Panera 2.0 Is Coming, but Will It Work?

Although Panera Bread has struggled to grow at high levels recently, the company has a viable long-term growth strategy that should begin to take effect in the years ahead.

Philip Saglimbeni
Philip Saglimbeni
Apr 12, 2014 at 9:00AM
Consumer Goods

A distinguishing mark of good management is the ability to recognize shortcomings in company operations. In this regard, the leadership team at Panera Bread (NASDAQ:PNRA.DL) has performed well in recent months. Chief Executive Officer Ron Shaich has confronted his company's most pressing problems, which have led to growth declines in recent years, with an aim toward fixing those issues.

The company's efforts, dubbed Panera 2.0, are focused on improving the overall customer experience at all restaurant locations. This is incredibly important considering that store atmosphere and customer convenience is a major way Panera distinguishes itself from fast-casual dining competitors such as Chipotle Mexican Grill (NYSE:CMG).

If successful, the strategy could help the company return to higher levels of growth and lead to outperformance once again for long-term investors.

Source: Panera Bread. 

Panera 2.0
Panera has become a popular dining destination over the years through a combination of tasty food and an inviting atmosphere. The company's locations typically offer free Wi-Fi access and community rooms for patrons, in addition to a quick and hassle-free ordering system.

The company's website explains: "We are an everyday oasis for our customers. We're the place people come when they want to visit with friends, hold an informal meeting or just enjoy some alone time. Come experience the warmth and welcome that make Panera Bread bakery-cafes a natural gathering place." 

However, recently the company has come under fire for not living up to the hassle-free part of the equation. Wait lines at Panera have become notably longer and slower, which has led to consumer dissatisfaction and lower foot traffic. In 2013, the company's same-store sales growth slowed to 2.3%, less than half of 2012's 5.7%. 

Comparably, Chipotle Mexican Grill, which is known for its ability to quickly and efficiently move diners into and out of its restaurant locations, last year experienced same-store sales growth of 5.6%.

In a recent interview with the Associated Press, Shaich explained the thinking behind Panera 2.0:

Today's consumer wants it their way. They want it customized. We have to have the system for that. We're entering a world where so many consumers are growing up in an omni-channel world. They want it where they want it and when they want it. 

Source: Panera Bread. 

In order to meet the changing needs of today's consumers, Panera is rolling out a system that will allow for ordering food on the Web or via mobile devices -- even days in advance -- to enable rapid pickup at a scheduled time. It will also provide the consumer with more choice in how exactly the company prepares his or her food. Similar to Chipotle, Panera diners will soon be able to easily customize their order. 

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"This will roll out to the system in the next 36 months," Shaich told AP. "The first things that will come is the ability to do rapid pickup. You place the order and designate the time you want it to be picked up, walk into that cafe and have it sitting there waiting for you on a specific bookshelf." 

The main idea is to drive higher foot traffic across the chain by making diners excited to visit Panera restaurants again. Since the rollout is still developing, the new strategy is not reflected in the company's fiscal 2014 growth estimates.

Panera is projected to grow revenue 7.3% and earnings 3.9% in 2014, which is notably lower than competitor Chipotle's respective 2014 projected growth rates of 18.1% and 23.4%. However, 2015 is shaping up to be much better for Panera, no doubt due to the company's new strategy beginning to take effect. The company expects in fiscal 2015 to grow revenue by 10.3% and earnings by 15%.

Fast-casual takeaway
Management at Panera has acknowledged the troubles that are dragging on growth, and has a viable plan to correct the problem in Panera 2.0. For patient investors, there are few better long-term turnaround plays in the restaurant industry. At current levels, shares of Panera look tasty for the long term.