As delivery sales continue to grow, Panera Bread Co. is honing how and who brings that channel to the customer, executives said Wednesday.
Leaders at the St. Louis-based fast-casual chain said delivery began organically out of its café-based large-order catering business, but founder and chairman Ron Shaich told analysts in the company’s third-quarter earnings call that delivery “ultimately be one of the most powerful channels in Panera's arsenal.”
“We believe Panera is uniquely positioned to capitalize on the whitespace for healthful, high-quality salads, sandwiches and soups in the $40 billion delivery market,” Shaich said.
At the end of third quarter, 178 company cafés were offering delivery and it was available in 76 units across nine franchisee groups. Shaich said the company was on pace to have delivery in 15 percent of its system by the end of 2016.
“We believe Panera is uniquely positioned to capitalize on the whitespace for healthful, high-quality salads, sandwiches and soups in the $40 billion delivery market,” said Panera founder and chairman Ron Shaich. Photo: Panera BreadPanera is seeing fast growth in the number of delivery, catering and rapid pick-up orders, said Drew Madsen, Panera president. Two years ago, those segments represented less than 10 percent of the bakery-café brand’s sales. “Today, delivery, catering and RPU represent 16 percent of our sales,” Madsen said, adding that average checks for catering transactions are $150, for delivery transactions $20 and rapid-pickups $14. That compares to typical counter-order transactions of $9.
Shaich said Panera is still honing the ways it executes delivery, especially in hiring and technology.
“We are bringing on technology from abroad that's in test right now that materially supports our process,” he said, especially in finding the right person to deliver the order to in an office building.
“We brought on technology for example that will send a text message three minutes before we arrive at the building telling the person we're sending the food to to come down to the lobby and that the food is there,” Shaich explained. “We're also bringing on technology that's innovating into labor scheduling models and the like.”
A shift to more sales in delivery is also helping Panera in its development.
Real estate prices and construction costs are going up quickly, driven in part by the growth in urgent care facilities, so Shaich said Panera is looking at development formats that will provide better return on investments.
“The question used to be: ‘How many stores are we going to open?’ Shaich said. “We don't ask that anymore. We ask: ‘How many dollars can we literally vacuum out of the given ZIP Code?’”
Delivery also has been aided by the company’s expansion of its Panera 2.0 format, which relies more heavily on technology.
Madsen said that by the end of third quarter, Panera saw digitally placed and digitally paid orders at company-owned cafes reach 22 percent of sales. “For comparison at the end of our Q3 last year the digital utilization rate was only 11 percent, so we've doubled our digital utilization in just one year,” he said.
Charlotte, N.C., was the company’s first full market for its combined Panera 2.0 and delivery efforts, and that market has reached a digital utilization rate of 36 percent of sales.
“We believe Charlotte's digital utilization rate will continue to grow as will the rate seen in the rest of our system,” Madsen said. “In fact, there is no reason to think we can't get very close to the QSR pizza player's digital utilization rates of 50 percent or more over time.” The company is often hitting 185,000 digital transactions per day, he added.
Panera 2.0 has also helped company-owned stores increase their same-store sales, said
Michael Bufano, Panera chief financial officer.
3Q same-store sales rise
For the third quarter ended Sept. 27, same-store sales at company-owned bakery-cafes were up 3.4 percent, including average check growth of 4.9 percent and transaction decline of 1.5 percent. Average check growth was comprised of retail price increases of 2.4 percent and positive mix impact of 2.5 percent. Same-store sales at franchised stores were 320 basis points lower than at company stores.
“The primary difference between company and franchise stores is the greater penetration of Panera 2.0 in company cafés today and, to a modest degree, the impact of a slightly faster rollout of delivery in company cafés than franchise cafés,” Shaich said.
During the third quarter, Panera converted 71 existing company cafes to the Panera 2.0 model, bringing its total to 592 company cafes, or about 66 percent of its total.
Panera’s third-quarter net income slipped 1 percent on refranchising charges and tax adjustments, ending the quarter at $31.9 million from $32.4 million in the same quarter last year. However, earnings per share rose 8 percent, to $1.37 from $1.27. Revenues increased 3 percent to $684.2 million from $664.7 million in the prior-year period.
As of Sept. 27, Panera had 2,024 bakery-cafes, made up of 903 company-owned and 1,121 franchise locations.
Contact Ron Ruggless at [email protected]
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