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Panera Bread Company

Overview

History Industry Analysis


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Porters 5-Forces Key Success Factors Financial SWOT Analysis

Company Analysis

Identify Issues Alternatives Recommendations Action Plan Results

History - Panera Bread Company


Porter's five forces model


Substitute products: -Readily available substitutes -End users have low switching cost - Substitutes are competitively priced

Time for Bread Au Bon Pain and St. Louis Bread Company Business Model

STRONG
Suppliers: -Low bargaining power of suppliers - Good alternative to actual suppliers are easy to execute -Many suppliers available Rivalry: -Strong rivalry because low switching cost - Active competitors that do consistently attractive changes -- The demand is constantly growing Buyers: -Switching cost is low -Demand is increasing - Some buyers are a threat to integrate backwards

Company-operated bakery cafes Dough making facilities Franchising operations

LOW

STRONG
New entrants: -Low entry barriers in restaurant industry - Dominant leaders are looking for expansion into new regions

STRONG

Strategy
STRONG

Industry Key Success Factors:


Industry Analysis - overall


Diverse menu offerings Respected brand name Access to attractive locations

High traffic

Customers are becoming increasingly green and health conscious Competitors in both fast food and casual dining have begun to adapt

Attractive dining experience Competitive prices Quality products

Competitors have noticed the success of fastcasual restaurants

Financial Analysis - DuPont Model


Fiscal Year Net Profit Margin Asset Utilization Return on Assets Assets/Equity Return on Equity

Other Financial information here (Examples) IOW do not just have the DuPont formula

2006 2005 2004 2003 2002

7.09% 8.15% 8.02% 8.43% 7.55%

1.53 1.46 1.48 1.42 1.44

10.84% 11.92% 11.84% 11.94% 10.90%

1.36 1.38 1.35 1.33 1.29

14.80% 16.66% 15.92% 15.82% 14.06%

Same store sales increase year to year Demand for new franchises Franchisee sales versus company sales Stock price over time Other margin measures Other activity measures Competitor information for comparison

SWOT - Panera Bread Company


Strengths Recognized leader and strong brand name Attractive dining experience Strong emphasis on quality and healthy food Via Panera catering operations Dough facilities Attractive and diversified menu Bread making expertise Opportunities Franchisee growth International markets Untapped U.S. markets

Issue (A): How to boost new customers and visits during dinner hours?

Weaknesses dinner traffic point of entry in the system for a franchisee Profitability differences between company and franchise owned cafes
Slow Hard

Threats Competition from rivals with similar menu offerings Changing customer preferences Rising food costs

Strong ability of Panera to convert first-time guests into repeat customers Customers are open-minded about trying Panera at different times Per-guest revenues at dinner would be higher than at other times of day

Issue (B): The declining profitability of company-operated cafes.


Issue (C- most important): How to increase company revenues from franchising operations?

Trends in performance
Company-owned cafes
Revenues (in millions) Bakery-caf expenses (as a percentage of caf revenues) Food and paper products Labor Other operating expenses Total bakery cafe expenses Operating Profit Margin from caf operations 29.6% 30.8% 13.8% 81.5% 18.5% 28.6% 30.3% 14.0% 80.4% 19.6% 28.1% 30.6% 14.1% 80.2% 19.8% 27.8% 30.5% 13.8% 79.2% 20.7% 29.8% 29.7% 13.2% 79.9% 20.1%

Franchising operations are Paneras most profitable business segment


Operating Profit Margins 2006 2005 Company BakeryCafe 9.9% 9.0% Franchise Operations 88.0% 87.7% Fresh Dough Operations 18.5% 19.6%

2006
$666.1

2005
$499.4

2004
$362.1

2003
$265.9

2002
$212.6

Panera has many unsaturated and untapped markets


Population per location in many large markets is high Many large markets, including international markets, are untapped by Panera

Alternative # 1: Acquisition of competitors


Alternative # 2: Increase franchise royalties and fees


Purchase of competitors in same industry that offer opportunities for franchise revenue and area expansion

Incrementally increase franchise fees from an average of 4.94% (in 2006) of revenues to 5.15%
Return on equity, (2006) assuming different % of franchise revenues, with all other factors constant
4.94% Return on equity 14.80% 5.00% 14.98% 5.05% 15.14% 5.10% 15.30% 5.15% 15.46%

Au Bon Pain Jasons Deli Brueggers


Costs of negotiations

Alternative # 3: Aggressively pursue expansion into new markets


Recommendation: Aggressively pursue expansion into new markets


Current commitments of franchisees 423 stores Pressure on franchisees to open additional stores Seek additional franchisees in untapped markets Advertising International franchises Canada Develop company-owned stores in existing company territories

Pros:

Costs of expansion through franchising agreements is much lower than direct investment Future franchising revenues will restore Paneras profit margins Distribution of Paneras brand name Diversification of revenues

Recommendation: Aggressively pursue expansion into new markets


Action Plan

Cons:

Q1-2007

Strict franchising requirements Saturation of markets could hurt profitability Risks of international expansion

Market to potential franchisees in untapped markets


U.S. locations Canada Overseas

Dough facilities Franchisees Markets


Costs of expansion

Renegotiate contracts with current successful franchisees for further expansion Benchmark international operations of competitors

Markets Menu offerings

Potential deterioration of quality standards

Q3-2007

Develop new dough facilities in future markets

Action Plan

Results

2007 -2010 Expand the number of stores at 17% rate


Improved Profitability
Net Profit Margin Asset Utilization Return on Assets Assets/Equity Return on Equity

Potential company-owned markets Houston Dallas/Fort Worth Northern California Seattle Miami 2006 2007 1,065 80 75

Potential franchise markets Memphis Phoenix San Antonio Toronto/Vancouver Little Rock 2008 1,246 90 91 2009 1,457 100 111 2010 1,705 115 133

Fiscal Year

2008 2007 2006

7.84% 7.89% 7.09%

1.55 1.55 1.53

12.16% 12.23% 10.84%

1.36 1.36 1.36

16.58% 16.67% 14.80%

Total Stores (Company and Franchised) New company-owned stores New franchised-owned stores

910 80 70

Projected earnings per share


2007: $2.54 2008: $3.03

Results

Questions

Improved long-term growth opportunities


New franchisees Market exposure Future acquisitions International expansion

Improved cash position