Panera Bread Co. is expanding its delivery rollout and plans to eclipse its goal of offering the service in 10 percent of the system by year’s end, executives said Wednesday.
“Our confidence in the power of delivery for Panera continues to strengthen as we add more markets of operation for longer periods of time,” said Ron Shaich, Panera founder, chairman and CEO, in a second-quarter earnings call. “Our franchisees are as excited about delivery as we are.”
In the second quarter, the St. Louis-based bakery-café chain rolled out delivery to 52 more company-owned units, bringing the total number of company locations with delivery to 122 as of June 28, when the quarter ended.
Panera franchisees now offer delivery at 73 restaurants, Shaich said, and at least one is reporting double-digit sales increases in the first few weeks of offering the service.
Adding to the current 195 delivery cafés, or about 10 percent of the system, the company expects to expand it to another 100 company cafés in the third quarter, he said.
“Our goal has been to roll out delivery to about 10 percent of our system by year-end 2016,” Shaich said. “Obviously, we are ahead of schedule relative to our 2016 delivery goal.” The company now expects to have delivery in 15 percent of its units by the end of the year.
“Delivery is a big opportunity for Panera,” said Shaich, adding that “the biggest issue we face with delivery is sequencing it into our cafés and ensuring we have the physical capability to handle the increased sales.”
Shaich said the economics of delivery make it a “scale business,” and because it piggybacks on existing Panera 2.0 technology, the only added cost is in the delivery itself.
“As the volume goes up per café, that delivery expense goes down,” he said.
Drew Madsen, Panera president, said Panera raised menu prices 2.2 percent in the second quarter. Menu innovation is targeted at customers less inclined to be price sensitive, he said.
“Our target customers are affluent, food-forward, wellness-minded and engaged with Panera,” Madsen said, and use the brand at several dayparts.
“As we’ve seen in past economic downturns,” he added, “they are resilient customers with the financial means to maintain their restaurant visits despite changing macroeconomic forces.”
Madsen added that Panera sales do not correlate as closely with economic downturns as at many other restaurant brands. The company also leverages its Panera loyalty members, now at 23 million, with timed and targeted offers, he said.
Shaich said the company’s Panera 2.0 cafés performed better than non-upgraded units.
During the second quarter, he said, the company converted 70 more existing Panera units to the 2.0 model, bringing the total to 522 locations at the period’s end. For all of fiscal 2016, Panera planned to convert about 200 cafés.
“In addition,” Shaich said, “the number of franchise groups opening 2.0 cafés has expanded.”
At the end of the second quarter, six franchise groups that represent 28 percent of the franchise system were operating 43 upgraded 2.0 cafés, Shaich said, with a total of 100 locations expected by year’s end.
About 18 percent of sales at company locations in the quarter were through digital order-payment, amplified by Panera 2.0, Shaich said. Last week, that number reached 20 percent, and mature Panera 2.0 cafés were reaching almost 30 percent, he added.
The company is averaging 136,000 digital orders per day, excluding catering, he said.
Panera’s second-quarter net income, which included refranchising charges, fell 17.7 percent, to $34.5 million, or $1.46 a share, from $41.9 million, or $1.60 a share, the previous year. Revenue increased 3.3 percent, to $698.9 million, from $676.7 million the previous year.
The systemwide same-store sales growth of 2.3 percent included increases of 4.2 percent at company-owned units and 0.6 percent at franchised locations.
Alexander Slagle, an analyst with Jefferies LLC, wrote in a note Wednesday morning that Panera’s same-store sales “during the first 27 days of 3Q are trending up 3.1 percent despite tough compares and substantially less media spend.”
As of June 28, the company had 2,007 bakery-cafés in 46 states and Ontario, Canada, operating under the Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Cafe names.