An analysis of Panera Bread Company’s business strategies was requested. I have evaluated Panera’s performance in regards to their competitive position in the food industry, as well as, their internal characteristics. My thorough assessment follows the restated question. What is Panera Bread’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Panera Bread is taking? What type of competitive advantage is Panera Bread trying to achieve?
Panera Bread Company’s strategy is to differentiate from other fast-casual chains and full-service competitors with their quality products and attention to detail. The way Paneraachieves this is by offering reasonably priced fresh bakery items, signature sandwiches and soups in a dining environment that is esthetically pleasing. Panera also offers a wide variety of products to draw in customers throughout the day such as bagels in the morning as well as pastas, sandwiches and soups for lunch and dinner. Another way that Panera Bread differentiates from its competitors is that the breads and pastries are guaranteed fresh because they are baked in-house every day.
Panera also has an aggressive growth strategy. An example of this is their franchise agreement. When a franchise agreement is made it typically includes a requirement where the developer to open 15 bakery-cafes in a six year time period. The company works close with franchisees to broaden the market and to uphold Panera’s values and strategies. In 2010, Panera Bread Co. “had an average of six million customers patronize Panera locations system-wide each week”. (Gamble) Panera continues to grow throughout the country. They “currently have over 1500 locations in 41 US states and Canada”. (Corporate Office HQ) The bakery locations are either company-owned or franchises.
The competitive strategy that most closely fits Panera’s approach is the best-cost provider strategy. This strategy is a combination of a low-cost provider and a differentiation strategy. They aim to satisfy buyer’s expectations with their attractive attributes at a low cost. Panera has placed themselves in a segment that creates competition with both dining and fast food restaurants. Because of this,Panera has to offer high quality products that are as valued as quality restaurant food and at a price point to compete with fast food chains. The way they differentiate is by having a range of full service and self service locations where customer service is courteous, capable and efficient. (Gamble) Also, they differentiate with their wide variety of freshly baked food that is unique to market as well as being baked in their in-house bakery that is designed to be pleasing to the eye and inviting.
The competitive advantage that Panera is trying to achieve is differentiation through their high quality goods and welcoming cafes. Soups, sandwiches, and bagels can be bought in a number of places but Panera is unique because they offer freshly baked products, great service and a comfortable environment. Their competitive advantage is also their strategy.
Panera has a long list of strengths. They offer catering, drive-through, and a full-service dining experience. Another strength is quality customer service. They strive to provide “courteous, capable, and efficient customer service”. (Gamble) As a result of great customer service, customer loyalty has risen resulting in an average of 6 million customers a week. As a result of their customer service and fresh baked food they are amongst the leaders in the bakery-café market. Another way they establish loyalty is their customer rewards card that gives loyal customers rewards points every time a customer buys any goods from a Panera location. Also, Panera being amongst the leaders in the market leads to another strength which is financial stability. According to Yahoo Finance Panera has a gross profit of $195,746 (in thousands) as of September 24th 2013. (Yahoo Finance)
Panera is a strong company but there are weaknesses. One weakness is that Panera has mismanaged their long term debt. Evidence of this is that the Panera locations that are franchise owned have recorded higher revenue than the company-operated stores. Panera’s company-operated stores revenue in 2010 was $1321.1 million dollars and the franchised stores revenue $1,802.1 million dollars. If Panera had done what their franchisees did then they would be more profitable at their company-owned locations.Another weakness is the lack of brand name recognition. Panera should implement a stronger marketing strategy to reach consumers who are looking for an alternative to unhealthy fast food options. Panera should use social media like Groupon and Facebook to intrigue new customers. Also, they should market their customer rewards card because people love getting free store item sand will keep returning to receive their free drink or pastry.
One opportunity is international expansion. Panera could expand into markets in Europe or Asia to present a healthier American quick-service restaurant. Once established they can offer franchise opportunities there as well. As there is plenty of opportunity for growth internationally, there is also a large opportunity for growth stateside. Panera competes with fast food chains and restaurants and is out numbered. If Panera could expand to more locations and penetrate the market with their bakery-cafés, then they would be able to reach more potential customers and in turn yield a higher profit margin.
There are a few threats such as ease of entry into the market due to an existing large amount of competition. Fast food chains are everywhere and the powerful ones such as McDonald’s and Taco Bell will out-number the amount of Panera Bread Co. locations. Due to their strong financial status they also can afford to set up more locations to be around Panera’s to give the customers more options. Also fast food restaurants are adding higher quality items to their menu to compete with places like Panera such as Wendy’s pretzel bun pub burger, Hardees gourmet thick burgers and McDonald’s new supreme wraps. Another threat is that Panera’s food strategy is easily copied. Another business could start producing fresh baked bread and soup
and salads without much trouble. Starbucks is implementing that strategy now to try and take a share of the bakery-café market.
The company’s core competence is their bread-baking expertise. Artisan breads are Panera’s signature product along with other signature items. I believe that even with other business’s trying to imitate Panera; they won’t be able to match the high quality standards of Panera’s signature products.
As discussed in class, since the case study is a few years old, it would be preferred to do financial research of information from Yahoo Finance and from an updated Panera Bread Co. Financial data sheet. (Harrison). First analyzed was Panera’s gross profit margin is 28.75 percent as of September 24th, 2013. Their gross profit margin is down from 30.5 percent in 2010. What this means is that Panera can use 28.75 percent of revenue to cover operating expenses and still report a profit.
Next is the operating profit margin which shows the profitability of current operations without regard to interest charges and income taxes. The operating profit as of September 2013 is 13 percent which is up 1 percent since 2010 and in 2009 it was 10.4 percent. Their operating profit margin is not high but it is good to have the numbers continually increase. Next is the net profit margin which is 8.23 percent. It has increased 0.98 percent from 2010 which was 7.25 percent according to the financial data from the case study which is good because it shoes that profit per dollar of sales has increased.
The company’s current ratio, which shows Panera’s ability of paying off current debt by turning current assets into cash for 2010, is 1.56 which is down from 2.23 in 2009. This is bad because it means that Panera can cover its liabilities 1.56 times which doesn’t give them room to have a fluctuation in revenue in a negative way. The working capital shows Panera’s ability to pay off its current liabilities as well as finance inventory expansion and have a larger base of operations without having to take out loans. Panera’s working capital in 2010 was $119,169 (in thousands) which was also down from 2009’s working capital of $179,825 (in thousands). Although there was a decrease of almost $60,000 there is still capital to work with.
Lastly, I analyzed the ROE or return on equity which measures a company’s ability at generating profits from every unit of shareholders’ equity. The ROE as of September was 17.27 percent. This was down from 18.78 percent in 2010. A reason why the number decreased even though the stock price is a lot higher in 2013 than 2010 could be the treasury stock increased the last quarter.
Overall, Panera is having financial issues due to profit margins decreasing since 2010. The return on equity decreased as well but that was due to the company increasing their treasury stock. The Company’s stock is currently being sold at almost 100 percent higher than it was in 2010 which indicates financial strength of the company. The company can cover its liabilities but it should figure out a way to increase its current ratio to help build financial security.
For a restaurant to be considered Panera’s close rival there would have to be a similarity in amount of stores, price of products or products offered. A close rival would be Chipotle Mexican Grill. Chipotle has almost 1100 locations which is similar to Panera. Chipotle offers fresh gourmet Mexican food at a lower price than full-service restaurants and a competitive price with fast food prices. The amount of revenue the company produces per unit is close. Chipotle’s locations have an average revenue of 1.8 million dollars and Panera’s average revenue per store is 2.1 million dollars. Both stores offer high quality food in a casual environment.
Another close competitor is Einstein Bros. Bagels. Einstein’s offers similar products such as fresh-baked bagels, made-to-order hot sandwiches, and soup which is a huge reason why they are close rivals to Panera. Another reason why they are considered a close rival is their geographic locations. Although Einstein’s has a significantly lower amount of stores, its company is spread out in 34 states and the District of Columbia which is similar to Panera.
The other close competitor is Starbucks. Starbucks acquired a bakery chain La Boulange that will get Starbucks involved in the food industry. This will draw in a larger amount of customers for all three meal times similar to Panera’s food strategy. Starbucks is a lot bigger and spread out geographically including its 5,900 international locations, but they will have a difficult time competing with Panera because “Panera currently dominates half of the roughly $7 billion U.S. bakery-café marketplace.”(Rutter) Panera is a unique business that focuses on customer service and a casual yet gourmet experience that is hard to match or compete with. The three closest rivals are similar in various ways but they don’t have Panera’s combination of product, place, and customer service which is why they are successful.
Some of the strategic issues that Panera Bread’s management needs to address such as product offering issues, high-quality low price issues, marketing issues, site selection and environment issues. The first issue to address is the product offering issue. This includes having to change the menu seasonally to attract customers but also hold onto its signature items. Also, because they emphasize on the freshness of their product ingredients and the quality of the final product they should specifically train chefs to make sure they can succeed and keep the brand name strong. The next issue is the high-quality low price issue which is high quality and quick food for a low price. This is an issue because since the products are made at each individual store daily, product costs are higher which hurts their profit margins.
Another issue is marketing, which is important to grow the brand name. There are a lot of marketing strategies that Panera have not utilized such as coupons, seasonal specials or a strong social media presence. If they can reach their customers they can effectively get the message out about their high quality product at a low price. Using social media to market their business could be an easy way to reach customers who have heard of Panera but don’t know what it is exactly. Lastly, the site and environmental issues include location of stores and insuring customer traffic but also the way the stores look inside such as their inviting atmosphere. There has to be constant moves to growing the business into new areas. The company could also do customer polls and ask for feedback to see how they are doing.
There are a few things that Panera could do to strengthen their competitive position: Continue to move open locations in urban areas where Panera has little or no stake in currently. This will spread awareness and introduce them to a new market of customers. Attack the causes of the diminishing operating and net profit margins which would include managing their debt and cutting back on spending. Create new menu items that will attract a dinner crowd. This also includes expanding their seasonal items such as attractive flavors of soup and coffee. Marketing needs to be stronger so that Panera is known as the healthier option of fast food but also emphasize the quality of the fresh food. This could be done through television commercials, mailed out coupons, and emphasize on their customer loyalty cards.
Based off of my research it is evident that Panera Bread Co. is a strong company. They are currently the leader of the bakery-café market, but there is room for growth and improvement. With emerging competitors quick to imitate the business model that Panera has created, it is necessary to continue to focus on attaining a competitive advantage through innovation of new products while maintaining a comfortable dining experience and emphasizing on great customer service. While debt management has been an internal issue for the company –owned stores it could be readily solved with an examination of the successful franchisee’s debt management procedure. In summation, I believe with the execution of a strong social media marketing campaign and expansion into territories that Panera will continue to be the market leader for a long time to come.
Work Cited
- Corporate Office HQ.”Panera Bread Corporate Office.”Corporate Offices and Headquarters.Corporate Office HQ, n.d. Web. 4 Nov 2013.
- Gamble, John E., Arthur A. Thompson, and Margaret A. Peteraf. Essentials of Strategic Management: The Quest for Competitive Advantage. 3rd ed. Boston: McGraw-Hill Irwin, 2009. Print.
- Harrison, Michele. “Panera Bread Company Reports Q3 2013.” Panera Bread Company. Panera Bread Co., 24 Sept 2013. Web. 4 Nov 2013.
- Rutter, Tamara. “The Motley Fool.”Why Starbucks wants to be Panera’s Biggest Competitor. The Motley Fool, 21 Oct 2013. Web. 4 Nov 2013.
