Panera Bread: How Fast Can a Hot Eatery Expand?

January 31, 2012

How Fast

Panera Bread: How Fast Can a Hot Eatery Expand?

By GARY M. STERN, FOR INVESTOR’S BUSINESS DAILY
Posted 01:50 PM ET

Grow too fast and restaurant chains can fizzle like shooting stars. Expand too slowly and they can leave growth opportunities on the table.

Big eateries usually have two big ways to boost revenue: increase same-store sales or open new outlets. But expanding too quickly can drain resources, spark management and customer service issues, and undermine growth. When a stock is on the ascent like Panera Bread (PNRA), deciding how many new outlets to open is crucial to its long-term success.

Panera started as a small St. Louis bakery and has morphed into a powerhouse. Its stock price has surged about 32% since Oct. 20, and it’s on target to generate nearly $1.6 billion in revenue in 2011, up from $1.5 billion in 2010. But with 1,504 outlets as of Sept. 27, 2011, can it handle opening 110 new cafes or about 7% of its total eateries on an annual basis?
Stephen Anderson, a New York-based senior analyst with Miller Tabak, says that Panera’s decision to open 110 outlets last year was modest vs. a more rapid expansion of 10% to 15% in the early part of 2000.

Slowing its expansion made sense for Panera. “Management sought to address decelerating sales at existing units rather than expand rapidly, as was the case with other restaurant companies,” Anderson said.

In fact, Panera recently announced plans to step up its presence in Canada, where it has three cafes in Toronto. It plans to open about six or seven more cafes in 2012; four company-owned and three franchised.

“They have room to build 80 to 100 stores in the next few years,” Anderson said. Tim Hortons (THI) and McDonald’s (MCD) are its two big rivals in Canada, but Panera’s fast-casual style is expected to fill a void.

After so much success, Panera is just now launching in Manhattan, with plans to open three outlets in that urban hub in 2012. “They’ve been less aggressive than Chipotle in Manhattan,” he noted, which has built multiple outlets there.

Anderson says Panera’s move on the Big Apple is part of a threefold strategy. In the future, he says the chain is planning: 1. an “urban assault” on high-traffic urban areas like New York City, 2. building new outlets in malls and strip centers, including drive-through units, and 3. firming up growth in Canada.

With eateries located in only 40 states, Anderson says Panera also has more room to grow domestically. He reckons Panera would likely thrive in Anchorage or Honolulu, where the chain doesn’t have any outlets yet.

Halo Effect

Anderson credits Panera’s competitive edge to its ability to offer quality food while charging only a couple of dollars more than fast-food outlets. “They’re perceived as having a halo effect of being healthier and better,” he said.

Compared to rivals Starbucks (SBUX) and Dunkin’ Donuts (DNKN), Panera has focused on food, not just beverages, says Darren Tristano, an executive vice president at Technomics, a Chicago-based food industry research firm.

But a restaurant chain that grows too fast can skid. “When you grow too quickly, you focus on the next restaurant and can lose track of the ones already open,” Tristano said.

Another factor that could derail growth is higher commodity prices — especially for wheat, Anderson says. If large fast-food chains like McDonald’s, Burger King or Wendy’s copied the healthier sandwiches that Panera sells, it could also hurt sales.

But Panera’s playing it safe. In a tough economy, the chain’s going easy on consumer wallets. Most of its sandwiches and salads are priced from $7 to $9. It also introduced a deal in 2010 where consumers can add a beverage or baked goods for an extra 99 cents with any lunch or dinner entree.

When Anderson visits Panera for lunch, he favors its barbecue chicken salad. It’s filling, and yet only contains 500 calories. He noted that Panera was one of the first restaurant chains to post calorie counts nationwide.

Quality Across The Board

Panera owns 716 of its bakery/cafes and franchises 788 of them. Most of its franchises are owned by large groups that operate 30 to 40 eateries. This helps quality control. Most consumers couldn’t tell if they were dining at a company-owned cafe or a franchise, Anderson says.
Opening a new outlet is costly. The average size of a Panera cafe is 4,600 square feet and costs about $750,000 to build.

Restaurant chains need to be strategic about where they introduce new outlets. Stacking five new eateries in a city where there are already 25 cafes can cannibalize sales, says Tristano.
Opening new outlets is more than about real estate but also demands training employees, says Tristano. Panera is known for hiring friendly employees and creating a warm, comfortable ambiance. In expanding, it must focus on retaining top managers and training employees to maintain its level of customer service.

Panera also tinkers with menu items to please customers and reach new ones. For example, in 2011 it introduced a Thai chopped chicken salad that contains only 390 calories and low-fat wild berry smoothies. Moreover, it’s been making an effort to expand catering services to break open another revenue stream.

“What builds a brand is the emotional attachment a guest has,” Pearce said. “If I take care of the people and deliver great food, then the brand will be wildly successful.”

View the full article on Investor’s Business Daily


Pretty Food, Fast and Still Fairly Cheap

January 31, 2012

Pretty Food

Pretty Food, Fast and Still Fairly Cheap

LOS ANGELES – Fast-food eateries are in the throes of drive-through Darwinism as more upscale upstarts, such as Chipotle Mexican Grill and Panera Bread Co., grab market share from the likes of Taco Bell, Subway and Wendy’s.

Chains that are fancier than fast-food options but cheaper than sit-down alternatives are part of a hybrid sector known as fast-casual that is maturing into one of the food industry’s strongest.

That category is tapping into growing demand for more healthful, specialty foods that are still speedily served and moderately priced. Fast-casual is steadily poaching fast-food customers looking for better quality and sit-down diners seeking cheaper prices, NPD analyst Bonnie Riggs said.

“There’s no end in sight to their growth,” Riggs said. “They’ve delivered on consumers’ value expectations far more than most fast-food places.”

The evolution is happening as the rest of the restaurant industry fights for a shrinking customer base amid a slow economic recovery and high food prices.

Fast-casual is still only a small segment of the industry. But it tripled its market share in roughly the past decade to about 6 percent of restaurants and is the industry’s only segment to grow in the past five years, analysts said. In 2010, major fast-casual chains pulled in $18.9 billion — a 6 percent increase, according to research group Technomic.

“This category has essentially blown through the recession without skipping a beat,” Technomic Executive Vice President Darren Tristano said in a statement.

Formerly known as adult fast food, fast-casual generally includes restaurants that have limited table service and no drive-throughs. They are also often perceived to have higher-end decor, food quality and prices.

But the boundaries are blurring. Eateries such as Carl’s Jr., with its Six Dollar Burger, and foodie favorite In-N-Out straddle the line between fast-casual and fast food.

Drive-throughs are appearing at Panera locations. Some fast-casual chains are experimenting with delivery, usually an option provided by sit-down restaurants.

“We’re going to continue to see more fuzziness in how to define these restaurants,” said Robert L. Sandelman, chief executive of food service research group Sandelman & Associates.

Panera, which has about 1,500 outlets nationwide, is turning in especially impressive numbers. In the third quarter its profit was $28.8 million, up 27 percent compared with the same period in 2010. In late November, the company’s stock price hit a 52-week high of $143.38.

On days when Rancho Cucamonga, Calif., resident Jason Seliskar, 38, doesn’t have time to cook, he and his wife swing by Panera.

“We can get in and get out and still have a relatively nice experience,” the elementary school teacher said. “I can walk away without thinking I gave myself a gut bomb and damaged my body.”

Bakery-cafe restaurants, such as Corner Bakery Cafe, are leading the fast-casual charge, analysts said, followed by so-called better-burger chains such as Five Guys, the Counter and the Shake Shack.

Other fast growers include Asian restaurants, noodle shops and Mexican eateries.

Perceived food quality is key to fast-casual’s rise, according to a survey measuring meal quality by the MarketForce research firm. Customers ranked Panera, Chipotle and Five Guys high while pushing fast-food companies Burger King, McDonald’s and Taco Bell to the bottom.

In the same study, fast-casual restaurants also scored among the best for atmosphere, healthful options and eco-friendly business practices.

BurgerFi, a Florida-based chain, and French chain Planetalis, which opened its first U.S. location in downtown Los Angeles in December, have vegetarian burgers and decor made with recycled materials.

Chipotle recently released popular advertisements touting family farms and emphasizing sustainable and humane practices.

Fast-casual chains also tend to have distinctive decor, such as the international-cafe feel of the Cosi sandwich chain and Pei Wei Asian Diner’s glossy vibe.

“These restaurants offer a more pleasant experience — unlike a fast-food place that’s less clean than you’d like it to be, smelling like grease and small too,” said Jason Moser, a restaurant analyst for Motley Fool. “It’s just the evolution of eating out in general.”

Fast-food chains are far from helpless. McDonald’s, for example, continues to see hefty revenue.

But many chains are feeling the heat. Wendy’s Chief Executive Emil Brolick recently spoke of his company going through an “identity crisis.”

“I’m not for a moment suggesting that we want to try to pretend to become a Five Guys or a Smashburger or something like that,” Brolick said on a call with analysts. “But I do believe that there is a significant opportunity in the market for high-quality products that are fresh and made to order.”

Some fast-food chains have already made shifts in that direction.

Ads from Burger King, KFC and Taco Bell have switched focus from gimmicky characters and low-price guarantees to lush images and descriptions of fresh ingredients.

“Fast food is going to be making a slow but very methodical change toward healthier eating simply out of necessity, or else they’re going to risk becoming marginalized by fast-casual,” Moser said.

Other companies are expanding their specialty and premium offerings, with McCafe and Angus burger lines from McDonald’s, Artisan Pizza from Domino’s and a Steakhouse burger from Carl’s Jr. White Castle is testing alcohol sales as well as an Asian noodle concept, a barbecue joint and a grilled sandwich shop.

And several fast-food chains are upgrading their looks. Subway has begun opening eco-restaurants with recycled materials and solar panels. Wendy’s has new store prototypes that take design cues from Frank Lloyd Wright and allow patrons to watch their food being prepared.

But it may take more to win back customers such as Pasadena, Calif., photographer Justin Saiki, 30, who grew up eating fast food but said that “things are different now.”

Now that he’s more health-conscious, he eats at Five Guys about once a week and occasionally at Chipotle, where the food seems fresh instead of “pre-made and sitting on a warmer,” he said.

“It all goes back to quality,” Saiki said. “You just don’t feel as guilty.”

View the full article on Portland Press Herald


Let Them Eat Cupcakes

January 31, 2012

Let Them Eat

Let them eat cupcakes: Trend hits the region in a big way

Vanilla to red velvet, mini to jumbo — the cupcake craze is going strong in the Mohawk Valley, and for some, baking means big business.

Nationwide, cupcakes have been a hot item. Between 2006 and 2010, cupcake sales increased between 9 and 13 percent each year, according to the Perishables Group, a Chicago-based fresh food consulting firm.

“Cupcakes are thriving because they meet many current consumer hot buttons — indulgence, single-serve and convenience,” said Perishables Group spokeswoman Kelli Beckel. “They make cake an everyday eating occasion and allow shoppers to try new flavors.”

Locally, the confection has not only given rise to new specialty shops but also has increased the sales of established businesses.

Saving time and dough

The emergence of cupcakes began in 2008, around the time the economy started to struggle, said Darren Tristano, executive vice president of Technomic, a food-industry consulting and research firm.

Sweet desserts are similar to alcohol in that sales tend to increase with difficult financial times, he said.

“It’s still an affordable luxury,” Tristano said.

In spite of a struggling economy, specialty stores continue to open.

Candies N Cupcakes on North Madison Street in Rome, owned by Liz Davis opened Halloween weekend and had its grand opening the first weekend of December.

Davis, 26, was working out of her home for two to three years, selling cupcakes at farmers markets and for special events, she said.

It wasn’t until she was approached by Rome Mayor James Brown that she thought about opening a retail location, Davis said.

The city’s small business program and a matching loan from the Small Business Administration helped to make her store a reality, Davis said.

“People are purchasing them for weddings, baby showers, birthday parties and holiday parties,” she said.

Davis said she already has several weddings scheduled for this summer.

Cupcakes here to stay

Celebrating its 56th year in business, Holland Farms in Yorkville always has sold cupcakes, but they were made to order, said co-owner Marolyn Wilson.

“Now, we’re putting them out every day,” she said. “We’re probably making four or five times more than we’ve ever made before.”

The trend started ramping up several years ago, Wilson said, but it didn’t hit the Mohawk Valley right away. There is no denying the popularity now.

Wilson said this year the bakery will dub January “Cupcake Month.”

The hand-held dessert is not just for kids anymore, with more exotic and adult flavors such as pina colada and mocha chocolate, Wilson said.

“People can take one home and feel as if they are really giving themselves a treat instead of having to buy a whole cake,” she said.

In many areas of the country, specifically in larger cities, the cupcake market has reached saturation, Tristano said, while other areas will continue to see the trend grow.

Mintel Group, a marketing research firm, also expects the fad to continue.

“I would anticipate we will see the cupcake trend continue to develop, with perhaps more options that are better for you … with products that are customizable and with continued flavor variations,” said Jennifer Ballard, public relations coordinator for Mintel.

Locally, independent stores might continue to crop up.

Sugar Babes Cupcakes, owned by Kelli Grimaldi-Vance and Terri Puleo-Donato, is expected to open on Genesee Street in New Hartford in January.

“It started out through a discussion over a glass of wine where we said, ‘Let’s do cupcakes,’” Puleo-Donato said. “The next week we baked for a friend and it just grew from there.”

The largest growth for the business has been in catering for corporate events, she said.

Sugar Babes has been operating by renting local kitchens, but after an entire year and increasing demand, they will open a storefront.

“We’re very excited because we know there’s definitely a need for it,” Puleo-Donato said. “It’s a fun food. It makes people smile.”

View the full article on Observer Dispatch


Miami Subs Rebrands, Offers New Franchising Opportunities

January 31, 2012

Technomic Report

Miami Subs Rebrands, Offers New Franchising Opportunities

Renovate, relocate or terminate. That’s Richard Chwatt’s mantra as the CEO of The New Miami Subs Grill rebrands a concept born when the Bee Gees and white suits with black T-shirts were in vogue.

Chwatt bought Miami Subs Grill for $3.2 million from Nathan’s Famous in June 2007, according to SEC filings. Nathan’s purchased it in 1999 from founder Gus Boulis, who was gunned down in a gang-style slaying in 2001.

Chwatt is revamping the menu and replacing the chain’s Art Deco décor with warmer earth tones.
Chwatt’s company also has been developing a new concept dubbed OMG (Oh Miami Grill), a sports-themed bistro with a tapas-style menu, full bar and “plenty of big-screen TVs,” said Miami Subs VP Frank Baran.

The company wanted its first OMG to be at Fort Lauderdale-Hollywood International Airport, but an expansion and terminal renovations threw a monkey wrench into those plans.

“We had all of the necessary approvals, but were unable to get an agreement going forward,” Baran said. Where the airport OMG will go is uncertain.

Chwatt is in talks to become the signature restaurant at the new Miami Marlins ballpark, though no deal has been inked yet.

The OMG concept’s footprint is about 5,000 square feet, double that of the average Miami Subs. Plans are to grow both concepts to 500 franchised units within five years. Chwatt doesn’t plan any corporate-owned locations.

“I don’t like to compete with our franchisees,” he said. “We want to train them and show them how to operate.”

The franchise fee for both Miami Subs and OMG is $30,000. Total investment for Miami Subs is $300,000 to $600,000, depending on buildout costs. The company did not have a total investment for the OMGs.

Chwatt had no restaurant experience before purchasing Miami Subs. He has teamed with attorney Bernard Vogel and hedge fund manager Bruce Galloway, who formerly owned Arthur Treacher’s Fish and Chips. Chwatt is co-owner of Boca Raton-based financial services company Jericho State Capital.

“I have always managed and consulted to corporations,” Chwatt said during an interview at one of Miami Subs’ newly renovated restaurants on Commercial Boulevard and Powerline Road in Fort Lauderdale. “This was just another business, but it had food as its ingredient.”

The menu is being tweaked to include more healthy choices, including Grandma Robyn’s oatmeal pie (named after Chwatt’s wife) for breakfast. In January, the company will formally introduce a “heart healthy” menu.

“We bought [the company] with the idea of adding heart-healthy food,” Chwatt said.
Although “subs” will remain part of its name, the No. 1 seller is chicken wings, followed by cheese steaks. Baran said subs are just 5 percent of the sales.

A recent report by Technomic, a Chicago-based restaurant consulting firm, found that restaurant operators are rolling out healthier menus for consumers with health and dietary concerns.

Another Technomic report found steady growth in breakfast sales, but plenty of opportunity in an unsaturated market.

Technomic estimates breakfasts are 12 percent of the total restaurant industry, generating about $42 billion in annual sales.

“Breakfast is a very dynamic segment in which consumers are looking for healthier options and place a premium on convenience,” Technomic Executive VP Darren Tristano said.

Since its renovation, revenue at the Commercial Boulevard Miami Subs has more than doubled, which Chwatt attributes to new menu items and a nicer environment that includes Wi-Fi and big-screen TVs.

The average cost of a renovation is about $150,000. He said the company is helping franchisees find financing. Those who do not want to renovate will not have their franchises renewed, Chwatt said.

“Rebranding and reimaging is key to growth,” he said.

View the full article on South Florida Business Journal