Friday, July 6, 2007

Panera: Home Away From Home

Originally Posted on 7/23/06

I was first exposed to Panera roughly 2 ½ years ago. At first I was quite skeptical…I had never seen one before, nor had I ever heard anyone speak of them. My girlfriend had been there before and insisted it was nice place, so we gave it a shot. The food was excellent and I quickly learned that free WiFi was offered. I was intrigued. It was at that point that I thought, wow, this could be a nice place to unwind, eat and get some work done. The service was impressive; the atmosphere was very comfortable, free WiFi and good food. Hmmm, I’ll be back, I thought.

It was on my second visit, several weeks later, that I predicted the Panera franchise was going to take off. It was only a visceral feeling I had at the time with no factual justification. But I felt certain it was only a matter of time before it did. It was only recently that I’ve given a deeper look into the Panera franchise. It seems my predication has come true, in a very big way. I’ll get to that a little later.

Since then I’ve become a regular Panera customer. Not only do I go there for the food, I also go there to get work done. Lately I’ve been spending at least 2 nights per week there. The atmosphere is conducive to an enjoyable work experience and the smell of fresh bread makes me happy for whatever reason. I’m more or less a creature of habit and tend to stick to the same lunch menu (I do snack on many of the pastries they offer as well) item I like once I find it. For me it’s the Tuscan Chicken with balsamic vinaigrette on the side, diet coke and a small back of chips. I do experiment (most recently I’ve gotten hooked on the sweet sausage and apply Crispani…very good) with other menu items periodically, but I always tend to come back to this meal.

Am I the only avid Panera supporter? Absolutely not. In fact, take a look at the chart below - pulled directly from the Wall Street Journal on February 27, 2006. This chart indicates that Panera touts, emphatically, the most successful food franchise record in recent years. Make note of some of the other power players in this category. Sigh, I only wish I had the disposable income to invest in Panera when I first heard of them. I would have most definitely gotten my return on investment.

Revenue Breakdown:

Currently, the bulk of Panera’s business is generated during lunch time hours - roughly 80% of their business. Earlier this year, they introduced Crispani as their evening daypart which of course was designed to lure in evening customers. Boosting evening sales will be a challenge as a single, evening daypart, will not be enough to sustain customer loyalty. I’m certain they are aware of this and the Crispani was just their way of testing the waters. I’m willing to bet a slue of new evening dayparts will be introduced in either the first or second quarter of 2007. If they can create a product equally as strong as the Crispani, the next challenge (which may be even more difficult to conquer then creating a successful product) would be to increase awareness of evening dayparts and changing customer mindsets into trusting Panera as an evening destination of choice. This will undoubtedly take some clever marketing to kick off the awareness campaign.

Operations and Ingredients:
Panera has fresh dough facilities (FDF’s) that are strategically placed near franchise locations. An intricate dough making process is completed daily and is shipped early in the morning, before the doors are even opened, for final proof baking. Along with an impressive FDF process, Panera uses high quality produce, antibiotic free chicken, etc.

I think Panera is strategically positioned to grow at an accelerated pace given market demand. Franchise locations are well dispersed throughout the US and there are many market segments that they have not yet penetrated – such as New York City or DC. Panera claims that they are confident in attaining 17% long term unit growth. This is clearly an aggressive target and probably an aspirational one for many organizations. But given their historic track record, customer demand and large room for growth (Even at this pace, Panera will only reach 1 cafe per 160,000 population by year-end 2010); this is a target that will most definitely be met.

The Panera franchise, like all businesses, will eventually reach maturity and begin the relentless competitive dance of stealing market share from others or, quite simply, go out of business. The product life cycle is as certain as death and taxes. Panera will undoubtedly continue to use their successful differentiation business model if/when it reaches that point. But, for the time being, Panera is a long way off from that paradoxical circumstance and should be completely immersed in the, current, exciting times of nation-wide expansion.

Oh and did I forget to mention Panera CEO, Ron Shaich, is the former founder of Au Bon Pain? I firmly believe that the only way an organization can truly thrive, across any industry, is with strong leadership straight from the top. With nearly 3 decades of restaurant experience, Mr. Shaich has played the game for a long time and clearly understands the rigors necessary to bring an organization to sustained profitability.

I do believe I’ve written enough. Now…let me get back to my Tuscan chicken and free WiFi.

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