Panera Bread to intensify drive-thru operations

Fast casual chains have increasingly embraced the drive-thru model as way to build sales and elevate the customer experience. To continue down this path, Panera Bread Company has plans to extend the number of locations with drive-thru lanes by 50 this year.

At the end of 2011, the company had 119 locations with drive-thru and plans to add another 50 in 2012. Over the past two years, the company has retrofitted 37 restaurants by adding drive-thru lanes, and has plans to retrofit another 25 this year, said CEO Bill Moreton.

Moreton addressed the issue of drive-thru expansion during the company's Q4 and year-end conference call, Feb. 8.

Moreton said the addition of drive-thru lanes is part of the company's continual investment back into the chain, and is part of an overall strategy pinpointed to also enhance its menu offerings and MyPanera loyalty program.

Sales of the company's panini sandwiches have increased 16 percent since the rollout of a new panini grill in the first quarter of 2011. Sales of the company's hot breakfast line also increased 15 percent in 2011. In the first quarter, Panera Bread launched its new Mediterranean Egg White Breakfast Sandwich and has plans to debut a new roasted turkey cranberry Panini later this year.

"While we are appreciative of this success, we recognized that it takes time to truly cement yourself in the consumer’s minds as the place to go for quality hot sandwiches at breakfast and lunch. As a result, panini sandwiches and breakfast sandwiches are again going to be a focus for us in 2012," Moreton said.

As part of that focus, Panera executives have worked to improve the produce used in restaurants. The company first examined its lettuce product and is now scrutinizing the tomatoes in use at restaurants.

"And just as we did with lettuce, by controlling the quality from the field to the fork, we expect to be able to bring a considerably higher quality, fresher tomato product to our customers that will noticeably improve both our salad and sandwich offerings," Moreton said.

Loyalty program

In addition to its food and menu program, the company invested in its loyalty program in 2011. There are now 9.5 million members of the MyPanera loyalty program, which launched in 2010.

The second phase of the program is expected to launch this year and will include one-to-one marketing initiatives to its loyalty members.

"We are also sending out more than 6.5 million e-mails to our customers each month with dynamic content that changes based on their interests in buying patterns," Moreton said. "For instance, if we see that a customer occasionally buys a smoothie with lunch, we can try to get them to come in during the afternoon show period for a smoothie and a baked good by offering them a specific reward."

Revenue, same-store sales, net income

While its Q4 earnings increased 5.8 percent based on franchise and company-owned same-store sales growth, the company missed revenue expectations.

For the quarter, revenue increased 18 percent to $495.8 million; however, analysts had predicted an increase of $499 million. For the full year, revenue increased to $1.8 billion, up from $1.5 billion in FY 2010.

Company-owned same-store sales increased 5.9 percent, driven by year-over-year transaction growth of 0.2 percent and average check growth of 5.7 percent.

Meanwhile, franchise-operated comp sales increased 3.2 percent for a systemwide growth of 4.4 percent compared to the same period in fiscal 2010.

Adjusted net income for the quarter increased to $42 million, or $1.42 per diluted share, compared to a Q4 2010 net income of $37 million, or $1.21 per diluted share. The increase represents 17 percent year-over-year growth in diluted earnings per share.

For the fiscal year, adjusted net income was $139 million, or $4.65 per diluted share, compared to net income of $112 million, or $3.62 per diluted share, for the same period last year. The growth represents a 28 percent year-over-year increase in diluted earnings per share.

Catering

Another bright spot for the company is the increase to its catering sales, which grew 29 percent in 2011 and contributed 1 percent to its same-store sales growth. Catering sales also improved 24 percent over 2010, Moreton said.

"We continued to believe that by bringing the quality of the Panera experience to customers outside of our four walls is a huge area of growth for us. Our national footprint and loyalty of our customers gives us a large competitive advantage," Moreton said.

During the fourth quarter, the company also opened 24 new bakery-cafes and its franchisees opened 16 new locations. For the full year, the company and its franchisees opened 112 new bakery-cafes. As a result, there were 1,541 bakery-cafes open systemwide as of Dec. 27.

The company also announced that executive vice president and chief financial officer Jeff Kip is leaving March 15 to join IAC/InterActiveCorp. A search has been initiated for his replacement.

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