Blue Point Trading Market View – November 19, 2012
Douchebag of the year – Papa John’s Pizza CEO John Schnatter? Papa John’s made headlines when CEO John Schnatter announced that to offset Obamacare’s rising health insurance costs the company would be reducing workers’ hours to part-time status and passing on costs to customers in the form of 11 to 14% higher pricing. Obamacare mandates that businesses with more than 50 workers offer an approved insurance plan or pay a penalty of $2,000 for each full-time worker over 30.
Evidence suggests that when health insurance costs go up, worker wages fall, rather than prices going up. If firms are forced to give their workers health insurance, they generally react by paying workers less in wages; they don’t raise the prices. However, in the case of Papa John’s, a portion of its employees are already paid at minimum wage, so you can’t reduce wages for those employees, and the firm may have to increase prices. Schnatter says, Obamacare would cost the company between 11 and 14 cents per pizza. Subsequent analysis by Caleb Melby of Forbes found that the price increase would actually be closer 3.4 to 3.6 cents per pie. Schnatter believes the Obamacare will cost the company around $5 million to $8 million per year. In order to get around providing health care for his full time employees, the CEO intends to reduce hours to avoid any legal obligations. So can Schnatter pay this – will his business crash due to Obamacare?
To start, John Schnatter’s 40,000 square foot castle is located in a wealthy country club suburb of Louisville, Kentucky. The property is spread out over a 16 acre estate and features several swimming pools, a private lake and a golf course. The guest house alone is 6000 square feet and is valued at over $7 million. Another interesting feature is the 22 car multi-level underground garage which has its very own “valet office”, car wash and a gigantic motorized turn table-driveway to help park stretch limousines. John Schnatter’s $600 million net worth and success evidently is not enough. Year over year, in 2011, Papa John’s International Inc. has been able to grow revenues from $1.1B to $1.2B. Most impressively, the company has been able to grow bottom line growth from $51.9M to $55.7M. So his company is doing very well – now we know why.
If you don’t know already, Papa John’s CEO John Schnatter has almost single handedly slapped a derogatory Internet meme on his own company after this Obamacare PR disaster. The call for boycotting Papa John’s is growing – it will cost Schnatter much more than the 5 cents a pizza for Obamacare. Ian’s Pizza, a pizza shop with four locations in Wisconsin, said his business has offered full heath care coverage to its 50 full-time employees for years, making it all the more difficult to compete with national chains like Papa John’s that pay workers low wages without health benefits. I support free market capitalism, but its got to be done responsibly. We should support local responsible businesses that treat employees well – John Schnatter gets my vote for douchebag of the year.
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Blue Point Trading Market View – November 19, 2012,