Article

Panera CEO: We've got to reduce friction with customers

The company will add more catering locations, which is expected to contribute to the bottom line in the coming years.

May 5, 2014 by Alicia Kelso — Editor, QSRWeb.com

Panera CEO Ron Shaich took much of the company's earnings call last week to provide deeper insight into the technology initiative called "Panera 2.0." The initiative includes mobile ordering and payments, kiosk ordering, table ordering and more.

Shaich warned investors that the rollout is going to take time and money, and will "dampen earnings and make quarterly guidance more volatile in the near term."

"But I wouldn't be putting my reputation on the line if I didn't believe this is the right thing to do for the future of the business," he said.

Panera has taken big risks before, Shaich pointed out, including its launch of antibiotic-free chicken when no other brands were featuring the offering, and investing in customer experience improvements in the middle of the recession.

"Those were tough things because of the market — it was very expensive back then. The trick in what you pay us to do is to try to figure out where the world's going and to deal with how we're going to compete in that world. It's clear to me that Panera has got to reduce its friction," he said.

Essentially, this means removing any barriers for customers, speeding up order time and improving order accuracy. In addition to a new website and mobile (ordering and payment) app, Panera 2.0 includes other elements such as Rapid Pick-Up, a to-go area in-store with dedicated seating and an order status monitor. This should facilitate easier access and quicker pickup, Shaich said.

The goal is to have the 2.0 system fully implemented throughout the Panera system by 2016. Currently, it exists in 14 cafes in two markets. Rapid Pick-Up will be in place at most restaurants in the coming months.

Operations

In addition to customer experience enhancements, Panera is also heavily focused on operational investments, such as an updated kitchen display system, an auto load-balancing system and a new centralized phone system.

The company also added about 35 extra labor hours per week in each café, for better scale and training efforts.

"Sandwich production times have improved materially since the summer. Production times are down by over 35 seconds on average," Shaich said. "Last summer, nearly 60 percent of orders had production times exceeding 3 minutes. In Q1, fewer than 40 percent of orders had production times greater than 3 minutes. This is only the beginning."

The goal is to get all production times under 3 minutes.

Flatbread as a differentiator

Panera is also focused on its menu innovation and will soon introduce a line of flatbreads — Southwest flatbread, Thai flatbread and Mediterranean chicken flatbread. The new offerings will be baked in store in the style of Indian tendoori and will offer the "potential to materially differentiate Panera," Shaich said.

Loyalty

Additionally, Panera is updating its loyalty program, MyPanera, to make customers' experiences more personalized. Currently, nearly half of the brand's transactions come from a MyPanera card and Shaich said more "relevant" benefits will continue to drive frequency.

Catering

Finally, Panera will step up its "large-order" catering business after growth in this area has flattened a bit. Shaich said restaurants aren't fulfilling customers' requests sufficiently, especially during weekday peak hours.

"While catering limitations are problematic for our catering sales growth, especially considering the role catering has played in driving overall comps over recent years, we also recognize that freeing up the catering governors provides a powerful opportunity," he said.

To fix these issues, Panera is rolling out more "delivery hubs" that include both catering and retail businesses and dedicated production lines and management for both. The delivery hubs have tested well, with sales up "significantly," and about 10 percent of the company-owned system will have them by the end of this year.

"The delivery hubs we are opening will set the stage to contribute materially to our results in 2015, 2016 and years beyond that," Shaich said.