FDD Talk 2018: Panera Bread Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Panera Bread franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Panera Bread franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Panera Bread franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Panera Bread outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Panera Bread’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average net sales for the 894 company-owned Panera Bread Bakery-Cafes open during the entire fiscal year ending December 26, 2017

• 2017 average net sales for the 1,087 franchised Panera Bread Bakery-Cafes open during the entire fiscal year ending December 26, 2017

• 2017 average net sales for the 894 company-owned and 1,087 franchised Panera Bread Bakery-Cafes open during the entire fiscal year ending December 26, 2017

• 2017 average gross revenues, discounts, net sales, cost of sales, gross profit, labor, operating expenses, advertising expenses, fixed expenses, occupancy expenses, net profit, depreciation and amortization, and EBITDA for the 894 company-owned Panera Bread Bakery-Cafes open during the entire fiscal year ending December 26, 2017

Section I – Background Information

18 Things You Need to Know About the Panera Bread Franchise

Founder and Longtime CEO Steps Down, President Steps In as New CEO

1.  At the beginning of November 2017, Panera Bread announced that Ron Shaich, Panera’s founder, would be stepping down as CEO at the start of 2018. Shaich will continue to be a significant investor in the company and remain chairman of Panera’s board of directors. He will also continue to work on strategy, communications, and acquisitions for Panera.

2.  Shaich said, “This is the right time for me to step down as CEO while still staying involved in the business as Chairman. I returned in 2011 because our growth was slowing and we needed to reposition Panera as a better competitive alternative with expanded growth opportunities. And I’m happy to say we’ve done just that.”

3.  Blaine Hurst, Panera’s president and company veteran who has led many of the company’s most significant innovations over the last half decade, will assume the position of CEO. Hurst joined the company in 2011 as senior vice president of technology and transformation and was charged with building the digital capabilities that would enable Panera 2.0 and Panera’s e-commerce platform. Hurst continued to move up in the company until he was appointed president in 2016.

4.  When asked about his becoming CEO, Hurst said, “I’m very excited about the future of Panera. The past seven years have given me the opportunity to learn from an industry icon. And I have been fortunate to lead and be a part of many of the initiatives that are now driving Panera’s success. We’ve built a great team – in fact, it’s the best team I know of in the restaurant industry. I’m looking forward to continue working with them and our partners at JAB as we take Panera forward. With exciting new initiatives underway to better serve our customers and improve their dining experience, I believe our opportunity is even brighter. I thank Ron and JAB for their confidence in me.”

Reconnecting With Au Bon Pain Through Acquisition of Parent Company

5.  In early November 2017, Panera Bread announced that it had entered into a definitive agreement to acquire Au Bon Pain Holding Co. Inc., the parent company of Au Bon Pain. The bakery chain currently has 304 locations worldwide and will be part of Panera’s initiative to intensify growth in new real estate channels, including hospitals, universities, transportation centers, and urban locations, among others. The acquisition was expected to close in the fourth quarter of 2017. Terms of the transaction were not disclosed.

6.  This acquisition will bring Panera Bread and Au Bon Pain together again. Ron Shaich, Panera’s founder, chairman, and previous CEO, and his late partner Louis Kane created Au Bon Pain Co. Inc. in 1981. The company went public in 1991 and acquired Saint Louis Bread Company in 1993. Saint Louis Bread was renamed Panera and, in 1999, Au Bon Pain was sold so that all human and capital resources available at that time could be focused on Panera.

Petitions FDA to Clearly Define “Egg” in Effort to Improve Industry Standards for Food Transparency

7.  At the end of January 2018, in conjunction with the launch of Panera Bread’s new breakfast sandwiches featuring 100% real eggs, the company announced that it had petitioned the Food and Drug Administration (FDA) to establish a clear definition for the term “egg.”

8.  While developing its newest breakfast sandwiches, Panera discovered that current FDA regulations do not establish a definition or a standard of identity for eggs. Due to this, companies can sell and advertise items that contain multiple additives – such as butter-type flavors, gums, and added color – under the generic term “egg.”

9.  Panera’s petition is part of the brand’s commitment to only serving 100% clean food in its own restaurants as well as in the food industry as a whole. The brand wants the FDA to establish a clear definition of what constitutes “eggs” so that customers will be able to make better informed decisions when selecting breakfast foods from restaurants.

10.  Sara Burnett, Panera’s director of wellness and food policy, said, “Panera and our competitors use the FDA definitions to guide our product descriptions and names. But in the case of ‘eggs,’ we have no guidance. Brands can say they offer an egg sandwich, but sell an egg product that contains multiple additives. At Panera, consumers can be assured that when they order eggs, that’s exactly what they’re getting.”

11.  After Panera discovered that the FDA was not making a distinction between real eggs and egg substitutes, the brand began exploring menus from other companies in the food industry to better understand what’s in their “egg” sandwiches. Panera found that 50% of the top 10 fast casual restaurants that sell breakfast have an “egg” made of at least five ingredients, often more.

12.  Panera’s new breakfast sandwiches adhere to the brand’s clean food commitment. The sandwiches contain no artificial sweeteners, flavors, preservatives, or colors from artificial sources. Additionally, customers can make substitutions that fit their taste, including swapping an egg white for an over-easy egg, adding spinach or avocado, or adding sauces like sweet maple or chipotle mayo.

13.  To celebrate the launch of the new sandwiches, Panera hosted a #RespectTheEgg event on January 19 in New York City. Along with samples of the new breakfast sandwiches, the event included a station for customers to take the perfect photo and a detailed comparison of Panera’s 100% clean ingredients versus those used by competitors. Customers were also encouraged to join the conversation around egg transparency on social media using the #RespectTheEgg.

Company History

14.  Panera Bread started after two companies came together, Au Bon Pain and the Saint Louis Bread Company. Au Bon Pain was founded in Boston, Massachusetts in 1981 after founder Ron Shaich merged his cookie store with a bakery. The Saint Louis Bread Company was started by Ken Rosenthal in 1987 in Kirkwood, Missouri. In 1993, Au Bon Pain Co. Inc. acquired the 19-unit Saint Louis Bread Company. Shaich changed that company’s name to the Panera Bread Company in 1997.

15.  Around this time, Shaich realized that Panera had the potential to be a strong national brand. To concentrate its efforts on Panera’s growth, Au Bon Pain Co. sold all of its other chains, including Au Bon Pain. Over the next decade, Panera Bread maintained a steady, disciplined rate of growth and managed to thrive during the recession in the late 2000s. By the end of that decade, the brand had nearly 1,500 locations across the country.

16.  At the start of this decade, Panera started positioning itself as a better alternative to other similar chains. The company was one of the first fast casual restaurants to focus on clean food and establishing an ethical supply chain. Although other fast casual franchises are starting to catch up, Panera Bread says that it is the only restaurant company to commit to, and achieve, 100% clean food.

17.  In 2017, Panera Bread was acquired by JAB Holding Co., which also owns Peet’s Coffee & Tea, Caribou Coffee, Espresso House, Krispy Kreme, Bruegger’s Bagels, and several other breakfast and sandwich franchises. Today, there are over 2,000 bakery-cafes in 46 states and in Ontario, Canada operating under the Panera Bread, Saint Louis Bread Co., or Paradise Bakery & Cafe names.

Entrepreneur’s Franchise 500

18.  Panera Bread did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Panera Bread franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Panera Bread’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  926
• Outlets at the End of the Year:  1,045
• Net Change:  +119

2016

• Outlets at the Start of the Year:  1,045
• Outlets at the End of the Year:  1,099
• Net Change:  +54

2017

• Outlets at the Start of the Year:  1,099
• Outlets at the End of the Year:  1,112
• Net Change:  +13

Company-Owned

2015

• Outlets at the Start of the Year:  884
• Outlets at the End of the Year:  862
• Net Change:  -22

2016

• Outlets at the Start of the Year:  862
• Outlets at the End of the Year:  901
• Net Change:  +39

2017

• Outlets at the Start of the Year:  901
• Outlets at the End of the Year:  931
• Net Change:  +30

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

Part 1 – Statement of Average Net Sales of Panera Bread Bakery-Cafes for the 52-Week Fiscal Year Ending December 26, 2017

• The Statement of Average Net Sales consists of the mean averages of the reported annual Net Sales of 894 company-owned Bakery-Cafes and 1,087 franchisee-owned Bakery-Cafes open during the entire fiscal year ending December 26, 2017, excluding any acquisitions or dispositions that occurred during the year.

• The 894 company-owned Bakery-Cafes include 13 delivery and carryout locations and exclude 27 delivery only locations.

• The information provided does not include the results of any Panera Bread/St. Louis Bread Cares Bakery-Cafes operated by Panera Bread Foundation, Inc.

• The Net Sales of franchisee-owned Bakery-Cafes were derived from unaudited financial reports submitted by franchisees for the purpose of computing royalties. Panera compiled the Net Sales of company-owned Bakery-Cafes on the basis of generally accepted accounting principles.