Panera Bread 2008 Annual Report Download - page 12

rental payments commencing at a date other than the date of initial occupancy. See Note 2 to the consolidated
financial statements for further information with respect to Panera’s accounting for leases.
Sites for Paradise’s bakery-cafes include regional malls, free standing street locations, downtown business
districts, and office buildings. The average Paradise Company-owned bakery-cafe size is approximately
3,500 square feet as of December 30, 2008. The nature of Paradise’s 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 average construction, equipment, furniture and
fixtures, and signage cost for the five Paradise Company-owned bakery-cafes opened in fiscal 2008 was approx-
imately $0.9 million, net of landlord allowances and excludes capitalized development overhead, per bakery-cafe.
FRANCHISE OPERATIONS
Panera has a broad-based franchising program. Panera continues to extend its franchise relationships 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 generally 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 Company-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 generally finance franchisee construction or ADA payments. However, in fiscal 2008,
to facilitate Panera’s expansion into Ontario, Canada, Panera entered into a credit facility with its initial franchisee
in that market. See Note 13, Commitments and Contingent Liabilities, to our consolidated financial statements for
further information regarding the credit facility with the Canadian franchisee. From time to time and on a limited
basis, Panera may provide certain development or real estate services to franchisees in exchange for a payment
equal to the total costs of the services plus an additional fee. 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 30,
2008. Also, as of December 30, 2008, there were 725 Panera franchise-operated bakery-cafes open and
commitments to open 256 additional Panera franchise-operated bakery-cafes. The timetables for opening these
bakery-cafes are established in the various ADAs with franchisees, which provide for the majority scheduled to
open in the next four to five years. Panera expects its area developers to open approximately 48 to 54 new Panera
franchise-operated bakery-cafes in fiscal 2009. 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. Panera may waive compliance with
certain requirements under its ADAs and franchise agreements when it determines that such action is warranted
under the particular circumstances.
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
opened under the ADA and an initial franchise fee of up to $40,000 for each bakery-cafe developed under the ADA.
Paradise has entered into franchise agreements with 10 franchisee groups, or area developers, as of December 30,
2008. Also, as of December 30, 2008, there were 38 Paradise franchise-operated bakery-cafes open and
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