Are Panera's New Menu Policies a Smart Business Decision?

Panera Bread (PNRA) has always promoted its use of high-quality ingredients. This has allowed the fast-causal restaurant to justify prices somewhat higher than its fast food rivals while also serving as a marketing differentiator. Like Chipotle (CMG 1.42%) and Starbucks (SBUX 0.34%), the company has been able to make social consciousness and food quality part of its brand identity.

Now Panera is taking that a step further introducing a formal Food Policy, a comprehensive set of commitments around food. The policy is, according to the company, a formal articulation of Panera's long-held values including a commitment to clean ingredients, transparency, and a positive impact (on the food system) rooted in craft.

"Panera was founded on the belief that quick food could be quality food," said Ron Shaich, founder, chairman and CEO. "We started by baking bread from fresh dough each day in our cafes. That commitment led to others – like our early decision to remove artificial trans-fats, post calories on menu boards, and invest in serving chicken raised without antibiotics. As we continue to make conscious choices about the food we source and serve, we realized it's also important to share what we've accomplished and where we're going."

From many companies, the release of a food policy and statements like that would come across as a marketing ploy and a transparent attempt to charge more by peddling organic food. Coming from Panera, which has a deep philanthropic commitment with its Panera Cares pay-what-you-can cafes, it actually seems sincere.

What is Panera doing?

The Food Policy is meant to codify the company's approach to how it sources, sells, and prepares food. Highlights of the policy include:

• Clean Ingredients: We are advocates for clean food. We're committed to sourcing and serving high-quality ingredients without artificial additives including added MSG, artificial trans fats, and ingredients we don't believe need to be in your food.
• Transparent Menu: Our menu is diverse. We're committed to transparency to empower guests to choose how they want to eat. 
• Positive Impact: We are committed to making a positive impact on our food system. We believe guests deserve to know not only what is in their food, but where it comes from and how companies are impacting the food system. 

"We believe simpler is better," explained Scott Davis, chief concept officer. "Panera is on a mission to help fix a broken food system. We have a long journey ahead, but we're working closely with the nutrition community, industry experts, farmers, suppliers, and others to make a difference. We're pleased to publicly share our framework and intend to share progress over time."

Panera has basically copied the spirit of the message Chipotle delivers in the "Food with Integrity" section of its website. Both companies attract a customer base that at least nominally cares about food quality and, to a point, is willing to pay for it.

Has it been working for Panera?

Panera Bread has increased its revenue and grown its operating profit for each of the past five years.

Those aren't huge numbers but they show that it's possible to deliver food that meets a high standard while also growing business. It's reasonable to think that growth can continue. While Panera's market may never approach McDonald's -- which had sales of $28 billion in 2013  -- it could conceivably reach Chipotle's $3.12 billion. 

While Panera appears to have an honest commitment to these value and standards, the Food Policy also serves as a marketing tactic. Positioning yourself as a company that cares about the health of its customers and things like sustainable farming appeals to a certain segment of the eating public. That can make customers advocates for brands -- which has certainly happened with Chipotle and Starbucks -- and word-of-mouth ads are free. 

Still this commitment to quality and standards come at a price. Companies use food additives on the Panera no-no list because they either lower costs or they make things taste better for less. Panera can peddle better food, but it does so knowing it has to stay within general price range expectations. A bagel can cost a little more at Panera than it does at Dunkin' Donuts because Panera restaurants are nicer and Dunkin' is more of a fast food brand.

But Panera must stay largely within the price boundaries set by other fast-casual restaurants. Customers aren't going to pay $4 more for a chicken sandwich from Panera than at Boston Market just because one comes with a Food Policy. Still, codifying its food policies speaks to Panera's audience and should help the business continue growing.