The Rise of Panera Bread
Here is the video from this transcript: Panera Bread
Panera Bread grew into one of America’s biggest chain of bakery-café restaurants offering bakery items, pasta, salads, sandwiches and soups. During its years as a public company, Panera was the best performing restaurant stock gaining over 8,000%. Let’s take a look at how they pulled that off.
It all started in 1981 when Ron Shaich founded Cookie Jar, a Boston-based cookie shop. A year later, he partnered with Louis Kane who managed a French bakery called Au Bon Pain. The duo started to incorporate freshly baked baguettes into their menu that resonated well with working professionals. In the 1990s, the company had expanded across the U.S. and went public in 1991. They deepened their expertise in bread making by buying the St. Louis Bread Company in 1993.
In 1997, Shaich then changed the company’s name to Panera Bread, which is Latin for bread basket, in order to reflect the company’s renewed focus. He wanted to focus solely on the St. Louis Bread and thus sold Au Bon Pain in 1999. Shaich believed that a new wave of fast casual restaurant chains was about to emerge and positioned his company for success. He wanted to create an engaging environment where customers would be served healthy food. The sweet spot was between casual dining and clean eating.
And he was right about that. He managed to make his offerings appealing to existing customers while managing to capture a growing audience with his sustainable menu options. It was in 2001 that Shaich outlined his plan to open a new bakery-café every few days. And at that time, investors did not seem to believe him. But he proved them wrong. He continued to innovate both in terms of menu offerings and infrastructure. Panera even became the largest free WiFi provider in the U.S. in 2004. The chain was gaining momentum and had expanded to over 1,000 locations by 2006. Revenues followed suit, growing from around 151 million dollars in 2000 to over 829 million dollars in 2006.
Panera was simply ahead of the game. They were at the forefront of building an ethical supply chain while catering to the needs of customers. They introduced famous products such as their Chicken Bacon Dijon sandwich and their Asian Sesame Chicken Salad. And they made sure to source antibiotic free chicken. They even embarked on the trend of good carbohydrates by offering their line of whole grain bread.
Their Via Panera Fresh Catering program had considerable momentum as well. The program allows customers to enjoy their offerings at school, home and the workplace. This division was asset lite as it did not need investment in extensive machinery. The existing infrastructure could be fine tuned to accommodate the demand.
To increase their footprint in the U.S. at a faster pace, Panera bought Paradise Bakery & Café in 2007. The bakery had over 70 locations in 10 states, most of them in the west and southwest. Panera then expanded into Canada in 2008, opening several locations in Ontario. Since 1999, Panera’s same-store sales growth was positive. And you might ask how they performed during the financial crisis. The answer is: They killed it. Their strong balance sheet and ingenious strategy helped the firm weather the recession comfortably.
When we take a look at same-store sales, we can see that Panera posted a very strong 5.5% in 2008. Their strategy was simple. Do not change the business model. Panera did not cut prices or offer more promotions. They knew exactly what customers to target. Shaich was so confident in the strategy that he continued opening up new stores every five days. Those were the best times to open stores as real estate and development costs were down significantly. Moreover, Panera invested heavily in technology to speed up ordering and transaction times. They also revamped restaurant designs to encourage people to spend more time in-store. All of this resulted in revenues increasing to 1.4 billion dollars by 2009.
An important element of their growth strategy is the MyPanera loyalty program, designed to surprise guests through a combination of rewards and unique experiences. Customers could get things like complimentary bakery-cafe items, exclusive previews and tastings or cooking and baking tips. Or they may surprise customers with invitations to special events, ideas for entertaining or recipe books. The program was popular with customers as the rewards would be specific and tailored to the customer.
In 2010, Panera became the first company to voluntarily add calories to menu boards. This was an effort to increase transparency and gain customer trust. In that same year, they opened Panera Cares, a Pay what you can restaurant. At some point, it expanded to 6 locations, but they all closed down. Although it was an innovative experiment, existing Panera customers felt the Panera Cares was bringing down the standard and value of the brand.
In 2012, Panera laid the foundations for Panera 2.0 that was introduced two years later. Panera 2.0 was designed to increase operational efficiency such as reducing wait times, improving order accuracy and minimize crowding. They introduced tablet kiosks, that they call Fast Lane, where customers place and pay for their orders without having to go to the counter. Orders can also be placed via an app on smartphones. The goal was to create a fluid “to go” and “dine in” experience.
Panera formalized its Food Policy in 2014 which detailed its commitment to clean ingredients, transparency, and a positive impact on the food system. Panera also made a commitment to remove artificial additives on its “No No List” from the food in its US bakery-cafes by the end of 2016. As such, the chain became a reference brand for clean food and other restaurant companies were trying to play catch up.
Panera was still introducing innovative menu items to keep customers interested in the brand. By 2016, the chain had over 2,000 stores and generated 2.8 billion dollars in revenue. Shaich wanted to protect Panera from short-term pressures from the public market. He had a plan that called for investing more into technology but that would take a hit on profits in the short term.
Panera was subject to activist investors in the past who wanted to focus on short term results. Shaich did not want to relive through these stressful moments where he almost lost his company. Panera was thus sold for 7.5 billion dollars to JAB Holding, the owner of brands such as Pret A Manger, Krispy Kreme, and Keurig Dr Pepper. Shaich announced that he was stepping down as CEO but would remain chairman. Panera even reunited with Au Bon Pain when they bought the company at the end of 2017. More recently, the NBA 2K League has announced a partnership with Panera Bread. The deal will see named segments and product deliveries during live streams on both Twitch and YouTube.
Panera definitely made an impact on the restaurant industry. Do you like their offerings? How different are they really from others? As always, let us know what you think.
