Exclusive-Panera loosens ingredients standards ahead of IPO, internal documents show

By Waylon Cunningham

SAN ANTONIO, Texas (Reuters) -Fast-food chain Panera Bread has loosened its standards for animal welfare and so-called clean ingredients in its food ahead of a planned IPO, according to internal company documents seen by Reuters, shaving an estimated $21 million off its annual costs.

Its stores across the U.S. were directed in late February to begin removing signs and artwork that include the phrases “No Antibiotics Ever,” “Vegetarian Fed,” “Grass Fed Pasture Raised,” “Animal Welfare,” or any mention of “Hormones,” the internal documents said. The work is set to be completed by March 27, according to the documents.

The soup and sandwich company, which prides itself on having high standards for sourcing ingredients, changed internal policies to remove the requirement its suppliers only use cattle that are pasture-raised, the documents said.

Its new policy allows the use of some antibiotics in pork and turkey products, and allows chicken and cattle to be fed with feed containing animal products.

The relaxing of standards marks a shift in corporate strategy for Panera, which the internal documents refer to as an “evolution” of “clean and animal welfare policies.”

Asked to comment, a Panera spokesperson said in a statement: “As we grow to reach more guests, we continue to hold ourselves to high standards for the ingredients we use and are continuously making changes to our menu to deliver high quality products.

“We strongly believe in transparency around our ingredients and make that information available to our guests.”

Based near St. Louis, Panera has more than 2,000 stores in the U.S. and Canada. It was acquired and taken private in 2017 for $7.5 billion by Luxembourg-headquartered private equity firm JAB Holdings. Last May, Panera announced it was planning an eventual IPO.

Panera goes through nearly 3 million pounds of bacon every year. The chain expects to use more bacon after adding a bacon avocado melt to its menu, increasing use of bacon bits by 26%-36%, internal documents from last summer said.

Those documents also said that Panera’s previous commitments on pork limited its ability to innovate with the meat because antibiotic-free pork accounts for only 5% of total pork availability.

Not changing standards on animal welfare would incur added costs for the increased use of bacon bits, and pose long-term supply risks related to supplier capacity and potential legislation, the documents said.

Federal lawmakers last year proposed the Ending Agricultural Trade Suppression (EATS) Act that would curb states’ ability to regulate agricultural products sold within their borders, although the legislation has not moved since last June.

In 2017 Panera announced it had removed artificial ingredients from its U.S. menu, following a commitment to “clean” ingredients in 2014 and the 2015 publication of a list of prohibited additives, which it calls its “No No List.”

At the beginning of January, three additives — phosphates, sorbic acid, and maltodextrin — were removed from the “No No List”, according to the internal documents and archived versions of that list.

Before the changes, the list contained 76 prohibited additives.

Polling showed Panera that it led competitors on consumer associations with healthiness and responsibly sourced ingredients, according to internal presentations from last year reviewed by Reuters.

A presentation for executives from October said the change in strategy would make its supply chain more flexible, particularly for pork products and save the company an estimated $21 million annually.

The presentation also outlined research into relaxing standards even further but said this was not recommended.

“Further modifications to stances on chicken and pork confinement would result in approximately $8M of savings but carries a much larger brand risk and would put us in a non-competitive position with our policies,” the October presentation said.

It also recommended continuing to restrict artificial preservatives “due to brand positioning risk”.

Tyson Foods, one of Panera’s main suppliers of meat products, reintroduced certain antibiotics to its chicken supply chain last summer. The company at the time said the antibiotics used are not important to human health. Tyson declined to comment.

(Reporting by Waylon Cunningham in San Antonio, Texas, Tom Polansek in Chicago and Abigail Summerville in New York; Editing by Nia Williams)