Papa Murphy's, the take-and-bake pizza chain, is facing a significant contraction as its parent company, MTY Food Group, moves to shutter up to 50 underperforming locations. The closures are part of a broader plan to eliminate 68 corporate-owned restaurants across MTY's portfolio, with the majority expected to occur within the next six to nine months.
Losses Drive Restructuring
MTY disclosed that the targeted restaurants collectively lost more than C$10 million over the past year, measured at the four-wall EBITDA level—meaning losses generated before central corporate expenses. Additionally, the company anticipates incurring C$10 million to C$12 million in costs related to store closures and lease exits. CEO Eric Lefebvre described the move as a disciplined cleanup, but the disproportionate impact on Papa Murphy's signals deeper brand-specific challenges.
The closures are concentrated in three clusters of Papa Murphy's stores that MTY repossessed from franchisees roughly two years ago, hoping to turn them around. While some locations showed improvement, management ultimately concluded that several markets were not well-suited for the take-and-bake concept. Lefebvre noted that between 45 and 50 Papa Murphy's restaurants are slated for closure, though he emphasized they do not account for the majority of the losses or exit costs tied to the 68-store program.
Pizza Price War Intensifies Pressure
The restructuring comes amid a brutal competitive landscape in the U.S. pizza market. Lefebvre told analysts that customer loyalty is minimal, with consumers frequently switching to whichever chain offers the lowest price. Promotions can temporarily boost traffic, but constant discounting risks squeezing franchisee margins. For Papa Murphy's, the model—where customers collect an uncooked pizza and finish it at home—faces unique headwinds. It competes not only with cooked pizza chains offering delivery and loyalty programs but also with supermarket pizzas.
MTY's second-quarter results underscore the strain. Same-store sales declined 2.1% overall, with a 2.2% drop in the U.S. Organic system sales fell 1.7%, and corporate-store profit margins narrowed to 5% from 9% a year earlier. Lefebvre indicated that June sales would have been relatively flat without Papa Murphy's, describing the chain as under greater pressure than any other MTY banner. He confirmed that no other brand in MTY's collection of more than 80 concepts is struggling on the same scale.
Scale and Impact
MTY operated 7,040 restaurants at the end of the quarter, including 6,808 franchised or operator-run locations. The 68 closures represent roughly 1% of that network. However, the concentration of cuts at Papa Murphy's makes the announcement a brand-specific warning rather than routine portfolio trimming. The average same-store sales at the 68 targeted stores were declining by 8% to 9%, far worse than the broader network.
Scotiabank analyst John Zamparo pressed management on the timing and financial nature of the plan during MTY's earnings call. Lefebvre confirmed that most closures will occur in the fiscal third quarter and reiterated that the program is targeted, not an attempt to dismantle Papa Murphy's franchise system. Still, the chain's disproportionate share of closures raises questions about its long-term viability within MTY's portfolio.
For investors, the development highlights the challenges facing take-and-bake pizza concepts in an increasingly competitive and price-sensitive market. While MTY's broader portfolio provides some buffer, Papa Murphy's struggles may warrant close monitoring, especially as the company navigates a difficult operating environment.
This article is for informational purposes only and does not constitute financial advice.
