Panera Bread
Wow, what happened here?
Profit is going to be lower because of increased costs for gasoline and demand shifting from breads and bagels (made by Panera) to souffles, scones, and muffins (made by a supplier).
I'm calling bullshit on the first excuse; every other restaurant has to deal with the same issues. Maybe Panera is ahead of the curve, but I doubt it. How do they know that fuel costs are what is killing demand vs., let's say, stale product and a pizza introduction that has been less than stellar? Couldn't it be just more competition in their space?
The second excuse seems reasonable to me, but I can't help but wonder if their margins are getting crushed all around by higher food input prices and higher transportation (fuel) costs. Not to mention what is about to happen when the minimum wage increases (even if they don't pay minimum wage, it'll have a ripple effect).
Rich, maybe you can shed some light. I thought the Crispani was the savior?
Profit is going to be lower because of increased costs for gasoline and demand shifting from breads and bagels (made by Panera) to souffles, scones, and muffins (made by a supplier).
I'm calling bullshit on the first excuse; every other restaurant has to deal with the same issues. Maybe Panera is ahead of the curve, but I doubt it. How do they know that fuel costs are what is killing demand vs., let's say, stale product and a pizza introduction that has been less than stellar? Couldn't it be just more competition in their space?
The second excuse seems reasonable to me, but I can't help but wonder if their margins are getting crushed all around by higher food input prices and higher transportation (fuel) costs. Not to mention what is about to happen when the minimum wage increases (even if they don't pay minimum wage, it'll have a ripple effect).
Rich, maybe you can shed some light. I thought the Crispani was the savior?
posted by Fresh at
10:37 AM
10 Comments:
Well, they've hit the top of their price they can charge, I would think and because they run their little trucks out everday to do dough delivery, the operating leverage the model creates is now working against them. As for the souffle / scone thing, it's sensible. Crispani Crispani. I've still never had one. Hope the stock trades at low 20x trailing. That would be a nice price (~$39). I'd be a buyer there. Probably not until.
Crispani... you've never had one and neither has anyone else.
Fresh,
Gas prices are at back at highs and oil is at $65 a barrel. Why would it surprise you that a restaurant stock would be hurt? My question is, why havent more been hurt? That's a lot of money going into the pockets of oil sheiks and not restauranteurs.
Rich-
Let me know if you buy Panera. I would not mind picking some up.
Have you looked at CBOU. In my mind the best opportunity in this space. But I have not analyzed the unit economics, which is the big driver for these, right? It is simply cheap.
Matt
French warlord,
Why would it impact them any more today than it did last year? I am not totally discounting the idea that fuel prices are hurting restaurant companies. Clearly, fuel is expensive ($60 for me to fill up) and that takes away from discretionary spending. What I am discounting is the idea that it is impacting Panera any differently than it is impacting Chipotle, Atlanta Bread Company, P.F. Chang's, and, to a slightly lesser effect, McDonald's, Burger King, Wendy's, and Yum. Which might be to your point.
I am finding that l'excuse du jour (like that, froggy?) is gasoline prices. Our menu sucks and no one visits? Must be oil prices. We negotiated a terrible contract with a supplier? Blame our higher cost structure on oil prices. We totally over estimated demand for product XYZ? Gas must be killing the consumer.
This line of reasoning makes sense if you are American Airlines or General Motors. It makes less sense if you are Barnes and Noble or Cingular. Or Panera Bread.
My assertion is that their struggles have more to do with a stale menu, a stale concept, and over estimating customers' likelihood of eating dinner at a sandwich place than it does with gasoline prices. Not to mention that the market for pizza is highly competitive. Quick, name 5 places to order pizza. I bet Panera wasn't one of the ones you listed.
Every time I go to Chipotle, there is a line. Every time I go to Pei Wei, the tables are full. Every time I go to Panera, the line gets shorter and shorter.
From Bloomberg:
"McDonald's sales rise 8.7% on 'Shrek' Tie-In, Chicken Sales"
"'They're continually introducing new food items, particularly chicken-based items that are very attractive to more health-conscious consumers,' said Peter Jankovskis, who helps manage $1.3 billion at Oakbrook Investments LLC. 'Tagging onto strong box-office results for Shrek is a nice way to boost sales.'"
"McDonald's continues to execute across the globe."
"McDonald's CEO Jim Skinner told shareholders May 24 that a 'robust pipeline' of new foods and beverages will extend four years of sales gains."
No mention of gas prices.
1) MCD's is benefiting from huge foreign sales.
2) They were sucking wind for so long that they get an easy comp benefit on top of a limited time Shrek benefit
3) Trade down effect/market segment - People still willing to pay $4 for a #3 and $2 for a happy meal for for their kids but unwilling to pay $10 for a panini. Teenagers/Brent Adamson will still eat at McDonalds but a mother of 3 might pack a lunch rather than shell out the $10 for Panera.
You are probably right that PNRA has issues specific to them but I still think you will start to see a bigger impact on results owing to high energy prices. Behaviors dont change overnight. The longer energy prices stay high the more people will adjust their spending habits. Just my 2 uninformed cents.
Bottom line:
If you do well, you can control it.
If you do not do well, blame things that you cannot control.
I thought our school taught expectations investing.
Good reporting Guiscard, but who misses in the future? MCD?
My mouf is watering over CBOU. Put it in runoff, and let the market seak out franchising and tell me what it is worth. Sell off the company owned stores and pow, bam, bing, I'm rich. Who's in?
Good god. Why do I love to think about about putting coffee shops in runoff, when everyone else in the world dreams about buying bread companies at 20 times.
Could you imagine in the 1980s if you told people your great investment idea was buying a bread company. WTF. Someone asked me my best idea and I said BRK. They said "I want something a little less stable and risky". Well how about the fact that i have owned it for little more than a year and it is up 20% and I expect it will be up another 20% next year regardless where the market is.
I go through periods where the market seems easy, and it seems easy to me right now. It is easy to be in Berkshire. Easy. Simple call. It is easy to be in CBOU. It is too easy. I hope the market gets cut in half. See you guys at the bottom and the next BRK meeting where I am smoking Cuban cigars.
Full disclosure here... I think CBOU is a good, potentially great, investment idea. I say potentially great because I think management has something to prove before it is great.
I had this exact same discussion with my wife earlier today re: Starbucks. If you told someone in 1985 that you were going to found a restaurant that sold coffee for $5 a cup, people would've thought you were nuts. Our culture has changed.
Panera is a solid company. I don't believe that they are executing well right now. They'd better get it turned around before people forget about them. Consumers are fickle.
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