Panera Bread 2014 Annual Report Download - page 5

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Expanding Growth Opportunities
We are also building the foundation and capabilities necessary to expand growth.
We are continuing to use our capital to build new Panera cafes; 55-65 company stores are projected to open in
2015 and 105-115 cafes are slated to open across the system. Meanwhile, new café prototypes designed to
expand Panera’s reach into nontraditional locations are in test.
We are building out our large- and small-order delivery businesses. At the end of 2014, we had 21 catering hubs
and plan to build 11 more by the end of 2015. By yearend, one-third of our catering sales are expected to be
hubbed, which centralizes the production of large orders and takes production out of individual bakery-cafes,
improving efficiencies both for our bakery- cafes and our catering orders. We have also put in place a
professional sales force and sales disciplines to grow this business.
Our small-order delivery model continues to be refined and recent tests of cafe-based delivery services are
promising. We plan to expand our café-based delivery tests to additional markets in 2015.
Finally, we are making strides in our consumer products business. Panera is now one of the nation’s largest
purveyors of refrigerated soups. With new product innovations and new distribution opportunities in the pipeline,
we see substantial potential for growth in our consumer products business.
Ensuring Necessary Capabilities
The reality is that to deliver on the promise of our strategic initiatives, we need to have the capabilities necessary
to compete successfully.
In the past few years, we have worked with outside vendors to build our IT function. While the cost has been
considerable, this is necessary to stay relevant for our customers and keep up with the anticipated demand as we
move into an ever-more digitally focused world. We have made many of the necessary upfront expenditures and
we are now beginning to leverage those investments. Our goal is to grow sales through customer-facing access
points, such as the web, mobile devices and kiosks. Digital sales were 8% of company sales by the end of 2014,
more than double the figure they were at the end of Q2 2014. And at Panera 2.0 cafes in mature markets, digital
sales are currently in excess of 25% of sales. We expect digital sales to grow considerably in the future. As they
do, we expect order input costs to decline and labor as a percent of sales to benefit.
As industry observers no doubt realize, the war for talent is heating up. We are committed to attracting the
necessary talent in both our cafes and support centers through compensation packages and work experiences that
make Panera a best-in-class employer.
And we are investing in our cafes. Equipment upgrades, redesigns and other development costs are crucial to our
strategy of enhancing Panera’s competitive position.
Maintaining Credibility
We recognize that our strategic investments have been significant and that our ability to pursue our medium- and
long-term initiatives depends on our ability to maintain confidence in our plan in the short term. We are focused
on continuing to grow same-store sales and drive both transactions and gross profits per transaction.
We have also put in place cost controls and found economies to fund our growth initiatives. We are reallocating
resources from support functions to growth initiatives with the goal of a 5% year-over-year reduction in core
G&A over the course of 2015. And we are targeting refranchising 50 to 150 cafes in 2015 to support earnings
and improve cash flow.