Panera Bread: I don’t think there’s anything quite like it out there. It’s a bakery and a cafe all rolled into one. They sell baked goods like bagels and muffins, both of which I highly recommend.

The Success of Panera Bread

By the way, in addition to sandwiches, soups, salads, pasta dishes, coffee, and other beverages, there’s a unique selection that has been taking over the country. There are over 2,000 of these bakery cafes spread across every contiguous state and Ontario, Canada. Their estimated five billion dollars in system-wide sales makes them one of the biggest restaurant chains in the United States, serving over nine million people every week.

The segment they operate in is called fast-casual. It’s like a middle ground between fast food and casual dining, characterized by higher quality food that you still go up and order at the counter. Some other notable restaurants in that segment would be Panda Express, Five Guys, and Shake Shack. But the two that stand out above the others are Chipotle and Panera Bread. They are both commonly credited as being pioneers in that segment, being the first ones to stand out in the late 90s, early 2000s, before the segment was even truly recognized, and to this day are still the two biggest.

Here we have a restaurant that took a different approach from all the others around it and was so successful in doing it that they shook up the entire industry. So, I think it would be interesting to take a closer look at Panera while talking about what makes them different and highlighting what I believe to be the biggest reasons behind their success.

Ronald Shaich The Visionary Leader Behind Panera Bread

First off, Ronald Shaich. He was a co-founder back in 1981 and continued to lead the company for the next 36 years, being a driving force behind many of their decisions. But it’s not that straightforward. See, in the 1970s, a company known for their baking equipment opened a French bakery in Boston called Au Bon Pain (ABP for short). That was mostly meant to demonstrate and promote the ovens that they were selling.

After a couple of years, this guy named Louis Kane saw potential in the market for French baked goods and agreed to buy that bakery for 1.5 million dollars. He was a Harvard graduate that ran an investment firm, so he had the money to do it, and after opening two more of them in the following years, is where Ronald Shaich enters the picture. He was coincidentally a Harvard graduate as well, that had opened a cookie store called The Cookie Jar nearby in the same marketplace. It turns out that cookies are more of an afternoon or evening type treat, so he wasn’t getting much business in the mornings.

To attract customers at that time, he started licensing baked goods from Kane’s company ABP to sell at his store. After about a year of working together, they made a deal to combine their businesses together into a partnership, according to the company. And this seems strange to me, but customers would come in with their own deli meats from home and then buy bread from the bakery to construct their own sandwiches.

At that point, it was obviously time to expand their menus, so they started selling sandwiches, soups, and salads, and it helped them grow. In 1991, they had a stock offering and used the money to expand through a series of acquisitions, the most notable one being in 1993 when they paid 23 million dollars for another bakery cafe with about 20 locations in the Midwest called The St. Louis Bread Company. They originally bought it because it allowed them to enter new markets they had yet to make their way outside of New England or into the suburbs, so it seemed like a perfect fit.

I realized that this is getting confusing because it’s hard to tell where I’m going with it. I’ve been talking about two different bakery cafes, neither of which is called Panera. Well, stay with me for a second because I’m about to make things a little bit more confusing before clearing it up entirely. My next reason behind the success of Panera is selling Au Bon Pain.

Selling Au Bon Pain

See, that’s a confusing statement with a very simple explanation. The Saint Louis Bread Company may not be the most attractive name to people outside of Saint Louis, so when ABP started operating new ones outside of that city, they chose to go with the name Panera instead. So if you’ve ever been to Saint Louis and saw a place labeled The Saint Louis Bread Company that looks suspiciously like a Panera Bread, that’s the reason.

By the second half of the 1990s, ABP, the overall company, was having trouble. Some of the reasons behind it would be expanding too fast into poorly planned areas, in many cases forcing them into costly real estate deals. Things were also getting competitive with Starbucks popping up everywhere, raising food costs were also a concern. In 1995, they reported their first-ever net loss that just continued to get worse, and by 1998, they saw a drop in sales despite opening 46 new locations.

The Panera restaurants were generally selling more than the ABP restaurants, and that helped Ronald Shea come up with a bold solution. In his words, “I realized Panera was the gem, and it was buried. I knew I should sell everything else off and bet the whole thing on Panera.” So, in 1999, that’s what he did. The ABP company sold the ABP restaurants for 73 million dollars. Now that the Panera chain was their primary focus, they changed the name of the company to Panera Bread and used that 73 million dollars to pay off their debt and further invest in it.

So, hopefully, that second reason makes a little more sense now as the story comes together. And that actually leads me right into the third reason, which is franchising.

Franchising

Now that the Panera restaurants had all the money and attention that they needed, they started doing really well, becoming profitable again the following year and attracting some talented franchisees. Those are the people who open the Panera Breads but then pay the Panera company for the right to do it. And because so many people wanted to do it, the company was able to set some strict requirements and turn down a ton of lesser qualified applicants. They would accept something like 0.25 percent of the people who applied, almost ensuring that capable people would be running their restaurants.

To this day, don’t even think about opening a Panera Bread unless you have a net worth of at least 7.5 million dollars. And that’s partially because you’ll be expected to open many of them, typically 15 within a specified area over the course of six years. Making big agreements like that helped them expand fast. 260 of them in the year 2000 grew to almost 1400 of them by the end of that decade.

The Menu: Artisan Bread and Fresh Ingredients Philosophy

From here, I want to talk more about the restaurant itself, and maybe the most important element of almost any restaurant would be the menu. Obviously, for Panera, they are all about bread, so much so that it is in their name two times. Panera is essentially the Latin word for bread basket, and then bread is the English word for bread. Gosh, it’s almost always fresh too, because their famous artisan bread is made from dough that is shipped to each restaurant daily and baked on-site. That’s the whole image that they’re trying to convey through their menu.

They want you to think that everything is fresh and healthy and chemical-free, which I realize is not necessarily the same thing, but they tend to group it together. In 2004, they advertised that their chicken was raised without antibiotics. In 2010, they became the first national restaurant to put that calorie information up on the menu boards.

In 2015, they came out with what they call a no-no list. It was a long list of artificial ingredients that they won’t put in their food that included high fructose corn syrup, and then two years later, they took a step further by making all of their food completely free of artificial preservatives, sweeteners, flavors, or colors. I don’t know if all of this means that their food is necessarily healthier; that’s up to you to decide. But it definitely creates that natural vibe.

Again, I’ll point out that this is along the lines of the fast-casual concept. It tends to be higher quality and therefore more expensive than you would typically see at a fast-food restaurant. It’s a definite trade-off but one of the things that separate them from so many of the others.

Environment

My next reason is another thing that separates them from fast-food restaurants, and that is the environment. When you go to a McDonald’s, it is fast-paced; everything is designed to get you in and out of there. But Panera is almost the opposite; they want you to relax and hang out there for a while. They describe it as warm, inviting, and comfortable, maybe best exemplified by the calming colors or the fact that many of them have an actual fireplace. It doesn’t get much warmer than that.

In 2009, Ronald Shaich said,

Can you imagine that? They created such an inviting environment that the food is almost secondary to the surroundings. Another part of that environment that’ll make you get together with people and hang out for longer is the free Wi-Fi, which I know doesn’t sound like a big deal today because so many places have it. But they were among the first in 2004, believe it or not. They were actually providing more free Wi-Fi than any other company in the United States. And just to compare it, Starbucks didn’t start offering free Wi-Fi for another six years.

Creating Friendly and Local Vibe

My next reason could be considered an extension of the environment, but Panera Bread does a good job in creating a friendly, local feeling. In this aspect, I think of them as like the restaurant version of Trader Joe’s. It’s a national chain that puts in an effort to adapt each location to the neighborhood that it’s in. All of them are decorated differently, many times with things that represent the local area. The franchisees are given the freedom to make little changes in their area.

The people who work there are trained to be extra friendly and greet the customers by their name. They have a loyalty program called My Panera that again personalizes the experience and makes people feel like they are valued and part of something. It’s all designed to create less of a corporate feeling and to get the customers to continue coming back.

Off-Premises

I’m gonna follow that one up with the other end of their business, which is the sales that they make off-premises. We are in a world that’s becoming more and more focused on delivery and takeout. It’s been happening for years but especially during the pandemic, and that is bad news for a company like this that derives so much of their value from their inside environment. That has been a major concern, and I think they’ve done a good job in addressing it.

In 2014, they announced an effort called Panera 2.0 that involved different ways to order using technology. But probably the biggest part of it was the introduction of rapid pickup. It allows customers to place an order online, even days in advance, and then come in and pick it up from a special shelf or have them bring it out to your car. They also started offering delivery from many locations, and in 2021, they introduced what they’re calling the next-generation cafe. They have all of the inside stuff that you would expect and a drive-through and a pickup lane.

Overall, there have been some strong recent efforts to adapt to the trend of people eating off-premises.

Conclusion

That is my list. Panera is one of the biggest, most successful restaurants in existence today, and those are my best attempts to explain why. But there are still a couple of interesting things that I still want to mention. After being publicly owned since before the Panera name even existed, they were sold to the privately owned JAB Holdings in 2017 for over 7 billion dollars. It’s a German investment company that already owned a bunch of other coffee and bakery brands.

Then, in 2021, Panera Brands was created when they were joined together with Caribou Coffee and Einstein Brothers. Also, I thought it was interesting that Panera rebought Au Bon Pain in 2017. They had been operating separately all those years, even growing to over 300 locations, but then went on to sell it for a second time in 2021. I know it’s almost too many ownership changes to keep it all straight, but I thought those two were worth mentioning.

Let me know in the comments, what do you think of Panera Bread? Do you like the food? Do you like the friendliness and overall environment? Or maybe you like it but don’t think it’s worth the price? Personally, I think it’s a cool place, but those prices can be discouraging. And what do you think of that story? It’s pretty amazing.

A lot of things had to happen for Panera to even exist in the first place, but here we are, and it makes for an interesting case study. And finally, what do you get when you go there? That menu has some varieties, so I’d be curious to hear the items that stand out to everyone and any other thoughts you have about Panera Bread. Leave them in the comments; I’d like to hear what you have to say.