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Shopping Centers Today -> April 2002
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PANERA BREAD CO.: THE BEST THING SINCE …
By Kimberly Pfaff
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| Bread comes warm from the oven in these bakery-cafés, which are popular with customers seeking fast but healthful food. |
As it expands across the United States, Panera Bread Co. seems intent on overturning some fundamental notions about fast food: It doesn’t have to be served in cookie-cutter restaurants, and it needn’t be bad for you.
Based in Richmond Heights, Mo., the company’s bakery-cafés serve up healthful salads, soups, sandwiches, pastries and coffee, in addition to its trademark assortment of specialty, just-baked breads, focaccias and bagels.
The concept is taking off, offering fancy sandwiches that are a healthful, tasty alternative to burgers for the lunchtime crowd. Panera’s sales for 2000 were $350 million systemwide, up 75 percent over 1998; sales reached $529.4 million last year. And if there’s not a Panera near you now, there’s likely to be one soon. The firm envisions eventual growth from 369 locations in 29 states to 1,500 nationwide.
“Their concept is positioned in one of the consumer power alleys: fast casual,” noted Allan Hickok, a senior research analyst with U.S. Bancorp Piper Jaffray. “That’s a real niche, not just a marketing spin; it’s a modern alternative to traditional fast food.”
Consumers today are different from those of 20 years ago, he said. They demand, and can afford, higher-quality meals, “and Panera is one of the better examples out there of concepts that fill their need.”
From Panera’s standpoint, it all starts with bread.
“Our concept is a neighborhood bakery-café where fresh bread is the platform of the menu,” said Michael J. Kupstas, Panera’s vice president of franchising and brand communication. “We’re nothing without our bread. All our bread is done right.”
Bread is baked fresh on the premises each day, is never frozen and is nutritious, Kupstas said. “There are people out there who are looking for real food. It makes us different. They taste the real food on freshly made bread and go, ‘Wow.’”
Key to the operation are Panera’s 15 fresh-dough facilities, where bread and bagel dough are made daily, then trucked out to reach the bakery-cafés by 10 p.m. There, teams of bakers tend to the ovens until morning.
“It takes three days for our product to be mixed, shaped and shipped, which is a good thing, so it has time to relax and proof on the floor,” said Kupstas. “They’re baking all night long, so that when you come in at 6 a.m. for a hot bagel, that bagel is fresh.”
The company’s four major business areas are breakfast, lunch, take-home and a category called “chill-out,” which Kupstas said is defined not so much by time of day as by occasion.
“It may represent a time when someone who works from home comes in with their laptop, or it could be some neighborhood moms getting together for a break,” he explained.
And take-home is not to be confused with take-out, he added, noting that Panera customers routinely purchase loaves of bread, a dozen bagels or a pound of coffee to bring home. Take-home represents about 40 percent of the company’s business. The average check is $6.50.
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Part of Panera’s appeal is the relaxed, comfortable environment of its bakery-cafés, with their eclectic mix of seating areas, from high-top tables and private booths to club-chair groupings and small, café-style tables and chairs. No two of the 4,000-square-foot locations are alike.
“We don’t want any of our bakery-cafés to look the same,” Kupstas said. Instead, designers for each location are given a selection of colors, fabrics and fixtures with which to work. “They never exactly match, but there’s a continuity there so that when you walk in, it’s clear you’re in a Panera.” As for the menu, “it’s lunch for dinner,” Kupstas said. In other words, the chain offers a light, healthy meal, with no alcohol, appetizers or heavy steaks. “We don’t do three courses.”
The cafés generally close by 8 or 9 p.m. — early enough for customers to get a good night’s sleep and for employees to start baking for the following day.
Panera was started 14 years ago as the St. Louis Bread Co., operating one bakery-café in suburban St. Louis. In 1993, after expanding to 19 locations, the company was sold to Boston-based Au Bon Pain Co. In 1999 Au Bon Pain sold off its namesake division for $72 million in cash and changed its corporate name to Panera Bread Co.
About 70 percent of Panera’s bakery-cafés are located in strip centers, but the company also has freestanding locations and a few mall stores. Kupstas said the mix will stay focused on strip centers going forward. “We tend to skew toward breakfast and lunch, so in many situations we can be in the same center as a dinner-house concept, and we’ll complement each other in terms of parking.”
The company aims to open hundreds more bakeries.
“We think the country can handle 1,500 stores,” Kupstas said.
But Piper Jaffray’s Hickok isn’t so sure.
“I don’t know how large they can ultimately be,” he said. “There’s a lot of things that go into that — financing, demand, execution, competition. You think there aren’t other companies that have figured out that fast casual’s a growing category?”
Still, Hickok credits Panera with doing a good job of honing its franchises.
Franchising is essential to the company’s growth strategy; currently, two-thirds of Panera’s locations are franchised. Six years ago the company created partnerships with its franchisees to do area development agreements, and there are currently 29 such partners that have signed up for somewhere between five and 40 Panera locations.
“They go through a very strict review, and there are minimum requirements to get in,” said Kupstas. “They need experience, minimum-cash hurdles, an infrastructure that’s already established and they need to be familiar in the market they’re operating in.”
The company plans to build 80 franchise stores a year. With no debt, all the cash generated by bakery-cafés is going into developing 15 to 20 company-owned cafés a year.
The chain is popular with Wheeling, Ill.-based Joseph Freed and Associates, a developer that operates 25 strip centers, Main Street properties and mixed-used projects adding up to about 4 million square feet of retail.
“They’re on our A-list because they’re a well-run operation” said Thomas M. Walsh, senior leasing representative for Joseph Freed and Associates, which is working on a fifth deal with Panera.
“They set a good tone for the projects; although they’re fast-casual, they’re also a nice gathering place, and it attracts a good middle-to-upper-income demographic, which is what we’re after,” he added. “In all of our projects, they’re producing higher sales per square foot than the average of the center, and probably, in most cases, by as much as 50 percent.”
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