This Ain't No Pizza Party Pizza Hut and Papa John's are engaged in a Kentucky blood feud. At stake: the future of pizza pies.
By Daniel Roth

(FORTUNE Magazine) – Deep within Pizza Hut's sepia-tinted, mirrored Dallas headquarters, food scientists in white lab coats rip open boxes of ingredients. One man picks through hundreds of seemingly identical mushroom slices, selects one, and pinches it with his digital calipers: 0.28 inches. The goal is 0.25 inches, the scientist assures a visitor, but plus or minus a few hundredths is okay. A few feet away, his colleague pours ultra-concentrated pizza sauce into a Bostwick, a tiny metal box affixed to a notched metal slide. He opens an adjacent spring-loaded door, and the bright-red sauce oozes down the slide. The scientist times the descent, ensuring that the sauce conforms to Pizza Hut's rules of thickness.

It is from here, from this test kitchen, with these men who look as if they'd be more at home staring into Bunsen burners than Bostwicks, that Pizza Hut is trying to stop Papa John's International. Now, you may never have heard of Papa John's. The fourth-largest player in the national pizza market, Papa John's has yet to invade all of the country. Compared with 40-year-old Pizza Hut--which PepsiCo spun off along with Taco Bell and Kentucky Fried Chicken last October into a new, $8.5-billion-a-year company called Tricon--it's a pipsqueak. Pizza Hut controls 22% of the market with 7,132 stores; 14-year-old Papa John's has less than one-fifth its market share and just a quarter the stores. Nonetheless, Papa John's scares Pizza Hut. That's because, since 1993, for every point Pizza Hut has lost in market share, Papa John's has gained one. And it has done so with the simple slogan "Better ingredients. Better pizza." Those four words drive Pizza Hut mad.

So far, nothing Pizza Hut has tried has slowed Papa John's. Not revamping its pizzas by bringing in better ingredients--the ones being measured by kitchen scientists. Not its estimated $150 million ad budget. Not even an arsenal of pizzas: not the TripleDeckeroni Pizza with its 90 pieces of pepperoni and six-cheese blend; not the Bigfoot with its two square feet of pizza; not the Chicken-Topped Pizza line, which Pizza Hut breathlessly promised would deliver "the uniqueness and unexpectedly great taste of chicken-topped pizza to Americans everywhere." Not even this summer's Fiesta Taco Pizza, with its bean-sauce and chopped-lettuce toppings. More and more, it seems people simply prefer Papa John's to Pizza Hut. And Papa John's has just two items in its arsenal: a thin-crust pizza and a regular-crust pizza.

This is a dough- (and mud-) slinging fight with no truce in sight. In the past five years, pizza sales have risen just 3.6% a year, and no one expects them to grow much faster in the future. Pizza Hut and Papa John's have no choice but to try and flatten each other.

This isn't just a quarrel over ingredients, although that's what the two companies would like you to believe. If it were just that, would Pizza Hut last year have sent franchisees cheap toy punching bags bearing a bright-red, block-lettered encouragement to "sock it to Papa John's"? Would Papa John's this summer have made a commercial bearing the caption "Pizza Hut's way" that showed a Pizza Hut worker making tomato sauce by shoveling tomato paste into a pot? This battle has turned personal.

"It's like watching elephants mating," says Gerry Durnell, the bemused publisher of Pizza Today magazine. "It doesn't happen very often, but when it does, it creates a lot of noise and stirs a lot of dirt. It's an awesome sight."

The savannah in this case is Louisville, just across the Ohio River from Durnell's Indiana office. Louisville, one might think, has more in common with Naples, Fla. (co-founded by Louisvillian Walter N. Haldeman in 1888), than Naples, Italy (where the modern pizza was invented by Raffaele Esposito one year later). Yet Louisville is home to both John Schnatter, founder and chief executive of Papa John's, and David Novak, president of Pizza Hut's parent company, Tricon. In a town of one million people, where it's almost impossible for the business elite not to cross and recross paths, these two find it particularly hard to avoid each other. Both men live in Anchorage, a small, tony suburb east of the city. The shaded roads there meander into a subdivision whose houses are tastefully set back from the road. The pool behind John Schnatter's stone house backs up on a golf course of the Owl Creek Country Club. If a duffer were to walk across the course and a few hundred yards more, he'd end up in David Novak's yard. Until last year, when Novak's daughter graduated from eighth grade, both of their kids attended the same school. The fathers attend--and are helping to fund the rebuilding of--the same church. Last November the two men played in the same golf threesome.

During a recent visit I made to Louisville, local pizza parlor owners and assorted business people whispered to me things they'd heard about the feud: that Schnatter offered to buy his pastor a house if Novak was kicked out of the church (or vice versa, depending on who's telling the story), that Novak told a golf partner he would steal all Papa John's employees, that local food photographers are prohibited from taking pictures of Papa John's pizzas if they've ever shot a Pizza Hut pizza. Both sides deny these rumors. but however ridiculous the gossip, the feud definitely has locals talking.

They chattered even more after Schnatter gave $5 million ($4 million of it his, $1 million from the company) to help build a new 42,000-seat stadium for the University of Louisville, now called Papa John's Cardinal Stadium. Schnatter says he invited Novak to the opening game on Sept. 5. Novak didn't show. He apparently had a golf game. The very day that Schnatter inaugurated the stadium, Pizza Hut started airing a TV ad in Louisville that purported to show Papa John's employees pouring water-soaked mushrooms out of a can for use on a pizza.

Novak claims he is above such petty digs and insists the timing was coincidental. Schnatter, however, is pretty straight about his feelings: "I like him, but I don't respect him."

Replies Novak: "My strategy is to always take the high road."

Mike Rawlings, who handles day-to-day operations for Pizza Hut, says the same thing. There's no time, I was assured, to worry about Papa John's when Domino's--with over 6,000 stores--is a much bigger force. "Domino's has more tenure and saliency in the consumer's minds than any of the rest of our competition," insists Rawlings. But since 1993, while Papa John's has been rapidly growing, Domino's has not scored even one additional point of market share. Wander around Pizza Hut headquarters, and you can't help feeling that Papa John's is all Rawlings is thinking about. In a small dining room outside the test kitchen, Pizza Hut has hung three black-and-white posters detailing its superiority over Papa John's ("40% more toppings," brags one), but none mentioning Domino's. And on the floor outside the COO's office is a giant black floor mat with yellow neon letters. The mat reads STOMP OUT PAPA JOHN'S NOW!

No time to think about them indeed.

The leaders of these two companies are as dissimilar as a vegetarian pizza and the meat-lover's special. "Papa" John Schnatter favors polo shirts and tassel loafers worn without socks. With his black hair and boyish looks, he could pass for anyone's kid brother. But he's far from easygoing. He speaks quickly with a slight Southern accent, repeating phrases and data he has gleaned from the management, history, and psychology books that he devours at the rate of one a week. When I interviewed him, Schnatter insisted I leave with two photocopied pages from a book called The 22 Immutable Laws of Branding. I was given chapter 22, "The Law of Singularity." Reading it later, I realized that Schnatter had quoted the entire chapter to me almost verbatim earlier in the day.

Schnatter is, certainly, a singular character. He is also single-minded. He thinks only of the Papa John's brand and forces others to do the same. Executives are expected to memorize the six Core Values, "quite simply, the absolute truths of our business," according to the Papa John's orientation pamphlet. In the middle of a recent speech to the payroll department, Schnatter turned to chief financial officer Drucilla Milby and demanded, "What is Core Value No. 4?" She looked up, mouthed the first three to herself, then spat out the answer. (It's PAPA, or People Are Priority No. 1 Always.) Schnatter responded: "The Core Values are worthless if you're not going to live them."

Schnatter is only 36. Yet he has built a company worth $940 million, a company that he started, literally, in a broom closet after graduating from Ball State University in 1983. The stock has grown from a split-adjusted $5.78 to a recent $31.75 in just five years, giving investors twice the performance of an index fund tracking the S&P 500. Today Schnatter is worth $245 million.

He is obsessive and fanatical, and has gotten to where he is by convincing others to be the same. Schnatter preaches about pizza in near-biblical terms. Besides the six Core Values, there is also the Ten Point Perfect Pizza Scale. All pizzas must measure up to this higher pizza, where pieces of the same toppings do not touch, where there are no "peaks or valleys" along the pizza's border. Nor shall there be, according to the Ten Point Scale, "soup bowl edges" or splotchy coloring on the crust. Schnatter believes each ingredient deserves its own tale. The employee newsletter carries articles like "The Papa John's Black Olive Story." (They are grown in Andalucia, says the article, "the region from which Christopher Columbus set sail on his famous voyage in 1492.") And pizza-sauce cans carry "The Papa John's Tomato Story." In their modest headquarters, employees are clad in what seems to be a limitless variety of Papa John's clothing. When I toured the building, the latest batch of Papa John's shirts had just arrived: teal-blue polo shirts reading pizza wars '98. Employees even have their own clothing embroidered with the Papa John's logo, and speak not of working for Papa John's but of working for John. At Papa John's, you're not a soldier in a battle. You're a crusader in a holy war. "In five years," preaches Schnatter, "Papa John's will be the No. 1 pizza brand in the world. In ten years, we'll be the leader in sales."

If Schnatter is an evangelist, Novak is more like a church elder. (In fact, he was quoted in Louisville magazine last month as saying that he was "building a company that honors God.") He has brought stability to Pizza Hut, which was long treated as simply a steppingstone to landing the big jobs at PepsiCo. In the time it's taken Schnatter to build his company from one to 1,783 stores, five different people have run Pizza Hut. It's hard for any company to maintain focus when its leader is angling for the next promotion.

The one thing that had always been constant at Pizza Hut was a strategy best described as the feast-and-famine model. The feast: Release a new pizza, advertise like crazy, and wait for new customers to rush in. The famine: waiting for the same customers to return. Same-store sales soared at each innovation and tumbled in between. The stores themselves were also in a shambles. One analyst who follows the company recalls walking last year into a Pizza Hut that had holes in the benches, a filthy carpet, and a banner declaring Pizza Hut "part of the most fun you've had all day." From April 1996 through the summer of 1997, same-store sales at Pizza Hut were off every quarter.

David Novak stepped into this mess in August 1996. By October 1997, when PepsiCo spun off Pizza Hut into what is now a company with a $5.8 billion market cap, same-store sales had crossed into the black. They've been there ever since. How did he do it? He made the standard turnaround moves, like shuttering 225 underperforming Pizza Huts, which resulted in a $425 million charge against earnings. But most important, he focused on the core product. For years Pizza Hut had positioned itself as the value player in the pizza business, discounting its pies and making them larger. In a project code-named "Lightning Bolt," Novak changed all that. He earmarked $35 million for recalibrating ovens to make them more consistent, changing the toppings from diced to sliced, and adding more of them on each pizza. Where once a medium pepperoni had 35 slices, a Lightning Bolt pizza had 55. Novak also spent $25 million to promote the Lightning Bolt products and put himself in commercials touting his great new pies. In the first Lightning Bolt commercial, he offered a money-back guarantee if his new pizza was not the best pie the consumer had ever tried. The ad, which first aired May 1, 1997, was a direct strike at Papa John's: Schnatter had always preached that his company was the quality provider.

On May 5, Schnatter struck back. He unleashed a commercial that former Pizza Hut executives say did more to anger Novak than anything in the past. The commercial featured Frank Carney--who with his brother Dan co-founded Pizza Hut in 1948--declaring Papa John's a better pizza. How did he know? Because for three years Frank Carney had been a Papa John's franchisee. A second commercial reenacted a scene that supposedly took place after Carney's defection, showing his bust being removed from Pizza Hut headquarters. (Pizza Hut denies this ever happened.)

Novak, who had to ready Tricon for its IPO, brought in management help that summer, entrusting Pizza Hut to Mike Rawlings, who first worked for Novak at an advertising firm in Dallas. A former linebacker at Boston College, Rawlings looks like a high school football coach and speaks in sports metaphors. "I was slow," he says. "But I liked to hit."

Indeed he does. Last November, five months into the job, Rawlings filed a complaint with the Better Business Bureau's National Advertising Division, a mediation board. Pizza Hut complained that the Papa John's "Better ingredients. Better pizza" motto was a direct attack on its pizzas and, moreover, was dead wrong. The NAD studied the case. Its decision: Papa John's has a "reasonable basis" for its claims.

Rawlings tried again this March, complaining that Papa John's was conveying a false impression with an ad that said "Pizza Hut uses remanufactured sauce" and depicted a hand slapping tomato paste in a pot. The NAD said it would study the issue.

Meanwhile, in April, Rawlings launched full-page newspaper ads in some key Papa John's markets. In bold letters, the ads read: "Mudslinging. Cheap shots. Misinformation. Hey, John, this is pizza, not politics." Papa John's answered a week later with its own full-page ad, bearing a list of ingredients for both companies' sauces. The Papa John's side reads like an inventory of Grandma's kitchen; the Pizza Hut side, like an inventory of a Hoechst lab. While Papa John's has fresh-packed tomatoes, sugar, salt, spices, and citric acid, the ad alleges, Pizza Hut has tomato paste, modified cornstarch, maltodextrin, xanthan gum, hydrolyzed soy protein, and calcium lactate. (Pizza Hut says the list is incorrect.) The ad ended with that Papa John's logo: "Better ingredients. Better pizza."

"Every time they serve something up, they serve us a lob," laughs Syl Sosnowski, Papa John's vice president of marketing.

Finally, in July, the NAD made its decision on Rawlings' March complaint. The tomato paste image "may well be an unnecessarily, gratuitous denigration of Pizza Hut's pizza sauce," it ruled. But after Papa John's made minor changes, the NAD let the ad stand.

Convinced that the NAD was paying no more attention to the company than consumers were, Pizza Hut on Aug. 12 hauled Papa John's to court. In its filing to a federal court in Dallas, Pizza Hut whimpered that "until recently, the national pizza restaurant companies maintained robust competition without resorting to campaigns predicated on consumer deception. Now, however...Papa John's has forsaken open and honest competition for an advertising campaign built on deception and disparagement. At the core of Papa John's campaign is the mantra-like slogan, 'Better ingredients. Better pizza.'"

Which brings us to the question: In the end, does Papa John's "mantra-like" slogan really matter? Even if Pizza Hut gets the $12.5 million in damages it wants (plus lawyers' fees) and stops Papa John's from declaring itself "better," will consumers start flocking to Pizza Hut? Perhaps a survey Pizza Hut showed me to defend its superiority best answers that. After reformulating its pizza, after coming up with catchy ads, and after shuttering old, downtrodden stores, Pizza Hut this summer decided to find out which attributes consumers assigned to Papa John's and which to Pizza Hut. Consumers awarded Pizza Hut "variety," "part of American Tradition," and "caters to families." All fine. But look at the phrases consumers associate with Papa John's. Some can be directly associated with the mantra, like "only natural ingredients" and "uses fresh dough." But some cannot, like "small family-run," or "tastes like authentic Italian pizza" and "tastes homemade."

It'll take more than a court order to change those perceptions.