Eggs in a skillet.

Image source: Panera

Panera Bread (NASDAQ:PNRA) has spent over $120 million on information technology in the last three years on an imitative called "Panera 2.0" with the intention of improving the guest experience. Digital ordering, a key component of Panera 2.0's initiative, is catching on with customers and is paying off for the company. While the company views technology as "a differentiator in the restaurant business," it is becoming a ticket to entry as customer expectations of mobile ordering and personalization are becoming the norm.

Let's look at how the company's investments are paying off and what the competition is doing with tech.

Digital ordering is a better experience for customers

Because Panera Bread has an expansive menu with each item having a number of ingredients, this detail is hard to represent in a menu posted in the store. A digital presentation of the menu items makes it easier, allowing a guest to more easily decide on an item and personalize it. With Panera 2.0, the company has installed a number of "fast lane" kiosks at the front of restaurants enabling customers to skip the ordering line altogether. Additionally, ordering can be done with your mobile device, which enables customers to pick up their order at a time they select.

Digital ordering is better for Panera Bread

Panera Bread, along with other restaurants, is having to pay higher wages due to inflation and statutory minimum wage increases. As more customers get comfortable with the ordering and paying at kiosks, the company can reduce the presence of cashiers at the traditional ordering stations. In addition to the customer facing technology, Panera Bread has integrated order screens in the kitchens to make it easier to see the customer's special order instructions, enabling better order accuracy. This is a win-win for Panera and its customers -- it's easier for customers to personalize an order and easier for the restaurant to deliver that order error-free.

Tech investments are starting to pay off

The construction changes in company stores to achieve Panera 2.0 are complete, and the digital conversion is rolled out to 70% of those stores. Panera Bread 2.0 restaurants are experiencing 24% of the total sales coming digitally and the most mature stores have seen up to 35%. Panera's company-owned stores are seeing a 4.2% same-store sales growth versus franchise stores at 0.7%. The company is seeking to close the gap and converting franchise stores to the Panera 2.0 model is a priority in 2017 for the company.

Rapid pickup is becoming a popular choice with tech-savvy customers and has grown to 9% of revenue, up from 6% in 2015. Lastly, half of all catering orders are now digital which helped drive catering's 13% growth in the most recent quarter.

Is tech a differentiator or ticket to entry?

Panera Bread is not the only company in the restaurant space investing in technology. In 2011, Starbucks introduced their app with built in payments and experienced 26 million transactions the first year. Starbucks also added a mobile ordering feature last year and these orders now make up 7% of total transactions.

Domino's Pizza has been investing in digital for years and gets 55% of its revenue through digital orders. Chipotle has been investing in the technology in its second make line to improve speed and accuracy of digital to-go orders. This upgrade enabled "Smarter Pickup Times" that cut the online ordering wait times as much as 50%.

While Panera Bread started investing in tech to eliminate the "mosh pit" of crowds waiting for their orders, the restaurant industry more widely has embraced technology and is in a race to remove friction from the customer experience. Panera will need to complete the 2.0 digital conversion for the remaining company and franchise stores to continue the momentum of positive same store growth -- and to keep pace with its competition. 

 

Brian Withers owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool is short Domino's Pizza and has the following options: short June 2017 $140 puts on Domino's Pizza. The Motley Fool has a disclosure policy.