Panera Bread 2015 Annual Report Download - page 14

4
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 brand recognition and awareness, but also to build deeper relationships
with our customers who we believe will help advocate for our brand.
To reach our target customer group, we advertise through a mix of mediums, including radio, billboards, social networking, and
the Internet. In addition, we market through a national cable television campaign as a way to reach a broader audience. We believe
our shift to a greater emphasis on national and digital advertising will help us improve and increase recognition of our brand and
competitive differentiation. More recently, in the second quarter of fiscal 2015, Panera unveiled a new campaign: Food as it should
be. We believe the campaign speaks to our values and achievements, including our commitment to be an ally for the wellness of
our guests.
Our MyPanera® customer loyalty program allows our customers to 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 their receipt of rewards and enticing them to return to our bakery-cafes. Further, MyPanera offers us
valuable insight into the preferences of our customers to help us further refine our marketing message and menu design. We
believe MyPanera is the largest customer loyalty program in the industry, with approximately 22 million customers enrolled in
MyPanera at the end of fiscal 2015. During fiscal 2015, approximately 50 percent of our transactions in our bakery-cafes were
attached to a MyPanera loyalty program card.
Our franchise agreements generally require our franchisees to contribute to advertising expenses. In fiscal 2015, our franchise-
operated bakery-cafes contributed 2.6 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 0.8 percent of their net sales on advertising in their respective
markets. The national advertising fund and marketing administration contributions 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.
Capital Resources and Deployment of Capital
We finance our activities through cash flow generated through operations and term loan borrowings. We also have the ability to
borrow up to $250 million under a credit facility. Our capital requirements, including development costs related to the opening or
acquisition of additional Company-owned bakery-cafes and fresh dough facilities, maintenance and remodel expenditures, and
for other capital needs such as enhancements to information systems and other infrastructure to support ongoing operational
initiatives have been and will continue to be significant. However, we believe that cash provided by our operations, our term loan
borrowings, and available borrowings under our credit facility will be sufficient to fund our capital requirements for the foreseeable
future.
We believe the best use of our capital is to invest in our core business, either through the development of new bakery-cafes or the
enhancement of the guest experience in existing bakery-cafes.
In evaluating potential new bakery-cafe locations, we study the surrounding trade area and demographics 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 in which 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 to generate desired returns.
Our concept has proved successful in different types of locations, such as in-line or end-cap locations in strip or power centers,
regional malls, and free-standing units. The average Company-owned bakery-cafe size was approximately 4,500 square feet as
of December 29, 2015. We lease nearly all of our bakery-cafe locations and all of our fresh dough facilities. The reasonably
assured lease term for most bakery-cafe and support center leases is the initial non-cancelable lease term plus one renewal option
period, which generally equates to an aggregate of 15 years. The reasonably assured lease term for most fresh dough facility leases
is the initial non-cancelable lease term plus one to two renewal periods, which generally equates to an aggregate of 20 years. Lease
terms generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other
operating costs. Certain bakery-cafe leases provide for contingent rental (i.e., percentage rent) payments based on sales in excess
of specified amounts. Certain of our lease agreements provide for scheduled rent increases during the lease term or for rental
payments commencing at a date other than the date of initial occupancy.
The average construction, equipment, furniture and fixtures, and signage cost excluding capitalized development overhead for the
57 Company-owned bakery-cafes that opened in fiscal 2015 was approximately $1.4 million per bakery-cafe.