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Panera: Digital investments paying off

Panera: Digital investments paying off

Operator “running a major technology organization,” CEO Ron Shaich says

Panera Bread Co.’s investments in digital technology are beginning to reap benefits, executives said Wednesday.

“We’re now running a major technology organization here, nearing hundreds of thousands of orders a day,” Ron Shaich, chairman and CEO of the St. Louis-based bakery-café chain, said in a call Wednesday with analysts.

Customers increasingly want to engage with restaurant brands and retail in general on digital platforms, Shaich said. Digital use at Panera has been growing, he noted.

Digitally ordered and digitally paid transactions have grown in company-owned cafés from 10 percent of sales at the end of the second quarter to 12 percent of sales at the end of the third quarter ended Sept.  29, Shaich said. In Panera 2.0 cafés, he added, digital access makes up 22 percent of sales.

Shaich said Panera 2.0 is aimed at improving the bakery-café experience and reducing guest friction with digital access through smartphones, the Internet and in-store kiosks, and also operational integrity to produce quality and quantity of food.

“Digital access enables a significantly better to-go and eat-in experience, and digital access will be the foundation that enables rapid growth in catering and rapid growth in delivery,” Shaich said.

Shaich said the company compares same-store sales between Panera 2.0 units and those that have not been converted. “Each week Panera 2.0 comps materially exceed Panera 1.0 comps,” Shaich added. “I would also note we are seeing increased frequency in Panera 2.0 stores, especially among those converted for a year or more.”

In the third quarter, the company completed 108 Panera 2.0 conversions, and now has 280 in the company-owned system. About 100 more Panera 2.0 conversions are expected in the fourth quarter, which is underway, Shaich said. The company is on pace to end 2015 with 400 company-owned Panera 2.0 units, which is about half the company system. Franchisees will begin converting in the fourth quarter, Shaich added.

Panera management was “bullish” on Panera 2.0’s ability to lift same-store sales and provide return on investment, David Tarantino, an analyst with Baird Equity Research, said in a report Wednesday. He also cited the company’s emphasis on delivery, which it sees as a “huge opportunity based on very strong demand/ROI in tests.”

Panera is looking at a number of different delivery options, Shaich said, including its own drivers, as well as third-party services. “We’re delivery agnostic, with our criteria being that whatever approach we choose must offer the greatest probability of a differentiated experience for the guest and ultimately the best life-cycle economics for the shareholders,” he said.

Delivery is “materially lighter” than the move toward Panera 2.0 because it does not require physical changes in the restaurants and staff retraining, Shaich added. Those conversions have required Panera “to build up a machine literally to convert 2.0s,” he said. Delivery also requires very little capital and lighter technology costs, he noted.

New units that open with the Panera 2.0 format include such elements as a single point of pickup, technology such as kiosks and, depending on the market, the delivery-to-table service.

Shaich said much of the Panera technology was developed outside the company, with the company’s main investment in the integration of that digital package.

Shaich also said during the call that Panera took a 1.1-percent retail price increase in August, bringing the increases to 2.1 percent for the quarter to offset wage, benefits and food inflation.

“We believe we can effectively take price to cover inflation, particularly when competitors are doing the same thing, which is what we are seeing when we see minimum wage increases,” Shaich said. “We will be tactical in execution but strategic in our approach.”

On Tuesday, Panera reported that net income fell 17.4 percent during the third quarter after charges for refranchising and tax adjustments. The bakery-café operator reported profit of $32. 4 million, or $1.27 per share, compared with $39.2 million, or $1.46 per share, in the prior-year quarter. Revenue in the quarter rose 7.2 percent, to $664.7 million, from $619.9 million in the same period last year.

Same-store sales at company-owned restaurants grew 3.8 percent in quarter. The company said that in the first 27 days of the fourth quarter, same-store sales rose 3.4 percent.

As of Sept. 29, Panera had 1,946 restaurants, with 931 of those owned and operated by the company and the remainder franchised.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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