Why Panera Bread Co (PNRA) Seems Better Than McDonald’s Corporation (MCD) and Yum! Brands, Inc. (YUM)

One of the biggest challenges for retail chains is to increase same-store sales and do so with minimal capital expenditures. But the most common path to growth for these chains is opening new stores and entering new territories. However, some retail chains introduce new products, while others acquire companies to diversify their food offerings. In my opinion, Panera Bread Co (NASDAQ:PNRA) fits the growth description perfectly and seems well-poised for a significant upside.

Health Aspect

According to a latest report by Health.com, Panera Bread Co (NASDAQ:PNRA) has been ranked as the healthiest food chain in the U.S. Because Panera Bread Co (NASDAQ:PNRA) offers mainly sandwiches and salads, it was easy for the retailer to make it to the top. But the fact still remains that, with rising health concerns and obesity rates reaching record highs, consumers are gradually shifting toward healthier and organic foods.

The carbohydrate-rich food offerings of McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM) have given them a lot of negative publicity, which has been the reason (partly) behind their weakening same-store sales in the U.S. For the month of April, McDonald’s Corporation (NYSE:MCD) posted a 0.6% decline in sequential same-store sales, while Yum! Brands, Inc. (NYSE:YUM) reported a massive 29% plunge in its same-store sales sequentially .

Although McDonald’s Corporation (NYSE:MCD) does offer relatively healthier grilled sandwiches, it would be very hard for McDonald’s Corporation (NYSE:MCD) to attract health-conscious customers with just one healthy food item. In a bid to revive sales growth, nutrition experts from McDonald’s Corporation (NYSE:MCD) recently claimed that the chain’s offerings come packed with a lot of nutritional value. But to their disappointment, consumers weren’t moved much, as being nutritional and being healthy are two very different things.

Yum! Brands has been struggling to cease its sales decline. As of now, Yum! Brands, Inc. (NYSE:YUM) generates nearly 50% of its profits from KFC China, and the outbreak of avian influenza in the country has been dragging its sales down. Besides the health impact, its antibiotic injections (to chicken) and method of slaughtering the birds has led consumers (like me) to boycott KFC. In my opinion, the only way out of this mess would be geographical and product diversification.

Meanwhile, Panera Bread Co (NASDAQ:PNRA) reported an impressive 5.1% increase in its quarterly same-store sales, mainly due to its projected image of a healthy retail chain.

Growth Prospects

According to its filing in March, Panera Bread Co (NASDAQ:PNRA) was operating with 1,673 company-owned and franchised cafes. However, during the recent quarter, the company opened 22 new bakery cafes, out of which 12 were franchised. The growth rate for new stores may seem meager, but its management reaffirmed that Panera is well on track to open 115-125 new cafes in 2013. That’s a 7.6% increase in its store count, which should allow the company to retain its growth momentum in 2014.