Panera's Kumbayah Moment

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

Panera Bread (NASDAQ: PNRA), through its philanthropic arm -- the Panera Bread Foundation -- is nearing the grand opening of a Panera Cares Cafe' in the heart of downtown Boston. It's the fifth such donation-based restaurant Panera has opened in the past several years. Instead of attaching prices to menu items, Panera merely makes suggestions for the value of the meals being offered. These cafe locations don't even own any cash registers and defer to donation jars instead.

It could be a disaster, but Panera Cares locations manage to bring in three-quarters of the sales of traditional Panera Bread restaurants, according to the Boston Globe cited in Modern Baking. As it turns out, the 60 percent of people who pay the recommended menu prices coupled with the 20 percent who pay more than suggested retail compensate for the one-fifth of people who pay nothing at all.

2013 Roadmap

Before moving ahead, let's take a look in the rear-view mirror. In 2012, Panera was on track to open as many or more new store units than had been projected. The anticipated range was between 115 and 120 new systemwide openings, and in the 3Q alone the restaurant debuted 36 new bakery-cafe units between company-owned and franchised units.

In 2013, Panera rival Chipotle Mexican Grill (NYSE: CMG) expects to open between 165 and 180 new units. The high end of that range represents a 13% increase over 2012, according to a recent Barron's article, and nearly doubles Panera's plans in terms of unit growth. Nonetheless, Chiptole -- even with its roll-out of Southeast Asian cuisine restaurants -- is coming from a lower base than Panera. 

For instance, through the first nine months of 2012, Panera had a total of 1,625 restaurants compared with Chipotle's 1,350 in the same period.

Unit Growth*

<table> <tbody> <tr> <td> </td> <td><strong>2012 Range</strong></td> <td><strong>2013 Range</strong></td> <td><strong>Total Restaurants</strong></td> </tr> <tr> <td><strong>Panera Bread</strong></td> <td> 115--120</td> <td> 115--120</td> <td>1,625</td> </tr> <tr> <td><strong>Chipotle</strong></td> <td>155--165</td> <td> 165--180</td> <td>1,350</td> </tr> </tbody> </table>

*Source: Panera Bread and Chipotle 3Q earnings results

 Like Panera Bread, Chipotle also runs its own foundation. The Chipotle Cultivate Foundation, which was established by Chipotle Mexican Grill, has deposited millions of dollars toward sustainability in agricultural development. Chipotle's for-profit organization looks like a growth opportunity in 2013.

After one year of testing its casual Asian concept, Chipotle is positioned to open maiden locations in the U.S. in 2013. The company already operates two ShopHouse restaurants in Washington D.C., and expects to open a third such location in Los Angeles in the first quarter. Although the Chipotle Mexican Grill restaurants remain the primary growth engine for the company, Chipotle is seeing considerable demand for its Asian food, as well. 

The Barron's article suggests that Chipotle will be rolling out price increases this year amid an anticipated increase in food costs stemming from the food inflation brought about by last year's drought. Chipotle, however, has experienced better pricing than expected in items such as avocados and as a result may benefit from less inflation than expected. At the same time, Chipotle is rolling out new products and is focused on improving its margins.

Panera Bread and Chipotle both trade at high valuations of 30 and 34, respectively. They each have ambitious plans for 2013. Panera Bread, for instance, intends to grow its profits between 17-19% in 2013 compared with 2012 levels while Chipotle is focused on creating stand-alone restaurant locations and opening new stores. The wind appears to be blowing in their direction for both of these growth stocks.

 

<img src="/media/images/user_13739/mf-panera_large.png" />

A more reasonable valuation can be found in Buffalo Wild Wings (NASDAQ: BWLD), which has a trailing price-to-earnings ratio of 25. It's still a growth stock but may have more room to run than its peers. It is also a stock that's good enough for several hedge-fund managers, including Steve Cohen's SAC Capital advisors, according to a recent MarketWatch article. Higher food inflation took a toll on this restaurant's profit margins toward the end of 2012. Indeed, in November alone, chicken prices were 6.2% more than 2011 levels, according to the United States Department of Agriculture.

Football season, while almost over, is associated with buffalo wings and it should prove to be a good period for Buffalo Wild Wings in 4Q and 2013 1Q quarterly results. Like Panera and Chipotle, this company too is in growth mode, and anticipates it could have 1,000 restaurants open by the end of 2013, which is not the saturation point for Buffalo Wild Wings (the company ultimately foresees some 1,700 restaurant locations flurried throughout North America.) 

It seems the only thing missing at Buffalo Wild Wings that its peers have is a foundation, although the chicken restaurant does seem to partner with numerous philanthropic causes. 

 


GerelynT has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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