Panera Bread is continuing to convert more of its locations into its Panera 2.0 initiative, which includes a bigger focus on mobile ordering, payments and delivery options, as the company experiences downtrodden profits due to costs.

Panera’s third quarter earnings call this week highlighted the brand’s struggle to cope with higher consumer demand, prompting it to undertake a bigger focus on using technology to streamline certain processes. It is also planning to convert the last 100 bakeries to its Panera 2.0 model in Q4, suggesting that the transformation initiative has resulted in positive customer response to mobile ordering and payment functions, as well as fast-lane kiosks.

“Panera will remain focused on delivering a high level of customer satisfaction and customization, largely through Panera 2.0,” said Blaine Hurst, executive vice president and chief transformation and growth officer at Panera, Needham Heights, MA. “Panera 2.0 includes consumer-facing technology, such as mobile app and kiosk ordering/payment, as well as areas for order pickup and operational enhancements to decrease wait times and improve order accuracy.

“Digital access to mobile, web and kiosk enables improved to-go and dine-in experiences. We believe that this digital access will serve as the foundation that enables rapid growth in catering and delivery in the future.”

Eroding margins
The company’s Q3 revenue decreased by 17 percent, partially due to costs offsetting higher sales. However, the brand was able to convert approximately 300 of its bakery cafés to the Panera 2.0 model, which undoubtedly played a role in its fiscal situation.

Panera 2.0 is also designed to fuel reduced margins, thanks to initiatives such as the rapid pick-up service, delivery to tables, fast-lane kiosks, customizable ordering and mobile payment options. The brand initially predicted it would transform an additional 90 of its bricks-and-mortar locations to equip this model, and hit 108 instead.

To ramp up sales even higher in Q4, Panera must ensure that its restaurants and personnel are able to deal with the barrage of digital and in-person orders that come in, especially around peak times such as lunch breaks.

“Panera 2.0 is comparable to the company’s menu – offer consumers choice in how they order, purchase, and experience the restaurant,” said Jeff Hasen, founder of Gotta Mobilize and author of The Art of Mobile Persuasion. “Some of the initiatives announced in 2014, like mobile paying, are early in the adoption curve, but the smartphone-powered world seems to be moving in that direction.”

Raising the bar for mobile ordering is also a top strategy for the brand.

As of this past June, Panera sees more than 45,000 orders come each day from digital channels, with total company orders on digital clocking in at 9 percent.

Executives from Panera Bread and Westfield Group claimed at CXNYC 2015 that mobile has a critical role in driving the future of commerce at shopping centers and restaurant locations, thanks to disruptive innovations and the growing use of technology such as beacons (see story).

Managing labor and revenue
The third quarter also saw Panera experience labor costs rising 12 percent higher, overshadowing a seven percent uptick in revenue growth as a whole.

The company sold 50 to 150 locations in some of its low-performing markets, proving that it is placing a spotlight on high-traffic spots as time progresses.

Despite high production costs, Q3 still took a starring role as the brand’s best-performing quarter of the past nine.

Looking ahead, the bread company will convert another set of 100 bakery cafés into the Panera 2.0 model before the fiscal year ends.

Mobile will undoubtedly play a significant role in revenue-raising goals going forward, but the marketer will need to strike a delicate balance between offering customers digital ordering and payment options and providing a human touch to all interactions.

It must also laser in on digital ordering to stay competitive in the quick service restaurant sector, which has seen marketers such as Taco Bell roll out their own mobile ordering apps. Others, including McDonald’s, have opted to team up with third-party delivery platforms such as Postmates.

“At Panera, we’re always looking for ways to innovate and improve, and we are on track to continue investing in Panera 2.0 nationwide,” Panera’s Mr. Hurst said. “We’ve seen positive results across the board including increased frequency and sales momentum.

“We believe 2.0 has had a positive impact in the business overall,” he said. “Specifically, digital utilization (i.e. any orders that are both digitally placed and digitally paid) in our Panera company cafes has now grown from 10 percent of sales at the end of Q2, to 12 percent of sales at the end of Q3 and now accounts for 22 percent of sales in Panera 2.0 cafes.

“To our knowledge, this is the highest digital utilization percentage of any public restaurant company in the industry, exclusive of pizza concepts.”

Final Take
Alex Samuely, staff writer on Mobile Commerce Daily, New York