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Panera CEO reveals how they're beating the long decline in shopping malls

At a time when concerns about consumer spending abound, Panera Bread (PNRA), the chain of 2,000 bakery cafes, posted comparable store sales growth of 4.2% in its second quarter, outpacing the industry, which is seeing sales decline.

“We have always been focused on the long-term themes that are going to matter,” Co-founder, chairman and CEO Ron Shaich told Yahoo Finance in an interview.

The stock, which has surged 13% this year, has benefitted from betting on the right trends, he explained.

“We have focused on clean food, we laid out a vision of an omnichannel world in which businesses like Panera would be required and have the opportunity to serve multiple consumer segments, and we also laid out a vision for Panera rooted in technology as an enabler of our guest experience,” he said. “Those have become the themes in our industry.”

How Panera has countered the mall traffic conundrum

Traffic declines at the key departments stores like Macy’s (M), Kohl’s (KSS), and Nordstrom (JWN) have marked a shift in spending habits of consumers, who increasingly spend more time on Amazon (AMZN) and other online sites.

“The reality is that increasingly in an Amazon-driven world, unless you’re offering an experience, people don’t need to go out,” Shaich said. “Places like Panera… food companies that bring an experience to the table, that offer more than simply than a way to purchase goods are what developers want and we continue to see great deals, wonderful locations, and our concept is producing the highest volumes it’s ever produced.”

Shaich said he is confident that Panera can continue to outperform.

“I’ve been a public company CEO since 1991. What I’ve seen over time is that there are always macroeconomic factors that affect all of us,” he said. “The real question is what does the leadership team of an organization do with the set of cards we’ve been dealt.”

A makeover and new runways for growth

The company’s “Panera 2.0” initiative, which has focused on an enhanced customer experience and now is in 58% of company-owned locations, has been a key driver for the company since it was rolled out in 2014.

The company has focused on a digital rollout to improve order speed and ease, and Shaich said this has been solely focused on improving the consumer experience.

“Digital isn’t important. What is important is the guest experience. A lot of people make the mistake and say they need technology. They don’t need technology, they need to do a better job for the guest,” he said.

Panera is running 20% of all its transactions digitally, and it has the highest utilization of any restaurant company in America outside the big three in pizza—Domino’s (DPZ), Papa John’s (PZZA), and Yum’s (YUM) Pizza Hut—which have been at it for two decades.

Meanwhile, Panera is betting on billion dollar runways from growth—including delivery, catering, and a consumer products group segment known as “Panera At Home.”

According to the NPD group, off-premise represents 55% of total restaurant sales at lunch and dinner, implying a total addressable market of $195 billion.

Shaich said that delivery could help propel sales in other areas as well.

“Some might argue it’s going to be what we call contra-cannibalizing, actually driving incremental sales,” he said, emphasizing that deliver, catering and retail all plays into his view of a new, omnichannel world.

Wage inflation

The debate over minimum wage is intensifying as more and more cities across the US rollout higher minimum wage laws.

This has had an outsized impact on the fast-casual restaurant names.

“Labor inflation is structural, it’s legislated, it’s occurring to everybody in the food industry it isn’t going to stop,” Shaich said, adding that they are seeing 4-5% labor inflation.

But Shaich said that Panera is being smart about the shifts.

“We’ve been able to take hours and shift it from low customer centric activities like order-input where it’s just an extension of a cash register into high customer centric, high experience initiatives like getting your food right, having the production capabilities and actually delivering the food to you,” he said.

Healthy food

Meanwhile, a key driver of traffic remains healthy food and Panera remains focused on that trend.

On Thursday, the company announced a “Kids Meal Promise” which includes a commitment to no artificial ingredients and no marketing gimmicks.

Shaich said he is challenging the industry to raise its standards.

Earlier this year, the company reiterated its commitment to not adding artificial ingredients to any of its food.

“I speak first as a father, and then as a businessman,” Shaich said. “I don’t want my kids sold, I don’t want them marketed to, I don’t want gimmicks, I don’t want toys.”

And for Shaich, this is part of Panera’s efforts to buck the consumer slowdown trend by betting on long-term trends.