Panera Bread’s initiatives to expand in catering, delivery and consumer packaged goods are gaining traction, leading to higher sales at the St. Louis-based bakery-cafe chain. Total revenues in the third quarter ended Sept. 29 totaled $664,654,000, up 7% from $619,890,000 in the same period a year ago. Net income, though, fell 17% to $32,393,000, equal to $1.28 per share on the common stock, from $39,214,000, or $1.47 per share. Third-quarter 2014 earnings per share included an 8c per share benefit from a favorable one-time tax adjustment.
“Our goal is to materially expand earnings growth for many years to come,” Ron Shaich, founder, chairman and chief executive officer, said during an Oct. 28 conference call with analysts. “To that end, we are intensely focused on a long-term strategy for transformation, rooted in becoming a better competitive alternative in our cafes and on building runways for expanded growth in very large adjacent businesses.
“We believe the best way to do that is by improving the guest experience through Panera 2.0 and driving consumer excitement and loyalty through innovation in food, marketing, operations and design. We’re also focused on leveraging our brand credibility and utilizing the technology and operational investments made to date to create runways for growth into several $1 billion plus adjacent businesses, including: large-order delivery, which we call catering; small-order delivery, which we call delivery; and consumer products, which we call Panera at Home.”
He said the leading indicators signal Panera’s plan is working as expected.
“We feel ever more confident about the future,” he said.
Looking specifically at delivery, Mr. Shaich said the initiative is meant to meet the needs of small groups of coworkers or families that want a quick lunch or dinner in their own facilities or their homes. He said it provides “an additional dimension” to Panera’s business.
“Delivery is not seen as a play for those few customers seeking the ultimate in convenience without regard to price. Rather, at Panera, we have come to view delivery as a powerful opportunity for real and significant long-term sales and earnings growth, not just as a modest comp driver,” he explained. “As well, we view it as having modest startup expenses. Our confidence comes from the significant volumes we’re seeing in our test markets and the expected sales and profits that can be expected as awareness of Panera as a delivery alternative grows.”
Mr. Shaich said some of the confidence in the potential of delivery stems from the product makeup of Panera’s menu.
“First, sales of salads and sandwiches, because they are generally not heated, are perfect through delivery channels, especially at lunch,” he said. “As well, sandwiches and salads are the preferred food choice for so many small gatherings. Delivery also makes great sense for Panera because it uses our production capacity without straining our lunchtime seats, which are already at or near capacity in so many locations.”
He also said the initiative benefits from the digital ordering, payment and production systems the company put in place to enable Panera 2.0.
“Given our existing technology, delivery appears to our cafe managers as just another to-go order,” he said. “Indeed, the only thing standing in the way of Panera entering the delivery business on a mass scale is finalizing how best to execute the final mile from the cafe to the customer. That is to say, how best to get the food from the cafe to the home or the office. To that end, we’re currently testing internal drivers and several external delivery organizations.”
During the third quarter of fiscal 2015, Panera company-owned net bakery-cafe sales increased 3.8%, franchise-operated comparable net bakery-cafe sales increased 1.8%, and system-wide comparable net bakery-cafe sales increased 2.8% compared with the same period in fiscal 2014.