Retail

Why Panera Does Its Own Delivery

Delivery on demand is one of the hallmarks of the mobile/digital era, and so it’s unsurprising the speed at which being able to delivery has become a key differentiator for Panera Bread, which recently rolled out its delivery option nationwide.

The journey to nationwide delivery was neither easy nor short for the Missouri-based soup, sandwich and  bread chain. When the quick-service restaurant first started experimenting with the concept in select locations in 2014, it came within micrometers of being cancelled. Current CEO Blaine Hurst was the prime mover behind Panera’s first large-scale delivery test in Louisville, Kentucky, four years ago. The problems were myriad: Operational complexities were much bigger than anticipated, and finding a stable of qualified delivery drivers ended up being tough.

The leadership team actually voted to kill the project, but Hurst was able to talk then-CEO Ron Shaich into keeping the pilot going for a little while.

“I said, ‘Just let me finish the Louisville test. It will either work, or it won’t work. And if it doesn’t work, we’ll shoot it,’” Hurst noted in an interview.

As it turns out, they didn’t shoot it, which meant Panera has today something that most chains in its position don’t have: a four-year headstart in an area Panera’s CEO has been convinced for nearly a half decade is the future of food retail: delivery. It’s a defining trait for Panera today, he noted, but in the not-so-distant future, he believes delivery offerings won’t be something special. In fact, he thinks they might look a whole lot more like table stakes.

“Digital is becoming more of an ante than a special feature,” Hurst noted. “At some point, all restaurants will have it. As of today, I don’t really think of delivery as an optional offering; it’s just something you have to have, or at least have a pretty solid plan for getting into place.”

The proof, according to Panera, is in the numbers. Digital — including online pick-up and kiosk orders — makes up 31 percent of its sales, or about $1.75 billion in revenue in 2017; off-premise dining — which includes, delivery, to-go and catering — makes up about 62 percent off Panera’s business.

The retail locations, according to Hurst, are doing “fine” but in-store dining isn’t where the company’s growth is coming from. That doesn’t mean Panera plans to pull away from its brick-and-mortar dining experience for customers — Hurst believes that it’s “too important to their business” to risk — but it does mean that Panera is committed to preserving the power of the headstart it’s managed to carve out in the industry by sticking with an in-house delivery plan, even when its prospects looked less than stellar.

And while other players are partnering with delivery providers — i.e. McDonald’s and Grubhub — Panera is committed to running its operations in-house. First, Hurst noted, because it gives the company maximum control on rollout: The company isn’t limited to markets where their partner provides.

More importantly, he noted, Panera wants to own its customer data; controlling the delivery program in-house provides the maximal access it needs — and, he told Barron’s, also the right amount of control.

“I never want to have a ‘Facebook situation,’ where that data is being sold,” he said of the risks of a partnership.

Critically, having control over the data means Panera can then plug what they learn into their offerings —whether that be menu items or building out a better guest experience.

“That’s the next generation,” he said.

It’s a next generation that is growing up now, so to speak. Hurst expects that digital is only going to grow and that the 31 percent of orders the company has today could easily expand to be a full 50 percent of orders very soon. Some markets, he said, are already there, and some markets have already blown right past the 50 percent mark to a full 60 percent of orders going digital.

Hurst said Panera will always have physical locations. The plan is not to morph into a delivery-only setup. He said people should expect a Panera to have seats — they aren’t about to change that.

Instead, Hurst said, what they want to do is improve it.

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