Penn State Erie - The Behrend College

Case 2: Panera Bread Company

KAILEY JOYCE
2/27/2012

1. An analysis of Panera Bread Companys financial situation shows some financial pros
and cons for potential inventors. The company has reported increasing sales as well as net
income since 2002. Panera Bread Company has also reported increasing earnings per
share every year which is an attractive statistic for investors. The company has
consistently proven that they can make money. Figure 1 shown below demonstrates the
increases in sales and net income over the last four years
Figure 1
While this figure indicates an increase in sales revenue and net income it is important to note
that the companys expenses have been increasing as well. In fact, last year, expenses
increased by 32% while sales increased at 29%. This statistic shows poor expense
management on the part of Paneras management team. In calculating the companys net
profit margins it becomes clearer that expenses are too high. Figure 2 indicates that margins
have been consistently low ranging between 7% and 8.5% since 2002. It also shows that the
margin decreased last year which is a negative trend that must be considered when analyzing
financial health and future growth potential.
Figure 2
Conducting further analysis I analyzed the companys balance sheet to evaluate its financial
position. My analysis shows that Panera is a low risk investment. In calculating its debt to
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2002 2003 2004 2005 2006
A
x
i
s

T
i
t
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Panera Bread Co. Net Income
Net Income
Expenses
Revenue
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
9.00%
2002 2003 2004 2005 2006
Net profit margin
Net profit margin
equity ratio, which is shown in figure 3, I found that while it has been increasing the
companys ratio has never been higher than .5. This means the company has stable liabilities
and their positive cash balance indicates they have money to work with to invest in their
future growth or pay to owners. Owners equity has been increasing every year which
indicates that owners are reinvesting in the company by retaining income. Reported on the
balance sheet at around $398million Paneras equity indicates that this is a valuable
company. Panera Bread Company also has no long term debt obligations. This is a very
interesting financial statistic. This is a good position for Panera to be in and shows that they
have been able to run a successful operation without taking on long-term debt.
Figure 3
The Panera Bread Company is currently in a stable financial position. They have been able to
expand the company without taking on long term debt and have maintained a stable debt to
equity ratio. Its growing owners equity indicates increasing value of the company. The
company has been able to increase sales and net income every year and have proven that they
can make money in the industry. Investment in this company shows little risk.
However, with less risk comes less potential reward. The companys low debt to equity could
be an indication they are not missing out on higher potential profits they might achieve by
taking on more financial leverage. Another area that causes worry is the decreasing profit
margins. Panera may need to pull in their expenditures and better manage their costs to turn
more of their revenues into net income. These are a few things Paneras management should
consider moving forward.
2. Panera Bread Company is in a good position strategically. The company is currently
using a broad differentiation generic strategy that has been working well for them in the
fast-casual restaurant business. The basis of its differentiation strategy is to gain
competitive advantages by providing higher quality products and an overall dining
experience unmatched by rivals.
They have achieved competitive advantages by adding value throughout their operations.
The main sources are in their product quality, distribution methods, and caf designs. The
company combines simple, all natural ingredients with specialized know how of
experienced artisan bakers to create high quality products that their customers crave,
delivered to each bakery-caf fresh daily.
0.1
0.2
0.3
0.4
2002 2003 2004 2005 2006
Debt to Equity Ratio
Debt to Equity
Ratio
The companys ability to make fresh dough daily comes from a sound production and
distribution strategy. The company has 17 regional fresh dough locations to supply to
both company owned and franchised bakery-cafes with fresh dough each day. The dough
is never frozen and is delivered using Paneras fleet of 140 temperature-controlled trucks.
This strategy ensures consistent product quality and dough making efficiency. The
investment in their new G2 design creates an overall dining experience that sets Panera
apart from their competition.

Completing a SWOT analysis shows Paneras internal strengths and weakness as well as
external opportunities and threats:
Strengths: Paneras fresh dough making capabilities and upscale design is just a couple
of its strengths. The company also has a good company image and high customer
satisfaction. The company also adapts their menu to keep up with changing customer
preferences and has a diversified menu that changes slightly each season. They offer
higher quality options at reasonable prices and serve their food on real china with real
silverware. Wi-Fi is also offered at many Panera locations which is an additional benefit
that will attract customers. The company pays attention to quality and detail and makes
sure every aspect of their operation is carefully monitored to ensure success. . In 2006,
Panera had only 1,027 units open and has much room to grow and expand.
Weaknesses: The Panera Bread Company does not have an aggressive marketing
strategy and aims to let customers discover Panera on their own. Paneras service is not
as fast as other fast-food companies and charges higher prices.
Threats: The industry is extremely competitive, and risky. Many rivals are using
differentiation strategies. Buyer switching costs are low and customer loyalty is hard to
achieve.
Opportunities: Growing food service industry. In 2006, sales were forecast to be about
$511 billion in the US. The U.S. restaurant industry was growing at about 5% annually.
Sales at commercial eating places averaged close to $1 billion dollars a day.

As I previously mentioned, the Panera Bread Company is using a broad differentiation
generic strategy. To compete using this strategy it is important to provide products and
services unmatched by rivals, develop a strong brand name, and command a price
premium. Paneras value chain is supporting this strategy: focusing on R&D, sales and
marketing, service, and operations. The company focuses a lot on R&D to ensure they are
keeping up with changing preferences. They depend on marketing to attract new
customers and make sure they provide quality service to ensure customers will have a
good dining experience and will return in the future. Panera has sound operations that
ensure they can offer high-quality products and make a profit. Overall Panera is a sound
financial investment with a lot of potential for growth.