Panera Bread Co. (PNRA) plans to add millions of dollars to its advertising push this year, as it airs its first national cable commercial this month.
Yet even with the extra hype, the St. Louis-based bakery and cafe chain expects the number of customers it serves to remain basically flat over last year, leaving some industry observers questioning whether the investment is worthwhile.
Panera says this is part of an industry-wide challenge: as the restaurant space becomes increasingly competitive, it takes more money and effort just to keep from losing customers. "A lot of people think, if you do nothing, you will stay at zero. But the reality is, if you do nothing, you'll be at a negative," said Founder and Chairman Ron Shaich.
Panera is increasing its media investment by 26% this year, but the total will still make up a mere 1.5% of its annual sales, compared with larger restaurant chains that often spend 3% to 6% of their sales on media. Panera, which is in the early stages of determining where it will get the biggest bang for its advertising dollar, has about 1,540 bakery-cafes in the U.S., and is looking to add 115 to 120 new units this year.
The fast-casual segment, which sits a step above fast food but below the bar-and-grill chains, has outshined the broader restaurant industry over the past few years, with Panera, Starbucks Corp. and Chipotle Mexican Grill Inc. (CMG) seeing their more affluent customer base keep revenue rising despite the recession.
Accordingly, Panera's share price has more than tripled over the past three years to $156, making the stock more expensive than its peers, in terms of its price-to-earnings ratio. With a relatively high price, comes high expectations and potentially limited upside for the shares.
"As we carefully increase our spending, we continue to monitor its effectiveness and continue to believe that we're getting more than a dollar of profit for each dollar of media that we're spending," said Chief Executive Bill Moreton on a conference call last month.
In 2011, Panera increased its advertising spending by 32%. Based on previous years' spending, analysts estimate Panera is looking at a roughly $55 million to $60 million media investment this year. Read More