Thursday, August 16, 2012

Papa John in the Left's Cross-Hairs for Disclosing Costs of Complying with Obamacare


When John Schnatter, CEO of Papa John's, announced early this week the company would have to raise prices on it's pizza by 15 to 20 cents to adjust for the cost of complying with Obamacare, it didn't take long for the left to start attacking him.

The LA Times called him a 'cheapskate'.  The DailyKOS said he was practicing 'extortion'.  Howard Dean, former DNC Chair, accused the company of 'corporate blackmail'.

What all the hyperbole of the left reveals is just how little they understand business and simple economics.

In order to continue to employ people companies must make a profit.  In order to make a profit their revenues must exceed expenses.

In order maintain their current profit margins when the cost of doing business goes up they have to raise their revenues to make up for the delta.  In some short term cost fluctuations, like the seasonal cost of ingredients or if a storm severely limits the available supply of tomatoes companies can choose to pass those on to consumers or eat the costs.  In the case of long-term cost increases, which is what Obamacare is, they will pass those costs on to consumers.

Fair enough, you say.  You already knew that, you say.  We're talking about 15 cents per pizza, hardly enough to break the bank, you say.

It sure doesn't seem like much at first glance, but let's delve a little deeper than the soundbite, shall we.

Papa John's operates at a gross profit margin of 41.5%. [1]  Gross profit margin is the percentage the company has left after subtracting the cost of producing and selling the goods from revenues.  However, they aren't the only expenses the company has.

When you subtract those additional expenses, like insurance, income taxes, etc., Papa John's is left with a net profit margin of 4.64%.  [2]  Think about that for a minute.  Let it sink in.

At Papa John's current net profit margin, they only make 46 cents per $10 pizza sold.  Now look back at how much they said they would have to raise prices in order to make up for the cost of complying with Obamacare, 15 to 20 cents per pizza.

If they only make $.46 and need to raise prices by $.15, that means the cost of complying with Obamacare is nearly 33% of Papa John's net profits.

Now imagine how the costs of complying with Obamacare hits companies with far less profit margins, like Wal-mart, the nation's largest employer, with net profit margins of just 3.3% or Kroger, the nations largest grocery chain, at 1.1% net profit margin.  It should come as no surprise now why Obama was so quick to give out more than 1200 Obamacare waivers, the vast majority of which went to unions who contributed to his campaign. [3]

The truth is virtually everything you buy is going to be affected by the cost of complying with Obamacare.  You'll soon find out those dimes and quarters here and there are going to quickly add up when you look at your bank statement at the end of the month.

2 comments:

Anonymous said...

When you subtract those additional expenses, like insurance, income taxes, etc., Papa John's is left with a net profit margin of 4.64%. [2] Think about that for a minute. Let it sink in.

At Papa John's current net profit margin, they only make 46 cents per $10 pizza sold. Now look back at how much they said they would have to raise prices in order to make up for the cost of complying with Obamacare, 15 to 20 cents per pizza.


Then the Royals recent winning ways must be killing Papa Johns.

Radioman KC said...

It was just a one day Democrat reaction to a planted Republican story on their War against Obamacare. Fact is, if ALL states go along with the exchange program, there won't be much problem.

This is just more static from the right so they dont have to talk about their job killing austerity budget to please billionaire libertarians.

It also wouldn't hurt if Papa Johns improved their cardboard pizza. We went there exactly once, before this tempest in a teapot boiled up. Never going back. Hope the publicity got him a few sales like Chick-fil-A's did.