Panera Bread says it has achieved over $1 billion in sales from digital platforms, proof that a technology bet the bakery-cafe made in 2014 is paying off.
“We are seeing phenomenal growth in our digital properties, particular with the delivery and kiosks being rolled out,” said Panera Bread President Blaine Hurst in an interview with Fortune. Panera Bread on Wednesday announced that by the end of the first quarter, digital sales were 26% of total company sales, with about 1.2 million digital orders—those booked via mobile, web or an in-store kiosk—per week. Digital sales surpassed $1 billion on an annualized basis and could double in 2019, Panera said.
Panera Bread—along with Starbucks (SBUX) and Domino’s Pizza (DPZ)—is viewed as one of early adopters to start leaning on technology as American diners increasingly want mobile apps to place orders or get food seamlessly delivered to their homes. Online ordering has become so pervasive that those types of orders now exceed the quantity placed verbally over the phone. Wall Street experts have said Panera’s savvy investments in tech—it spent $150 million in total—were part of the justification behind a $7.5 billion takeover by European investment firm JAB that was announced in April.
Panera’s digital milestone isn’t exactly a surprise, as it already indicated that was the intended target. But the impressive growth of platforms like fast-lane kiosks and rapid pickup (when you place an order online and pick up prepared food from a shelf) shows that the chain is seeing a sales boost after jumping onto those digital trends earlier than most. Panera first outlined a serious bet on digital back in 2014 when it unveiled the Panera 2.0 program, aiming to add technology to cafes to keep up with high transaction volumes.
“The digital part is growing faster than the rest of our business,” says Hurst. “We want to make sure we are ready for it and continue to invest in that infrastructure.”
All this strong growth isn’t to suggest that there haven’t been problems to solve along the way. Panera—like all restaurant chains—is having to adjust to figure out how to process more digital orders in a way that doesn’t interrupt the flow of in-store purchases. At rival Starbucks, mobile ordering has become so popular that crowds mass during peak times, discouraging walk-in visitors.
Hurst says in-store crowding isn’t a problem for Panera but one issue the company’s management is wrestling with is how to address the flow of drive-thru traffic. He explains that if a customer comes to a cafe to pickup an order in drive thru but the line looks too long, they may opt to go inside a cafe. But the food isn’t on the rapid pickup shelf, it is with the employee at the drive thru window. “So how can I use technology to better handle that,” Hurst says rhetorically. “You’ll see some changes in the model based on those cafes and those layouts.”
He adds that while customers now expect all major restaurant companies to offer a digital component, that isn’t to suggest that chains can stop focusing on the brick-and-mortar experience. Hurst says one question on his mind: how does Panera make the restaurant a more inviting place for guests. “We want to double down on that retail experience,” Hurst said. “Even though people want to be digital, they still want a pleasant place to eat.”
While Panera’s digital growth is impressive, it still lags the success achieved by major pizza chains like Domino’s and Papa John’s (PZZA), which each book more than half of their U.S. sales from digital platforms. Pizza chains have an advantage because their food travels well and has historically been ordered for on-the-go or at-home consumption. Panera’s menu of salads and sandwiches also fits neatly into that trend, but it’ll need to do more work to get up to scale, especially on delivery. To that point, Panera this year intends to hire 10,000 drivers to boost each store’s average revenue by about 10%.
Hurst says looking ahead, Panera could end up catching up to the pizza giants.
“As this plays out over time with the movement toward delivery and eating off-premise, the continued expectation from consumers is that you have a digital component,” he said. “Unless we screw it up, digital will certainly approach that 50% [threshold]. I have little doubt about it.”