Restaurants are racing to capture our digital dollars. In today's tech world, embracing technology will not only save time in placing orders but will also improve restaurant efficiency, including speed of service. The latest chain to enter the digital realm is Panera Bread (NASDAQ:PNRA) with its Panera 2.0 program.
Panera has some catching up to do, especially since Starbucks (NASDAQ:SBUX) has had its mobile app for quite some time. And while it's a step in the right direction for Panera, the chain has much more to worry about than just catching up to Starbucks' mobile app. Starbucks is trying to be more like Panera with its selection of sandwiches and baked goods.
The goal of Panera 2.0 is to reduce wait times and speed up service. One of the problems Panera has faced has been long lines at its restaurants. This leads many customers to leave, resulting in decreased same-store sales. With Panera 2.0, management and investors are hoping wait times will decrease and sales will get a boost. Panera 2.0 encompasses digital ordering, payments, operations, and a better guest experience, whether they 'eat in' or 'to go.' Panera 2.0 allows for customized menus and for customers to use the MyPanera loyalty program.
The biggest improvement Panera 2.0 makes is to offer a better way of ordering. The system has an ordering option called Rapid Pick-Up; orders can be placed up to five days in advance and picked up at a pre-determined time without the hassle of having to wait in line.
Customers can also place online/mobile orders from the restaurant and have orders delivered to the table. There are also iPad kiosks available where customers can place their orders; this includes a product builder to help with order accuracy and customization.
Don't get too excited yet
The problem with Panera 2.0 is that right now it only exists in two markets and 14 restaurants. The first phase of the rollout will be the Rapid Pick-Up system, which Panera expects will be in all of its restaurants by year-end. The more advanced features of Panera 2.0 will be phased in gradually systemwide over the next three years.
For Starbucks, its mobile initiatives have been very successful. Mobile payments now account for 14% of all U.S. in-store transactions. This is up from 10% last July. To illustrate how important Starbucks views mobile, CEO Howard Schultz has handed over day-to-day operations so that he can focus more on the company's digital, mobile, loyalty, and e-commerce programs.
Panera will have to speed up its rollout if it expects to catch up to Starbucks. Starbucks just released its latest mobile app for the iPhone in March. This app allows for digital tipping; there's also a feature that allows customers to shake their phone to bring up the barcode the baristas must scan to accept mobile payments. Other features include a visual redesign and a dashboard that keeps track of Starbucks rewards.
Panera Bread is not only seeking to change the way its customers order, but it's looking to refresh its stores. By year-end 2015, each location will have been remodeled and customers will no longer have to pick up their food: orders will be delivered to their tables by servers. Panera has also been introducing new menu items such as mac & cheese, fontina grilled cheese, chicken tortellini Alfredo pasta, and even hot chocolate with chocolate-chip marshmallows.
Panera Bread expects comparable-restaurant sales to grow 2% to 4% this year. Earnings per share will be in the range of $6.80 to $7.05, which is just slightly above the $6.81 per share the company earned in 2013. Earnings will be affected as the company spends money to roll out Panera 2.0 and remodel its locations. The new initiatives will lower Panera's 2014 operating margin by 75 to 125 basis points compared to 2013.
Meanwhile, Starbucks is looking to be more than just a coffee shop. The company is expanding its beverage options with alcohol, juices, and teas. Starbucks continues to use its stores as test kitchens to see what resonates with its customers.
In Chicago, the company has tested an after-4 p.m. menu of truffle macaroni and cheese, chicken skewers, Chardonnay, and chocolate fondue. Starting on April 29, Starbucks will begin selling an Oprah Winfrey-branded chai tea at its stores in the U.S. and Canada. This follows Starbucks' expansion into selling tea with its purchase last year of Teavana Holdings.
Starbucks is certainly a formidable competitor for Panera Bread. Starbucks offers plenty of sandwiches, paninis, salads, baked goods, and desserts to compete with Panera's selection from its bakery cafes.
While I still think Panera has the edge when its comes to freshness and taste, I'd like to see it implement Panera 2.0 faster. Until Panera can successfully improve its ordering process, the chain will still be playing catch-up to Starbucks. For investors, both Starbucks and Panera trade at 21 times next year's earnings. With the lead that Starbucks has, it looks to be the better bet.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool 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.