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Panera’s ‘strategic plan’ is driving sales but slashing profits

Though its investment in growth cut into third-quarter profits, Panera Bread said it plans to fuel future expansion of catering, delivery and Panera 2.0, as they made sales headway during the third quarter and show long-term potential.

Comps at the fast-casual chain increased 2.8 percent year over year during Q3, while revenues increased 7 percent, to $665 million.

Net income fell 17 percent, largely due to increased labor costs and spending associated with a refranchising effort and the transition of 108 bakery-cafes to Panera 2.0 locations.

“Our initiatives to expand into several $1 billion-plus adjacent businesses, including catering, delivery and consumer-packaged goods, are also gaining traction,” CEO Ron Shaich said in a statement. “Despite the high level of pressure on our near-term earnings related to the startup and transition costs associated with our strategic initiatives, the progress we see gives us increased confidence in our strategic plan and its ability to drive expanded earnings growth well into the future.”

Executives said they planned to convert 25 percent of Panera units to 2.0 in six months, the equivalent of “more than one per day.”

Panera’s digital orders now account for 12 percent of sales, a figure that jumps to 22 percent at Panera 2.0 locations. “To our knowledge, this is the highest digital utilization percentage of any public restaurant company in the industry, exclusive of the pizza guys,” Shaich noted on a Wednesday earnings call.

Company catering sales grew by 12 percent during the quarter, driven in part by the development of Panera catering hubs.

Shaich said the chain has also been encouraged by small-order delivery tests being conducted in four markets, noting that the digital-ordering systems developed for Panera 2.0 can be “uniquely leveraged” for delivery orders. “Delivery is a real mass market opportunity for Panera, and one that offers significant potential for sales and earnings growth,” he said.

Yet he acknowledges there are challenges to executing full-scale delivery, namely figuring out how best to get food from the cafe to customers’ homes and offices, a distance Shaich referred to as the “final mile.”

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