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Panera: Franchisees committed to e-commerce upgrade

Panera: Franchisees committed to e-commerce upgrade

Views still mixed on margin impact and investment

Panera Bread Co. said Thursday that all of its franchisees have committed to the electronic commerce platform that is part of the chain’s “Panera 2.0” upgrade efforts.

The St. Louis-based bakery-café chain issued the statement in advance of Thursday’s annual shareholder meeting.

While they may have agreed to the upgrades, there are indications that some franchisees remain skeptical. In May, Piper Jaffray Co.’s investment research division released a note that found that close to a third of surveyed Panera franchisees had concerns about the planned upgrades.

Piper Jaffray polled about 60 percent of franchised locations and found that while 40 percent of survey respondents were generally on board with the plan, 30 percent were concerned about the potential impact on margins and the required capital expenditures.

“Our survey suggests mixed views among franchisees on the ‘adaptability’ of the plan as presented,” said Nicole Miller Regan, a senior research analyst with the investment firm, in a note.

However, Panera said Thursday that all the franchisees were committed to making capital contributions to Panera, as well as reimbursing Panera for each franchisee's share of development costs, maintenance and future upgrades.

Panera executives said in March that the company was spending about $42 million on technology alone, an expense shared with franchisees. The company estimated new technology costs per bakery-café unit at about $125,000.

Ron Shaich, Panera’s founder, chairman and chief executive, said in Thursday’s statement that the company was pleased franchisees had embraced the 2.0 platform.

Panera aims to streamline in-store ordering with kiosks.

"For the past two years, we have shared this vision with our franchisees, allowing them to be both informed and aligned,” Shaich said. “They asked hard questions. The fact that we received their commitments less than six weeks after making the formal request underscores how supportive they are of our initiatives."

Tom Howley, a Panera franchisee in Connecticut and chairman of the company’s independent franchise "Bread Council," said the franchise community was “very supportive of the moves Panera is making into e-commerce and the broader vision around Panera 2.0.”

Howley noted that the investments would improve the customer experience and sustain future growth.

Panera expects to have its Rapid Pick-Up system, which is enabled by its mobile app and web apps, in place by the end of 2014. The full Panera 2.0 system is slated to roll out to about 100 cafés by the end of 2014.

Panera unveiled its plans in March during an Investor Day conference in Charlotte, N.C., a 10-unit test market for the chain’s new bakery-café format.

The new format, which was tested in four units in the Boston area, includes a two-pronged effort that for some locations means the addition of its Rapid Pick-Up mobile and online ordering, and for others an in-store kiosk ordering system.

About half of Panera’s 1,800 units are franchised. Nation’s Restaurant News’ proprietary Top 200 survey estimates Panera Bread has about 884 domestic franchisees, an increase of about 7.9 percent compared with the prior-year period.

Regan had cautioned in her May note that “we view the general lack of consensus among franchisees by no means as foreshadowing the derailment of the plan, but rather potentially pointing to lumpiness in execution and/or timing of the eventual rollout.”

Panera Bread has 1,800 bakery-cafés in 45 states and in Ontario, Canada, under the Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Café brands.

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

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