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.

Finding winning growth stocks before they pop can be challenging. Fortunately, the Motley Fool can help. Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.

 


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2013, at 5:17 PM, 2ndrired 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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2692174, ~/Articles/ArticleHandler.aspx, 8/21/2014 11:11:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement