Panera Bread margins as wheat costs rise
margins, as rising wheat costs put a strain on its operations.
The company is one of the largest bakeries in North America, with own-store ventures and franchises across the US. Panera also manufactures baking products, such as dough, for other companies. For the year ending 25 December 2007, sales increased 34.3 per cent. Costs also rose sharply, by 32.4 per cent, leading to the margin loss, as well as a 1.7 per cent drop in operating profit. The company anticipates that the commodity squeeze will in continue in 2008, predicting that the price of a bushel of wheat will increase from $5.80 to $14. Dough prices will therefore go up 11 per cent in an attempt to cover these costs, while whole product prices will go up five per cent, the company said. The company posted similar results for the fourth quarter. For the 13 weeks leading up to the end of the tax year, Panera Bread posted a 35.5 increase in net sales but also a 33.4 per cent increase in costs. The company had put up consumer prices by 2.5 per cent last November, but margins still fell 4.5 per cent. Ron Scaich, Panera chairman and chief executive officer, said that the company also suffered because of a weekly decline in sales over the quarter. "We face several significant challenges as we take on the new year: Unprecedented inflation in the wheat markets, executing appropriate pricing adjustments and an uncertain consumer market," he said. "We are pleased to have locked in wheat for the year and to be ready and able to execute price adjustments to mitigate the extraordinary run-up in wheat costs."
