Panera, Starbucks, Chipotle: Invest in the Customer First

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If you ask Panera (NASDAQ:PNRA) Chief Executive Ron Shaich, he might argue that it’s all simply a matter of customer experience. Humans, burdened with bounded rationality, make mistakes. In the food industry, Shaich told Bloomberg Businessweek, one in seven orders is wrong. At Panera, the frequency drops to one in 10 — better, but still an enormous source of friction for the business. Think of it this way: In addition to the operational cost of correcting an order, you are harming the experience of 10 percent of your customers.

Panera competes in the quick-service arena with Chipotle Mexican Grill (NYSE:CMG) and Starbucks (NYSE:SBUX), both companies that understand that the customer experience is paramount. The pool of substitutable goods shared by these companies is enormous, and there is only really room for a cramped kind of product differentiation. This makes not just what they sell but how they sell it a critical part of business strategy. A higher-quality consumer experience than the competitor is an advantage that can win sales.

For a company like Panera, this means that the order error rate is more than just an operational issue. The cost is not all simply absorbed into the company — some of it is placed on the consumer. Reducing or eliminating this waste becomes important not just as a cost-reduction measure but as a means to attract and retain customers.

So how you do reduce or eliminate  order errors? According to Shaich, about half of all order errors happen when orders are entered into the system, a task performed by a human. If 50 percent of the problem is human error at the point-of-order entry, then one way to reduce the rate of order errors is to find a way to automate the process and remove the human from the workflow.

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