Panera Bread Co. is extending restaurant workers’ hours, streamlining its menu and upgrading equipment to address slow throughput, executives said this week.
While same-store sales rose 1.3 percent systemwide in the third quarter ended Sept. 24, most of the increase was credited to higher prices and mix, not increased traffic, officials said.
“With 1.7-percent company comps in the third quarter and 1.6-percent company comps for the first 27 days of the fourth quarter, our comps remain weaker than our expectations and below our historic track record,” said Panera co-founder and chief executive Ron Shaich in a call with analysts.
He noted that Panera is intent on improving the guest experience to restore transaction growth with a higher level of service and greater accuracy. “Walk into our cafes at 12:30 p.m. during the lunch rush and you’ll see the lines,” he said. “Our problem is keeping up with and meeting that demand with an in-cafe experience that delivers something truly differentiated.”
To address service issues, the St. Louis-based company has this week committed to adding 35 hours of labor to each unit at a cost of about $15 million a year, according to executives.
Speed is growing increasingly important to fast-casual restaurant profits. Chipotle Mexican Grill Inc. last week credited faster throughput and marketing for its strong third quarter. The chain has added five more transactions year-over-year during the peak lunch hour, co-chief executive Steve Ells said.
“The competitive environment is extraordinarily red-hot,” Shaich said.
Half a dozen customers a day can impact transaction growth at Panera’s 1,736 units, he noted, which average about $2.5 million each in annual sales. “Roughly six customers per cafe per day equates to approximately 1-percent transaction growth,” Shaich said. “Indeed, the difference between the successful or unsuccessful transaction growth at Panera, at least as we hold it, is just six to 12 customers per cafe per day.”
When potential customers walk in, see the line and decide to leave, sales growth potential is lost, Shaich said. “You don't have to be a very astute analyst to understand there's a real opportunity at Panera in generating greater throughput per café,” he said.
In-house consumer surveys indicate the top reason for customers visiting less often “is the diminished in-cafe experience” in slower service, inaccuracy in orders and other experience issues. Shaich outlined solutions, including adding worker hours, as well as more equipment, new kitchen display systems, and improved back-of-house forecasting and labor scheduling.
Panera is also streamlining its bakery-café menu “to reduce the complexity and degree of difficulty of operating a high-volume Panera café,” Shaich said. About 10 percent of cafes are facing capacity constraints, he noted.
“We have completed a turf study, and we will be reducing our menu modestly post-Thanksgiving,” he said. “We are also looking for ways to reduce the prep load in our cafes. As well, we are making plans to dramatically reduce the number of phone-in orders coming into our cafes.”
In guidance, Panera now expects sales at company-owned locations to increase between 2 percent and 2.75 percent. It had forecasted growth of 3 percent to 5 percent.
Shaich acknowledged that competition has begun to nip at the heels of the fast-casual bakery-café model that Panera was instrumental in popularizing.
Restaurant analysts with Jefferies said Panera’s competitive edge was shrinking “as years of strong growth have outstripped its resources & capabilities at the store-level and has essentially created a slower and less satisfying experience.”
Raymond James & Associates observed that “strong growth have outstripped its resources and capabilities at the store-level and has essentially created a slower and less satisfying experience.”