Will Panera 2.0 Be Better Than Panera 1.0?

Panera's move to Panera 2.0 could just be the trick to get same-store sales moving in the right direction and allow the chain to better compete with Chipotle Mexican Grill.

May 12, 2014 at 7:00AM

Panera Bread's (NASDAQ:PNRA) first-quarter results disappointed investors, especially when it announced that same-store sales rose only 0.1% systemwide. This is not the growth investors have come to expect from Panera. CEO Ron Shaich knows this, and that's why he is rolling out Panera 2.0. After all, if Chipotle Mexican Grill (NYSE:CMG) can continue growing same-store sales at a double-digit pace, why can't Panera do the same?

Panerabread Primary Logo Hr


Source: Panera Bread

First-quarter results
Panera Bread blamed the winter weather for its weak same-store sales in the first quarter. Total revenue did manage to grow 8% to $605 million on the back of new store openings, while earnings per share came in at $1.55 compared to $1.64 last year.

Chipotle Mexican Grill reported strong first-quarter results. The weather was not a factor for the company like it was for Panera. Same-store sales rose an impressive 13.4%. Revenue increased more than 24% to slightly more than $904 million. Earnings per share increased almost 8% over last year's first quarter to $2.64.

Plenty of restaurant growth ahead
In the first quarter, Panera Bread opened 16 new restaurants and its franchisees opened 11 new locations. As of April 1, Panera operated 1,800 restaurants. This year, Panera expects to open a total of 115 to 125 new restaurants.

Chipotle Mexican Grill is looking to catch up to Panera Bread in terms of total restaurant count. During the first quarter, Chipotle opened 44 new restaurants that brought its total restaurant count to 1,637. This year, Chipotle plans to open 180 to 195 new restaurants.

What is Panera 2.0 and how is it different?
The goal of Panera 2.0 is to speed up and simplify the ordering process for customers. Panera's problem has not been in the quality of its food or the merits of its concept but rather the long lines customers have experienced during rush hour. What ended up happening was the long lines discouraged customers from coming in and placing their orders. Instead, they went elsewhere. Shaich summed it up in the press release:

It's more than a mobile-payment system or simply a digital-ordering process. It's an integrated, comprehensive, end-to-end solution that we believe will reduce friction such as wait times, improve order accuracy, and minimize or eliminate crowding -- all while creating a platform for an ever more personalized experience.

Panera customers can now order from their mobile app, at the counter, or at an iPad kiosk inside Panera. In the kitchens, there's a new Kitchen Display System to improve order efficiency and accuracy. From the kitchen, orders are then delivered to customers at their tables; this eliminates the long lines and waits that were seen before.

Images

Source: marketingadvice.biz

The other feature is called Rapid Pick-Up. This allows customers to place orders up to five days in advance and schedule the time they would like to pick up their orders. This will hopefully improve its to-go business and help with larger orders, especially from offices during the lunch hour. There's also a dedicated pick-up area for to-go customers to get their orders.

New menu items coming from Panera
Panera is also looking to boost same-store sales with new menu items, notably flatbreads. Panera plans to make the flatbreads using fresh dough using Indian-style influences. The flatbreads will come in three varieties to start: Southwest flatbread, Thai flatbread, and Mediterranean chicken flatbread.

Thai

Source: Panera Bread

How do shares compare?

 

Market Cap

Forward P/E

EV/EBITDA

1 Year Return

Panera Bread

$4.34 B

20.65

10.27

-11.98%

Chipotle Mexican Grill

$15.60 B

31.56

22.76

34.17%

Source: Yahoo! Finance

Foolish final thoughts
I applaud Panera's move to Panera 2.0. The ordering process has been chaotic at times and led many customers to go elsewhere during rush hour, including this Fool. I think the move will boost same-store sales over time. Panera is expecting same-store sales to pick up and forecasts full-year same-store sales growth of between 2% and 3.5%.

Shares are starting to look attractive and trade at 20 times next year's earnings compared to 31 times for Chipotle. With shares down more than 11% in the past year, this Fool is going to start keeping a closer eye on Panera. Panera 2.0 could just be the ingredient this restaurant chain needs to start growing again.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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