Panera Bread 2006 Annual Report Download - page 9

preferences and price points. We attempt to increase our per location sales through menu development, product
merchandising, and promotions at every day prices and by sponsorship of local community charitable events.
Franchise-operated bakery-cafes contribute to us 0.7% of their sales to a national advertising fund and 0.4% of
their sales as a marketing administration fee and are required to spend 2.0% of their sales in their local markets on
advertising. We contribute similar amounts from Company-owned bakery-cafes towards the national advertising
fund and marketing administration. National advertising fund contributions can be increased from current levels up
to a total of 2.6% of sales by us. The national advertising fund and marketing administration contributions received
from franchise-operated bakery-cafes are consolidated with our amounts in our financial statements. Liabilities for
unexpended funds are included in accrued expenses in our consolidated balance sheets. Our contributions to the
national advertising fund and marketing administration, as well as our own media costs, are recorded as part of other
operating expenses in the consolidated statements of operations. We may utilize external media when deemed
appropriate and cost effective in specific markets.
We have established and may continue to establish local and/or regional advertising associations covering
specific geographic regions for the purpose of promoting and advertising the bakery-cafes located in that
geographic market. If we establish an advertising association in a specific market, the franchise group in that
market must participate in the association including making contributions in accordance with the advertising
association bylaws. Contributions to the advertising association are credited towards required local advertising
spending.
In 2006, we used a portion of our national advertising fund to market our evening daypart in conjunction with
the introduction of our Crispani»hand-crafted pizza. Depending on the area, we utilized sampling of new product,
print ads, coupons, and/or television to market our evening daypart. See “Menu” above for additional description of
our marketing efforts and our Crispani»hand-crafted pizzas.
SITE SELECTION AND BAKERY-CAFE ENVIRONMENT
The bakery-cafe concept relies on a substantial volume of repeat business. In evaluating a potential location,
we study the surrounding trade area, demographic information within that area, and information on competitors.
Based on this analysis including utilization of predictive modeling using proprietary software, we determine
projected sales and return on investment. The Panera Bread concept has proven successful in a number of different
types of locations (i.e., in-line or end-cap locations in strip or power centers, regional malls, and free-standing).
We design each bakery-cafe to provide a distinctive environment, in many cases using fixtures and materials
complementary to the neighborhood location of the bakery-cafe to engage customers. Many locations incorporate
the warmth of a fireplace and cozy seating areas and groupings which facilitate utilization as a gathering spot. The
design visually reinforces the distinctive difference between our bakery-cafes and other bakery-cafes. Many of our
cafes also feature outdoor cafe seating and free Internet access through a managed WiFi network. The average
construction, equipment, furniture and fixture, and signage cost for the 70 Company-owned bakery-cafes opened in
2006 was $0.92 million per bakery-cafe after landlord allowances.
The average Company-owned bakery-cafe size is approximately 4,600 square feet. We lease all of our bakery-
cafe locations and fresh dough facilities. Lease terms for our bakery-cafes and fresh dough facilities are generally
for ten years with renewal options at most locations, and generally require us to pay a proportionate share of real
estate taxes, insurance, common area, and other operating costs. Many bakery-cafe leases provide for contingent
rental (i.e., percentage rent) payments based on sales in excess of specified amounts. Certain of our lease
agreements provide for scheduled rent increases during the lease terms or for rental payments commencing at
a date other than the date of initial occupancy. See Note 2 to the Consolidated Financial Statements for further
information on our accounting for leases.
FRANCHISE OPERATIONS
We began a broad-based franchising program in 1996. We are continuing to extend our franchise relationships
beyond our current franchisees and annually file a Uniform Franchise Offering Circular to facilitate sale of
additional franchise and area development agreements (ADAs). The franchise agreement typically requires the
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