Is Starbucks Eating Panera Bread's Lunch?

Panera Bread (NASDAQ: PNRA  ) isn't having a very good 2013. After booking market-trouncing growth for years, the company had to slice its full-year sales growth outlook this week -- for the third time in a row.

Panera said, in its quarterly earnings report, that it now expects annual comparable sales, or comps, to inch higher by just 2.5%. That's well below the 5% that it had targeted at the beginning of the year.

The problem wasn't in overall revenue growth. Like last quarter, sales improved, rising by 8% over the past three months as Panera opened new locations, and passed along a price increase that boosted check averages. Instead, the issue was weak customer traffic at existing stores, which held comps growth down to just 1.7%. And things could get worse before they get better. Panera said that it might see "flat" growth next quarter.

Starbucks (NASDAQ: SBUX  ) could have something to do with the weakness that Panera is suffering through. After all, the coffee king is making a huge push right now to expand its food offerings. It's in the process of rolling out a new baked goods menu, and 2,500 Starbucks locations were targeted for the upgrade this past summer. The menu was an early hit at test locations along the West Coast.

Image source: Starbucks.

And even before that expansion, Starbucks was gaining customers at the critical lunch hour, which Panera had been aiming for with its pasta menu additions.

Starbucks credited popular new lunch items, like sandwiches and paninis, with helping to boost comparable sales toward their extraordinary 9% rise last quarter. We'll learn whether Starbucks kept that impressive growth up through the summer when it reports quarterly earnings next week.

The good news for Panera investors, meanwhile, is that the company isn't ignoring or sugarcoating its struggles. CEO Ron Shaich said that the growth slide "has led to a great deal of self-examination and a thorough review of how we compete and how we operate our business." Hopefully, Panera can come out of that soul-searching review with a strong plan for returning to robust sales growth. But it had better hurry. Competitors like Starbucks are coming on fast.

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  • Report this Comment On October 23, 2013, at 8:45 PM, Dashboard27 wrote:

    While Starbucks is only beginning to roll out new menu items, Panera has been serving high quality meal items for years. Perhaps it's an advertising issue more than a product issue.

    Panera's baked-on-premises products trounce Starbucks "freezer-fresh" bakery case hands down.

    Starbucks "pioneered" the $5 coffee and muffin menu (fair enough: Pioneer Square is a key part of Seattle's history), while Panera serves fresher food — with WiFi AND power outlets (which Starbucks has disabled) — all for about 25% less. Why pay more for less?

    I do not work for Panera nor do I own stock in either, but it just had to be said.

  • Report this Comment On October 24, 2013, at 8:11 AM, TMFSigma wrote:

    Thanks for the comment, Dashboard. I think you're right that there's more to it than just quality issues. Panera is struggling with output problems, for example, which have been slowing the kitchen down. That could be keeping a lid on sales growth as people who want to eat there skip it for quicker service somewhere else.

    Best,

    Demitrios

    TMFSigma

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