Panera just announced a change that promises to cut into the chain’s profit margins in the short term. And, it turns out, that’s exactly what CEO Ron Shaich wants.
On Tuesday, Panera announced that beginning this week, the chain’s cups would feature calorie and added sugar information.
The new cups — which highlight the fact that a 20 oz. soft drink contains a whopping 17 teaspoons of sugar — coincide with the national rollout of Panera’s line of lower-sugar drinks, which launched earlier this year.
“We believe in two things — real choices and real transparency,” Shaich told Business Insider.
According to a survey commissioned by Panera, 99% of Americans are unaware of the amount of sugar in soft drinks, and Shaich says it’s the chain’s mission to educate them. Excess sugar consumption has been linked to higher rates of obesity, diabetes, and Alzheimer’s, and cutting out soda is one of the easiest ways to cut sugar from your diet.
But at the same time, Panera has a financial incentive to sell as many soft drinks as possible.
Soda is cheap for chains to make, and it has an incredible profit margin. According to “Fast Food Nation,” a large Coke costs McDonald’s 12 cents to make, but it costs customers $US1.49 — a 1,200% profit margin.
Meanwhile, Shaich says that Panera’s new craft beverage line is more expensive to produce, meaning that the drink isn’t providing the same easy money.
Despite this, Panera is trying to convince customers to ditch sugary soft drinks. Shaich believes it’s the right long-term strategy for Panera as the chain continues to double down on healthy eating trends.
There’s already been an 8% shift towards Panera’s lower-sugar beverages over soft drinks since they were added to the menu in March. The cups will likely push that figure further, especially with the blunt listing of added sugar by teaspoon as opposed to grams.
“The only people who know what grams are are drug dealers and Walter White,” Shaich said.
Wall Street doesn’t typically support changes that actively attempt to cut into companies’ profit margins. But Panera doesn’t have to worry about that after its $US7.5 billion acquisition by JAB Holdings earlier this year — a change that Shaich says gives him freedom to focus on the long term instead of “short-term stupid” strategies.
While Panera’s stock rose 8,000% over the last 20 years, being a private company means that Shaich doesn’t have to worry about activist investors’ meddling or investor criticism when a new strategy doesn’t immediately drive sales. If Panera was still public, Shaich says, he’d likely have to deal with pushback from investors after announcing something like the new cup.
Then, there are other perks of going private.
“We don’t have to worry about Ron sneezing on an earnings call and having that impact shares,” Sara Burnett, Panera’s director of wellness and food policy, said.