I have been following the fortunes of Panera Bread (symbol PNRA) for about 17 years. Recently, Panera made a move that seems to have gotten little notice in the financial press, but which could make a major difference in the performance of the company. Panera is now going to roll out three pasta dishes system wide. They are tortellini alfredo, pesto saccottini and rustic penne Bolognese. Three new menu items doesn't sound like much for this successful chain, and that is why it has been overlooked. Let me explain:
Panera breaks their day into segments like lunch, breakfast, etc. For many years, the weakest day part has been dinner. If you frequent Panera, you probably have seen the long lines at lunch time and the relatively empty stores at night. This has squeezed Panera as it tries to expand revenues at each location. Many of the Panera stores are already operating at capacity during the lunch hour. The only way to increase revenues then is by raising prices or convincing customers to buy larger amounts of food. Neither of those options is an easy one. Dinner, however, is a different story. Undoubtedly, the hope of Panera's management is that the new pasta dishes will draw a new group of people to have dinner at the restaurant. Until now, the choices have been soup, salad or sandwiches. Pasta adds an entirely new category.
Now I have not tasted the Panera pasta dishes, so I do not know if they are any good. I have seen, however, the Panera management roll out all sorts of dishes over the years. I do not recall any clunkers. Oh, a few years back, Panera tried out a pizza which they called Crispani, and it failed miserably. The problem, however, was that it took to long after placing the order for the Crispani to be ready. Customers did not want to wait. The problem was not with the taste but the timing. As a result, I have to assume that the pasta dishes (which were extensively tested in at least three different markets) will be a success.
Think about what these dishes can do for the company. The pasta will add dinner customers. The revenue generated by these new customers will result in much higher profits than that from other products. Remember, the margins on the other products will have already covered all of the fixed costs and many of the variable costs (like labor) at the restaurant. For the pasta, Panera will earn an amount that will be the sales price reduced by only the cost of the food. That means that even a partial success with the pasta sales will bring in a big jump in profits. On top of these dinner sales, there is also the addition of pasta sales to the catering done by the company. Many catering jobs will surely include a tray of the pasta as part of the purchase. When made in bulk, the pasta most likely has a lower cost than almost any other product that Panera is selling. Again, this will move directly to the bottom line.
By next fall, Panera's profits should be moving smartly ahead just due to the addition of the pasta dishes. It is time to buy before the impact of these new dishes becomes apparent.
Disclosure: I am long Panera
Panera breaks their day into segments like lunch, breakfast, etc. For many years, the weakest day part has been dinner. If you frequent Panera, you probably have seen the long lines at lunch time and the relatively empty stores at night. This has squeezed Panera as it tries to expand revenues at each location. Many of the Panera stores are already operating at capacity during the lunch hour. The only way to increase revenues then is by raising prices or convincing customers to buy larger amounts of food. Neither of those options is an easy one. Dinner, however, is a different story. Undoubtedly, the hope of Panera's management is that the new pasta dishes will draw a new group of people to have dinner at the restaurant. Until now, the choices have been soup, salad or sandwiches. Pasta adds an entirely new category.
Now I have not tasted the Panera pasta dishes, so I do not know if they are any good. I have seen, however, the Panera management roll out all sorts of dishes over the years. I do not recall any clunkers. Oh, a few years back, Panera tried out a pizza which they called Crispani, and it failed miserably. The problem, however, was that it took to long after placing the order for the Crispani to be ready. Customers did not want to wait. The problem was not with the taste but the timing. As a result, I have to assume that the pasta dishes (which were extensively tested in at least three different markets) will be a success.
Think about what these dishes can do for the company. The pasta will add dinner customers. The revenue generated by these new customers will result in much higher profits than that from other products. Remember, the margins on the other products will have already covered all of the fixed costs and many of the variable costs (like labor) at the restaurant. For the pasta, Panera will earn an amount that will be the sales price reduced by only the cost of the food. That means that even a partial success with the pasta sales will bring in a big jump in profits. On top of these dinner sales, there is also the addition of pasta sales to the catering done by the company. Many catering jobs will surely include a tray of the pasta as part of the purchase. When made in bulk, the pasta most likely has a lower cost than almost any other product that Panera is selling. Again, this will move directly to the bottom line.
By next fall, Panera's profits should be moving smartly ahead just due to the addition of the pasta dishes. It is time to buy before the impact of these new dishes becomes apparent.
Disclosure: I am long Panera
3 comments:
I agree with your post. The successful introduction of mac and cheese a few years ago (excellent cheese combo, texture and very quick service) bodes well for the new pasta products. Combining the pasta with a soup or salad, as has been announced, makes it a credible full dinner choice. Incremental beverage and pastry sales at dinner will be yet an additional positive.
I wonder who Panera is sourcing their pasta from?....Perhaps Armanino Foods should call on them. ;-)
To Axster:
I like your comment. I sent the idea to the folks at Armanino.
Thanks.
Post a Comment