Panera Bread Is Pricing Itself Out of the Lunch Crowd
Panera Bread has a price problem, and at some point the company needs to ask whether it is becoming increasingly out of touch with the customers it is trying to attract. Panera has long positioned itself as an alternative to traditional fast food, a place where customers can grab a sandwich, soup, salad or bakery item without going to a full-service restaurant. But when a basic lunch starts approaching the price of a meal at a sit-down restaurant, the value proposition becomes much harder to understand.
On a recent visit, one cold sandwich, a small bag of processed potato chips and a large soda came to $17.58. Let that sink in. There was no appetizer, no side of fries, no dessert and no table service. It was a cold sandwich, a small bag of chips and a fountain drink for nearly $18. That is absurd.
Of course, the immediate response from some people will be, “You don't have to eat at Panera.” That's absolutely true, and that is exactly the problem Panera should be worried about. Customers don't have to eat there. They have countless alternatives, and when people begin feeling that a restaurant simply isn't worth the money anymore, they can take their business somewhere else. The bigger question is why Panera would want to narrow its potential customer base by allowing its prices to reach a point where more consumers may think twice before walking through the door. There is a difference between charging a premium for a better product and reaching a price point where customers start questioning the entire value of the experience. Nearly $18 for a sandwich, chips and soda puts Panera dangerously close to that territory.
Panera needs to seriously examine its cost structure, including how it procures ingredients, manages its supply chain and operates its restaurants. If ingredients can be sourced more efficiently without sacrificing quality, those savings should help bring menu prices back down to earth. Restaurants obviously have expenses beyond the ingredients on the plate: labor, rent, utilities, transportation, equipment and countless other operating costs, but customers ultimately judge value based on what they receive for the money they hand over. And that is where Panera has a problem.
There is nothing inherently wrong with being more expensive than traditional fast food. Panera doesn't have to compete dollar-for-dollar with every burger chain in America. But there still needs to be a reasonable relationship between the product, the experience and the final price. When a customer looks down at a cold sandwich and a little bag of chips after spending almost $18, Panera should not be surprised when that customer starts wondering whether there was a better place to spend the money. The restaurant industry is intensely competitive. Consumers have fast-food restaurants, fast-casual chains, grocery-store prepared foods, convenience stores, local restaurants and full-service dining options competing for the same lunch and dinner dollars. Panera cannot assume customers will simply accept higher and higher prices because they like the brand. At some point, price becomes part of the brand.
If enough consumers begin associating Panera with “too expensive,” that perception could become difficult to reverse. A restaurant can have good food, attractive cafés and a recognizable name, but none of that completely eliminates the importance of value. Customers want to leave feeling satisfied with both the meal and what they paid for it. Panera should take a serious look at its pricing before more customers decide that the easiest way to save money at Panera is simply not to go.
We don't believe these prices are sustainable over the long term. Panera needs to find ways to lower its costs, improve the value customers receive and make the brand accessible to a wider range of consumers again. You heard it here first: Panera Bread has a price problem.
