Why Starbucks wants to be Panera's Biggest Competitor

Starbucks (NASDAQ: SBUX  ) wants to eat Panera Bread's (NASDAQ: PNRA  ) lunch. And why shouldn't the world's biggest coffee chain aspire to be more like Panera? After all, Panera has earned its place atop the fast-casual food chain by appealing to breakfast, lunch, and dinner crowds with its quality food at affordable prices. This model has helped Panera grow from serving around 60 customers a day to serving more than seven million customers per week today . However, the café-style eatery now faces added pressure from one of America's most beloved brands.

Would you like lunch with that latte?
Starbucks' $100 million acquisition of bakery chain La Boulange should help it penetrate meal times, particularly lunch and dinner -- putting Starbucks in direct competition with Panera. In fact, the La Boulange deal marks Starbucks largest investment in food to date. Even so, it won't be easy unseating Panera as the market leader in this category. Panera currently dominates half of the roughly $7 billion U.S. bakery-café marketplace, with 2012 sales of nearly $3.9 billion, according to data from Morningstar .

Source: Starbucks.

However, Noodles & Co. had just 348 locations open as of July 2013 , compared to 1,708 Panera stores . This means, at least for now, Noodles is much less of a competitive threat to Panera than Starbucks. To be sure, Starbucks currently operates 19,209 stores globally . Not to mention, thousands of its U.S. cafés are in prime locations, many nearby or next door to Panera outlets.Much of Panera's success has come from supply chain efficiencies and its ability to introduce competitive new menu items. For example, Panera  launched pasta dishes earlier this year in a bid to better compete with Noodles & Co. (NASDAQ: NDLS  ) . The market has since proven it has a healthy appetite for pasta these days. In fact, Noodles & Co. is one of this year's most successful initial public offerings, with the stock doubling to $36.75 from $18 in its first day trading .

Why it matters
Scale is a major competitive advantage in the fast-casual restaurant industry. And Starbucks trounces both Panera and Noodles & Co. when it comes to scale. Last year, Starbucks had 4,262  U.S. locations. If even a third of these stores are able to attract more lunchtime customers, it would be a big win for the coffee chain.

Consider this, about 3,000 Starbucks locations across the country now serve La Boulange pastries , and the chain plans to add sandwiches, salads, and soups to its nationwide roll out in the quarters to come . Moreover, as soon as next year, Starbucks expects all of its U.S. stores to carry La Boulange products .

Going for growth
By targeting new day parts, Starbucks has the opportunity to make its stores more profitable. Panera, on the other hand, stands to lose market share to Starbucks if it isn't careful. However, at least for now, both companies are growing at a healthy clip.

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  • Report this Comment On October 21, 2013, at 5:17 PM, prginww wrote:

    My wife and I visit Starbucks a lot. Their baked goods always look great and have tempted us on multiple occasions - especially when we stop at Starbucks while on a long road trip. However we usually find ourselves disappointed by the baked goods - even when we are very hungry. So we don't think Panera has to worry about baked goods competition from Starbucks. In fact, Starbucks doesn't even offer cut lemons for their ice tea. Panera and Chipotle both serve fresh cut lemon slices for their ice tea.

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Related Tickers

9/30/2016 4:00 PM
PNRA $194.72 Up +2.42 +1.26%
Panera Bread CAPS Rating: ****
SBUX $54.14 Up +0.69 +1.29%
Starbucks CAPS Rating: ****
NDLS $4.76 Down +0.00 +0.00%
Noodles and Co. CAPS Rating: *