Is Panera Reaching Its Limits?


Restaurants can only handle so much capacity. At some point, a concept can bring in so many sales before it starts to reach its ability to handle its customer base. To wit: Panera Bread, the St. Louis-based bakery/café chain that today more or less said that it is straining its ability to serve customers, particularly at lunch.

Panera’s second quarter same-store sales rose 3.8 percent. That was below expectations. What’s more, Panera Bread is coming back to Earth. Ron Shaich, the company’s co-founder and executive chairman, said on the chain’s conference call this morning that its same-store sales when compared with the broader industry have been trending down.

In 2012, the company’s same-store sales were 592 basis points better than the restaurant industry. So far this year, its same-store sales were just 394 basis points better than the industry. And trends in transactions are even more dramatic: last year, transaction growth was 241 basis points better than the industry, as measured by Black Box Intelligence, this year thus far it is 143 basis points better.

In short: the fast-casual chain is leveling off. Not surprisingly, the company’s high-flying stock fell nearly 7 percent today.

Panera is clearly moving into a holding pattern, of sorts. The company’s average unit volumes are on pace to be about $2.6 million this year. That’s quite high for a limited-service concept, even one with all dayparts, and on a level roughly on par with McDonald’s (a chain that also may be reaching its natural limits).

Shaich more or less said as much on the conference call. He said that lunchtime is a particular problem, saying that “our production capacity limitation and our own labor expectations serve to dampen our ability to grow lunch transactions.” He said the second quarter indicated that the company’s “potential to generate sales is greater than our ability” to serve customers and provide them with the service they want.

The company has other issues. Competition for the breakfast dollar has intensified, and the morning meal has weakened “dramatically” over the past two quarters. But the company’s marketing focus on lunch, when its capacity has been strained, may well have kept sales growth to a minimum. Production times in the second quarter were 32 seconds more than they were in the second quarter of 2012.

Shaich said the company is working to fix those issues. But we’d suggest that lower same-store sales performance will likely be the norm from now on.

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