Panera: Winners in Fast Casual
In an industry where good food is just the cost of doing business, Panera differentiates itself based on customer service and the eating experience.
Introduction
鈥淧anera 2.0 is an investment in聽聽the customer enabled by technology and powered by operational excellence 鈥 It鈥檚 an integrated, comprehensive end-to-end solution that we believe will reduce friction such as wait times, improve order accuracy, and minimize or eliminate crowding 鈥 all will create a platform for an ever more personalized experience.鈥
With these words in 2014, Ron Shaich 鈥 Founder, Chairman, and CEO of Panera Bread Co. 鈥 launched the 鈥淧anera 2.0鈥 project to improve Panera鈥檚 competitive positioning, revitalize same-store sales, and help the company to enter adjacent markets like catering. Between 2014 and 2016, Panera is rolling out this program to all of its stores, and it is the single most important initiative ongoing at the company today.
Panera has historically been a 鈥渨inner鈥 in the fast casual food category, having returned 4,000% to shareholders over 15 years and vastly outperformed all of its peers. In this post, I will explore the facets of 鈥淧anera 1.0鈥 which have enabled this past success, as well as 鈥淧anera 2.0鈥 which will drive this success into the future. Both are predicated on great alignment between Panera鈥檚 business and operating models.
About Panera Bread Co.
Panera Bread is a quick service restaurant operator of ~2K bakery cafes, with $4.5Bn of system-wide sales and an average of ~$2.5M of sales / unit. It serves breakfast, lunch, dinner, and take-home food options via both on-premise sales and off-premise catering. The breakdown of sales is 60% in-store, 30% take-out, and 10% catering. Panera鈥檚 restaurants are located mostly in suburban strip centers and regional malls.
Panera鈥檚 Business Strategy
Panera operates in a highly competitive industry, but they seek to build a competitive advantage via (a) great, high quality, healthful food and (b) superior customer service. Their goal is to serve 鈥渨ellness that鈥檚 craveable鈥 and deliver 鈥渁n experience that鈥檚 uplifting.鈥 Furthermore, the want to be 鈥渁 place that customers can trust,鈥 an 鈥渙asis from the rush of daily life,鈥 and 鈥渁 place worth crossing the street for to enjoy food.鈥
Panera refers to their strategy as its 鈥淐oncept Essence.鈥 The foundation of their food offerings is its artisan bread with its distinctive taste and quality, and they also serve a variety of other soups, salads, sandwiches, snacks, and beverages. Customers consume these products in an environment that is warm, friendly, comfortable, and embracing and can serve as a gathering spot for the community.
Historical Operating Model – Historically, Panera has driven alignment with its business strategy through its menu, design of its stores, and quality of employee training.
Menu & Innovation: Panera鈥檚 menu is based on a Food Policy which includes a commitment to clean, fresh ingredients and that always shows calories next to each food option. Panera also does not serve ingredients (e.g. chicken) that have been treated with antibiotics. These measures ensure customers eat natural, non-processed foods and also empowers them to choose healthy, low-calorie options.
Panera is also constantly innovating with its menu and introducing new products like half portions, flatbreads, broth bowls, and whole grains. Furthermore, it rotates items in and out of the menu temporarily via periodic 鈥渃elebrations鈥 where they feature new taste profiles they believe customers want. The constant new product introduction ensures Panera stays in tune with its customer preferences and is serving the menu options that they want.
Layout & Experience: Each Panera bakery-caf茅 is a distinctive environment using fixtures and materials which are complementary to the neighborhoods in which they are located. Restaurant staff are trained extensively individually and in small group settings to greet customer by name, display a cheerful personality, and use their expertise to recommend relevant menu items to customers. Together, the environment and customer service help foster customer鈥檚 perception of Panera as a 鈥済athering place鈥 or 鈥渙asis.鈥
New Panera 2.0 Extension 鈥 Panera鈥檚 2.0 initiative is an extension of the historical operating model and, in particular, focuses on improving customer service by reducing hassle and wait times.
Ordering Systems: Panera has introduced new ordering methods for聽both to-go and dine-in to facilitate ordering, lower wait times, and increase convenience for customers. People ordering to-go can order in advance via phone or mobile app and pick up from a separate 鈥渞apid pick-up鈥 line in the store. People ordering in-store can either use a cashier, iPad kiosk, or order at their table via phone or mobile app. All orders for dining in are delivered directly to guests鈥 tables.
Operational Excellence: Panera upgraded its kitchen display system, introduce load balancing for its employees, and added customer facing order displays so customers can prevent data entry errors. Additionally, Panera has created dedicated delivery hubs outside of its bakery-cafes to handle catering. All of these actions have helped reduce strain聽on stores鈥 kitchens and increase delivery speed for customer orders in-store.
Conclusion
Panera starts with a base of high quality, great food 鈥 but in the highly competitive fast casual industry that is just the price of entry not a guarantee for success. Panera uses the other components of its operating strategy 鈥 its layout & experience, ordering systems, and operational excellence 鈥 to make each customer visit a differentiated experience, not just a meal, which helps to separate them from the competition and make them 鈥渁 place worth crossing the street for.鈥
Sources of Information
- Panera Bread 2015 10-K Filing
- PNRA May 2015 Annual General Meeting Presentation
- Panera 2.0 Press Release on 4/10/14
Really neat, Adam – thanks for posting! I was wondering – do you know how Panera has been faring against potential competition from Pret A Manger and similar chains that value similar things (good, ethically produced food and a good but fast eating experience), especially in recent years?
Adam, great post. Thx for sharing.
I read an article about Panera where Shaich talked about Panera’s inability to meet lunchtime demand and customers were leaving the lunch line to seek out other options. He said that ~6 customers/cafe/day walking out of the store = 1% transaction growth. How well do you think “Panera 2.0” will do in successfully mitigating or eliminating these types of issues altogether? Panera surveyed customers on the reasons why they would leave the line and the top response was the lack of a true in-cafe experience. Could automation and ‘rapid pick-up’ further diminish the “oasis” ambiance?
Great post. Panera seems to be out on the forefront of innovation in the dining room. It’s going to be interesting to see how much this industry changes with the introduction of automation/tech over the next few years. To Tara’s point, how defensible are some of these more recent operational advantages?
Thanks for the post Adam. The fast casual space is definitely one undergoing rapid expansion and competition and from your observations it does look like Panera has been able to distinguish itself. In many ways they have become the “Starbucks” of fast casual restaurants, taking on the “third place” function.
I did notice, however, (and in line with Libby) that capacity seems to become an issue at certain hours. This, combined with customers’ desire to dine in has led to some practices that may be hurting Panera’s image. For example, there were signs posted at tables that encouraged diners to be considerate to others during peak hours (aka eat faster and not linger). I wonder how Panera will address these moving forward to stay as a leader in fast casual.
I agree with Michael, Panera has succeeded in becoming a “third place” for many americans. I wonder how much their location choices has played in their success. I have primarily lived in suburban areas and always frequented Panera, and must say that I have never seen the line issues experienced by others. I have seen stores operating at fairly high capacity throughout the day though. I think by locating in areas that have several demographics in close proximity (retirees, Stay-at-home parents, young professionals), the Panera’s that I have visited were successful in balancing demand, in part, due to their choices of where to operate. I wonder, as the U.S. gets closer to saturation of fast casual restaurants, how they will need to alter their stores to meet the needs of different customers than they are used to serving?
Thank you Adam, I really liked your post.
What do you think about the cash flow issues that Panera is experiencing now that its sales growth has slowed down?
Do you think that all of the investments in Panera 2.0 may be behind this issue? And, do you believe that this is a punctual issue or that it could lead to stressed financials in the near future?
Great analysis, Adam. As they move more towards Panera 2.0, do you think they run the risk of undermining their attempts to be a third place, “a place that customers can trust,鈥 or an 鈥渙asis from the rush of daily life.” A lot of the operational changes that you mentioned reduce the amount of contact that customers will have with employees. As things become more efficient, customers may lose some of the emotional connection that they have with Panera. Do you think they’re worried about that at all?