarter earnings results, flagging three troubling shifts in customer behavior.

Papa John's reports Q1 earnings, says it is navigating cautious consumer behavior

Papa John's released on May 7 financial results for the first quarter of 2026, revealing net income of $6.94 million, compared to $9.34 million in the same period of 2025.

"In North America, results were in line with our expectations as we navigate the cautious consumer environment and promotional QSR marketplace. As we look ahead, we are focused on advancing our transformation strategy, including through an expanded range of value options and leaning aggressively into innovation," stated CEO Todd Penegor.

Papa John's Q1 2026 earnings key takeaways:

Total revenues amounted to $478.61 million, compared to $518.31 million in the same period of 2025.
Adjusted EBITDA was $47.76 million, versus $49.62 million in the first quarter of last year.
North America franchised restaurants' comparable sales declined 6.7%.
Total comparable sales declined 3.9%.

Source: Papa John's Form 10-Q

"Free cash flow was an outflow of $6 million compared with last year's cash inflow of $19 million, primarily reflecting lower net income and a more normalized incentive payments, inclusive of the company's enterprise transformation plan," said Chief Financial Officer Ravi Thanawala during the earnings call.

Shutterstock

Papa John's CEO and CFO flag 3 troubling changes in customer behavior

During the earnings call, the company executives discussed results in detail, revealing several changes in customer behavior and the company's future plans. The company's CEO Penegor detailed how the restaurant chain is having a challenging time attracting new customers, as "deal-seekers" or casual diners are no longer choosing Papa John's as their default option, leaving the brand reliant almost entirely on its existing base.

"As anticipated, North America comparable sales ended the first quarter down mid-single digits, primarily driven by declining orders, which were pressured by lower new customer acquisition," Penegor said, according to a transcript provided by The Motley Fool.

Additionally, Papa John's CEO highlighted another troubling trend. Customers aren't just ordering less often; they are also ordering cheaper, smaller portions.

Penegor said the upside of loyalty members spending 5% more and ordering twice as often "was offset by pizza mix shifting to smaller nonspecialty pizzas, resulting in low single-digit declines in overall pizza sales, excluding severe weather impacts."

"Outside of pizza, comparable sales were pressured by declines in size and desserts and lower new customer acquisition compared with last year," Penegor added.

The CFO also highlighted that customers are abandoning Papa John's own app/website (first-party) in favor of third-party apps such as DoorDash and Uber Eats (aggregators).

"So third party is still outperforming first party from an order and from a comp sales standpoint. We have seen competitive intensity really ramp up over the last 9 months in the aggregators," Thanawala said.

3 alarming shifts in customer behavior:

New customers are less likely to dine at Papa John's.
Customers are ordering cheaper and smaller items, a classic sign of a cash-strapped consumer.
Consumers are abandoning Papa John's own app website in favor of third-party apps.

While the CEO praised Papa John's loyalty program, the number further revealed that a tiny fraction of loyal customers is doing the heavy lifting for the entire chain.

"We also saw growth among our frequent and super frequent customers. And combined, these tiers make up approximately 30% of our customer base," Penegor said.

Overall, if 70% of customers are non-frequent guests and their behavior is shifting toward smaller orders, the chain remains heavily dependent on that top 30%.

Industry data confirm cash-strappedconsumers

These shifts at Papa John's align with broader industry data. According to the National Restaurant Association's "State of the Restaurant Industry 2026" report, the industry faces a significant cooling period.

"Lingering inflation and a cooling labor market are tightening household budgets, particularly among low- and middle-income consumers. Operators will need to respond with more creativity and technology to deliver value, the experiences customers seek, and improved productivity," reads the report.

New data from the The Organisation for Economic Co-operation and Development (OECD) show that while annual inflation dipped to 3.3% in January 2026 (down from 3.6% in December), the relief is only relative. The organization points out that overall costs are still roughly 36% higher than they were before the pandemic.

This long-term price hike has fundamentally changed how people shop. Deloitte's Consumer Signals Survey reveals that 47% of global consumers (and even 35% of the wealthy) have become "value seekers" who now hunt for deals instead of paying for convenience.

Moreover, McKinsey & Company highlighted earlier this year that "food away from home" rose about 6% from January 2024 to September 2025, driven by rising labor, rent, and ingredient costs, according to the US Consumer Price Index.

At the same time, "food at home" prices increased roughly 3%.

"If the gap widens, consumers may perceive there to be less value in dining out relative to the cost of doing so - putting added pressure on restaurants that are already grappling with higher costs and shifting demand," concluded McKinsey & Company.

Major fast-food chains are launching aggressive value menus and product upgrades to win back budget-conscious diners facing heavy economic pressure. Brands including McDonald's, Subway, and Burger King are overhauling their offerings to stay competitive as consumers tighten their spending for the first time in years.

What's next for Papa John's

Papa John's is moving forward with a major "transformation plan" designed to boost profitability and modernize the brand. Its new strategic plan includes four key pillars:

Menu innovation & collaborations: The chain has launched new products like personal 8-inch pizzas and oven-toasted sandwiches, alongside high-profile partnerships (specifically with Disney/Pixar for "Toy Story 5").
Retail expansion: For the first time, the brand is moving into grocery stores by selling its signature garlic sauce at retailers including Walmart and Kroger.
Asset-light model: The company is aggressively refranchising company-owned stores to independent operators and closing underperforming locations to improve overall fleet health.
Technology overhaul: The chain will implement a new AI-driven POS system and expand "Food AI" partnerships to speed up the ordering process and improve labor efficiency.

"In summary, while the consumer environment has impacted the pace of our transformation, we are managing through these short-term headwinds and building for the future. We are confident that we are taking the right actions to transform the business and set Papa John's up for long-term success," concluded Penegor.

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published May 8, 2026 at 2:17 PM.