Panera Bread is trying to win back the diners it lost after quietly downsizing portions and dialing back on ingredients. The fast-casual chain admitted that certain cost-cutting moves hurt customer loyalty, and on Tuesday announced plans to reverse some of the measures.
“In some instances, we shrunk portions, so guests would walk into our cafe to buy a sandwich that has gone up significantly in price, with lower-quality ingredients, in a smaller size,” CEO Paul Carbone said.
Once the leader in the fast-casual category, Panera has slipped to third place, now trailing Chipotle Mexican Grill and Panda Express. According to Technomic estimates, its sales declined by 5% last year to $6.1 billion. CEO Carbone, who stepped into the role earlier this year, acknowledged that customer traffic has been steadily dropping for years. The brand’s recent backlash over its energy drinks only added to the challenges.
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Carbone said the first step in the turnaround is to restore food quality by rolling back some of the earlier cost cuts made during high inflation. “We squeezed food costs. We squeezed labor,” he admitted, acknowledging that those decisions ultimately affected the customer experience.
Some of those cutbacks were introduced while Carbone was serving as chief financial officer. Today, he jokingly describes himself as a “reformed CFO,” though he admits he still can’t resist tuning in to earnings calls.
“It’s really about death by a thousand paper cuts, it truly is,” Carbone said reflecting on the chain’s downturn.
Panera’s issues are unfolding at a time when the broader fast-casual industry is also feeling the squeeze. Brands like Chipotle, Sweetgreen and Cava have trimmed their annual outlooks, citing a noticeable dip in visits from younger consumers, who are pulling back on discretionary dining.
Carbone says he’s betting on a comeback with a strategy called “Panera RISE”, which focuses on revamping the menu, sharpening value offerings, enhancing service, and expanding the chain’s footprint with new stores. He noted that the initiative has strong buy-in from franchise owners, who run about half of Panera’s 2,200 U.S. locations, as well as backing from JAB Holding, the Reimann family’s investment firm that owns the company.
The timing of Panera’s struggles is especially inconvenient for JAB, which has been preparing to take Panera Brands public. The parent company, which also includes Caribou Coffee and Einstein Bros. Bagels, had been gearing up for an IPO just as performance at its flagship brand began to weaken.
Back in 2021, four years after taking Panera private, JAB tried to bring it back to the public markets through a merger with Danny Meyer’s special purpose acquisition company. But those plans were dropped the following year due to unfavorable market conditions. In late 2023, Panera quietly filed for an IPO once again, but that listing still hasn’t moved forward.
When asked about Panera’s IPO timeline, Carbone told CNBC that the priority is boosting customer traffic and fully executing the Panera RISE strategy.
On pricing, Panera plans to adopt a barbell strategy, giving customers both budget-friendly choices and premium items. The model has been successful for chains like Chili’s, but unlike full-service restaurants, Panera doesn’t offer the same kind of appetizers that help anchor that approach.
“We haven’t cracked the code yet,” Carbone said. “We’re doing a lot of testing.”
Across the industry, major chains are ramping up their value deals, from McDonald’s Extra Value Meals to Applebee’s “2 for $25” offer fueling what many are calling the value wars. But while these promotions help draw in budget-conscious customers, restaurants face the challenge of keeping those deals profitable.
To elevate the overall experience, Panera now plans to put more money back into staffing. In recent years like many restaurant chains, it cut back on in-store workers and leaned heavily on the self-order kiosks it helped popularize. While that move lowered costs, it also meant customers sometimes walked into cafés without seeing a single employee, Carbone acknowledged.
Panera will also invest back into its kiosks, which it hasn’t significantly upgraded since they first entered its restaurants roughly a decade ago. And its dining rooms will get a facelift, too.
If these changes succeed in bringing back lapsed customers, then Panera’s restaurants will become more profitable, fueling future restaurant growth. And those new bakery-cafes could look different.
“What does the cafe of the future look like? We’re doing a lot of work around that, we’re going to test different things,” Carbone said.