Panera Bread 2007 Annual Report Download - page 14

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from the Panera system, with the exception of some bakery-cafes, as Panera does not presently believe that
Crispani»will be profit-neutral in 2008.
Panera regularly reviews and revises its menu offerings to satisfy changing customer preferences. Product
development focuses on providing food and beverages that customers crave and trust. New menu items are
developed in test kitchens and then introduced in a limited number of the bakery-cafes to determine customer
response and verify that preparation and operating procedures maintain product consistency and high quality
standards. If successful, they are then rolled out system-wide. New product rollouts are integrated into periodic or
seasonal menu rotations, which Panera refers to as “Celebrations.” Examples of products introduced by Panera in
2007 include the Grilled Salmon Salad, Strawberry Poppy Seed Salad, Orchard Harvest Salad, Chicken Tomesto
Sandwich, Chicken Pomodoro Panini, Chipotle Chicken Sandwich, Creamy Tomato Soup, Southwest Roasted
Corn Soup, New England Clam Chowder Soup, Strawberry Fruit Smoothie, Pumpkin Spice Latte, Panettone Bread,
New All Natural Muffins (Blueberry, Cranberry, Carrot Walnut, Reduced Fat Blueberry), Pecan Braid, Strawberry
Citrus Pastry, Chocolate Crumb Pastry, Caramel Apple Pastry, and the Turkey Sausage Soufflé.
MARKETING
Panera believes it competes on the basis of providing an entire experience rather than through price only.
Pricing is structured so customers perceive good value with high quality food at reasonable prices to encourage
frequent visits. Panera performs extensive market research, including utilizing focus groups, to determine customer
food and drink preferences and price points. Panera attempts to increase its per location sales through menu
development, product merchandising, and promotions at everyday prices and by sponsorship of local community
charitable events.
Panera franchise-operated bakery-cafes contribute 0.7 percent of their sales to a national advertising fund and
0.4 percent of their sales as a marketing administration fee, and are required to spend 2.0 percent of their sales in
their respective local markets on advertising. Panera contributes similar amounts from Company-owned bakery-
cafes towards the national advertising fund and marketing administration. Panera can increase national advertising
fund contributions from current levels up to a total of 2.6 percent of sales. The national advertising fund and
marketing administration contributions received from Panera franchise-operated bakery-cafes are consolidated in
our financial statements with amounts contributed by Panera. Liabilities for unexpended funds are included in
accrued expenses in our Consolidated Balance Sheets. Panera’s contributions to the national advertising fund and
marketing administration, as well as Panera’s own media costs, are recorded as part of other operating expenses in
the Consolidated Statements of Operations. Panera may utilize external media when deemed appropriate and cost
effective in specific markets.
Panera has established and may in the future 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 Panera establishes 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.
SITE SELECTION AND BAKERY-CAFE ENVIRONMENT
Panera’s bakery-cafe concept relies on a substantial volume of repeat business. In evaluating a potential
location, Panera studies 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, Panera
determines projected sales and return on investment. The Panera concept has proven successful in a number of
different types of locations, such as in-line or end-cap locations in strip or power centers, regional malls, and free-
standing.
Panera designs 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 Panera’s bakery-cafes and other bakery-
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