Panera Bread 2006 Annual Report Download - page 13

Our ability to increase our revenue and operating profits could be adversely affected if we are unable to
execute our growth strategy.
Our growth strategy consists of new market development and further penetration of existing markets, both by
us and our franchisees. The success of our growth strategy depends on numerous factors that are not completely
controlled by us or involve risks that may impact the development, or timing of development, of our bakery-cafes.
Our ability to grow successfully will depend on a number of factors, including:
• identification and availability of suitable locations for new bakery-cafes on acceptable terms including
obtaining waivers of exclusive use restrictions from landlords and tenants, as needed, and within appropriate
delivery distances from our fresh dough facilities;
• competition for restaurant sites;
• variations in the number and timing of bakery-cafe openings as compared to our construction schedule;
• management of the costs of construction of bakery-cafes, particularly factors outside our control, such as the
timing of delivery of a leased location by the landlord;
• securing required governmental approvals and permits and complying with applicable zoning, land use and
environmental regulations; and
• general economic conditions.
Although we have been able to successfully manage and plan our growth to date, we may experience
difficulties doing so in the future.
Our growth strategy includes opening bakery-cafes in new markets where we may have little or no operating
experience. Accordingly, there can be no assurance that a bakery-cafe opened in a new market will have similar
operating results, including average store sales, as our existing bakery-cafes. Bakery-cafes opened in new markets
may not perform as expected or may take longer to reach planned operating levels, if at all. Operating results or
overall bakery-cafe performance could vary as a result of higher construction, occupancy or general operating costs,
a lack of familiarity with our brand which may require us to build brand awareness, differing demographics,
consumer tastes and spending patterns, and variable competitive environments. Additional expenses attributable to
costs of delivery from our fresh dough facilities may exceed our expectations in areas not currently served by those
facilities.
Our growth strategy also includes opening bakery-cafes in existing markets to increase the penetration rate of
our bakery-cafes in those markets. However, this strategy could result in a sales decline in some of our existing
bakery-cafes if customers choose to patronize a new location over an existing location. There can be no assurance
that we will be successful in operating bakery-cafes profitably in new markets or further penetrating existing
markets.
Our growth strategy depends on continued development by our franchisees. If our franchisees do not
continue to successfully open new bakery-cafes, our business could be adversely affected.
Our growth strategy also includes continued development of bakery-cafes through franchising. At Decem-
ber 26, 2006, approximately 62% of our bakery-cafes were operated by franchisees (636 franchise-operated units
out of a total of 1,027 units system wide). The opening and success of bakery-cafes by franchisees depends on a
number of factors, including those identified above as well as the availability of suitable franchise candidates and
the financial and other resources of our franchisees.
Additionally, our results of operations include revenues derived from royalties on sales from, and revenues
from sales by our fresh dough facilities to, each franchise-operated bakery-cafe. As a result, our growth expectations
and revenue could be negatively impacted by a material downturn in sales at and to franchise-operated bakery-cafes
or if one or more key franchisees became insolvent or otherwise refused to pay us our royalties.
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