Panera Case Analysis
Panera Bread Table of Contents Executive Summary3 Introduction3 Strategic Issue4 SWOT Analysis4 Strengths4 Weaknesses5 Opportunities5 Threats5 Alternatives6 More aggressive marketing campaign6 Enter untapped domestic markets through franchising6 Sell products in grocery and specialty stores6 Co-ops7 Enter foreign market7 Open more stores in low penetration markets7 Better supply chain management7 Expand Catering Program7 Community Sponsorship7 Recommendation8 Conclusion8 Executive Summary Panera Bread has experienced an extreme amount of success since it was established in 1981.
However, the company still faces the strategic issue of how to make great bread broadly available to consumers across the United States. In this report, we will conduct an in depth analysis of Panera bread, identifying its strengths (menu, quality, franchise agreements, and financially sound,) weaknesses (stringent franchise requirements and routine customer schedules,) opportunities (open more outlets, expand internationally, and increase menu options,) and threats (competition, threat of imitation/substitute goods, and location selection. Next, we will present a list of alternative solutions to satisfy the strategic issue, including: more aggressive marketing campaign, enter untapped domestic markets through franchising, sell products in grocery and specialty stores, co-ops, enter foreign markets, open more stores in low penetration markets, better supply chain management, expand catering program, and community partnerships. Finally, we will make our recommendation based upon our analysis, which is entering untapped domestic markets through franchising, Introduction
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Panera Bread Company is a bakery-cafe restaurant that specializes in offering customers with a diverse menu that offers quality ingredients along with providing customers with a relaxing, comfortable atmosphere. Panera Bread, also called St. Louis Bread Company was founded in 1981 as Au Bon Pain Company by Louis Kane and Ron Shaich. Rated high as a bakery-cafe restaurant, they offer a wide selection of breads, soups, and salads. Panera is considered a “quick casual” restaurant offering sit-down dining in addition to catering services.
The company rivals conventional fast food companies, as well as restaurants that cater to the on-the-go customers. A key concept and strategy that Panera has employed is offering a diverse menu made with quality ingredients while providing an inviting ambience for its customers. Panera restaurant locations are based in urban settings, giving customers the ability to meet with friends. Panera’s cafe-bakery restaurants offer customers a warm setting, including comfortable seating while also providing free Wi-Fi connections that encourages customers to stay longer to enjoy the experience.
Panera’s overall strategy allows it to be successful in the course of every meal offered throughout the day. Along with the aforementioned strategy concept, Panera has created a well-built group of suppliers, which helps facilitate lower costs. Panera also has a network of regional fresh dough facilities which produces fresh dough for both company owned as well as franchised cafe-bakery restaurants daily. These facilities are located throughout the country to provide quick distribution to each of its local bakery-cafes.
By providing freshly made dough, Panera’s management claims to have created a competitive advantage amongst its competitors, also guaranteeing efficiency and consistency in the quality of its products. A variety of suppliers provide Panera with its other essential supplies including sweet goods, coffee, paper goods etc. , preventing any individual supplier from having too much leverage. Panera’s strategy has allowed it to outdo much of its competition, from its distinctive dining experience to its innovative menu of bakery items, soups and sandwiches.
While many of its competitors in the fast-food casual category have inundated the market with an overabundance of restaurant locations, many serving much smaller numbers of customers per location, Panera developed the tactic of servicing a larger number of customers per location. Its current objective is to develop and increase its bakery-cafe restaurant locations by more than 2,000 before the year 2010. With this, Panera Bread Company has the opportunity to increase market share by attracting potential customers away from their competition amongst the fast-food casual restaurants.
Strategic Issue The strategic issue that Panera faces is how to make great bread broadly available to consumers across the United States. SWOT Analysis Strengths When examining Panera Bread Company, it possesses several strengths. One of the greatest strengths in providing great bread is the actual menu. Panera prides itself on the commitment to the quality and reliability of its products, which is supported by its focus on creating the menu. With an understanding of customers’ needs Panera has developed an extensive product line to satisfy a variety of tastes.
Panera continually adapts the menu in response to seasons and changing customer preferences. For example, it introduced whole grain breads because customers were concerned with consuming good carbohydrates. Each bread product is artisan made in one of the seventeen dough facilities to ensure freshness and maintain the level of quality. Another strength that will promote broader availability of the quality bread is the location quota associated with the franchises. When entering into a franchise agreement, Panera does not allow franchise owners to open just one location.
Rather it requires the investors to open locations over a time span, typically fifteen stores over six years. This condition of the franchise agreement supports the strategic goal because each contract guarantees more than just one location, making great bread more easily accessible. Even without opening more locations, Panera has widened its reach with its catering efforts. The products are being introduced to consumers at the workplace, social events, schools, and other places without having them visit the store. With its premier menu offerings, contract erms, and catering Panera has the capability to achieve its strategic goal. Financially, Panera Bread is very stable, and conservatively financed for growth. Panera Bread has experience tremendous growth over the 5 years preceding the case. The company’s revenue was 2002 was $282,225, and grew to $828,971 by 2006. Panera’s 5-year revenue growth rate during this time was 193. 72%, or annualized at 24. 1%. Panera’s stock price grew from $25. 39 to $55. 91 a 5-year return of 120. 2%; in the same time period earning per Share grew 154% from $0. 74 to $1. 88.
The company grew while being very conservatively financed with only a very small portion of long-term debt. In 2006 Total Liabilities totaled $144,943, with current liabilities accounting for $109,610 of that. Panera’s debt to equity ratio is 0. 36 for 2006. This means that for every dollar of shareholders equity, the company only has $0. 36 in debt. Additionally Panera Bread has an interest coverage ratio of 986. 86; meaning they can cover their interest on debt 986 times from their operating profit. Weaknesses Although Panera has several strengths, it also has a few weaknesses it must overcome to realize its objective.
Aspects of the franchise agreements, such as having to open multiple locations for each contract, are mentioned as strengths; however, other components work against the company. For example, potential franchise owners are required to meet stringent criteria before entering into an agreement with Panera. The company expects the investor to have liquid assets of $3 million and net worth of $7. 5 million. Other conditions to the franchise agreement are that the owner has experience as a multi-unit restaurant operator and experience in the potential market.
Even though the terms of the agreement promote quality and commitment, they do not attract many investors to open more locations. Another weakness is the routine schedules of the customers, creating limited exposure to the full menu. Most repeating customers visit the bakery-cafes at the same time each day and therefore have only tried one meal at Panera. For a company that has dedicated resources to developing a premium choice for all meals, it fails to market all of its options to its customers. Opportunities As a growing company, Panera has many opportunities available to them.
One opportunity would be the ability to open more outlets. In 2006, Panera had a total of 1,027 units in 36 states in the United States. A few of the high penetration markets that Panera focused on were St. Louis, Cincinnati, Pittsburgh and Washington D. C. In these locations Panera has a minimum of 25 units already opened. Even though Panera had a growth plan to expand by 17 percent annually through 2010, the company has many markets that are untapped. These markets included New York City, New Orleans, Phoenix and Austin.
The opportunity to open outlets in these areas would help Panera reach their growth plan. A second opportunity would be to expand internationally. In 2006, Panera did not have any international franchise development agreements. However, the company was considering a franchise agreement for several Canadian locations such as Toronto and Vancouver. If Panera expanded internationally, not just to Canada alone but overseas as well, it would give them a competitive advantage when competing with other food chains. A third opportunity would be to expand their menu to meet consumer healthy lifestyles.
Consumers are continually looking for ways to eat healthier; therefore Panera can expand their menu to fulfill consumer wants. By doing this, Panera can improve the quality of their food selections and gain a larger competitive advantage over its competitors such as McDonald’s, Burger King and Wendy’s. Threats Panera faces many threats to their business. One threat would be their growing competition. A few of Panera’s leading competitors would include Subway, McDonald’s, Starbucks Coffee and Applebee’s. These competitors have competitive advantage over Panera by having a much larger number of locations. For example, Subway has 19,965 locations open in 2006 compared to Panera’s 1,027 locations. Therefore, these competitor locations have already been established in most of the markets that Panera may want to look into. These competitors are also trying to bring in more customers with similar methods that Panera uses. Competitors are beginning to imitate menu offerings by Panera. Panera prides itself on their homemade bread varieties and giving customers quality products.
Competitors like Subway produce a variety of breads for their sandwiches which takes away Panera’s competitive advantage. Other growing competitors such as Starbucks and Dunkin Donuts appeal to consumer’s breakfast needs, which may take away from Panera’s breakfast and bakery lines. These competitors are well established, may offer better prices and pose as a big threat to Panera’s future growth. A third threat to Panera would be the locations where they plan to open new units. This may become an issue because of their current competitor locations and consumer preferences for that area.
If customer loyalty lies with Panera’s competitors, such as Starbucks or Subway, Panera might have difficulty opening up new locations in these areas. Even if they are able to open up locations, it may be difficult to gain customers to build their own customer loyalty. Alternatives More aggressive marketing campaign Marketing had played only a small role in Panera’s success, with brand awareness being based upon customer satisfaction and word of mouth advertising. According to research, Panera had a high proportion of trial customers that became repeat customers.
Therefore, acquiring more people through the door would be ideal for Panera. The current market strategy of letting customers “collide with” and “discover” the brand does not support this, and a more aggressive marketing campaign targeting the masses would be best. Although this alternative would ideally help build customer loyalty, it is limited to the extent that it would address the strategic issue, which is making great bread broadly available to consumers across the United States because the bread is already available; the customer may just be unaware.
Enter untapped domestic markets through franchising There are a number of untapped domestic markets that Panera could enter that would be highly profitable for them, including: New York City, Salt Lake City, Memphis, New Orleans, Atlantic City, Albuquerque, Phoenix, Tucson, District of Columbia, Baton Rouge, Little Rock, Austin San Antonio, Green Bay/Appleton, Shreveport, and Spokane. By focusing on franchising, Panera can saturate the market more quickly and efficiently because franchise agreements require the developer to open a number of restaurants (typically 15 bakery-cafes in six years. Additionally, franchise operations are more profitable compared to bakery-cafe operations, and there is low liability and risk because Panera can always buy back failing franchises. This alternative would be extremely effective in solving the strategic issue because it would make bread more broadly available to people because Panera would be entering new markets. Sell products in grocery and specialty stores Panera could choose to begin selling their bread in grocery and specialty stores.
This would help solve the strategic issue to the extent that bread would be broadly available, however, the quality of bread would not be as great as the bread in the bakery-cafes. Because quality is of utmost importance to Panera, this probably would not be the ultimate solution for them. Co-ops Another alternative that is similar to the alternative above is entering into a cooperative with restaurants to exclusively serve Panera bread. The bread could be delivered then baked on sight, much like the bakery-cafes. This would allow consumers that may not normally eat Panera bread to try it out.
While this would satisfy the strategic issue in making great bread broadly available, it would only be marginally effective, because the type of restaurant that the bread would be served in would more than likely be a competitor to Panera. Additionally, it may be more costly to the cooperative restaurant to bake fresh bread daily. Enter foreign market There are a number of foreign markets that Panera could enter, mainly cities in Canada. This would be extremely effective in making great bread more broadly available, however, it would be outside of the United States, which is not what the strategic issue states.
Panera is concerned with making great bread broadly available to consumers across the United States, not foreign countries at this time. On the other hand, this would be a great opportunity for future expansion and once the domestic market is saturated. Open more stores in low penetration markets Panera can open more stores in low penetration markets, including: Los Angeles, Miami, Northern California, Seattle, Dallas/Fort Worth, Houston, and Philadelphia, where the population per cafe ranges from 278,000-1,183,000.
This would make bread more broadly available because there would be more cafes, but it would only be limited in its effect. Better supply chain management Panera has only 17 regional fresh dough facilities for its 910 locations. This means that delivery drivers are traveling up to 500 miles daily, which seems inefficient. If Panera opened more dough facilities, the trips could be shortened. Also, Panera could use other forms of transportation, such as small planes or even boats where applicable. This would only slightly help solve the strategic issue, but it could reduce costs and boost employee morale.
Expand Catering Program Panera has already established a catering program, but it could be expanded upon. This would make great bread more broadly available to individuals that may not normally dine at Panera, and it could turn them in to lifelong patrons. Again, this would only be marginally effective, because it would take place in already penetrated markets. Community Sponsorship The last alternative for Panera is to sponsor community events, mainly donating food. Once again, this would make great bread more broadly available to patrons that would not normally dine at Panera, and it would also improve the company’s image.
Like similar solutions, it would not be very effective in solving the strategic issue because it would take place in already penetrated markets. Recommendation Panera Bread’s strategy for growth is to expand through franchise operations in untapped markets. In 2006, franchise royalties and fees accounted for 9. 24% of Panera’s revenue. As the number of franchise cafe’s continues to grow, Panera will become increasingly more profitable. The operating profit margin on franchise related income is 88%, as compared to the 18. 5% operating margin on company owned stores.
As Panera shifts towards a greater emphasis on the franchising business model the companies overall profit margin will increase. Moreover, the overall debt level does not need to be increased in order for growth through franchising, given that the company does not provide financing for franchisees. This will intern reduce the amount of capital needed for expansion, since Panera is not spending money to build company owned stores. Furthermore, the company does not have to expend resources to increase revenue. For Panera this growth model has the greatest financial potential.
Panera Bread in its current situation is a financially sustainable company prepared for tremendous growth. Conclusion In conclusion, we have discussed Panera’s strategic objective to make great bread broadly available to consumers across the United States. We also conducted a SWOT analysis that identified Panera’s strengths (menu, quality, franchise agreements, and financially sound,) weaknesses (stringent franchise requirements and routine customer schedules,) opportunities (open more outlets, expand internationally, and increase menu options,) and threats (competition, threat of imitation/substitute goods, and location selection. Next, we presented a list of alternative solutions to satisfy the strategic issue, which included: more aggressive marketing campaign, enter untapped domestic markets through franchising, sell products in grocery and specialty stores, co-ops, enter foreign markets, open more stores in low penetration markets, better supply chain management, expand catering program, and community partnerships. Finally, we made our recommendation based upon our analysis, which was that Panera should enter untapped domestic markets through franchising.