Panera’s Squeeze: Menu May Be Too Big, But Not for Starbucks

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Panera may be getting caught in a strange sort of pincers: It now offers too many menu items for its staff to serve efficiently. But its biggest new competition may be coming from Starbucks that wants to emulate Panera by greatly expanding its own menu.

For now, the bigger problem for the St. Louis-based chain is what to do about comparable-store sales that rose by only 1.7 percent during the third quarter, short of the company’s expectations. Overall revenues grew by 8 percent, but CEO Ron Shaich predicted flattened sales in the fourth quarter.

Shaich identified the comp-sales problem in part as stemming from “operational friction, including capacity and throughput constraints.” Translation: Panera outlets tend to have either too many menu items, or they’re too complex, or there aren’t enough staffers to handle the demands of preparing the food as well as the customer flow. Or all of the above.[more]

“Our recent comp performance has led to a great deal of self-examination and a thorough review of how we compete and how we operate our business,” Shaich said. Among other concerns is that Panera needs to figure out this problem soon or it may “inhibit our ability to benefit from a number of potentially significant transaction-driving initiatives, including national advertising and enhanced access for customers, that are being readied to begin rollout in 2014.”

A bit puzzlingly, Shaich also alluded to concerns about “a less differentiated experience” at Panera these days. That may indicate he sees difficulties in menu proliferation that doesn’t separate Panera from its fast-casual competition, such as the pasta dishes that it recently added to attempt to swipe some business from specialty purveyors such as Noodles & Co.

QSR chains such as McDonald’s also have continued to vary their menus as an antidote to slow sales but also have ended up in some cases simply confusing consumers and bottlenecking food preparation. On the other hand, one of the continued high-flyers in the restaurant business is Chipotle, which has kept its fresh-Mex menu very simple despite other marketing initiatives.

Panera earlier suspended aspects of its “Pay What You Can” campaign in part because the promotion, featuring a single item available for just a voluntary contribution, tended to get lost amid the cacaphony of other offers at Panera.

And if differentiation is a concern for Panera now, some analysts are warning it faces a bigger problem as Starbucks continues to expand its menu and its focus—seemingly to emulate how Panera has broadened from a bread-and-bagle shop to an all-day eatery. The intensifying rollout of a menu of items from Starbucks’ La Boulange bakery as well as a new partnership with Danone to launch its Evolution Fresh brand is feeding such speculation. Starbucks also is moving to add sandwiches, salads and soups to most of its outlets in the months to come.

“By targeting new dayparts, Starbucks has the opportunity to make its stores more profitable,” The Motley Fool noted. “Panera, on the other hand, stands to lose market share to Starbucks if it isn’t careful.”

And as Panera’s Shaich seems to be indicating, his company’s margin for error is narrowing.

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