Hats off to anybody launching growth projects in this economy.  With all the layoffs and other cost cutting, there are far too few companies looking for the opportunities these market shifts are creating.  So it's exciting to hear that Panera Bread is testing catering at its 80 Chicago locations (read article here).  But we have to wonder, will this generate incremental growth and profits?

The market view is that businesses are doing less dining out for breakfast and lunch meetings.  To keep costs down, they would prefer catering food into the office.  On the face of this, it's not a bad idea.  But of course, lots of people are having this idea today.  So Panera is not unique to begin thinking this way.  Perhaps we can use The Phoenix Principle to improve our odds of predicting the outcome accurately. 

Firstly, Panera is a restaurant.  Caterers are not restaurants.  If you look at successful caterers you will see they are experts at preparing food in special ways so it is finished, freshly, at the destination.  In addition to unique cooking approaches, to make sure food is not prepared too early and becomes unpalatable, they have unique equipment to transport the food in various stages of preparation.  And unique equipment to finish the dishes at the location.  And their employees are uniquely trained to make sure the on-site meal is the quality desired. 

The catering business is not an underserved market, simply waiting for Panera to enter.  So, when Panera says it is going to use its 80 area stores to test a higher focus on catering – the odds are it won't work.  Becoming a caterer would be a serious disruption to any restaurant business, and to pull it off would require implementing an entirely new operation from which to launch tests – not something run out of the back of the restaurant.  We can safely predict that Panera will not become a strong force in catering.

What Panera is much more likely to rapidly evolve to is not something as disruptive as catering.  Instead, they will quickly start trying to extend the existing restaurant Success Formula into delivery.  Here they will try to make small changes to the products, enhance packaging somewhat, and perhaps add some sort of delivery service.  They may well put in place special pricing for delivered orders, and even set up special operations for ordering and scheduling delivery.  Thus the activity will be an effort to Defend & Extend the existing Panera restaurant by implementing a sustaining innovation without really disrupting their Lock-ins. 

So, will this work?  Look again to The Phoenix Principle.  The company has seen a new opportunity in the market.  That is good.  But have they obsessed about competition?  Many other restaurants deliver food – from pizza makers to Jimmy John's sandwich shoppes – including dozens of small chanis and thousands of independents restaurants/diners.  Even the article quotes the Panera operations V.P. as saying that others such as Chipotle and Boston Market serve the target he's aiming toward.  What will make Panera unique?  Why will people want to buy Panera?  The market is pretty well served.  For Panera to succeed they will have to do something MORE than the competition.  As a D&E action, they have to somehow be BETTER, FASTER, or CHEAPER.

The Crain's article referenced earlier is precious short on any discussion of competition or value proposition.  And the interview didn't give any indication that the company had developed a really powerful competitive message – as much as they had merely identified an opportunity.  Without obsessing about competitors, the odds are very small that the project will make much difference.

The Phoenix Principle would predict that this project by Panera will hit the market with a lot of advertising and promotion.  But the company will probably under-excite customers, because they aren't really catering as much as delivering (like the named competitors.)  When delivering, without a powerful competitive position (MORE, BETTER, FASTER, CHEAPER) we can expect there will be early price offers to incent trial – but then Panera will find this is a very tough business to succeed in.  Panera's leaders will likely obsess about execution – but they are facing some competitors that already are pretty good at execution, and have a lot of experience to back up their practices.  The odds are high that the cost to then experiment, in order to become competitive, after already spending money on the launch, will seem pretty high – and the whole thing will go into a slow, delayed analysis.  Odds of succeeding in a year – about 20%.

I applaud the company for seeking out new markets.  But if you're an investor, wait until you see whether they truly intend to Disrupt opeations to enter catering – or if they go into this as a Defend & Extend action.  When it becomes the latter, you should expect the cost will not be well repaid, because their ability to beat the competition – which will remain fierce, and reactive to the Panera launch – will not be strong.  Thus, not likely to drive much incremental revenue and probably less incremental profit. 

Anyone can have a great idea.  But to be a successful innovation requires implementation.  And Panera doesn't look like they've figured out how critical it is to obsess about competitors BEFORE entering tough markets. Chicago has all the earmarks of an expensive test – where the company may declare victory but which isn't likely to do much for investors, employees or vendors.