Panera Bread Company

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Panera Bread Company

6710 Clayton Road
Richmond Heights, Missouri 63117
U.S.A.
Telephone: (314) 633-7100
Fax: (314) 633-7200
Web site: http://www.panerabread.com

Public Company
Incorporated: 1981
Employees: 2,202
Sales: $151.4 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: PNRA
NAIC: 722211 Limited-Service Restaurants; 311812 Commercial Bakeries

Missouri-based Panera Bread Company operates over 309 bakery-cafés in 29 states, with a principal focus on specialty breads, especially its artisan and sourdough breads. About 68 percent of its bakery-cafés are franchise units, and the remainder are owned by the company. However, Panera Bread does not franchise individual bakery-cafés; rather, it sells multi-store area development agreements. The company maintains 39 of these, with commitments to grow its chain to 733 bakery-cafés through agreements already made. To support its bakery-café network, Panera also operates 11 fresh dough facilities. Although most of the chain’s units operate under the Panera name, in the St. Louis area they do business as St. Louis Bread Co. Most of the bakery-cafés, which offer in-house eating as well as take-out service, are in suburban locations, giving the company a strong growth potential and less competition in its specialty market niche. Until 1999, the company was named Au Bon Pain, but in that year it sold off its Au Bon Pain division and adopted its current name from its other principal division. Ronald Shaich, Panera’s CEO and chairman, owns approximately 26 percent of the public company.

1976-92: Au Bon Pain and St. Louis Bread Are Founded

Au Bon Pain, which figures importantly in the lineage of Panera Bread Co., started out as a showcase operation for Pavallier BVP SA, a French manufacturer of commercial ovens. In 1976, Pavallier opened the first Au Bon Pain in Boston’s celebrated and historic Faneuil Hall Marketplace, the same year in which, after extensive renovations, that facility opened for business. Two years later, Louis I. Kane bought the business and began expanding in the Boston area. In 1981, he was joined by Ronald M. Shaich, and the pair formed Au Bon Pain Co. as a partnership.

Both Kane and Shaich brought diverse experience to the enterprise. Prior to undertaking their joint venture, Shaich was president of Targeting Systems Inc., a political consulting firm. He had also been a regional manager for the Original Cookie Co. Kane had behind him 14 years as an executive officer of Kane Financial Corp., a family-owned finance and investment firm. Following Kane’s merger with CNA Financial Corp. in 1969, Kane became chairman and CEO of Healthco Inc., CNA’s health-care subsidiary. Kane had also served as a director and executive committee member for Colombo Inc., a yogurt manufacturer and distributor.

In many ways, the new chain was a pioneering undertaking, one of the first to develop a concept that became popular in the next decade: the bakery-café, offering on-site service for sit down customers. Initially, the chain started out as three Boston-area bakeries and a single cookie store that served both cookies and breads and croissants to its customers. It grew very quickly, however, moving into large urban markets in New England and other Eastern states.

During the early expansion of Au Bon Pain, another bakery-café, St. Louis Bread, started up in Kirkwood, Missouri, in 1987. Its founder, Ken Rosenthal, and his wife, ventured into the restaurant business at the insistence of his brother. Rosenthal based his business on that of the sourdough bakeries then popular in San Francisco, where he went to learn the sour dough baking method. The Rosenthals, concerned about quality, expanded the business fairly cautiously. By 1990, they had grown the company to just five stores, but by 1993, when they first started franchising units, the chain had grown to 20 bakery-cafés. In that year, the company appeared on Inc. magazine’s list of the 500 fastest-growing companies in the U.S.

Meanwhile, in 1991, Au Bon Pain went public, made its initial public offering (IPO), and continued its growth through expansion of its operations and acquisitions. In 1992, after working out a franchise development agreement in Chile, the company also began branching into foreign markets. It had already tapped deeply into the high-traffic, eastern city markets, and it needed to branch into some fresh markets.

1993-97: Company Acquires the St. Louis Bread Company before Sales Turn Sluggish

A major opportunity came in 1993, when Au Bon Pain acquired the St. Louis Bread Company. At that the time the deal was struck, St. Louis Bread had 19 company owned and operated bakery-cafés and one franchised outlet. Thereafter, Au Bon Pain continued to expand the purchased company, introducing the bakery-café concept into new markets. In its home area in Missouri, the new franchised units were opened as St. Louis Bread bakery-cafés, but elsewhere they opened under a different name—Panera Bread. Over the course of its ownership by Au Bon Pain Co., Inc., the Panera/St. Louis Bread division would enter new markets and continue to grow at a solid clip.

By the end of 1996, Au Bon Pain had grown to 231 company-run and 58 franchised bakery-cafés. Of the 231 company-operated units, 177 were Au Bon Pain owned and operated outlets and 54 were Au Bon Pain franchise-operated bakery-cafés. The remaining 54 company-owned bakery-cafés and 10 franchise units were St. Louis Bakery Company units. As concepts, the Au Bon Pain and St. Louis Bakery Company stores were very similar. Both specialized in high quality foods, served for breakfast and lunch. Their menus included fresh baked goods, made-to-order sandwiches, soups, salads, and custom-roasted coffees as well as other beverages. The company’s targeted customers were principally urban white-collar workers, suburban residents, and shoppers, students, and travelers with busy schedules to keep. The company’s chief strategy was to provide high quality, fresh foods at reasonable prices and with greater variety than its chief market competitors. Most of the bakery-cafés were located in and around major urban centers, including Boston, other New England cities, New York, Philadelphia, Pittsburgh, Washington, D.C., Columbus, Cleveland, Cincinnati, Chicago, St. Louis, Minneapolis, Los Angeles, Atlanta, and, outside the U.S., Santiago, Chile. For the 1996 fiscal year, total sales generated by the company-owned stores and its franchised units reached approximately $259 million. On the average, company-owned Au Bon Pain bakery-cafés generated about $940,000 each, while the Panera/St. Louis Bakery units generated about $1.1 million per outlet.

It was in 1996, in an effort to enter new markets, that Au Bon Pain began a broad-based franchising program for the Panera/St. Louis Bakery concept and scheduled the first new franchise operated café for a 1997 opening. The company also completed a new $9 million production facility in Mexico, Missouri. The 80,000 square-foot plant tripled the capacity of its older production facility in South Boston. Through the year, the company also continued to test new products and undertook the renovation of some of its stores.

Despite its growth and new strategies, Au Bon Pain faced problems in the mid 1990s, including disappointing, sluggish sales. The rapid expansion of its urban units created operational problems and involved the company in some sour-turning real estate deals. Moreover, the company’s competition was rapidly stiffening, thanks to the fact that the bagel and coffee café concept hit its faddish stride at about the same time. By 1995, the company had logged its first net loss, and in 1996 was still struggling to regain profitability. Hoping to turn things around, late in 1996 the company named Robert C. Taft to the newly created position of president. Taft’s mission was to direct efforts to improve the operational level of each of the company’s 224 units in the company’s Au Bon Pain Division.

1998-99: Company Divests Its Au Bon Pain Division

In August 1998, Au Bon Pain entered an agreement to sell to Bruckmann, Rosser, Sherrill & Co. LP., a New York investment firm, its Au Bon Pain Division. The $72 million deal was consummated on May 16, 1999, when Bruckmann, Rosser, Sherrill & Co. took that division its separate way as ABP, Inc., a private company. The sale left the Panera Bread/St. Louis Bakery Company with its group of company-owned bakery-cafés and its related franchise operations. Over the course of its ownership by Au Bon Pain Co., Inc., the Panera/St. Louis Bread Company had entered new markets and continued to grow, opening 51 company owned bakery-cafés and 44 franchise-operated units.

Company Perspectives:

The enjoyment of fresh bread is at the heart of our success. Our talent, expertise, and efforts are directed toward providing our customers a friendly gathering place in which to relax and share the tradition of fresh-baked bread every day, as well as offering ways to extend the tradition to their family table with our take-home bread. In every community, our customers have responded with enthusiastic support and shown us that indeed ’Fresh bread makes friends. ’

By the end of 1999, a year in which it opened units in 7 new states, the Panera Bread Company, as it was newly named, was operating in 25 states spread from Massachusetts to Florida and Michigan to Texas. For the first time, too, the majority of the 166 units (86) were owned by franchisees; the remaining 80 were company owned. As Panera proudly noted, many of the franchisees were either former owners or owners of major fast foot franchises, including McDonald’s, Wendy’s, Pizza Hut, and Taco Bell. According to Panera’s president, Rick Postle, as reported in a Knight Ridder/Tribune Business News release, one of the franchise owners had sold off 45 McDonald’s units to invest in Panera. Significantly, Panera no longer had to deal with investors who wanted to open only one or two units. Almost all franchisees agreed to open a minimum of two dozen or so stores, all within a single, entire market area. By November 1999, contractual commitments for opening new stores had reached 600 and were being negotiated.

2000-01: Accelerated Growth Promises a Solid Future for Panera

During 2000, Panera grew at what the St. Louis Business Journal termed “a blistering rate.” It opened more than 50 new bakery-cafés by the end of the third quarter, and in December announced plans to enter Rhode Island, its 28th state. It was also picking up important franchisees without trouble, an example being Donald Strang III, whose family’s hospitality company in Cleveland was then operating 57 Applebee’s restaurants. In November, Strang agreed to open 48 Panera Bread bakery-cafés in Pennsylvania, New Jersey, and Delaware.

Panera thus began the new century in fine fettle. Among other things, sticking to some rigorous requirements that all prospective franchisees had to meet, it was positioned to accept only one out of every 400 franchise applicants, a luxury that few companies could afford. However, once teaming up with Panera, a franchised bakery-café was not so tied up by operating regulations that it could not take initiatives to keep its customers’ loyalty. As reported in a July 15, 2001 article in Restaurants & Institutions, the company’s number one rule—stipulated by Mike Kupstas, vice president of franchising and brand communications—was “do whatever it takes to satisfy and make customers happy.”

By the end of 2000, the company was the clear leader in system-wide sales growth among six bakery-café chains, which included, among others, Corner Bakery and Le Madeleine Bakery & Café. Its sales between 1999 and 2000 had grown by a whopping 73.6 percent, and its number of units in 2000 had grown by 45 percent over the previous year. It ranked a strong third among the top 400 chain leaders in sales growth behind Buca di Beppo and Famous Dave’s, and its prospects for continued growth remained excellent.

Principal Competitors

AFC Enterprises, Inc.; Brinker International, Inc.; New World Restaurant Group, Inc.; Starbucks Corporation.

Key Dates:

1976:: Pavallier opens first Au Bon Pain in Boston’s Faneuil Hall Marketplace.
1978:: Louis I. Kane purchases Au Bon Pain bakery-café.
1981:: Ronald M. Shaich joins Kane as partner, forming Au Bon Pain Co.
1991:: The company goes public.
1993:: Au Bon Pain purchases St. Louis Bread Co.
1994:: Co-CEOs Kane and Shaich win Nation’s Restaurant News’ Golden Chain Award.
1999:: Company sells Au Bon Pain division but retains Panera Bread/St. Louis Bread Co.