Speeding Up Fast Casual

Just as dough must rest in order to rise, it was during a respite that a new identity began to emerge for fast-casual bakery-cafÉ Panera Bread (www.panerabread.com). Founder, chairman and CEO Ron Shaich was on sabbatical in 2010 when he started to develop the digitally-powered concept for ordering, pick-up and payment that would become Panera 2.0.

“Panera 2.0 is an investment in the customer enabled by technology and powered by operational excellence,” Shaich remarked during the April 2014 unveiling. “It’s more than a mobile—payment system or simply a digital-ordering process. It’s an integrated, comprehensive, end-to-end solution that we believe will reduce friction such as wait times, improve order accuracy, and minimize or eliminate crowding — all while creating a platform for an ever more personalized experience.”

Eighteen months into the launch, and the rollout continues with no signs of slowing down. With 183 conversions complete at the end of Q2, Panera expects to convert about 300 company-owned bakery-cafes to Panera 2.0 during fiscal 2015. The latest earnings report showed that Q2 revenues company-wide were up 7% to $677 million. “Panera 2.0, inclusive of digital access and improved operations, is working,” said Shaich in the Q2 investment report. “Innovation in food, marketing and store design are having a positive impact on Panera’s competitive position.”

John Meister joined Panera in 2013 as senior vice president and chief information officer. With a background in IT and payments at MasterCard, Meister brought deep technical expertise to the Panera 2.0 project. “The thought around Panera 2.0 began with Ron considering how he would compete with Panera, and then bringing that strategy back to reinvent the business,” Meister recalls. “There was a great vision for a customer-centric design. When I started asking questions, I discovered there was a good deal of technical work to be done.” Meister assembled a team, rolled up his sleeves, and quickly got to work developing the IT framework for an omnichannel experience that would transcend the POS, and reach all the way into the back of the house.

In this exclusive interview, Meister talks to HT about his role in Panera 2.0 and the technology infrastructure helping to power a frictionless experience for fast casual customers.
HT: What major problem did Panera 2.0 set out to address?
There needed to be less friction to get your order – that was at the heart of it. At that time — in order to reduce friction — you might have thought to just roll-out electronic ordering and allow people to order ahead. That’s great, until you have a line at the cash register, or the kitchen gets overwhelmed. We knew we had to address workflow and throughput while raising the capacity of the restaurants. The process had to be thought out from a workflow perspective and enabled by technology. Only then could new ordering concepts be introduced to get people through the system faster. That’s really when you get payback; by removing friction for the customer.

HT: How did your background help further
develop the concept?
I brought experience from other industries that have gone digital. I wanted to look at technology that was oriented in retail or transportation, for example, and apply some lessons. Consider self-service ticketing kiosks in airports. First we saw them explode and now we are seeing them tank. People show up with mobile tickets and boarding passes on their phones. We’ll see the same cycle in restaurants; it’s just going to be faster.

HT: Initial statements about Panera 2.0 described it as including “initiatives meant to make Panera a better competitive alternative.” As competitors try to mimic the concept, are you concerned about maintaining an advantage?
There are definitely those that have tried. We monitor things others have done and how customers react. We are always thinking about the customer experience. That’s where things unique to Panera come out — warmth and culture. It’s about being a good host to customers, as well as differentiating ourselves with food. Looking at the fast casual space, there a few brands doing it, but not to the scale that we are. Those that were at our scale don’t have the same customer-centric perspective. I think others are going to have a hard time following Panera 2.0 because there are some hard lessons that everyone’s going to have to learn, and it’s going to take a little while.

HT: You mention hard lessons. What were some of the challenges you faced?
It becomes a very big change management project. First you have to set up something that can take all of these orders; a cloud, private cloud, or computing infrastructure taking orders from all over the place, with different pick-up times. Then you have to implement within the restaurant in a seamless, integrated way so it looks like just another person at the POS. You can make that part as easy as possible for the cafÉ and people working there, but then there’s execution. You can’t just send an order to the cafÉ and tell them, “make this in three hours.” You want to be careful to not overwhelm the cafÉ at any one time.

Next, there’s change management for doing something different with those orders. To make pick-up customers wait at the point of sale, or place orders over the phone only to wait in line to pay, is unacceptable. Workflows need to be thought through. You need to be willing to break old rules and be brave enough to confront long-held beliefs in order to see how things could function differently.  

HT: What approach did you use to chip away at the necessary integrations between the FOH/POS and the BOH/kitchen?
First, we figured out how much throughput we had to gain in different areas and conducted surveys to understand the constraints at each cafÉ, because each is different. Then we made those into common themes and put solutions together that could be applied to everyone. Some of those required changes to the POS and others to the back of the house. We changed the kitchen systems first, then the POS. Now we are aggressively changing things in the back of the house to have tighter integration that is insulated for each technology component so you can swap in technology without ripple effects. It’s a tricky scenario because you have to have much tighter integration, while keeping things buffered from each other. It’s not the easiest thing, and makes building this very complex, but ultimately it leads to system agility, where technology can adapt easily and effectively to business situations.

HT: How did you approach this from a technology sourcing perspective?
We built the software ourselves. Our goal was to use something portable and cloud-specific so we could flex up or down and easily distribute processing-load. I built out an infrastructure team that knew how to do that. Now we have a scalable, highly-flexible infrastructure. We tried to be hardware agnostic as well so we can switch back and forth easily. We use Xpient (www.xpient.com) hardware for the back-of house, kitchen and the POS. There were a lot of integration challenges and opportunities along the way, but we were able to change or modify. We are looking to become more agnostic so that if we change the software, we don’t necessarily have to change the hardware and vice versa.

HT: Panera built its own POS software for tighter integration — what are your thoughts on the current POS software supplier market?
Restaurants are at the mercy of the POS provider. Traditionally there have been only a handful of really good software solutions for POS. I think that’s going to have to be broken; to be made more open so we can control our destiny a bit more. Apple and Google are trying to play a little bit more in the payment and POS space but it can take a long time to roll out those changes because you can really mess things up by doing them
too quickly.

Vendors are going to have to come out with technology that is much more customizable and open. I see a shift to where it’ll be easier to integrate with larger technology vendors. At one point in time, some vendors said, “it’s our way or no way.” Now they’re realizing they can’t survive that way. In order to be an enduring presence, you have to be able to integrate with other players. You can see this trend happening in the technology sector. It will sweep all parts of technology and all types of industries. Otherwise you will be stuck on an iceberg that’s quickly melting.

HT: With the Panera 2.0 experience aiming for an omnichannel POS, what’s been your strategy around payment security?
The first part is to educate people on how to minimize exposure. The second part is to come up with a roadmap around innovating payment itself. We’ve rolled out terminals and implemented NFC, Andriod Pay and Apple Pay. We saw a lot of activity with Google and are continuing to work with them. We’ll see more integration with loyalty as we progress. We’ll do chip readers when the EMV-liability shifts happens, but if you have a chip card you know that the user experience isn’t the greatest yet. All of us have some work to do on that. Ultimately, we know our payments business, charge backs, and what our liability hold is, so we’ll make decisions intelligently based on that.

HT: Some operators have said they won’t comply with the EMV liability shift regulations until they are actually getting fined. What’s your perspective on that?
I definitely have a different perspective, coming from the payments industry. There is a very big picture that is taking years to play out. There’s a balance between merchants and banks and the liability of paying for fraud. I think people lose track of just how often fraud happens and who’s paying for it.

There is an ever-evolving cyber threat, so how do you continue to protect your business and customers when the POS moves so slowly? You have to be able to move the payments side faster. Encryption is important — perhaps more important than chip cards themselves. We have to look at other markets like Europe and Canada that have done chip cards, and learn from how they have attacked the performance problems that we are experiencing now.
HT: Are there any plans for a Panera 3.0?  
I’m just trying to get some sleep now. We have a lot of ideas that we are constantly testing. There might not be a Panera 3.0, but you’ll see Panera 2.0 refined and new things folded into it.

HT: Do you think the success of Panera 2.0 is about an evolution for the
fast-casual segment, or the evolution of technology? Perhaps a combination of both?
  I actually think it’s the consumer that’s evolving. People want delivery. They want even less friction. I think we’ll see a lot of restaurants start to tackle delivery. A lot of brands are struggling, especially those that haven’t delivered food in the past, with setting up partnerships for delivery versus hiring their own people for delivery. Consumers will want to order when it’s convenient for them, whether that’s from a phone or a desktop, and we’re going to have to continue to evolve. How do we have it as easy as possible to order at the exact right time, and how do we deliver that food? Other times, people want to go out, socialize and have conversations while they eat. I predict that will become more important as people realize that their digital lives are a distraction from an authentic social experience. Eating is ultimately a very social gathering, so I think we’ll see resurgence in that over the next couple years. But I am a technology guy, so that just might be blasphemy.

Panera 2.0 is an extension of Panera’s substance and being. It’s not about the easy job – it’s about solving the tough problems and focusing on serving the customer as you’d serve your family. Food as it should be and getting rid of friction – that is the essence of Panera 2.0.
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