Panera Bread 2012 Annual Report Download - page 17

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• variations in the number and timing of bakery-cafe openings as compared to our construction schedule;
• management of the costs of construction of bakery-cafes, particularly factors outside our control, such as the timing of
delivery of a leased location by the landlord;
• shortages of construction materials and labor;
• our ability to negotiate favorable economic and business terms; and
• our ability to secure required governmental approvals and permits and comply with applicable zoning, land use, and
environmental regulations.
Our growth strategy also includes continued development of bakery-cafes through franchising. At December 25, 2012,
approximately 51 percent of our bakery-cafes were operated by franchisees (843 franchise-operated bakery-cafes out of a total of
1,652 bakery-cafes system-wide). The opening and successful operation of bakery-cafes by franchisees depends on a number of
factors, including those identified above, as well as the availability of suitable franchise candidates and the financial and other
resources of our franchisees such as our franchisees’ ability to receive financing from banks and other financial institutions, which
may become more challenging in the current economic environment.
As noted above, identifying and securing an adequate supply of suitable new bakery-cafe sites presents significant challenges
because of the intense competition for those sites in our target markets, and increasing development and leasing costs. This may
be especially true as we continue to expand into more urban locations. Further, any continued restrictions of credit markets may
require developers to delay or be unable to finance new projects. Delays or failures in opening new restaurants due to any of the
reasons set forth above could materially and adversely affect our growth strategy and our expected results. Moreover, as we open
and operate more bakery-cafes our rate of expansion relative to the size of our bakery-cafe base will decline, which may in turn
slow our sales and profitability growth.
Our success in part depends on the success of our franchisees business.
Our success depends in part on the operations of our franchisees. While we provide training and support to, and monitor the
operations of, our franchisees, the product quality and service they deliver may be diminished by any number of factors beyond
our control, including financial pressures. We strive to ensure customers have the same experience whether they visit a Company-
owned or franchise-operated bakery-cafe. Any problems which originate with one of our franchisees, particularly an issue affecting
the quality of the service experience, the safety of our products, or compliance with laws and regulations, may be attributed by
customers to us, thus damaging our reputation and brand value and potentially affecting our results of operations.
Furthermore, our consolidated results of operations include revenues derived from royalties on sales from, and revenues from
sales by our fresh dough facilities to, franchise-operated bakery-cafes. As a result, our growth expectations and revenues could
be negatively impacted by a material downturn in sales at and to franchise-operated bakery-cafes or if one or more key franchisees
becomes insolvent and unable to pay us royalties.
Although we have been able to successfully manage our growth to date, we may experience difficulties doing so in the
future.
Our growth strategy includes selectively opening bakery-cafes in Canada and urban areas where we may have little operating
experience. Accordingly, there can be no assurance that a bakery-cafe opened in such areas will have similar operating results,
including average weekly net sales, as our existing bakery-cafes. New markets may not perform as expected or may take longer
to reach planned operating levels, if ever. Operating results or overall bakery-cafe performance in these areas could vary as a result
of higher construction, occupancy, or general operating costs, a lack of familiarity with our brand which may require us to build
local brand awareness, differing demographics, consumer tastes, and spending patterns, and variable competitive environments.
Additional expenses attributable to costs of delivery from our fresh dough facilities may exceed our expectations in areas not
currently served by those facilities.
Our growth strategy also includes opening bakery-cafes in existing markets to increase the penetration rate of our bakery-cafes
in those markets. There can be no assurance we will be successful in operating bakery-cafes profitably in new markets or further
penetrating existing markets.