Serving Up Sales

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I don't frequent Panera Bread (NASDAQ: PNRA) all that often, but when I do, it's never without having to join an already winding line of waiting patrons. Now that the company is adding more features -- such as kiosks and mobile ordering, as reported by CNBC -- the stores only stand to get more crowded. Not a problem for Panera or likely its forthcoming same-store sales.

Customers seem to be attracted to Panera's fresh ingredients, menu variety, and their patron-friendly atmosphere. And with the array of offerings on the menu including seasonal flavors, such as a Thanksgiving dinner and all the trimmings in a sandwich, customers have not been disappointed. Neither have investors. 

Panera is not a dividend stock as the company prefers to reinvest its cash flow back into the business. But investors have been rewarded with capital gains:  shares are up by about 15% in the past three months alone.

As for its customer base, Ron Shaich, Panera's co-CEO, recently explained to CNBC that the company's target demographic, which includes adults between the ages of 25-to-50 years, are willing to pay slightly more than what the average fast food ticket price in order to consume higher-quality products. Nonetheless, Panera has effective hedging in place, which allows them to lock in prices six months to one year in advance, and as a result is not seeing as much of an immediate effect from food inflation as investors may think. When the time comes to pass along food price increases, Shaich says Panera's customers are willing to share in those costs.

The success of Panera and other "fast casual" restaurants, as they are dubbed, according to The Wall Street Journal, is having a motivating impact on fast food chains.

Today, fast food chains like Wendy's (NASDAQ: WEN) and Taco Bell, the latter of which is owned by Yum! Brands (NYSE: YUM), are stepping up their games to better compete. They want to be more like the fast casual restaurants simply because it's what customers are requiring. With the proliferation of food education in addition to more menu transparency for health purposes, customers are expecting more and fast food restaurants are attempting to oblige.

Take Wendy’s, shares of the cash dividend-paying restaurant stock are off about 9% since July. The company boasts of positive same-store sales in its company-owned stores over the past five quarters and is taking transformational steps to keep that trend going.

For the first time in nearly three decades, the Wendy's logo is getting a face lift. The company is rolling out a new logo and signage at its stores by March 2013 to reflect a higher end product. While it is not abandoning the late Dave Thomas' vision of his young daughter sporting pigtails and smiling, there will be changes to the cartoon image, as well.

The cosmetic transformation extends to an indoor makeover that will introduce flat-screen televisions, Wi-Fi and fireplaces. Locations that have rolled out the internal upgrades have experienced a 25% jump in sales, on average, according to the company. 

The changes are not only aesthetic. Wendy's is also stepping up its menu offering amid a stock price that has languished as rivals like Panera Bread outperform the competition. 

Most recently Wendy's is offering a bacon cheeseburger melt using portabella mushrooms instead of the canned version of the item. Other changes include fresh fruit salads that offer acai juice in their dressings and an Asiago cheese chicken sandwich.

Yum Brands' Taco bell has similarly introduced some higher quality menu items in an attempt to go toe-to-toe with fast casual rival Chipotle. I knew something was up with this company when I started seeing the new commercial with a professional chef Lorena Garcia discussing the fresh ingredients used in the Taco Bell menu. It turns out the company introduced a higher end line of menu items, including its Cantina Bell line of Burritos, which use fresh avocados and dressing made with an ingredient featured prominently on The Food Network -- cilantro.

The higher-end strategy seems to be working for Yum Brands as there was a 6% spike in U.S. same store sales in the third quarter and Taco Bell, which impressed with double-digit same stores sales of its own, was the catalyst. The company lifted its full year profit expectations and recently hiked its quarterly dividend by 18%.

Indeed, the WSJ cites hedge fund extraordinaire David Einhor as trumpeting Taco Bell's menu success as a threat to food-genre rival Chipotle. Between Cantina Bell and the Doritos Taco Yum Brands seems to have invented a winning formula although since July shares are relatively flat.

Now that Panera seems to be streamlining its in-restaurant experience and fast food restaurants like Wendy's and Taco Bell are upping the ante, the playing field for dining out has become more interesting. If it is enough to lift same store sales at these restaurants then the benefits should be all inclusive and not only for patrons but for investors, too.


GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Panera Bread. Motley Fool newsletter services recommend Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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