Panera 2.0 Demonstrates that Management Knows Its Customer

Recently, Panera Bread (NASDAQ: PNRA  ) hosted a five hour investor day in which the company went into great detail regarding its plans for the future. At the center of these plans is "Panera 2.0," a multifaceted plan to take Panera's bakery cafes to the next level by providing improvements to a number of elements of the customer experience. Contrary to some media coverage, this isn't just a few touch screen kiosks and a mobile ordering app; instead, Panera is fine tuning a new concept that will fundamentally change how it serves its customers.

What is Panera 2.0?
Panera 2.0 is an upgrade to the entire customer experience. As the name implies, there is certainly a technological element; Panera is seeking to trim lines during peak periods through a mix of touch screen kiosks and mobile ordering apps. Customers that want to interact with a cashier can still do so, but those that prefer the speed and enhanced feeling of control that comes with a touch screen kiosk that allows the intuitive customization of any ingredient in an order can leverage the new systems. Thanks to this technology, customers can also order directly from a table and the kitchen will know exactly where to deliver the order.

In addition to providing multiple methods of ordering to decrease lines and increase throughput during peak hours, Panera also initiated a rapid pickup station that allows customers to efficiently pick up pre-orders; for orders that are still in process, a monitor displays the status of each order.

Changes are also being made behind the scenes in the kitchen, using new systems to both increase production and accuracy. This process goes beyond technology, implementing a system in which every order is double checked by an employee. Once deemed accurate, the order is delivered directly to the guest's table (which is also an upgrade).

Panera put an excellent video together to summarize its thought process behind its Panera 2.0 efforts:

Source: Panera Bread via YouTube

Does Panera 2.0 work?
Panera 2.0 is a demonstration that management understands its customer. Ordering via kiosk or at the table, more streamlined pickup, delivery of orders directly to guests, and enhanced accuracy are all upgrades. However, the customer experience can remain the same for those that choose to order in the now-shortened lines.

In the Panera 2.0 trials in Charlotte, NC, shorter lines during peak periods and improved to go ordering are noticeable in my personal "research." The kiosks and mobile apps provide improved control and a seamless experience, especially for those users that are already comfortable with online ordering functionality. While order accuracy had never been a personal concern in the past, no issues have been noted in the new Panera 2.0 environment.

There is however one thing that Panera 2.0 has yet to solve: a lack of seating at peak hours. Shortening wait times in line and speeding up order production and delivery only compounds the existing issue that customers choose to relax and enjoy Panera's free Wi-Fi while other customers are hovering nearby in hopes of finding an open table. While Panera 2.0 makes a number of improvements to throughput, the relaxed ambience created by the Panera concept will likely prevent the restaurant from ever reaching the throughput of a more spartan and efficient concept like Chipotle Mexican Grill (NYSE: CMG  )

A long term investors view
On the whole, the improvements being fine tuned in the limited test markets of Panera 2.0 are upgrades to the overall customer experience. In the words of Panera CEO Ron Schaich, "delivering to the guest" is the primary objective, and everything else will fall into place. 

While success may stem from "delivering to the guest," investors need to understand that the improvements to transform Panera across its 1,800 locations will take both time and money. As a result, management has been cautious in its guidance for the short term. As a result of this short-term caution, Wunderlich Securities recently downgraded Panera to hold, causing the company's share price to drift lower.

Short-term pressure will likely continue as investments weigh on the company's financial statements while improvements to metrics like same store sales growth will not be as immediate. However, it is important for long-term investors to evaluate the platform on which Panera is building its ability to grow over a much longer period.

Considering this long-term view, shares of Panera are trading at an attractive multiple valuation multiple today both compared to the company's historical average and a peer group of fast casual restaurants:

PNRA PE Ratio (Forward) Chart

PNRA P/E Ratio (Forward) data by YCharts

With the ability to roughly double its domestic location total and the potential of Panera 2.0 to increase traffic through improved customer experience, it doesn't really quite add up that Panera continues to trade at less than half the forward price-to-earnings ratio of Potbelly (NASDAQ: PBPB  ) . Potbelly may have the potential to grow its total location count by a higher percentage than Panera given Panera's sizable base, but Panera remains in a sweet spot with plenty of room for location growth while also being a reliably profitable company. 

For investors that aren't sure about the risks associated with Potbelly or worry about the premium valuation that comes with Chipotle, Panera remains a logical choice within the attractive segment of fast casual restaurants. The company's focus on the customer and its investments to improve the long-term health of the business show that management knows what it takes to keep Panera growing for years to come.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (6)

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.

Be the first one to comment on this article.

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: 2902712, ~/Articles/ArticleHandler.aspx, 8/29/2015 1:20:33 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...

Brian Shaw

Brian is a contributor to The Motley Fool that seeks to translate the investing wisdom of Peter Lynch and other investing legends into timely coverage of consumer goods companies.

Today's Market

updated 16 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
PNRA $180.56 Up +0.06 +0.03%
Panera Bread CAPS Rating: ****
CMG $721.20 Down -5.97 -0.82%
Chipotle Mexican G… CAPS Rating: ***
PBPB $10.59 Up +0.02 +0.19%
Potbelly Corporati… CAPS Rating: **