Panera bakes a recipe for success

The worst recession in a generation has brought most of the restaurant industry to its knees.

That may leave Panera Bread CEO Ron Shaich the last man standing.

The restaurant industry suffered its worst quarterly decline in customer traffic in 28 years in the second quarter, reports researcher NPD Group. But Panera pnra quarterly results, due Tuesday, are expected to be fine.

Shaich, 55, thrives by doing stuff backward. Instead of slashing prices last year, he raised them twice, once on bagels and once on soup. Even with 1,264 stores in 40 states and a recession on, he'll open 80 more this year — about the same number as in 2008. He's handing out bonuses, with last year's the biggest in three years. Panera will hire thousands this year at its company and franchised stores. And one of Panera's newest menu items isn't a value deal, but a $7.59 chopped cobb salad.

While the rest of the $566 billion restaurant industry zigged, Panera zagged. That's been Shaich's way since he co-founded in 1981 what would later become Panera — a Latin word meaning "time of bread." The fast-food industry at the time was mostly low-grade burgers, greasy fries and sugared colas. He opted to create a casual but comfortable place where folks could eat fresh-baked artisan breads and fresh sandwiches, soups and salads — without wincing about nutrition.

"We're contrarians to the core," says Shaich, seated over a chopped salad at a Panera store two blocks from Fenway Park, a 15-minute drive from Panera's co-headquarters (the other headquarters is in the St. Louis area). "We don't offer a lower-end strategy," says Shaich, bald and lanky in his typical open-collar shirt. "In a world where everyone is cutting back, we want to give more, not less."

And it's working.

Panera's numbers tell the tale. Its same-store sales, results for stores open at least a year, were up 3.4% last year and are up a bit this year. Its stock was up 50% last year, ranking among 2008's most successful restaurant stocks, and it's the best-performing major restaurant stock in the past decade, with an annualized growth rate of 31.5%. Sales in 2008 topped $2.6 billion. Shares are off less than 1% in 2009, and closed Wednesday up 65 cents, or 1.2%, at $53.47.

Even as the recession has hobbled other upscale fast-casual competitors such as Starbucks and Cosi, Panera is embracing it as a chance to grow, entering the New York City market as real estate costs eased. Instead of touting recession-buster items on menu boards, Panera's featuring "You Pick Two" (soup, salad or half sandwich) at $6.49.

Shaich has also kept his laser-focus on tweaking things he wants Panera to do better.

He's improved the freshness of Panera's lettuce by cutting the time from field to plate in half. He's improved the freshness of its breads by opting to fire up the ovens and bake all day — not just in the wee hours of the morning. He's got Panera testing a new grill that churns out paninis in half the time. All this in the midst of an economic downturn.

"This is the time to increase the food experience," insists Shaich — that is, when consumers least expect it.

While Panera is hardly a new product mill, Shaich is testing several new things: a chicken salad with sliced grapes and almonds; a low-cal Power Breakfast sandwich and Power Smoothie; mac 'n cheese; oatmeal. He's even looking into putting salmon in a sandwich and salad next year.

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