Panera Bread 2012 Annual Report Download - page 13

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As of December 25, 2012, we had 843 franchise-operated bakery-cafes open, located throughout the United States and in Ontario,
Canada, and we have received commitments to open 159 additional franchise-operated bakery-cafes. The timetables for opening
these bakery-cafes are generally 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 2012 were $102.1 million, or 4.8 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 Company-owned bakery-cafes. Generally, franchisees are required
to purchase all of their fresh dough and other products from us or 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. 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 25,
2012, 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 25, 2012, we had 24 fresh dough facilities, 22 of which were Company-owned, including one located in our Ontario,
Canada market to support the nine bakery-cafes located within the market.
Fresh dough is the key to our high-quality, artisan bread, and fresh produce is essential to our quality salads and sandwiches. We
distribute fresh dough and produce through a leased fleet of temperature controlled trucks operated by our associates. As of
December 25, 2012, we leased 205 trucks. The optimal maximum distribution range is approximately 300 miles; however, when
necessary, the distribution ranges may be up to 500 miles.
Our bakers bake through the night shaping, scoring, and finishing the dough by hand to bring our customers fresh-baked loaves,
bagels, and sweet goods every morning. In addition, our bakers bake high volume products throughout the day to continue to
deliver abundant amounts of the highest quality and freshest bread possible. We believe our fresh dough facilities have helped us
and will continue to help us to ensure consistent quality at our bakery-cafes.
We focus our growth in areas we believe allow us to continue to gain efficiencies through leveraging the fixed cost of the fresh
dough facility structure. We expect to selectively enter new markets, which may require the construction of additional fresh dough
facilities once a sufficient number of bakery-cafes are opened to ensure efficient distribution of fresh dough and other products.
Our supply chain management system is intended to provide bakery-cafes with high quality food from reliable sources. We contract
externally for the manufacture of the remaining baked goods in the bakery-cafes, referred to as sweet goods. Sweet goods products
are completed at each bakery-cafe by our professionally trained bakers. Completion includes finishing with fresh toppings and
other ingredients and baking to established artisan standards utilizing unique recipes.
We use independent distributors to distribute our proprietary sweet goods products, and other materials to bakery-cafes. With the
exception of products supplied directly by the fresh dough facilities, virtually all other food products and supplies for our bakery-
cafes, including paper goods, coffee, and smallwares, are contracted by us and delivered by vendors to an independent distributor
for delivery to the bakery-cafes. We maintain a list of approved suppliers and distributors from which we and our franchisees must
select. We leverage our size and scale to improve the quality of our ingredients, improve purchasing efficiency, and negotiate
purchase agreements with most of our approved suppliers to achieve cost reduction for both us and our customers.
For further information regarding our product supply, see Item 1A. Risk Factors.