Is delivery Panera Bread’s next big thing?

by / 0 Comments / July 14, 2015

The executives at Panera Bread have been busy during the past year converting restaurants to the concept’s next generation of stores. During the first quarter of 2015, 19 bakery cafes were changed to Panera 2.0, bringing the total number of conversions to 123. Additionally, the company opened seven delivery hubs, for a total of 28 throughout the system, and now has 183 restaurants representing 20 percent of the company’s catering sales.

During the Q1 2015 quarterly earnings report, Panera Bread CEO Ron Shaich said executives were now turning their focus over toward growth runways, two of which are catering and delivery.

“We likely have the largest market share in the country in large order delivery/catering. But it is still a very tiny slice of the potential market share we can obtain,” Shaich said during the Q1 earnings call.

To this end, the company has plans to divert catering operations to several hub locations that can handle sales and orders for multiple restaurants. It also will turn its focus to delivery, which is being led by the former president of a large pizza delivery operation and his former SVP of operations.

“(Delivery) is a powerful sales building initiative, and something that everybody in our industry seems to be talking about,” Shaich said. “In the case of Panera, we’ve been working on this for some time.”

The company has been testing delivery for more than a year and is now operating in two markets with a Panera driver model and in another two markets with two partners testing a third-party (outsourced) driver model. Through their experiences so far, Shaich said the company has come to believe that delivery offers the potential to increase sales volumes per cafe and to become a long-term driver of sales growth. Moving forward, the company will expand its delivery test markets during the remainder of 2015 and will make decisions on additional markets in 2016.

“We believe we have everything necessary to roll out delivery broadly with the exception of the driver network. That is why we are presently testing both internal and outsourced solutions to our driver network needs,” Shaich said. “We’ve also come to understand that delivery is hard and the key to success with delivery is having the capabilities in place needed to execute delivery consistent with the high volumes it can generate and doing so all the while without damaging the retail business.”

That means the program’s success will depend on digital and/or phone ordering with the full menu available and an integration between the ordering system and food production. It also means having a driver network that is available and cost-efficient enough so that delivery fees still drive frequent use.

“It is our view that any company interested in really winning at delivery is going to need to resolve all of these issues or risk failure. In fact, we have concluded that for delivery to be successful at Panera we need to build it so our cafe managers experience delivery as simply another take-out order,” Shaich said.

Delivery operations gain industry ground

Not only are restaurants focused on delivery but grocers are as well.

According to a July 2 article in Tech Crunch, food and grocery delivery has been one of the hottest venture capital sectors over the last 12 months, with more than $1 billion invested in 2014. Another half a billion dollars has also been invested in Q1 2015, according to CB Insights.

Players in this delivery space include Just Eat, Doordash and Deliveroo, with newly launched UberEATS also looking for market share. And while each service, and others, are doing well, their future success is is resting on three things, says TechCrunch writer Martin Mignot.

  1. On-demand convenience;
  2. Choice of meal-delivery services; and
  3. Demand generation and on-demand marketplaces

Mignot writes: “The challenge for food delivery platforms does not lie in the supply. … Rather it is the demand side of the marketplace that is the most challenging part: restaurants will not want to integrate ten different services into their workflow, and will naturally congregate towards the one or two dominant platforms, who drive the most significant volume of daily orders.”

In the case of Starbucks, the company recently chose Postmates over UberEATS to make deliveries in certain cities. And Panera Bread is still testing which delivery model will work best for them and their customers even though the company is committed overall to its success.

“In fact, I would call it a very powerful opportunity,” Shaich said.

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