Why is Panera Closing So Many Stores?

Panera Bread, the popular fast casual restaurant chain known for soups, salads, sandwiches and baked goods, has closed a significant number of locations in recent years. According to various reports, Panera closed over 100 stores just in 2018 alone. This has led many customers and industry experts to ask: Why is Panera closing so many stores?

Changing Consumer Preferences

One of the major reasons behind Panera‘s store closures is shifting consumer preferences and habits. Casual dining chains like Panera rely heavily on dine-in customers. But in recent years, customers have favored convenience, speed, and accessibility over the dine-in experience.

Younger demographics in particular have driven the demand for delivery, drive-thru and digital/mobile ordering. Panera has struggled to adapt as new chains like Sweetgreen and Cava have designed their business model around these trends. Closing underperforming dine-in locations allows Panera to redirect resources towards pickup, delivery and drive-thru.

For example, Sweetgreen has grown rapidly with locations optimized for pickup and mobile ordering, with a menu centered around fresh salads and bowls. Cava offers Mediterranean-inspired meals for quick pickup or delivery. These digitally-driven concepts are luring away Panera‘s customer base.

Increased Competition

The fast casual restaurant industry is more saturated than ever. Chains like Chipotle, Shake Shack, Blaze Pizza and MOD Pizza have eaten into Panera‘s market share with trendy new offerings. Meal kit delivery companies like Blue Apron are also competing for the health-conscious consumer. This increasingly competitive landscape has made standing out and attracting customers more difficult. Panera has been forced to close weaker stores that can‘t draw enough traffic.

Specifically, Chipotle has captured the customization trend with their burritos, bowls and tacos. Shake Shack has developed a cult following with their burgers, shakes and crinkle-cut fries. Niche brands like Blaze Pizza (fast-fire‘d customizable pizzas) and MOD Pizza (individual artisan-style pizzas) have also resonated with younger generations. Panera has fallen behind when it comes to new crave-worthy menu items.

High Operational Costs

Panera cafes are spacious, with seating for customers to dine-in. While this creates a welcoming atmosphere, it also means higher real estate and operational costs compared to locations optimized for pick-up and delivery. Staffing these large dine-in locations has also become more expensive in recent years due to rising wages and benefit costs. Closing smaller and underperforming stores has allowed Panera to reduce expenses and consolidate into more profitable locations.

For example, wages for food service workers have steadily risen in recent years. Many states have increased minimum wages, while labor shortages have forced chains like Panera to offer higher pay to attract workers. Providing health insurance and other benefits to employees has also become costlier. One study found that labor costs for limited-service restaurants were up 5-10% in 2021 compared to 2020. Managing these costs is easier with fewer dine-in locations.

Refocus on Technology & Delivery

Panera has openly acknowledged that it has been late to adopt delivery, lagging behind competitors. The company is now aggressively pushing into delivery, online ordering, and other digital channels. In many markets, Panera is closing dine-in locations while opening new pickup and delivery-focused spots to penetrate different areas. Technology investments like self-order kiosks are also coming to more locations. Refocusing the business on off-premise dining requires closing less profitable dine-in stores.

In the company‘s Q3 2019 earnings call, Panera CEO Niren Chaudhary stated "We are enhancing convenience and ease for our guests through rapid expansion of delivery and catering, as well as increasing activation of Rapid Pick-Up for mobile pre-orders." He noted that Panera is on track to offer delivery from over 60% of their locations by the end of 2019.

New Ownership Strategy

In 2017, Panera was acquired by JAB Holding Company, a private investment firm managing restaurant and retail brands. JAB seems to be pursuing an aggressive strategy to make Panera a leaner, more profitable chain. They may believe that cutting lower performing locations, even at the cost of total restaurant count, will put Panera in a better long-term position. The store closures reflect this new ownership‘s strategic direction.

After acquiring Panera, JAB installed new leadership including CEO Niren Chaudhary, former CEO of Krispy Kreme. Chaudhary has an extensive background in digital innovation and immediately began implementing changes to modernize Panera‘s business. This shift in leadership and ownership priorities has been a catalyst behind the recent store closings.

Impact on Communities

While closing underperforming stores may make strategic sense for Panera, it has negatively impacted some communities where locations have closed down. For example, Marlton, NJ residents expressed disappointment when their local Panera shut down in 2018 after 11 years in business. Residents noted that it was a popular gathering place and had more healthy options than most fast food restaurants. The closing left a void in that neighborhood‘s dining options.

However, Panera also notes that they try to relocate employees from closed cafes to nearby locations as much as possible. Their overall workforce has not been reduced despite the closures. Panera also continues to open new locations tailored to digital ordering and delivery in regions where it makes sense.

Outlook Going Forward

There is still optimism that Panera can bounce back from recent struggles. Industry experts point to Panera‘s efforts to enhance digital ordering, delivery, curbside pickup, drive-thru and other customer conveniences. With JAB‘s financial backing and expertise, Panera is positioned to adapt to the new retail landscape. Their freshly prepared, wholesome menu also caters well to health conscious consumers. By learning from recent challenges and closing underperforming locations, Panera can focus on their strongest markets and new store formats.