Panera 'bending the arc' on transaction growth

by Eric Schroeder
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ST. LOUIS — For Panera Bread Co., the third quarter of fiscal 2014 was all about “bending the arc” on transaction growth in its core bakery-café business. Panera generated 1.4 percent transaction growth during the third quarter, the company’s highest quarterly transaction growth since the first quarter of fiscal 2012.

“We do this through several initiatives, including operational improvements, food innovation and marketing innovation,” Ron Shaich, chairman and CEO, said during an Oct. 29 conference call with analysts. “At the same time, we are looking to execute several structural enhancements that we believe have the potential to generate medium- and long-term shareholder value.

“As you know, we are intensely focused on repositioning Panera to be a better competitor and simultaneously expanding our growth potential in the years to come. It is our strong belief that doing so offers Panera the greatest opportunity to expand sales and to expand earnings well into the future,” he added.

Net income in the third quarter ended Sept. 30 was $39,214,000, equal to $1.46 per share on the common stock, down 8 percent from $42,762,000, or $1.48 per share, in the same period a year ago. Net revenues increased 8 percent, to $619,890,000 from $572,480,000.

Despite lower earnings, Shaich stressed the importance of the 1.4 percent transaction growth during the quarter, noting that transactions increased 1.8 percent in July, 0.6 percent in August and 1.8 percent in September.

“Importantly we saw balanced transaction growth across dayparts in Q3,” he said. “Transactions in the pre-11 am daypart were up 2.6 percent, and in the post-11 a.m. daypart, which remember has been declining earlier in the year and was flat in Q2, transactions increased by 90 basis points, or 0.9 percent, in Q3.”

Shaich attributed the growth to the manifestation of Panera’s operations efforts, especially around throughput. He also lauded the success of the company’s recent launch of turkey cranberry flatbread.

In fact, Shaich gave high praise to the entire lineup of flatbreads, which launched earlier this year and have become “the item our customers are craving.” The line launched in May with three different varieties, including Southwest, Thai and Mediterranean chicken flatbreads, and expanded in the summer with a barbecue chicken variety.

Most recently, the turkey cranberry flatbread has been paired with the return of Panera’s autumn squash soup to create a hit among consumers.

 
“The turkey cranberry flatbread is exactly the type of unique and crave-able offering we had in mind when launching the flatbread program,” Shaich said. “We believe flatbreads drive differentiation and allow our guests to experiment with bolder flavors and new spices. The flatbreads also align with our desire to offer smaller portion alternatives and to reinforce the bottom of the pricing barbell on our menu.

“Said another way, our flatbreads, individually priced at $4.99 in most markets, supported our efforts to offer smaller portions and/or lower-priced items here at Panera. Based on customer feedback, we believe flatbreads are helping to drive traffic.”

Flatbreads aren’t the only area of innovation at Panera. In the first quarter of 2015, the bakery-café chain plans to introduce a line of broth bowls, including a soba noodle bowl with chicken and a lentil quinoa bowl.

“Both bowls, which are an extension of our soup line, are designed to awaken an appetite for adventuresome eating at Panera and appeal to those seeking more healthful menu items,” Shaich said.

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