Panera Bread 2013 Annual Report Download - page 13

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Franchise Operations
Our franchisees, which as of December 31, 2013, operated approximately 51 percent of our bakery-cafes, are comprised of 37
franchise groups with an average of approximately 25 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 a multi-unit restaurant
operator. Additional qualifications include minimum net worth and liquidity requirements, infrastructure and resources to meet
our development schedule, and a commitment to the development of our brand. If all of these qualifications are not met, we may
still consider granting a franchise depending on the market and the particular circumstances.
As of December 31, 2013, we had 910 franchise-operated bakery-cafes operating throughout the United States and in Ontario,
Canada, and we have received commitments to open 117 additional franchise-operated bakery-cafes. The timetables for opening
these bakery-cafes are generally established in our Area Development Agreements, or ADAs, with franchisees, which provide for
the majority of these planned 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 specified 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.
Pursuant to a typical ADA, we receive 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 five percent
of net sales per bakery-cafe. Franchise royalties and fees in fiscal 2013 were $112.6 million, or 4.7 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. We also provide, for a fee, limited
information technology services to our franchise-operated bakery-cafes. As of December 31, 2013, 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 31, 2013, we had 24 fresh dough facilities, 22 of which were Company-owned, including one located in Ontario, Canada,
to support the 12 bakery-cafes located within that 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 31, 2013, we leased 220 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 maintain consistent food 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. There are opportunities we may not be able to currently address with our traditional fresh dough facility
structure. As a result, we may be required to construct additional fresh dough facilities or utilize alternative manufacturing and
distribution processes consistent with our quality standards to address these needs.
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.