×

In a 'post-Chipotle' world, Panera may be the future of fast food

Why a lot of diners are worried about natural ingredients and food safety.

Even if you're not a hard-core foodie, Chipotle's food safety issues are having a broad influence on people's desire for natural ingredients and quality food.

"Clearly we live in a post-Chipotle world, where there is an elevated focus on food safety at all restaurants," said Panera Bread President Drew Madsen, during an earnings call this week with investors.

"Given that, we have brought in a highly respected consultant with extensive food safety and supply chain risk management expertise to assess our current practices and suggest opportunities for improvement," Madsen said.

Chipotle Mexican Grill's multistate outbreaks of foodborne illnesses have prompted some eaters to stay away and lowered sales. Coupons and free burritos haven't been enough to offset sales declines. Chipotle on Tuesday said comparable restaurant sales fell 29.7 percent in the first quarter of this year.

Competitors, meanwhile, in the fast-casual restaurant space are promoting more quality ingredients and clean food. McDonald's is testing new Chicken McNuggets in two U.S. markets, with some test recipes excluding artificial ingredients. Panera is expanding its menu of clean food options that exclude artificial colors, flavors, sweeteners and preservatives.

Forget pale burgers sitting under heat lamps. The future of fast food will emphasize fewer artificial ingredients, innovation and service across mobile platforms, and best-in-class food safety, according to some in the industry.

"There's a broad push to clean food and food safety," said Stephen Anderson, a restaurants and consumer analyst at the Maxim Group.

Panera Bread restaurant
John Gress | Reuters
Panera Bread restaurant
"Clearly we live in a post-Chipotle world where there is elevated focus on food safety at all restaurants." -Drew Madsen, Panera Bread president

The FDA and local officials investigated two separate outbreaks of E. coli infections that have been linked to food served at Chipotle restaurants in several states. On February 1, the CDC announced the outbreak appears to be over.

"As our sales are on a gradual path to recovery, we remain focused on our mission of changing the way people think about and eat fast food," said Steve Ells, founder, chairman and co-CEO of Chipotle, in a prepared statement. The sales drop was partially offset by sales from new restaurant openings.

As some diners have stayed away from Chipotle, competitors have broadly benefited.

"Everybody is getting a tiny little bit," said Panera CEO Ron Shaich Wednesday on CNBC.

"People are not waking up and saying, 'I want to go to a fast-casual restaurant. I was going to Chipotle but now I'm going to Panera.' No," Shaich said. "They're going to go to whatever is going to offer an experience like Chipotle, whether it be Mexican food or something else that given day."

But according to Reuters, citing a market analysis firm, some customers avoiding Chipotle appear to have opted for Panera. In December, 13.4 percent of Chipotle customers also visited Panera, up from 11.6 percent in September, the month before E.coli outbreaks linked to its restaurants.

"The reality is in the last month, when Chipotle has essentially been giving away their food with tremendous couponing and discounting, our comps [comparable sales] were as high as they have ever been," said Shaich.

Read More Chipotle's troubles might help Panera as both serve up reports

While menus vary, the general idea behind fast-casual dining is a sandwich or salad with quality ingredients for around 10 bucks — a little more than you might pay for fast food, and cheaper than sit-down service. Other restaurants in this space include Shake Shack and Pret A Manger.

"I don't think it's just a matter of clean food," said Anderson of the Maxim Group. "It's also a matter of moving away from artificial ingredients."

Among fast food and fast-casual restaurants, there has been a gradual move to better-quality food and ingredients.

"It's a broader move that even predates the food issues of Chipotle," said Anderson.

Last year, McDonald's announced new menu initiatives including sourcing chicken raised without antibiotics used to treat humans.

Plus, Panera is increasing its food safety audits throughout the supply chain. "Given these changes, we expect our cost for food safety effort in 2016 to be about $2 million higher than originally targeted," said Panera's Madsen during the call.

If any player in the fast-casual space is executing, it's Panera.

The restaurant this week reported first-quarter net income of $35.1 million, or $1.45 on a per-share basis. Earnings, adjusted for nonrecurring costs, came to $1.56 per share, and exceeded Wall Street's expectations.

Beyond a push to better ingredients, its digital investments are paying off.

Roughly 17 percent of Panera sales are now done online or through mobile platforms, said Anderson. And the restaurant chain has created separate, dedicated hubs devoted to large catering orders to improve overall efficiency.

Said Anderson, "Panera is a tech company that just happens to sell sandwiches and soups." Welcome to the future of fast food.

Correction: This version includes an update from the CDC on Chipotle.

Read MoreWeighing the risk of a real-life 'Contagion'