Panera Bread and the Low-Cost Business Model

The Low-cost Business Model

The low-cost business model for restaurants has grown increasingly popular in recent years. While there are many ways to minimize costs in a restaurant, there’s no substitute for great quality, a clean, attractive environment, and excellent food. However, more restaurant operators than ever have grown creative about minimizing costs, and one of the best ways to do this is with low-cost menu items based on great recipes that use cheap proteins.

One of the most successful restaurants at succeeding through high quality and low food costs is Panera Bread. The full-fledged bakery is one of the fastest growing chains in the country, and has expanded to more than 1,400 stores nationwide. It has done so by keeping food costs at or below 25%, a preposterous number in most national chains. Sure, bread isn’t that expensive. But if bread was all they offered, they wouldn’t be nearly as successful as they have been.

High Quality; High Quantity

Abundance is critical to success at Panera Bread. Managers are committed to overflowing bread displays that can’t help but catch your eye as soon as you walk in the door. Panera employs overnight bakers whose primary task is to bake enough bread to fill the display cases that are typically situated next to the register. Does Panera plan on selling a lot of bread? Not especially, and many stores give away leftovers to soup kitchens and homeless shelters.

The idea is to wow guests with all that the kitchen has to offer, and the effect is startling. This is a typical bakery model that can apply to restaurants, especially those which incorporate a buffet. Menus should overflow with low-cost options and buffets should be teeming with choices. Lots of options can overwhelm the sense that the product is low-cost.

Create Value

A low-cost business model has to rely on great service and energy. Value has to be demonstrated in the remainder of the guest experience. This could happen with polished, well-appointed décor, clean bathrooms, friendly employees, and personalized service. These things help make the guest experience a unique one – something they’re unlikely to find anywhere else.

In the end, creating value simply comes down to energy. High energy employees are the secret weapon of the low-cost model because guests have to be constantly reminded that they’re receiving great value for their dollar. The absence of energy – laziness and complacency – goes hand-in-hand with cheapness, and this is the enemy of the low-cost restaurant.

Creativity

Lost-cost proteins demand creative kitchen managers to make them shine. A high-cost model – as with an upscale chophouse – can shine on its own. Guests know they’re getting a great product. But low-cost poultry, seafood and beef must be part of a series of winning entrees and side dishes in order to be appealing to a wide audience.

Whether or not Panera’s menu is creative is up for debate. But they offer a variety of sandwiches and salads that they rotate seasonally. Their menu has created a strong brand loyalty that is central to their success.

Develop Your Market Niche

A low-cost model that develops a specific niche – as with a seafood restaurant geared toward lunch items – is another great way to succeed with cheap proteins. Having a specific niche helps a restaurant develop an identity and following. Combine this niche with an energetic staff and clean environment, and this is a recipe for success.

Panera’s niche is all about quick, friendly service and tasty sandwiches, salads, and baked goods. They have a specific niche, and excelling at it while keeping costs down has helped them expand rapidly throughout the country. Their success is a lesson for restaurant operators everywhere looking to establish success with a high-quality menu centered around low-cost food.