Panera Bread 2010 Annual Report Download - page 12

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FRANCHISE OPERATIONS
Our franchisees, which as of December 28, 2010, operated approximately 54.4 percent of our bakery-cafes, are
comprised of 48 franchise groups with an average of approximately 16 bakery-cafes per group. We are selective in
granting franchises, and applicants must meet specific criteria in order to gain consideration for a franchise.
Generally, our franchisees must be well-capitalized to open bakery-cafes, meet a negotiated development schedule,
and have a proven track record as multi-unit restaurant operators. Additional qualifications include minimum net
worth and liquidity requirements, infrastructure and resources to meet our development schedule, and a commit-
ment to the development of our brand. If these qualifications are not met, we may still consider granting a franchise
depending on the market and the particular circumstances.
As of December 28, 2010, we had 791 franchise-operated bakery-cafes open, all located in the United States
and we have received commitments to open 176 additional franchise-operated bakery-cafes. The timetables for
opening these bakery-cafes are established in the various Area Development Agreements, referred to as ADAs, with
franchisees, which provide for the majority of these bakery-cafes to open in the next four to five years. The ADAs
require a franchisee to develop a specified number of bakery-cafes on or before specific dates. If a franchisee fails to
develop bakery-cafes on schedule, we have the right to terminate the ADA and develop Company-owned locations
or develop locations through new franchisees in that market. We may exercise one or more alternative remedies to
address defaults by area developers, including not only development defaults, but also defaults in complying with
our operating and brand standards and other covenants under the ADAs and franchise agreements. We may waive
compliance with certain requirements under our ADAs and franchise agreements if we determine such action is
warranted under the particular circumstances.
The revenues we receive from a typical ADA include a franchise fee of $35,000 per bakery-cafe (of which we
generally receive $5,000 at the signing of the ADA and $30,000 at or before the bakery-cafe opening) and
continuing royalties, which are generally 4 percent to 5 percent of net sales per bakery-cafe. Franchise royalties and
fees in fiscal 2010 were $86.2 million, or 5.6 percent of our total revenues. Our franchise-operated bakery-cafes
follow the same protocol for in-store operating standards, product quality, menu, site selection, and bakery-cafe
construction as do Company-owned bakery-cafes. Generally, franchisees are required to purchase all of their fresh
dough and other products from sources approved by us. Our fresh dough facility system supplies fresh dough and
other products to substantially all franchise-operated bakery-cafes. We do not generally finance franchisee
construction or ADA payments. However, in the fiscal year ended December 30, 2008, or fiscal 2008, to facilitate
our expansion into Ontario, Canada, we entered into a credit facility with our initial franchisee in that market. See
Note 13 to our consolidated financial statements for further information regarding the credit facility with our former
Canadian franchisee. From time to time and on a limited basis, we 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. As of
December 28, 2010, we did not hold an equity interest in any of our franchise-operated bakery-cafes.
BAKERY-CAFE SUPPLY CHAIN
We believe our fresh dough facility system and supply chain function provide us a competitive advantage. We
have a unique supply-chain operation in which our regional fresh dough facilities supply on a daily basis dough for
our fresh bread along with, tuna, cream cheese, and certain produce to substantially all of our Company-owned and
franchise-operated bakery-cafes. As of December 28, 2010, we had 26 fresh dough facilities, 22 of which were
Company-owned, including a limited production facility that is co-located with one of our Company-owned
bakery-cafes in Ontario, Canada to support the three Company-owned bakery-cafes located in that market.
Fresh dough is the key to our high-quality, artisan bread. Distribution is accomplished through a leased fleet of
temperature controlled trucks operated by our associates. As of December 28, 2010, we leased 196 trucks. The
optimal maximum distribution range is approximately 300 miles; however, when necessary, the distribution ranges
may be up to 500 miles. An average distribution route delivers dough and other products to seven bakery-cafes.
Our bakers work through the night shaping, scoring, glazing, and baking the dough by hand to bring our
customers fresh-baked loaves every morning and throughout the day. We believe our fresh dough facilities have
helped us and will continue to help us to ensure consistent quality at our bakery-cafes.
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