Why Panera Bread Is No Chipotle Mexican Grill

Chipotle Mexican Grill continues to blaze ahead while Panera Bread lags.

Jun 16, 2014 at 5:09PM

A Mission Of Bread And Hope Sm
Source:  Panera Bread

Both are part of the red-hot fast-casual industry, but Chipotle Mexican Grill (NYSE:CMG) continues to eat Panera Bread Company's (NASDAQ:PNRA) lunch. While both companies are continually moving toward similar "food with integrity" policies along with the higher-quality ingredient perceptions that they entail, there is one stigma that Panera Bread may never be able to overcome. And it is helping to make Chipotle Mexican Grill rich.

Panera is going all natural
On June 3, Panera Bread announced a new "comprehensive food policy." In the release, Panera Bread stated that it would remove all artificial additives from its menu by the end of 2016. The company has a commitment to use "clean" ingredients, and that also includes no added MSG and no artificial trans fats.

Panera Bread said this includes no "artificial colors, sweeteners, flavors and preservatives." It gave this example of its new food policy: "By replacing deli-style roast beef with sirloin steak, we were able to remove caramel color and now serve all-natural beef seasoned with just oil, salt and spices."

Then there is the whole Chipotle Mexican Grill thing. Its poultry has been "raised responsibly" without the use of antibiotics in a low-stress environment. Both companies work with local farmers whenever possible and source organic ingredients.

In the press release, Erik Olson, Senior Strategic Director for Health and Food for the Natural Resources Defense Council, stated that Panera Bread's policy on antibiotics has made it an "industry leader." He reminded the public that Panera Bread has already been purchasing chicken raised without antibiotics for over a decade and the company has expanded this to other meats as well. Where Panera Bread falls short, however, compared to Chipotle Mexican Grill is in the area of gluten.

Menu

Source: Chipotle Mexican Grill

The Chipotle way
Technically plenty of gluten-free options exist at Panera Bread, but for most people who seek a gluten-free lifestyle the idea of coming to a place with "bread" in its title sounds about as silly as a vegetarian patronizing a burger joint. Sure, there may be options for everybody, but you don't tend to see vegetarians lining up outside of Burger King. At least not in the United States.

On Chipotle Mexican Grill's website, it states, "No matter what your unique dietary needs are, Chipotle has options for you." And it means it, mostly stigma-free. For example, Chipotle Mexican Grill's website goes on to state, "Most people wanting to avoid gluten can eat anything we serve except for our large and small flour tortillas." Simple enough. Most people probably don't even think of Mexican food as having gluten in the first place.

Restaurant sales have a gluten sensitivity
In a world where a shift of just a percentage point or two in same-store sales growth could seemingly make or break a stock price in the short run, gluten-sensitive people can significantly impact a restaurant's sales and bottom line. Same-store sales last quarter for Panera Bread were up less than 1%.

G

Source: Wikimedia Commons

If you think this anti-gluten minority doesn't make a difference, think again. According to Nielsen, just 5% of households reported that they bought gluten-free products in 2010 and this rose to 11% in 2013. Meanwhile, Harry Balzer, vice president at the market research company NPD Group, states that about 30% of the public says it would like to cut back on gluten. Thirty percent of anything is an awful lot. Is there any wonder why Chipotle Mexican Grill and its mostly gluten-free menu had a 13.4% same-store sales pop last quarter?

Foolish final thoughts
One of the reasons Panera Bread grew successfully for years was that consumers saw it as quality, healthy, and fashionable. In a bit of irony, with the anti-gluten craze the word "bread" is becoming Panera's curse. It will be interesting to see, over the longer term, if the craze is really just a fad and if people eventually ditch corn-tortilla-wrapped burritos in favor of gluten-rich sandwiches once again. Keep an eye on the same-store sales trends of both Panera Bread and Chipotle Mexican Grill.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, 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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