Panera 2.0 cafe
Panera expects to convert about 200 more stores into Panera 2.0 cafes this year.

ST. LOUIS — Digital ordering should continue to drive Panera 2.0 cafe expansion in 2016 while more drivers will be hired to grow delivery service. St. Louis-based Panera Bread Co. also plans to focus on catering, an ingredient list goal and its retail business.

The chain had 410 Panera 2.0 cafes in service at the end of 2015 and expects to convert about another 200 cafes to 2.0 in 2016, said Ron Shaich, chairman and chief executive officer, in a Feb. 10 earnings call. Panera 2.0 consists of two sub elements, he said.

For one element, digital access includes both mobile web and kiosk. Digital utilization, or orders both placed digitally and paid for digitally, in company cafes has grown to 16% of sales currently from 12% of sales in the third quarter of 2015, he said. Digital utilization in Panera 2.0 cafes accounts for 22% of sales.

Ron Shaich, Panera
Ron Shaich, chairman and c.e.o. of Panera

“Second is the foundation we call operational integrity, which is about ensuring we have the product capabilities and systems needed to meet the demand that comes with unfettered digital ordering while simultaneously delivering on the high levels of customization and accuracy the Panera customer expects,” Mr. Shaich said.

Panera is adding delivery to tables in certain cafes.

“We continue to believe that sales in Panera 2.0 cafes gained the greatest momentum three to four quarters after conversion, after both our teams and our guests have adjusted to and embraced the new systems,” Mr. Shaich said.

The 37 Panera 2.0 cafes operating in their sixth quarter since conversion had cumulative comp of 16.1%, he said.

More delivery programs

Panera anticipates rolling out delivery programs to more than 10% of its systems in 2016, Mr. Shaich said.

“That means about 200 to 300 company and franchise cafes will bring up delivery in 2016,” he said.

Ultimately Panera expects to take its delivery systems nationwide, he said.

For positive elements, Mr. Shaich said all delivery orders are placed digitally, salads and sandwiches generally are not heated and therefore travel well, and start-up and transition costs are modest.

Panera delivery van
Ultimately Panera expects to take its delivery systems nationwide.

“We simply have to hire and train drivers and build awareness to reach our initial sales goals,” he said.

He added, “We found that using our own drivers ensures a faster delivery time with more consistent quality of delivery for a better customer experience. We know this matters to our customer, and we believe we can build a formidable competitive advantage on this.”

Earnings drop; sales rise

Panera Bread Co. posted net income of $149,325,000, equal to $5.81 per share on the common stock, in the fiscal year ended Dec. 29, 2015, which was down 17% from $179,293,000, or $6.67 per share, in the previous fiscal year. Revenues of $2,681,580,000 in the year ended Dec. 29, 2015, were up 6% from $2,529,195,000 in the previous fiscal year.

In the fourth quarter, Panera had net income of $43,143,000, or $1.75 per share, which was an 11% decline from $48,492,000, or $1.82 per share, in the fourth quarter of the previous year. Fourth-quarter net sales of $602,330,000 were up 1% from $593,783,000.

Panera is targeting diluted earnings-per-share growth of 2% to 5% in the current fiscal year. Mr. Shaich said he expects double-digit earnings growth in fiscal-year 2017. Panera added 112 new bakery cafes in 2015, giving the chain a total of 1,972.

“We are targeting to open 90 to 100 bakery cafes in 2016,” Mr. Shaich said. “These openings will skew more toward company-owned cafes as franchisees invest in strategic growth initiatives.”

Targeting $1 billion in catering

Catering should continue to expand, too. In comparison to delivery, which refers to small-order delivery for immediate consumption, catering refers to large-order delivery for meetings and functions.

Panera catering
Panera predicts that its catering business will also expand.

“Just as the large Q.S.R. pizza players have done in the pizza category, we believe we can consolidate market share in the highly fragmented catering category and grow it into a $1 billion business over time by bringing our national footprint and a higher level of professionalism to our efforts,” Mr. Shaich said. “Central to our strategy to grow sales in catering are delivery hubs, which serve multiple stores with dedicated catering operations and a growing cadre of sales professionals.”

For another growth opportunity, Panera at Home is a $150 million business at retail with a 50% compound annual growth rate over the past three years.

“Our goal is to build Panera at Home into a business generating $1 billion in retail sales and over $300 million in wholesale revenues over time,” Mr. Shaich said. “To that end, in 2016 we will begin transitioning categories within our Panera at Home portfolio from a licensed model to a co-pack model in which we manage the customer.”

Drew Madsen, president of Panera Bread Co., gave an update on the company’s plans to remove all artificial colors, flavors, sweeteners and preservatives from its menu by the end of 2016.

“To date, we have transformed more than 400 ingredients covering more than 90% of our menu, and we are well-positioned to have an entirely clean menu by the end of 2016,” he said.