What Is Panera Bread Doing With Panera 2.0?

Panera has a plan for the next version of itself -- will it be like Windows XP or Millennium Edition?

Jun 10, 2014 at 2:39PM

Not many companies have adopted the versioning system popular with software developers. Luckily, the idea of "Product or Service 2.0" has pervaded the American businessman's psyche deeply enough that we are occasionally treated to this linguistic delight. Panera Bread (NASDAQ:PNRA) is one of the recent examples of how boardroom speak is seeping into marketing material. "Panera 2.0" was announced earlier this year, with the "2.0" adopted to show that the plan involved technology. 

As Panera fights the good fight against competitors like Starbucks (NASDAQ:SBUX), we have to wonder -- will Panera 2.0 be new and better, or simply new?

The basics of version 2.0
In this version of Panera, all of your saved documents will be stored in a panini and the company is finally bringing back the Start button -- unfortunately, the iced tea is still a little glitchy. Actually, what Panera is trying to focus on with this new face is getting customers to order and interact in new ways. Panera has implemented online and phone ordering for takeout, fast lanes for in-store ordering, and a way for customers to order online from their table. 

Panera is facing increased food competition from Starbucks, which has expanded its food lineup with the addition of La Boulange bakery. Those additional food items are starting to find their way into all of Starbucks' locations, giving Panera a new food threat to deal with. Panera is using its Panera 2.0 proposition as a way to address speed and convenience concerns that could drive customers to Starbucks, where they expect short waits and a variety of payment options.

Panera 2.0 also addresses operational inefficiencies Panera has been trying to overcome. Operating margin has been falling at Panera, though some of that is because of its investment in marketing and technology that should ease off later in the year. 

Panera 2.0 has some changes in place, like customer verification of orders and new display systems for its kitchens that should cut down on waste and allow the company to increase its capacity. It's a set of operational moves that Starbucks has largely been able to avoid because of its focus on premade food and the basic, but functional, system of writing on the side of the customer's cup.

Can Panera turn 2.0 into success?
One of the first challenges for Panera has already been overcome -- its franchisees. The business is about 50% franchised, which makes implementing operational changes more difficult. Luckily, Panera announced last week that it had obtained 100% buy-in from its franchisees to the Panera 2.0 plan. The company now expects to have 100 of its full 2.0 cafes running by the end of 2014.

For the long run, the Panera 2.0 plan looks like good news. It addresses some of the strengths that other cafes, like Starbucks, have while not requiring customers to adapt to a whole new system. Whether or not the changes will help investors remains to be seen -- and investors will have to wait a while for the reveal. For now, I still like Starbucks' plan more, but by this time next year, we might be looking at a very different Panera.

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Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Panera Bread and Starbucks. 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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