Pizza Chains Restructuring Amid Declining Sales and Rising Costs

The aroma of fresh pizza wafting through the air may soon be less common at certain locations, as major pizza chains like Papa Murphy's prepare to close up to 50 stores in response to challenging market conditions. This decision is not an isolated incident; it reflects a deeper trend across the pizza industry as several chains are grappling with declining sales, rising operational costs, and a fiercely competitive landscape. The closures highlight the urgent need for these brands to adapt to shifting consumer preferences while navigating the complexities of the current economic environment.

Founded in 1979, Papa Murphy's is part of MTY Group, one of North America's largest restaurant franchisors. Despite its long-standing presence in the market, the chain has seen a significant decline in its store count from 1,168 in 2023 to just 1,014 in 2025. The impending closures, set to begin in mid-July 2026, mark the latest effort by MTY Group to restructure and focus on more profitable locations, as they aim to bolster their performance in an increasingly saturated pizza market.

Understanding the Current Landscape of the Pizza Industry

The pizza industry has undergone significant changes in recent years, driven by evolving consumer preferences and economic pressures. As diners become more health-conscious and seek convenience, traditional pizza chains are facing fierce competition from fast-casual dining options and even grocery stores offering fresh prepared meals. In addition, the pandemic accelerated trends such as online ordering and delivery services, putting pressure on brick-and-mortar locations.

Rising Costs and Consumer Behavior

In addition to shifting consumer habits, pizza chains are also grappling with rising operational costs. Ingredients, labor, and rent are all experiencing upward pressure, forcing companies to reevaluate their business models. For instance, MTY Group's CEO Eric Lefebvre indicated that the closures would help mitigate losses that had exceeded CAD 10 million across the selected locations. This financial strain is not unique to Papa Murphy's; competitors like Pizza Hut and Papa John's are also closing numerous locations in an effort to streamline their operations.

The Impact of Store Closures on the Pizza Chain

MTY Group's decision to close underperforming locations is a strategic move aimed at refocusing resources on profitable restaurants. Lefebvre emphasized that the company is not engaging in a quick liquidation process but is instead taking a measured approach to minimize disruption for employees and landlords. By closing up to 50 Papa Murphy's restaurants, MTY Group is hoping to improve its overall financial health and long-term growth prospects.

Financial Ramifications

The closures will incur estimated costs between CAD 10 million and CAD 12 million, impacting the company's short-term free cash flow. However, executives remain optimistic that these changes will lead to improved profitability in the long run. By eliminating locations with poor performance metrics, MTY Group aims to strengthen its competitive position and focus on areas with greater demand and profitability.

Long-term Growth Strategy for Papa Murphy's

The closures are part of a broader strategy that has seen Papa Murphy's downsize significantly over the past few years. After repossessing several underperforming franchises, the company ultimately determined that many markets were no longer viable. With the recent store closures, the chain will be left with only 49 company-owned locations, largely affecting its corporate-operated stores.

Performance Metrics

Recent financial reports from MTY Group illustrate the challenges faced by Papa Murphy's and the broader pizza industry:

• Revenue: Declined by 8.2% year-over-year.
• Same-store sales: Fell by 2.1%.
• System sales: Decreased by 3.5%.
• Franchise segment revenue: Dropped by 4%.

With approximately 97% of its locations franchised or managed under operator agreements, the chain must adapt to the changing landscape while maintaining its market share.

Industry Trends and Competitive Dynamics

As Papa Murphy's restructures, it is not alone in its efforts to streamline operations. Competitors like Pizza Hut and Papa John's have also announced significant closures. Pizza Hut closed around 250 restaurants in the first half of 2026, while Papa John's plans to shut down up to 300 locations through the end of 2027. These closures underscore a critical moment in the pizza industry, as brands reevaluate their strategies to remain relevant and profitable.

Adapting to Market Changes

To thrive in this challenging environment, pizza chains are focusing on several key areas:

• Menu Innovation: Introducing healthier options or unique offerings to attract diverse customer segments.
• Delivery and Technology: Investing in online ordering systems and efficient delivery methods to meet consumer demand.
• Cost Management: Streamlining operations to mitigate the impact of rising costs.

As these trends continue to shape the industry, the future of pizza chains will depend on their ability to adapt and respond to the evolving marketplace.

Key Takeaways

• Papa Murphy's plans to close up to 50 locations in response to ongoing financial challenges.
• Rising operational costs and shifting consumer preferences are affecting the pizza industry.
• MTY Group aims to strengthen profitability by focusing on more successful locations.
• Competitors like Pizza Hut and Papa John's are also reducing their restaurant footprints.

Frequently Asked Questions

Why is Papa Murphy's closing so many locations?

Papa Murphy's is closing locations as part of a restructuring effort to eliminate underperforming restaurants. The decision follows an evaluation of each restaurant's financial outlook and local market conditions, with many of the affected locations generating significant losses. By focusing on profitable areas, the company aims to improve its overall financial health.

What are the financial implications of these closures for MTY Group?

The closures are expected to incur costs between CAD 10 million and CAD 12 million, impacting MTY Group's short-term free cash flow. However, the company is optimistic that this restructuring will lead to improved profitability over time by allowing them to concentrate on more successful locations.

How is the pizza industry changing?

The pizza industry is experiencing significant changes due to rising operational costs, shifting consumer preferences, and increased competition from fast-casual dining and grocery prepared meals. Chains are increasingly focusing on menu innovation, delivery efficiency, and cost management to adapt to these market dynamics.

Are other pizza chains facing similar challenges?

Yes, Papa Murphy's is not alone in facing challenges. Competitors such as Pizza Hut and Papa John's are also closing numerous locations as they reassess their strategies in response to declining sales and rising costs. This trend highlights the competitive pressures faced by established brands in the pizza market.

*This content is educational, not financial advice.