Why Panera Bread Company desperately needs to innovate its menu

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Product innovation

People can have many reasons to visit a restaurant. But one of the most critical reasons is the menu. With customers’ constantly changing tastes and preferences, a restaurant needs to innovate and be in sync with its demographic. Eventually, a relevant product mix at a relevant price point will lead to more traffic and more revenues, which Panera desperately needs to turn around.

Let’s look at some of the initiatives Panera Bread Company (PNRA) has taken on this front.

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The company introduced flatbread products in three variants—the Southwest, Mediterranean Chicken, and Thai flatbreads—in May. Speaking of pricing, the company introduced the flatbread platform to appeal to customers who are price-sensitive yet would prefer having better-quality food instead of eating at McDonald’s (MCD), Burger King (BKW), or Wendy’s (WEN).

The flatbread was priced at $4.99, which, according to the company, was at the bottom of Panera’s pricing menu. This also meant that the portion size is smaller.

Keep in mind that not all product innovation is successful and it can severely affect a company’s margins. To avoid such risks, you may consider investing in a portfolio with diverse restaurants like the exchange-traded fund (or ETF) the Consumer Discretionary Select Sector SPDR Fund (XLY).

Marketing

Introducing new products is just one way to increase sales, but restaurant chains often have huge marketing budgets, stimulating demand for their products.

Management stated in the recent earnings call that its marketing didn’t meet its performance expectations. This outcome reflects in Panera’s poor same-store sales.

Finally, the company indicated that it will bring on a new advertising agency to communicate the Panera brand correctly to its target audience. So let’s now look at how these initiatives affected revenues for Panera Bread Company.

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