Panera Bread Co. is expanding its test of delivery this year, and will determine a broader rollout for 2016, executives said Wednesday during a call with analysts discussing first-quarter earnings.
“This is a powerful sales-building initiative, and something that everybody in our industry seems to be talking about,” said Ron Shaich, founder, chairman and CEO of St. Louis-based Panera.
Panera has been testing delivery for more than a year in two markets with its own drivers and in two markets with a third-party driver model, Shaich said.
One test market is Louisville, Ky., which the company announced in March. Panera is also continuing to build out catering-delivery hubs in some markets.
“We’ve come to believe that delivery offers us the potential to materially increase our sales volumes per café and become a long-term driver of sales growth,” Shaich said.
Salads and sandwiches travel well in a vehicle and are a “perfect product” for delivery, especially at lunch, Shaich said, adding that delivery was “not something you want to throw into an already high-volume café environment.”
A successful delivery program requires digital or phone ordering, he said, with a full customizable menu.
“You won’t be successful in delivery if you offer the guest a partial experience or if you offer a plain vanilla outsourced e-commerce solution where the customer must manually type in customization,” Shaich said.
In addition, unit managers need to view delivery “as simply another take-out order,” he said. Shaich added during questions later: “If they get more involved in it than that, it will complicate their lives and be problematic.” That is why the digital ordering must tie in seamlessly to the production system, he said.
Panera assumes that its growing number of delivery hubs will be used primarily for catering and large-order delivery, Shaich said, “which we think of as a different production process.”
In the first quarter ended March 31, Panera added seven delivery hubs, bringing its total to 28, according to Mike Bufano, who has been promoted to chief financial officer, succeeding Roger C. Matthews Jr., who left the company last year. William W. Moreton, who had assumed the role of interim CFO, will continue as the company’s executive vice chairman. Bufano has been with Panera five years, most recently as senior vice president of planning.
Bufano said 29 cafés were converted to the new Panera 2.0 package, bringing the total to 123 units with the enhanced technology package that includes kiosks, separate to-go pickup areas and digital table service in some units.
Shaich said Panera is intent on building what he called “adjacent businesses,” like large-ordering and catering delivery.
“Our goal is to begin to think about … how many high-ROI dollars we can vacuum out of a specific ZIP code instead of simply focusing on how many cafés we can open,” Shaich said.
Digital access is the foundation for catering and delivery, Shaich said. “It also materially affects labor favorability over the long term, as there is no labor needed to input orders with digital,” he said.
Digital orders account for more than 20 percent of sales at Panera 2.0 cafés and for about 9 percent of total company sales, Shaich said. Panera is ahead of many competitors, and “digital sales inevitably will go up,” he noted.
With no registers constraining the flow of orders “to protect the production, the need for a high-capacity, rapid reaction production system increases,” he said.
More transparency for customers
Panera wants to be able to accommodate any bursts in orders, Shaich said, and also the level of customer customization, which is reaching rates of nearly 70 percent in Panera 2.0 cafés.
Panera, which has included calorie counts on its menus for years, is also seeking more transparency for its customers, Shaich said, noting that the brand was among the first to use antibiotic-free chicken.
In May, the chain will reintroduce all of its salad dressings with no artificial colors, preservatives, flavors or sweeteners, Shaich said.
Panera Bread Co. reported Tuesday a 24.8-percent decrease in net income during the first quarter, which included one-time charges for the company’s ongoing refranchising initiative.
Panera’s income in the first quarter was $31.9 million, or $1.20 per share, compared with $42.4 million, or $1.55 per share, the previous year. Excluding the refranchising charges, net income in the quarter was $37.4 million, or $1.41 per share. Revenue rose 7.1 percent, to $648.5 million, from $605.3 million the previous year.
During the quarter, company-owned same-store sales rose 1.5 percent against a 0.1-percent comparison in the prior year.
“We suspect a planned 10-percent decline in advertising spending, inclement weather in the Northeast, and the shift in Easter all penalized first-quarter comp trends. By month, company-owned comps slowed as the quarter progressed, rising 2.9 percent in January, 1.1 percent in February, and 0.6 percent in March, owing largely to comparisons that became progressively more difficult as evidenced by two-year comp trends that improved each month,” said Sharon Zackfia, an analyst with William Blair & Co. Equity Research.
As of March 31, Panera had 1,901 bakery-cafés in 45 states and Ontario, Canada, operating under the Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Café brands.