Panera Turns On Tech to Heat Up Its Stale Business

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Panera Bread (PNRA) is falling out of favor with diners and investors, and the chain of bakery cafes is hoping that a tech-heavy makeover can win back both parties.

In a test that rolled out early last year at dozens of locations, Panera has begun installing touch-screen tablets that customers can use to place orders without having to line up when the queues are long. Customers can also just fire up their smartphones to place orders. The Panera 2.0 makeover isn't just about giving customers new convenient ways to piece together their sandwiches, pastas, soups, and salads: Unlike the traditional Panera experience where pagers start buzzing to beckon a customer back to the counter when an order is ready, the new platform staffs servers who bring orders out to tables.

The quality of the food remains the same. The key at Panera is to make the experience less hectic and more enjoyable.

When Hot Ovens Go Cold

Panera 2.0 may sound more like an operating system than a concept redo, but the chain of 1,845 restaurants that combine bakeries with cafe fare can't afford to slip out of consumer fancy in the fickle world of fast-casual. The concept isn't as hot as it used to be. Net sales that used to consistently grow at a double-digit pace have inched just 8 percent higher through the first three quarters of 2014.

Many chains would love to grow their sales by that much, but Panera historically has been serving up double-digit gains on the top line. Making matters worse, net income has actually declined through the first nine months of 2014. Analysts see profitability slipping for all of 2014 and barely bouncing back in 2015.

Panera used to be a market darling. It was one of the few stocks to move higher every single year since 2007 -- including the tumultuous 2008 -- before closing slightly lower in 2014. Can the company that began as the Saint Louis Bread Co. bounce back?

Convenience Isn't Cheap

There's a lot riding on Panera 2.0, and it all starts with a sizable investment. The typical conversion sets Panera back $125,000, and that's before another $20,000 to $30,000 that goes to transition and training costs. The eateries then experience an increase in operating expenses as labor costs (servers to deliver the orders), credit card fees (since mobile and in-store kiosks don't take cash), and information technology support bump up the overhead.

Panera hopes to make up for the capital investment and higher operating expenses with an increase in net sales. Customers won't leave when they see a crowd at the register, and the convenience of mobile and kiosk orders could encourage patrons to spend more.

The ultimate math has to be working. Panera's test wouldn't be closing in on what is now roughly 100 of its 1,845 locations running Panera 2.0 if it wasn't bearing fruit. The one thing that should concern investors is if this high-tech makeover doesn't work. If improving convenience isn't enough to make Panera a cult fave again, it will have bigger problems than wiping a fleet of tablet touch screens at the end of the day.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Panera Bread. Try any of our Foolish newsletter services free for 30 days. To feast on our favorite high-yielding dividend stock ideas for any investor, check out our free report.
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