The Necessity of Creating Value in Retail Spaces (Part 2)
An interview with Panera’s Chief Development Officer, Rob Sopkin
Written by Albert J. Haddad
A Conversation with Panera’s Chief Development Officer, Rob Sopkin, pt. 2
In today’s retail space climate, the nature of business is changing. In part one of my conversation with Rob Sopkin, the Chief Development Officer of Panera Bread, we discussed the impact that services like GrubHub and DoorDash are having on the retail food services. His keen insight made for a wonderful conversation. To read part one, click here (insert hyperlink to part one here).
In part two, we continue the discussion focusing on the future of the business, trying to project how the Millennial generation will affect the casual dining experience. What’s true in the world today is that convenience is the name of the game, for businesses to excel in the retail space they will need to find a way to swerve and meet these expectations and create value for their clientele.
Below is part two of our conversation:
Albert Haddad (AH): You talked about creating ecosystems and channels inside your company that meets your consumer where they want to be met—whether through drive-thrus, delivery services, or Rapid Pick Up, so that begs my next question, which is somewhat of a triple-threat question: In meeting the consumer, where do you see the market and consumer in three years from now? How about five years from now? And, how do you attract “Millennials,” what shifts need to happen to meet their needs and desires as a consumer?
Rob Sopkin (RS): Yeah, I think it’s a good question. I don’t think anyone has the perfect answer to that. Right? That’s what everybody’s struggling with is where is everything going and how to get out ahead of it. I do think we’ve seen millennials are starting to have kids, and millennials are also moving out into suburbs. I know I read something off of your blog where you had retweeted something along those lines. I think we’ll continue to see that.
As they’ve moved into that space, and continue to move into that space, the suburban space and young families, I think what we’re seeing and what we’re hearing is that convenience is becoming more and more important to them. That’s where delivery is critical. That’s where rapid pickup is critical. I think in terms of channels, being able to meet that need with drive throughs, with rapid pickup, with delivery is going to be more important than ever.
Then I think the other big component is what’s going to happen in terms of the products that they’re looking for. I think everybody is seeing certain trendlines happening where Panera was on the forefront with clean food and taking out all artificial additives and preservatives. I think they’re going to want and continue to want healthy food. They’re going to want to know where their food is coming from, especially for their children. I think we’re playing off a base of being a very trusted brand in that regard. I think meeting their needs in terms of craveable food, but food that’s good for you, and food that they understand where it comes from and that it’s healthy is going to be critical. I think that’s the trendline over the next three to five years.
AH: I appreciate that context and in light of that, in the next five years, what does fast food—QSR–looks like?. Does delivery, and rapid pick up, does that change the definition of what fast food is?
RS: Yeah, it’s a good question. I think that that definition will probably become more about the product over time and less about the delivery of that product, if you follow what I mean.
AH: Yes.
RS: I think those lines in terms of the convenience factor, if you think of QSR, quick serve the first two letters of that, are those lines are becoming more blurred. I think you had the fast casual wave, which is really what Panera was also a pioneer on, is what is fast casual. And, being able to come in and get a sit down dining quality experience with your food, but at potentially a lower price point, and also in a quicker fashion than casual dining was able to offer. As you saw that come in, I think the multichannel aspect of what we’re seeing is blurring the lines between those historic definitions.
I think you are able to see, even in the casual dining world, you see pickup spaces where they’ll run the food out to you because they recognize that they need to be more convenient. Then also delivery playing into this is also further blurring the lines between some of these historic definitions.
I think we’ll continue to see those lines get blurred as everybody works towards becoming more convenient and meeting the consumer where they want to be met. Then I think the true delineators, as people are able to build their channels that way, the true delineator will be in the product itself and the experience that you’re able to provide the consumer. Whether it’s QSR, or whether it’s an elevated experience in the fast casual space like Panera, or traditional casual dining.
AH: That was great. Great insight. Resonating off a recent article in the Wall Street Journal, if the stats are true that by 2025 Millennials are going to prefer balance over money, how will people afford to eat out? How will Panera make it economical competing with what would be perceived as a price war at that point to garner the affections of these Millennials?
RS: Well, I think rather than price, I would frame it as value. I do think value… And, value takes everything into account, right? It’s the consumer believing that whatever product you’re giving them at whatever experience or giving them is worth what they’re paying for. I think it is going to be about value pressure.
Now that’s different than price pressure, because price pressure is limited to what you spend versus the totality of what you’re getting for what you spend. So, I do think that there’ll be a lot of pressure on value. I do think there’s a heavy influx of food that we’ve seen in the entire industry. If you look at what’s happened as we’ve gone through sort of the retail apocalypse, or the so called retail apocalypse, and retail repositioning, you have seen a ton of food come into play, and probably at a level that’s outpacing the increased demand. Because, we are seeing as an overall trendline, people eating out more, and more, and more, if using the term eating out to mean just out of house, because that could also mean delivery. That could also mean any of these other channels that we talked about.
I think that trendline will continue due to time pressures that exist. Then I think we will see some fallout, and I do think it will be very competitive in the food space. I think again, you’re going to have to compete on the value front. It is going to be about creating craveable food that people want. It’s I think for us, we also look at our pantry and our ability to play in all day parts, our ability to play in the A.M. day part. We’ve historically been strongest at lunch, but we’re expanding into wraps. We’ve rolled out fresh wraps that we just started a marketing campaign on for the morning day part. Lunch as well is expanding into the P.M. day part. We’ve just started to look at that at this point.
But, I think the size of our pantry, we view as one of our strengths to play in that space too, so that we can give people variety. They can select a wide array of different products throughout the week. For us, we’re not a limited menu the way some other competitors are. I think, to answer your question, I do think we’ll see increased pressure on the value front, but I think it is going to come down to selection, quality. What kind of food am I getting? Where is my food coming from? Is my food clean? Is this a food that’s craveable and that I want over and over again. I think there will be increased pressure for all competitors to play in that space. Like anything, whoever can do that best is going to be best situated to succeed in that environment.
AH: Excellent. Excellent response. Last question. If we were to close our eyes and think about Panera, what is the mindset of your consummate Panera consumer going to be in the next five years? What is that kernel of truth? What holds dear to them in their head when they’re thinking about Panera?
RS: I think it’s the word I used, which is trust and belief that we’re an ally for wellness. We’re an ally for healthy eating. I think we believe that’s our foundation, and that’s what our consumer wants. We think more and more consumers are going to start paying closer attention to what they’re putting in their bodies.
We’re seeing… We’ve historically been one of the few brands that vegetarians can migrate towards and find good food that they enjoy eating. I think we’re going to continue to see that. Plant-based proteins are obviously a trendline that that we’re hearing more and more about, and something that we’re focused on as well. I think for us it’s an ally for wellness. It’s that trust word. Then it’s craveable as well, food that tastes good and is good for you.
It’s really kind of a simple equation, much more difficult to actually execute than say. But, that’s who we think our consumer is, and that’s what we want to give our consumer. Staying out ahead of that, and being visionary and introducing foods that they want and crave and know are good for them, is going to be the challenge for us and where we’re headed over the next three to five years as we continue to grow.
My Takeaway:
Creating value in retail space means meeting the consumer’s desire for convenience and value wrapped into their experience.
- For Millennials, convenience is becoming more and more important to them as a consumer.
- Rather than focusing on price, the business should focus on the value they are offering their consumer.
- The foundation of your business should be focused on the desire and needs of your consumer, creating in them a belief and trust that you are their ally.
If you have any questions about how the move toward creating value in retail spaces affects you or your investments, please call the Alpha-Rex team to discuss and answer questions on any property or portfolio needs you have.
I would like to thank Rob Sopkin, CDO of Panera, once again for his access, insight and thoughtful candor regarding the retail, restaurant and food service industry.
