Panera Bread Company

Case Analysis
Jennifer Von Flatern

MANAGEMENT 301 HONORS SECTION DECEMBER 5, 2012

1. Case Overview History Panera Bread Company is a fast-casual restaurant, whose bakery options provide quality breakfast, lunch, PM chill-out, lunch in the evening, and take-home bread options for consumers who are tired of fast food, yet dont have time for a sit down meal. The company is headquartered in St. Louis, Missouri and has been led for 25 years by CEO and President Ronald Shaich. In 1978, Louis Kane purchased Au Bon Pain, a fast casual restaurant that focused on artisan breads. In 1981, he merged Au Bon Pain with Shaichs company Cookie Jar. The company first added sandwiches to their product line in 1985. In 1993, Panera acquired the St. Louis Bread Company. Their aim in acquiring this 19-store company was to enter into a more suburban marketplace, since Au Bon Pains customers were mainly urban office workers (Repetti and Vincelette 30-2). After studying St. Louis Breads bakery-concept for several years, the company decided to focus solely on this promising business segment. They sold Au Bon Pain in 1999, and used these profits to expand Panera Bread. Operational Structure Louis Kane retired from the company in 1994, and Ron Schaich recently retired as CEO in 2010. Bill Moreton, who previously served as Executive Vice President and Co-Chief Operating Officer, replaced him (Company Overview). The following is an organizational chart of Panera Bread Company.

From theofficialboard.com

We can see that there is a board of directors, and many vice president positions that report to the CEO. We also know that an important part of the Panera Bread Companys growth is in franchising. Panera is selective in choosing franchisees. Their program started in 1996, and gives individuals two ways of owning a Panera: independent third-party franchisees and Area Development Agreements (Repetti and Vincelette 30-6). These options give the owners different amounts of leverage when creating their store, but they must follow basic Panera protocol in order to create products that meet the companys standards. Key Issues The main issue that Panera Break Company is concerned about is creating sustainable growth. It is difficult to continue expanding business, while also staying true to their vision. Direction Mission Statement A loaf of bread in every arm (Company Overview) Vision Paneras vision is to expand their bakery-cafes throughout the United States. They would like to provide a fast, healthy, delicious, and moderately inexpensive meals to as many people as possible. Strategy Corporate Strategy Panera is in the fast casual restaurant category, specifically providing bakery/caf products in a very welcoming and cozy environment. This means that the average check of a customer is between $6 and $9, they follow a limited service format, and the food is made to order (Repetti and Vincelette 30-4). Business Strategy Panera competes through differentiation. They pride themselves on their healthy, fresh foods. Any new branch must comply with protocols in order to ensure that each piece of bread is up to Paneras standards. Not only do they create fresh, great tasting foods, they also create a welcoming environment. They make sure that while no Panera looks identical, they all have a cozy feel. The project the warmth of a fireplace, and make sure that every customer feels welcome to stay for as long as theyd like (Repetti and Vincelette 30-14). This means that Panera provides a meeting place for business people and families alike. Functional Strategy

Au Bon Pain had trouble moving their business out of urban environments, but their acquisition of St. Louis Bread Co. helped them move to more suburban areas. Since their bread must be fresh, Panera had to open new branches based on their 16 commissary locations ((Repetti and Vincelette 30-12). Overall, there were 429 Franchise-Operated Bakery Cafes and 173 Company Bakery-Cafes as of 2003, with the largest distribution in Illinois, Ohio, and Missouri. Panera does not rely heavily on print marketing, but more on word-of-mouth advertising. In 2001, their ad-to-sales ratio was around half of the category average. When a new store opens, there is much hype around town, making it very important that Panera continues to perform up to their standards. They also do a lot for the communities in which their branches are located. They help with charity work, and also make sure that all of their leftover food ends up in the hands of someone who needs it. They have even initiated a Panera Cares program, opening some Panera stores without prices. People simply pay what they can (Netsch). General Environment Social-Cultural Factors Panera Bread conducts their business around the continental United States. They were one of the first businesses to take advantage of the fast casual restaurant model because they saw that Americans were busy and needed food quickly, but willing to pay a little more in order to get quality foods. Even more recently, the belief that food should be grown locally and naturally has increased in popularity (Lazo). This is good for Panera, because they attempt to use as much local products as possible. Economic Factors Since Panera does their business in the United States, they dont have to worry about things like foreign currency. The thing that Panera must consider most highly is the economic environment, which is still recovering from the 2007-2008 recession. Paneras prices sit between a fast-food price, and a sit-down meal. This means that they were probably more susceptible to the economic environment than fast-food restaurants, which provide inferior goods. However, according to businessweek.com, Panera has been building even during this time (How Panera). They boosted their revenue 24% between 2007 and 2010. They did this by investing in labor and quality of food while most other businesses cut back. By sticking to their differentiation strategy, theyve been able to capitalize even during economic hardships in America. Political Factors Political factors that could affect Panera include minimum wages and farm subsidies. Since Panera relies heavily on local farming, any kind of change to agricultural subsidies could affect business and prices. There havent been any recent hikes on the national minimum wage, but state wage laws could also affect Paneras hiring decisions. Technological Factors Since Panera is in the food service industry, it is unlikely to be largely effected by technological change. If there are developments in factory production, that would have

the greatest impact on their business. Also, any change in order processing could affect Panera, but they already use an advanced system that tracks orders and system wide sales. Ecological Factors Ecological Factors could have an enormous impact on Panera Bread Co. Panera is a company that embraces sustainability and local agriculture. They have already taken steps to ensure that their company uses less paper. However, steps could be taken to create green buildings. They must also consider the energy crisis, as well as how global warming could affect their products. As the global temperature rises, there is also a change in the crops that can be grown in these changing environments. Additionally, fresh water resources are being depleted at large rates. Places in the American Midwest are using aquifers at twice the rate at which they can be replenished. Soon enough, this will severely affect agriculture, and Panera and many other companies will need to react to the problem. Demographic Factors Panera has created an interesting environment that attracts many different age groups. They first profited on Baby Boomers and their children. Now, they can take advantage of the upcoming generations and their appreciation for fresh foods. Their ability to attract young and old customers is a great strength for Panera. They also have been able to expand in urban and suburban settings over the years, which is another strength. Industry Environment Threat of New Entrants The threat of new entrants is very high for Panera. Primary competitors include specialty food and casual dining restaurant retailers, according to Repetti and Vincelette. The barriers to entry are low, and people are always looking for new and interesting places to eat (which is one of the reasons why Panera was so successful). Power of Buyers Buyers have a lot of power because there are a lot of other places they could eat. Paneras are often located in busy places, such as malls or busy streets. This means that they usually have several other eateries around them. Power of Suppliers Suppliers to Panera dont have a lot of power because they use many and they are very picky about the quality of their food. If they arent happy with the product, they can go elsewhere. Fresh food is part of their vision, and if suppliers dont comply, Panera will not accept it. Threat of Substitutes In terms of a meal, there are no substitutes for the food that Panera provides. However, if people go to Panera for the atmosphere, there are plenty of other places that could provide a meeting place. Meetings can be done in the office, but increasingly they are being done over the phone or over Skype. The same could be said for people who go

there to relax or to study. These things can be done at home or at a library. So while there is no substitute for food, there are plenty for the atmosphere. Intensity of Rivalry The restaurant industry provides intense rivalry among competitors, as does the fast casual restaurant industry. While Panera was once one of the only businesses in this industry, it has been rising in popularity. Their competitors do include fast food restaurants including McDonalds and KFC, as well as places like Starbucks, Chipotle, and Yum! Brands Inc. This means that their competitors offer a wide range of products, from Chinese food to Mexican food. It also means that they compete with a huge range of prices, from the dollar menu from a fast food restaurant, to a very pricy 5-star restaurant (Yahoo Finance). The following table shows how they compare to others in their industry.
Direct Competitor Comparison PNRA Market Cap: Employees: Qtrly Rev Growth (yoy): Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margin (ttm): Net Income (ttm): EPS (ttm): P/E (ttm): PEG (5 yr expected): P/S (ttm): 4.58B 18,000 0.17 2.05B 0.35 350.42M 0.13 160.46M 5.45 28.72 1.41 2.25 CMG 8.35B 30,940 0.18 2.63B 0.38 534.35M 0.17 274.12M 8.60 30.81 1.41 3.25 BAGL 272.10M 6,506 0.02 431.50M 0.24 49.88M 0.07 15.69M 0.92 17.49 1.12 0.62 SBUX 37.77B 160,000 0.11 13.30B 0.56 2.38B 0.14 1.38B 1.79 28.37 1.33 2.86 Industry 246.86M 1.74K 0.21 331.43M 0.35 27.32M 0.05 N/A 0.59 28.93 1.33 2.27

CMG = Chipotle Mexican Grill, Inc. BAGL = Einstein Noah Restaurant Group, Inc. SBUX = Starbucks Corporation

Industry = Specialty Eateries From finance.yahoo.com

Internal Environment Panera Bread Co. appears to have very positive relationships within their company. Ron Shaich always had a very hands-on approach to the business, and received several awards for his exceptional leadership. The company also provides training programs to ensure quality employees, and then incentive programs, bonuses, and product discounts (pg 16). Additionally, the company assists franchisees with things such as labor scheduling and food cost management (Repetti and Vincelette 30-15). This helps ensure the success of new branches. Strategic Analysis Strengths Paneras strengths come in their ability to provide fresh meals to consumers around the U.S., keeping up with the growing demand and trend for such products. They also do this at a reasonable price. Theyve also remained true to their initial vision, offering artisan breads, while still expanding and offering many other menu options. Their positive reputation attracts new customers, and their friendly environment keeps them coming back. They have proven skilled at training new managers and in choosing only extremely qualified candidates for their franchise openings. Weaknesses Like most restaurants, Paneras menu includes many similar tasting options. While they provide, soups, salads, sandwiches, and other bakery options, there are still many other genres of foods that could attract customers elsewhere. They also do not have a dinner menu, but try to attract customers for lunch-in-the-evening meals. Additionally, Panera relies heavily on capable franchise owners to create growth. Without these individuals (who must invest a lot of time and money), Panera would have a lot of trouble expanding. Opportunities Paneras aim is to create growth solely in the United States, yet they have a very real opportunity to look elsewhere. They could open stores in Canada, while still providing fresh foods from their current commissaries. There is also much potential in diet foods and organic foods. While Panera promotes healthy options, they could also push dietary options, such as those high in fruits and vegetables and low in carbohydrates. Additionally, Panera still doesnt market very much. Their first TV marketing campaign was in 2009, and they have been slowly increasing marketing initiatives since then. An increase in marketing, instead of relying heavily on word-of-mouth marketing, could increase market share. Threats Rival restaurant chains will always be a threat for Panera. The food service industry is very competitive, and customers have a lot to choose from. Threats also come in the form of ecological factors. Climate change could have a huge impact on Panera and their

suppliers, as could the energy crisis. This threat isnt one that will affect them all at once, but rather over time. Recommendations Menu Panera should promote diet and vegan options. Their caf menu is portioned into: salads, sandwiches, drinks, paninis, kids, and pasta, stew & soups. They should add two additional portions of their menu that advertise diet and vegan options. This would make ordering easier for certain groups of people. Additionally, some may not know that such options exist. Dieters might automatically go for the salads without considering other choices. Making ordering easier will surely improve the customers experience at Panera, and possibly increase the likelihood of a return visit. Sustainability Panera has shown that they are a groundbreaking company with programs such as Panera Cares. This means that they would probably be open to experimenting with more sustainable building and operating options. For example, a Panera run with solar energy would be a very interesting opportunity for the company to explore. This would also likely improve their reputation among green groups, and increase their word-of-mouth marketing. Expansion Panera should experiment with business outside of the United States. They should start in Canada, using nearby facilities to provide products and know-how. They should also increase their marketing programs. Panera, while incredibly successful and popular, still isnt a widely known name. Their aim should be to make their name as recognizable as Starbucks or Krispy Kreme.

Citations
. 5 Dec. 2012. <http://www.washingtonpost.com/wp-dyn/content/article/2007/07/ 28/AR2007072801255.html?hpid=moreheadlines>. "Company Overview." Panera Bread. N.p., n.d. Web. 5 Dec. 2012. http://www.panerabread.com/about/company/board.php?ref=/about/company/history.php. "How Panera Bread Kept Rising Through the Recession." Bloomberg Business Week. N.p., 8 Nov. 2010. Web. 5 Dec. 2012. <http://www.businessweek.com/investor/content/nov2010/ pi2010118_183529.htm>. Life Media, 8 Feb. 2012. Web. 5 Dec. 2012. <http://www.sustainablebrands.com/news_and_views/blog/how-panera-bread-revolutionizingway-restaurants-feed-hungry>. Lazo, Alejandro. "A Shorter Link Between the Farm and Dinner Plate." The Washington Post. N.p., 29 July 2007. Web Netsch, Alex. "How Panera Bread is Revolutionizing Philanthropy." Sustainable Brands. Sustainable "Panera Bread." The Official Board. N.p., 13 Sept. 2012. Web. 5 Dec. 2012. <http://www.theofficialboard.com/org-chart/panera-bread>. Panera Bread Company: Rising Fortunes? By Ted Repetti and Joyce P. Vincelette. N.p.: n.p., n.d. 30-1-30-23. Print. Excerpt from Strategic Management and Business Policy. 10th and 11th ed.N.p.: Prentice Hall, n.d. N. pag. Yahoo Finance. N.p., 5 Dec. 2012. Web. 5 Dec. 2012. <http://finance.yahoo.com/q/ co?s=PNRA+Competitors>.