Panera Bread Rising

by Steve McKee

"Most of the world seems to be focused on the Americans who are unemployed. We're focused on the 90% that are still employed."


Those are the words of Ron Shaich, CEO of Panera Bread, the 1,300-unit bakery-cafe that has found a way to thrive in spite of the recession. Its formula? A combination of smart financial management and keen understanding of its core customers, most of whom remain gainfully employed (and ever-more attuned to good value).

Rather than cutting corners, Panera has focused on offering more to its broad range of middle income customers, including free wi-fi access and frequent new menu offerings. According to Shaich:


"In many ways, we're renting space to people and the food is the price of admission,"


Panera COO Rick Vanzura agrees, saying, "A bunch of folks have been cutting quality to cut price to go after the marginal customer. We said a better strategy that addresses a bigger group of people is providing better value."

The strategy is working. In 2008 (a very bad year for most fast-casual restaurants), Panera Bread grew by double digits. In 2009 - the worst economic year in generations - the company managed to keep same store sales from declining, and in the third quarter actually increased them by 3 percent. Food industry analyst Darren Tristano pinpoints why:


"Panera's on-trend with what consumers are asking for: fresh, customizable, convenient, won't break the bank."


Panera Bread has been able maintain its focus because of careful cash management. Rather than using debt to expand, assuming the good times of years past would keep on rolling, the company grew slowly and deliberately over the past decade. That kept it healthy from a cash flow perspective and prevented it from having to cut corners or cut margins (or both) when times got tough. As Shaich says:


"Every chain is cutting something - portion size, quality, hours of labor. The result is that ultimately the customer feels it."


Most players in the restaurant industry - in most industries, for that matter - think the current game is all about price. Panera Bread is an all-too-rare exception, demonstrating that companies that keep their focus, nerve, consensus and consistency can thrive even in bad times. I'm a fan.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Is there something to like about Sara Lee?

by Steve McKee

I've kept my eye on Sara Lee for several years now, originally because the company was a poster child of the Loss of Focus principle. But in 2005 new CEO Brenda Barnes introduced a plan to streamline Sara Lee, which analysts would have described as a conglomerate but could more accurately have been characterized a beast.

Launched in 1939 as C.D. Kenny Company, over the course of the next sixty-plus years the organization acquired and divested brands in industries as varied as supermarkets (Piggly Wiggly), electronics (Electrolux), apparel (Aris Isotoner, Hanes, Champion, Playtex), shoe polish (Kiwi), and even chemicals (Oxford Chemical Corporation). It took its present name from a company acquired in 1956, The Kitchens of Sara Lee.

By the early 2000s Sara Lee's strategic chickens had come home to roost in the form of slow sales growth and weak earnings. A company that had fueled growth for decades through artificial diversification had simply become too unwieldy to manage.

That's when Barnes launched (according to internal company documents) "a bold and ambitious multi-year plan to transform Sara Lee" by divesting brands comprising 40 percent of its revenues and focusing R&D efforts on food. By 2007 Sara Lee was increasing market share faster than any of its major competitors, and last month Barnes announced that she was selling Sara Lee's deodorant and skin care brands to Unilever. When asked about the rationale behind this recent move, Barnes - no doubt for the umpteenth time over the past four years - said, "Our intent is to build a great business in food and beverage." (It was a "multi-year plan," remember?)

Count me a fan. Contrary to the strategic flailing about demonstrated by many companies when they encounter rough waters, Sara Lee has kept its focus. Barnes has consistently executed on her now four year-old strategic plan, and the nearly $2 billion take she'll get from the sale to Unilever will equip her to further strengthen Sara Lee's food and beverage brands. Which will leave a good taste in the mouth of the company's investors. Smart.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

What are you doing to innovate for an obese America?

The Wall Street Journal reported this week on the huge price being paid in health-care spending due to America's rapidly expanding waistlines: $147B.

How are we as innovators leading companies to address this head on?

Lecturing, hectoring and "education" aren't changing what's on America's plate, or at least not quickly enough.

I recommend reading Hank Cardello's book "Stuffed: An Insider's Look at Who's Really Making America Fat." As a former exec at Coca-Cola and General Mills, he knows the institutional challenges of bringing Health & Wellness (H&W) innovation to market. He also has smart strategies for overcoming them.

Similarly at our firm, we refuse to give up on major Food & Beverage (F&B) category innovation that improves health.

We're especially excited by five H&W vectors we believe are poised to explode in F&B innovation. We advocate innovating with...

1. The Pleasure Principle - Healthier food that tastes better than not-so-healthy choices


2. Next-Wave Hybrids - Transferring ingredients from one F&B use to another to improve H&W outcomes


3. Ancient Natural Miracles - Going beyond green tea into previously obscure Asian fruits, cocoa and more


4. Process Leaps - Skipping incremental change to create a whole new thing, made a whole new way


5. Right For You = RFY - Appealing to needs for individuality, authenticity and community around food choices

Our 4-minute video "Beyond BFY: The New Spectrum in Heath & Wellness Innovation" outlines these vectors along with current and upcoming examples:





Eager to learn what you're exploring to grow your bottom line whilst shrinking America's bottoms!

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Joy Bergmann is Communications Director at innovation consultancy Fahrenheit 212 in New York.

Food Innovation - New Tastes using Old Methods

Ever notice how long food ingredient lists have gotten over the past thirty or forty years?


Distribution and logistics hurdles used to require that food was a local and fresh affair. Then television and new distribution and logistics capabilities enabled the creation of regional and then national grocery chains. This encouraged companies to make one centralized product in quantity for national distribution. The national distribution system lengthened the amount of time that products might spend in retailers' supply chains, and ingredient lists began to lengthen as a result. To make matters worse, as automobiles enabled larger stores outside the city center with larger selections, floor space turned less frequently and retailers increased the pressure for longer shelf lives on top of the longer supply chain survival time. That is why you need a degree in chemistry today to decipher the average food item ingredients list.

So now that our food has a wicked shelf life but no natural taste without loads of sugar, salt, fat, and "flavor enhancers", has a market been created for a new breed of food "innovators"?

The answer is a resounding yes!

The Newman's Own Example

An excerpt from Shameless Exploitation in Pursuit of the Common Good: The Madcap Business Adventure by the Truly Oddest Couple):

"It was a recipe like nothing they had ever seen before, nor had anyone else in the spaghetti sauce business. When Ralph Cantisano saw the recipe, he had serious doubts that a sauce with fresh components and no preservatives would have the necessary shelf life, the same doubts that we had encountered with our dressing and that we would face with all our natural products, primarily because no one had ever bottled fresh stuff before without fixing it with chemical preservatives"

Newman's Own succeeded in finding a way to bottle both their salad dressing and their spaghetti sauce without chemical preservatives, and have gone on to donate more than $200 million to charities.

The Chocolate Milk Example

Look at the ingredient list for Darigold "Old-Fashioned" Chocolate Milk:

Milk, Sugar, Corn Syrup, Nonfat Milk, Whey, Cocoa Processed with Alkali, Mono-and Diglycerides, Cellulose Gum, Carrageenan, Guar Gum, Locust Bean Gum, Vitamin D3.

Organic Valley Chocolate Milk is not much better:

Organic Grade A Reduced Fat Milk, Organic Sugar, Organic Dutch Cocoa, Salt, Carrageenan, Vitamin A Palmitate, Vitamin D3.


And then look at the ingredient list of Wilcox Old Fashioned Chocolate Milk (from a local Washington dairy):

Grade A Milk, Cream, Sugar, Cocoa

If you haven't tasted Wilcox Old Fashioned Chocolate Milk or Marks & Spencer's chocolate milk in the U.K., trust me, they are pure chocolate bliss.



The Conclusion

With improvements in the supply chain, distribution efficiency, inventory management, and just in time delivery, food companies and food retailers now have the opportunity to shift food consumption in the United States in innovative new directions away from mile long supply chains and nitrogen ripening chambers.

Luckily, increased shipping costs are bound to force more companies to explore distributed production (ala Coca Cola and Anheuser Busch) to reduce costs. At the same time, the local food and slow food movements are picking up steam. If grocery stores also begin updating their supplier requirements and their stores, then we may see a perfect food storm deliver fresher, tastier food to our shelves soon with fewer preservatives.

Imagine a grocery store with more frequent, efficient re-stocking and a produce section carrying smaller quantities of each item (reducing waste) that reside in constantly weighed bins, matched against boxes in the warehouse and boxes scanned as they are emptied into display stock, giving the store and regional distributors a real-time produce inventory. This real-time produce inventory would allow the stores to carry fresher, and hopefully naturally ripened (and thus tastier) produce with reduced waste.

Now for the bad news. Wilcox Old Fashioned Chocolate Milk is no longer available because the dairy tried to compete on price in their unflavored milk business, started losing money, and sold their milk business off to a competitor. The competitor has chosen to expand distribution of their pre-existing artificial chocolate milk instead of expanding distribution of Wilcox Old Fashioned. Thus consciously choosing to eschew a market willing to pay a premium for a better tasting, natural product.

Imagine my shock and horror...

So, to satisfy my own sweet tooth and to help raise even more money for charities, I will be calling the guys at Newman's Own to pitch them on the idea of producing a fresh and natural chocolate milk on a national scale via a consistent recipe and local dairies for maximum freshness.

What are your "new" food innovation ideas?

A Mobile Dining Innovation

          VS.          

OK, there aren't too many food concepts that I would call innovative, but here is one:

It's a business that is starting up here in Seattle called Skillet Street Food.

It's concept is that it retrofits Airstreams into working, mobile kitchens that serve "evolved cuisine" during breakfast and lunch at locations that change day-to-day. But not day-to-day in the you never know where it will be next sense. They have a calendar and tend to show up at the same spots once per week.

Now I know you may be thinking to yourself, a mobile kitchen, what's new about that?

You may also be thinking to yourself, that sounds strikingly familiar. You might be thinking that sounds just like a taco truck, or roach coach as some would say, well except for the "evolved cuisine" bit.

So what's innovative about that?

Well, it's this:

1. A taco truck has no story. Skillet Street is building its own myth, somewhat consciously, somewhat unconsciously (kind of like the Bacon Salt guys).


2. Like the Bacon Salt guys, they seem to love bacon, having created an eBay store to sell their Bacon Jam along with t-shirts and the like.


3. Whether they realize it or not, the genius in their implementation is that it crams most of the typical once a week customer revenue possible in a catchment area into a single day (times five locations), probably doubling the revenue they would earn from anchoring in a single location. At the same time they reduce burnout at each location - inspiring people instead to schedule the weekly visit in their calendar.

To see if there is there anything in this concept that you could adapt to your business, ask yourself questions like the following:

1. Do you have a compelling and interesting story that would make people like your company?


2. Are your products too available?


3. Do you give your customers something to look forward to?


4. What is your customer surprise and delight strategy?


5. What unorthodox ways can you think of for getting your products/services to customers?


6. Are there different customer "neighborhoods" you could make your products/services available to in order to increase its exposure (coffee by boat anyone)?

Check out the video below:

Innovative or not?

What do you think?