Panera Bread 2011 Annual Report Download - page 11

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with our customers, our bakery-cafes are staffed by engaged associates who are skilled at and passionate about their jobs.
Additionally, we believe high-quality restaurant management is critical to our long-term success and, as such, we provide detailed
operations manuals and hands-on training to each of our associates. We train our associates both in small group and individual
settings. Our systems have been created to educate our associates so each one is well prepared to respond to a customer’s questions
and create a better dining experience. Furthermore, we believe our commitment to maintaining staffing levels and competitive
compensation for our associates is fundamental to our current and future success.
We believe in providing bakery-cafe operators the opportunity to share in the success of the bakery-cafe. Through our Joint Venture
Program, selected general managers and multi-unit managers may participate in a bonus program, which is based upon a percentage
of the cash flows of the bakery-cafes they operate over a period of five years (subject to annual minimums and maximums). We
believe the program’s multi-year approach improves operator quality, management retention, and creates team stability, generally
resulting in a higher level of consistency and customer service for a particular bakery-cafe. It also leads to stronger associate
engagement and customer loyalty. Currently, approximately fifty-five percent of our Company-owned bakery-cafe operators
participate in the Joint Venture Program. We believe this program is a fundamental underpinning of our low management turnover
and operational improvements.
Marketing
We are committed to improving the customer experience in ways we believe few in our industry have done. We use our scale to
execute a broader marketing strategy, not simply to build name recognition and awareness, but also to build deeper relationships
with our customers who we believe will help promote our brand.
To reach our target customer group, we advertise through a mix of mediums, including radio, billboards, social networking,
television, and in-store sampling days. In 2012, we will market through a new national cable campaign as a way to reach a broader
audience. We expect to continue to increase media impressions as we strive to build deeper relationships with our customers. We
believe that additional marketing will help us improve and increase recognition of the Panera brand and competitive differentiation.
We have also completed the rollout of our MyPanera customer loyalty program through which our customers earn rewards based
on registration in the program and purchases from our bakery-cafes. We believe MyPanera has allowed us to build deeper
relationships with our customers by enhancing their experience with us through receipt of rewards and enticing them to return to
our bakery-cafes. At the end of fiscal 2011, the MyPanera program had over nine million members.
Our franchise agreements generally require our franchisees to contribute to advertising expenses. During fiscal 2011, our franchise-
operated bakery-cafes contributed 1.2 percent of their net sales to a national advertising fund, paid us a marketing administration
fee of 0.4 percent of their net sales, and were required to spend 2.0 percent of their net sales on advertising in their respective local
markets. Under the terms of our franchise agreements, we have the ability to increase national advertising fund contributions from
current levels up to a maximum of 2.6 percent of net sales. The national advertising fund and marketing administration contributions
received from our franchise-operated bakery-cafes are consolidated in our financial statements with amounts contributed by us.
We contributed the same net sales percentages from Company-owned bakery-cafes towards the national advertising fund and
marketing administration fee.
We have 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 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. Franchise contributions to the advertising association are
credited towards the franchise groups’ required local advertising spending.
Capital Resources and Deployment of Capital
Our primary capital resource is cash generated by operations. We also have access to a $250.0 million credit facility. During fiscal
2011 we had no borrowings outstanding.
Our capital requirements, including development costs related to the opening or acquisition of additional Company-owned bakery-
cafes and fresh dough facilities and maintenance and remodel expenditures, have been and will continue to be significant. However,
we believe our cash flow from operations and available borrowings under our existing credit facility will be sufficient to fund our
capital requirements for the foreseeable future.
In evaluating potential new bakery-cafe locations, we study the surrounding trade area and demographics within the most recent
year, and publicly available information on competitors. Based on this review and the use of proprietary, predictive modeling, we
estimate projected sales and a targeted return on investment. We also employ a disciplined capital expenditure process where we
focus on occupancy and development costs in relation to the market. This process is designed to ensure we have an appropriate
size bakery-cafe and deploy capital in the right market.