Creating market buzz
Panera Bread Co (NASDAQ:PNRA) has recently launched its “Live Consciously, Eat Deliciously” campaign for tapping the healthy eating trend further. It has increased its marketing budget for the year to around 1.6% of sales compared to 1.3% and 1.4%, respectively, in the last couple of years. This indicates about a 30% year-over-year increase in actual dollars spent this year.
The other big initiative gaining popularity is the loyalty program ‘MyPanera.’ Since its launch in 2010, the chain has collected 13.8 million members, which is providing the company an excellent platform for one-on-one marketing.
Panera Cares Café
However, the company’s biggest brand-building initiative to date has been the launching of ‘pay-what-you-can’ stores known as Panera Cares Café. Here there are no bills; the customers are told the indicative price of their orders and it is up to them to ‘donate’ what they want.
Panera Bread Co (NASDAQ:PNRA) has five such cafes and these locations are all self-sustaining, thanks to its strategic positioning in areas where it attracts crowds from mixed income groups. Trends show that 20% of customers pay more than the suggested donation, 60% pay the suggested donation, and only 20% leave less.
Now Panera is taking the concept to a new paradigm and is testing a new Turkey Chilli in Bread Bowl as a pay-what-you-can item in all of its regular stores in St. Louis. Depending on the program’s success, this may go for a national launch sometime. If that happens, we would definitely see some interesting comps.
New offerings
Customers have already marked Panera for its soups, sandwiches, and salads. To further strengthen its lunch and dinner options, the company launched its pasta menu a couple of months back. And the response has been good.
It has also added new seafood items in the form of a Shrimp Salad Roll, its Lobster version, and also a Chilled Shrimp and Soba Noodle salad. In the specialty drinks category, the chain has added a new Frozen Cherry Limeade and in desserts it has introduced Strawberry Rhubarb Mini Cake.
These new items should improve restaurant traffic and boost same-store sales growth.
Final verdict
Despite the recent run-up in the stock price, we find that Panera Bread Co (NASDAQ:PNRA) has a P/E ratio of 30.3. While this may seem high, it is still cheaper than both Chipotle Mexican Grill, Inc. (NYSE:CMG) and Starbucks Corporation (NASDAQ:SBUX), which have P/E ratios of 39.5 and 33.3, respectively. All three companies are pursuing expansion plans and making their menus more attractive. Their premium multiples arise out of their strong growth prospects.
Panera Bread Co (NASDAQ:PNRA) is also investing heavily in expansions, promotions, brand building initiatives, and quality menu options to keep its growth trajectory unimpaired. It is likely to match its performance with everything that the analysts expect and outperform the broader fast-food sector. This justifies the valuation that it is commanding and offers more upsides to investors.
Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Inc. (NYSE:CMG), Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread Co (NASDAQ:PNRA), and Starbucks Corporation (NASDAQ:SBUX).
The article Do You Expect Too Much From This Stock? originally appeared on Fool.com.
Gaurav is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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