Panera Bread 2007 Annual Report Download - page 15

cafes. Many of Panera’s bakery-cafes also feature outdoor cafe seating and free Internet access through a managed
WiFi network. The average construction, equipment, furniture and fixtures, and signage cost for the 79 Panera
Company-owned bakery-cafes opened in 2007 was approximately $1.0 million per bakery-cafe.
The average Panera Company-owned bakery-cafe size is approximately 4,600 square feet. Panera leases all of
its bakery-cafe locations and fresh dough facilities. Lease terms for Panera’s bakery-cafes and fresh dough facilities
are generally ten years with renewal options at most locations, and generally require Panera 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 Panera’s
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 accompanying consolidated financial statements for
further information on Panera’s accounting for leases.
Sites for Paradise’s bakery-cafes include regional malls, free standing street locations, downtown business
districts, and office buildings. Paradise operates bakery-cafes ranging in size from 800 to 5,600 square feet. The
nature of the Paradise bakery-cafes invites shoppers, passers-by and those who live or work in the vicinity to visit for
a meal or snack or to arrange a meeting at the bakery-cafe. The Paradise menu is designed for appeal at all hours of
the day. The estimated initial investment to commence operation of a Paradise bakery-cafe ranges from $0.5 million
to $0.9 million for an 800 square foot bakery-cafe and ranges from $0.9 million to $1.4 million for a 4,500 square
foot bakery-cafe.
FRANCHISE OPERATIONS
Panera began a broad-based franchising program in 1996. Panera continues to extend its franchise relation-
ships beyond its current franchisees and annually files a Franchise Disclosure Document to facilitate sales of
additional franchise and area development agreements, which we refer to as ADAs. The Panera franchise agreement
typically requires the payment of a franchise fee of $35,000 per bakery-cafe (generally broken down into $5,000 at
the signing of the ADA and $30,000 at or before the bakery-cafe opens) and continuing royalties of 4 to 5 percent of
sales from each bakery-cafe. Panera franchise-operated bakery-cafes follow the same standards for in-store
operating standards, product quality, menu, site selection, and bakery-cafe construction as do Panera Com-
pany-owned bakery-cafes. The franchisees are required to purchase all of their dough products from sources
approved by Panera. Panera’s fresh dough facility system supplies fresh dough products to substantially all Panera
franchise-operated bakery-cafes. Panera does not finance franchisee construction or ADA payments. In addition,
Panera does not hold an equity interest in any of the Panera franchise-operated bakery-cafes.
We have entered into franchise ADAs with 39 Panera franchisee groups, or area developers, as of December 25,
2007. Also, as of December 25, 2007, there were 666 Panera franchise-operated bakery-cafes open and commit-
ments to open 293 additional Panera franchise-operated bakery-cafes. Panera expects these bakery-cafes to open
according to the timetables established in the various ADAs with franchisee groups, with the majority opening in the
next four to five years. Panera expects its area developers to open approximately 55 new Panera franchise-operated
bakery-cafes in 2008. The ADAs require an area developer to develop a specified number of bakery-cafes on or
before specific dates. If a franchisee fails to develop bakery-cafes on schedule, Panera has the right to terminate the
ADA and develop Company-owned locations or develop locations through new area developers in that market.
Panera may exercise one or more alternative remedies to address defaults by area developers, including not only
development defaults, but also defaults in complying with Panera’s operating and brand standards and other
covenants under the ADAs and franchise agreements. At the present time, Panera does not have any international
franchise development agreements.
Paradise, in addition to owning and operating various bakery-cafes, franchises bakery-cafes to operate under
its trade name, Paradise Bakery & Café». A franchise includes, but is not necessarily limited to, territory rights,
trade secrets, a business plan, a system guide and a license to use specified trade names and trademarks and
distribute products. Paradise requires an initial franchise fee of up to $60,000 for single bakery-cafe franchises.
Paradise offers to certain qualified operators the opportunity to enter into an ADA, which permits a purchaser, upon
payment of an area development fee, to obtain the rights to open future bakery-cafes in predetermined areas. Under
an ADA, a purchaser generally pays an area development fee of $10,000 to $15,000 for each bakery-cafe to be
5