Download - Panera
Group 5: Matt Liberty, Joe Piscitelli, Jeff Frechette, Jonathan Nadeau, Nick Kania
Context Au Bon Pain Company
Founded by: Louis Kane, Ron Saich 1981
Malls, shopping centers, etc.
1993: Purchased St. Louis Bread Co. 20 additional locations
94-95: Market Research concluded a need for: Quick, Quality dining. Fresh and Fast!
Context By 1997
Sales volume had increased by 75%
Renamed 100+ Stores Panera Bread
1998- Ron Saich
Sold Au Bon Pain Brand for $73 Million
(still in operation today)
Went all in on Panera Model
180 Locations, Debt Free.
What is Panera Bread’s strategy? Which of the five generic competitive strategies in Chapter 5 most closely fit the competitive approach that Panera Bread is taking? What types of competitive advantages is Panera Bread trying to achieve?
Question 1
Panera Bread’s Strategy
To provide a premium specialty bakery and café experience to urban workers and suburban dwellers (their target market)
Strategic Intent: To make great bread broadly available to consumers across the United States
155 new stores in 2006
170-180 new stores in 2006
Goal was to have nearly 2,000 stores by the end of 2010
Panera Bread’s Strategy
Strategic vision was to create a specialty café anchored by an authentic, fresh-dough artisan bakery and upscale quick-service menu selections
PEGS – “Product, Environment, and Great Service that we count on to deliver success.”
Management’s long-term objective and strategic intent:
Make Panera Bread a nationally recognized brand name
To be the dominant restaurant operator in the specialty bakery-café segment
“Being better than the guys across the street”
Panera Bread’s Growth Strategy
Expand the number of PB locations by 17% annually through 2010 and to achieve EPS growth of 25% annually
Capitalize on market potential by opening both company-owned and franchised owned Panera Bread locations
Market Penetration
Panera Bread’s Franchise Strategy
Franchise agreements required the franchise developer to open a number of stores, usually 15 bakery-café’s in six years
Franchise candidates had to be well capitalized, have a proven track record as excellent multi-unit restaurant operators, and agree to meet an aggressive development schedule
Applicants had to meet eight criteria to gain consideration
Panera Bread’s Franchise Strategy
Panera helped out franchises in numerous ways Market analysis
Site selection assistance
Lease review
Design services and new store opening assistance
A comprehensive 10-week initial training program
A training program for hourly employees, managers, and baker certification
Continuing education classes
Panera Bread’s Marketing Strategy
To compete on the basis of providing an entire dining experience rather than by attracting customers on the basis of price only
High quality foods at reasonable prices
Used focus groups to determine customer food and drink preferences as well as price points
Grow sales at existing Panera Bread locations
High proportion of trial customers to repeat customers
Panera Bread’s Marketing Strategy
“Food you crave, food you can trust”
To raise awareness and boost trial of dining at Panera Bread at multiple meal times
Let customers “discover” Panera Bread and then convert them into loyal customers
To increase perception of Panera Bread as a viable evening meal option
Panera Bread’s Menu Strategy
Designed to provide target customers with products built on the company’s bakery expertise
Regularly reviewed and revised
“Celebrations”
Adapting to customer wants
Catering program Catering was generating an additional $80 million in
sales by the end of 2005
Which Competitive Strategy?
Broad Differentiation
To compete on the basis of providing an entire dining experience
“Panera Warmth” Distinctive and engaging environments
G2 cafe design
Alluring and hospitable atmosphere
Free Wi-Fi
Real China and stainless silverware
Regular changes in menu offerings Adapting to consumer wants
Competitive Advantage
Reputation Panera Bread was widely recognized as the
nationwide leader in the specialty bread segment
TNS Intersearch survey
J.D. power and Associates
Sandleman & Associates
Awards
Management had concluded the Panera Bread format had broad market appeal and could be rolled out nationwide
Competitive Advantage
Fresh dough-making capability Consistent quality and efficiency
More economical to concentrate the dough-making operations in a few facilities dedicated to that function
Dining atmosphere Free Wi-Fi
G2 Cafe
Competing successfully in five submarkets
Considerable willingness of customers to try dining at other parts of the day
Question 2 What does a SWOT analysis of Panera Bread
reveal about the overall attractiveness of its situation? Does the company have any core competencies or distinctive competencies?
Strengths The location of Panera placing them in strip
malls and urban neighborhoods.
Successful in 5 submarkets such as breakfast, lunch, day time, chill out, light evening fair and take out.
The way that they have set up franchising was a strength for them as a corporation.
Weaknesses The prices on their menu during dinner. I
don't think they are competitive for their prices during dinner.
Other competition may have better choices for dinner and at better prices.
Another weakness I think is their fresh dough facilities. They may be better off not only baking the bread at each store but they should also make the dough at each store. This I think would save them money in the long run.
Opportunities I think that Panera could earn more profit at
dinner if they lowered their prices and stayed really competitive at this meal time.
Since they are the leader in 5 sub markets they can take advantage of this and utilize to their advantage. If they could keep the mark up of their food the same all through out the day and keep a steady flow of customers it would be like having an Applebees or a Chili's packed on a Friday night.
Threats Their are many other restaurants in the
sector of dining. If they don't do something about their prices for dinner there are other places that will come in and move ahead of Panera.
They also might have to take a look at making their fresh dough at the stores just like they bake the bread at each store.
With gas prices going up this could make the cost of operations go up as gas prices get higher.
Question 3 What is your appraisal of Panera Bread’s’s
financial performance based on the data in case Exhibits 1, 2 and 8? How well is the company doing financially? Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the calculations needed to arrive at an analysis-based answer to your assessment of Panera’s recent financial performance.
Panera Bread Financials Year 2006 2005 2004 2003 2002
Revenues: Bakery-café sales $ 666,141,000 $ 499,422,000 $ 362,121,000 $ 265,933,000 $ 212,645,000 Franchise royalties & fees $ 61,531,000 $ 54,309,000 $ 44,449,000 $ 36,245,000 $ 27,892,000 Fresh dough sales to franchisees $ 101,299,000 $ 86,544,000 $ 72,569,000 $ 61,524,000 $ 41,688,000 Total Revenues $ 828,971,000 $ 640,275,000 $ 479,139,000 $ 363,702,000 $ 282,225,000 Bakery café expenses: Food & paper products $ 197,182,000 $ 142,675,000 $ 101,832,000 $ 73,885,000 $ 63,370,000 Labor $ 204,956,000 $ 151,524,000 $ 110,790,000 $ 81,152,000 $ 63,172,000 Occupancy $ 48,602,000 $ 37,389,000 $ 26,730,000 $ 18,981,000 $ 15,408,000 Other operating expenses $ 92,176,000 $ 70,003,000 $ 51,044,000 $ 36,804,000 $ 27,971,000 Total bakery-café expenses $ 542,916,000 $ 401,591,000 $ 290,396,000 $ 210,822,000 $ 169,921,000
Fresh dough costs of sales to franchisees $ 85,618,000 $ 75,036,000 $ 65,627,000 $ 54,967,000 $ 38,432,000 Depreciation & amortization $ 44,166,000 $ 33,011,000 $ 25,298,000 $ 18,304,000 $ 13,794,000 General & administrative expenses $ 59,306,000 $ 46,301,000 $ 33,338,000 $ 28,140,000 $ 24,986,000 Pre-opening expenses $ 6,173,000 $ 3,241,000 $ 2,642,000 $ 1,531,000 $ 1,051,000 Total costs & expenses $ 738,179,000 $ 559,180,000 $ 417,301,000 $ 313,764,000 $ 248,184,000
Operating Profit $ 90,792,000 $ 81,095,000 $ 61,838,000 $ 49,938,000 $ 34,041,000 Interest expense $ 92,000 $ 50,000 $ 18,000 $ 48,000 $ 32,000
Other (Income) expense, net $ 1,976,000 $ 1,133,000 $ (1,065,000) $ (1,592,000) $ (467,000)
Provision for income taxes $ 33,827,000 $ 29,995,000 $ 22,175,000 $ 17,629,000 $ 12,242,000
Net income $ 58,849,000 $ 52,183,000 $ 38,430,000 $ 30,669,000 $ 21,300,000
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$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
$700,000,000
$800,000,000
$900,000,000
Panera Bread Financials
20062005200420032002
Financial Ratios
Year 2006 2005 2004 2003 2002
Gross Profit Margin 16% 18% 18% 19% 17%
Operating Profit Margin 11% 13% 13% 14% 12%
Net Profit Margin 7% 8% 8% 8% 8%
Earnings per share $1.88 $1.69 $1.28 $1.02 $0.74
ROA 10.86% 11.93% 11.84% 11.96% 10.92%
ROE 14.80% 16.46% 15.92% 15.82% 14.06%
Current Ratio 1.16 1.18 1.05 1.58 1.83
Working Capital $18 million $16 million $2.5 million $26 million $27 million
Long-term debt-to-equity ratio 8.89% 10.67% 11.44% 0.74% 0.17%
Times-interest-earned ratio 987 1622 3435 1040 1064
Year 2006 2005 2004 2003 2002 2001 2000
Revenues at company-operated stores $666,100,000 $499,400,000 $362,100,000
$265,900,000
$212,600,000
$157,700,000
$125,500,000
Revenues at franchised stores
$1,245,500,000
$1,097,200,000 $879,100,000
$711,000,000
$542,600,000
$371,700,000
$199,400,000
System-wide store revenues
$1,911,600,000
$1,596,600,000
$1,241,200,000
$976,900,000
$755,200,000
$529,400,000
$324,900,000
Avg. annual revenues: company operated bakery-café $1,967,000 $1,942,000 $1,852,000 $1,830,000 $1,764,000 $1,636,000 $1,473,000
Avg. annual revenues: franchised bakery-café $2,074,000 $2,016,000 $1,881,000 $1,860,000 $1,872,000 $1,800,000 $1,707,000
Avg. weekly sales, company owned cafes $37,833 $37,348 $35,620 $35,198 $33,924 $31,460 $28,325
Avg. weekly sales:franchised cafes $39,894 $38,777 $36,171 $35,777 $35,997 $34,607 $32,832
Company-owned bakery-cafes open at year-end 391 311 226 173 132 110 90
Franchised bakery-cafes open at year-end 636 566 515 429 346 259 172
Total bakery-cafes open 1027 877 741 602 478 369 262
Question 4 Based on the information in case Exhibit 9,
which rival restaurant chains appear to be Panera’s closest rivals?
Au Bon Pain
Applebee’s
Strategic MapFast-Casual Dining
Pri
ce/Q
ualit
yH
igh
L
ow
Geographic CoverageFew Locations Many Locations
Chili’sChipolt
e Panera Bread
Question 5 What strategic issues and problems does
Panera Bread management need to address?
The previously discussed strategy is to do the following:
1) Provide premium bakery and café experience
2) Broaden their stores and locations in the United States
3) “PEGS” – Product, Environment, and Great Service
4) Long Term is to make Panera a Generically Nationwide known Brand Name.
Strategy
Product Offering Issues
Panera Management needs to make sure customer and stockholders understand the freshness of their ingredients are the best they can offer.
Specially train all the chef’s they hire to achieve the goal mentioned above. Need to have a well trained staff to make sure they can success in the corporate way.
Changing the Menu constantly to attract new customer and continue keeping the old customers happy.
Customer Feedback is the way to decide the offerings they need to provide on the menu.
High Quality Low Price Issue
The goal of Panera is to provide High Quality, Low Cost food to its consumers.
As many business men know, this is nearly impossible in almost all business units.
This gains new customers, and keeps old customers.
Where is the balance between sacrificing cost and sacrificing quality?
Marketing this strategy is key to gaining the financial and consumer base.
Marketing Issues In the past, small role in success. What
can be done to make this more prominent and profitable?
Developing Brand Awareness by Customer Experience
85% of people who know of a Panera in or around their neighborhood have eaten there at least once.
Using marketing strategies to express that Panera is an “all day food operation” and not specifically breakfast, lunch, or dinner.
Site Selection and Café Environment Issues
Developing a team to decide on the demographics of new locations
Free standings units were found to be previously profitable for bakery type locations.
Continuing to develop “Panera Warmth” which was the term they used to satisfy the environment of its customers.
Question 6 What does Panera Bread need to do to
strengthen its competitive position and business prospects vis-à-vis other restaurant chain rivals?
Au Bon Pain
Applebee’s
Strategic MapFast-Casual Dining
Pri
ce/Q
ualit
yH
igh
L
ow
Geographic CoverageFew Locations Many Locations
Chili’sChipolt
e Panera Bread
Industry Dining Industry saw $511 Billion in sales
47.5% of consumer spending on food is at Restaurants
5% Growth Annually
Despite 76% of meals at home 130 Million Customers daily=Daily sales around $1 Billion
Highly competitive, Labor Intensive, Very Risky
Adapting to the Market is Essential
Competing in a unique market Casual/Fast Food/Specialty Dining
Tactics Seasonal Offerings
Birthdays/Events/Sports
Trends in Eating Habits Vegan, low-carb,
Organic.
Tactics Loyalty Programs
Customer Input/Involvement
Community Programs
Make Customers Identify with the company Eat Multiple meals
Encourage “Chill out time” patronage
Willingness to try new dishes
Tactics “Pay what you can” Business model
experiment Implemented in 3 Locations (3500
patrons/week)
No prices on menu
Cashier recommends price for meal
60% of people have paid recommended price
20% pay more
20% pay significantly less
Each store has covered it’s own expenses well
Encourages Consumption, Charity, & sense of Community
Recommendations Established Quality Fast Casual Dining
Ambience, Service, Quality Menu, Convenient.
Push Panera more to compete in every meal period
Expand Coffee Offerings (seasonal)
Focus on expanding Dinner Menu/Service Aim to compete with Applebee’s/Uno’s
(difficult due to lack of alcoholic beverages 12%+ of each company’s annual sales)
Promote the Family Environment
Value Chain Support Activities
Infrastructure Franchising Rigid Restrictions, Well Structured Market
Penetration
HRM 90% of our retail management associates are "highly
satisfied" with their careers (Panera Bread Retail Satisfaction Survey)
Tech 17 Fresh Dough baking and Transportation facilities
Temperature cooled trucks 300-500 mile radius.
Procurement Couples with secondary companies to manage less essential
needs
Value ChainPrimary Activities
Outbound Logistics Bakery Café Supply Chain a
Average $10 million in profits capped at 27% of retail prices
Well Organized Shipment System
Leased fleet, 300 mile radius.
Contracts with secondary companies for periphery needs
Operation’s Successful, Comprehensive Franchising
Carefully chosen locations for added convenience
Meet consumer’s preferences
Value ChainPrimary Activities
Inbound Logistics Bakery Supply Chain- Averages $10,000 Profits 30%
growth
Sales and Marketing Relied heavily on word of mouth “Discover Panera”
85% of population aware of a nearby Panera had dined there
Public Image
Food Quality
Service Efficient, responsive, accommodating.
Porter’s Five Forces Buyer Power: High
Many restaurant choices for customers
Forces restaurants to differentiate themselves in order to win the customer
Supplier Power: Low Obtained dough from a variety of suppliers
Numerous suppliers for each ingredient needed and Panera Bread could easily obtain ingredients from another supplier if necessary
Porter’s Five Forces Threat of New Entrants: Low
Entry barriers are extremely high
Reputation
High costs to start a restaurant
Low profit margins
Threat of Substitute Products: High Many restaurants to choose from depending on
your preferences
Porter’s Five Forces Rivalry among existing competitors: High
Industry members pursue differentiation strategies to set themselves apart from rivals
Most restaurants are quick to adapt their menu offerings to changing consumer tastes and preferences
Norm at many restaurants to rotate menu selections seasonally and introduce new dishes
Common for a popular restaurant to lose flavor and confront the realities of dwindling clientele, forcing it to reconceive its menu and dining environment or go out of business
Many restaurants have short lives
Porter’s Five Forces Rivalry (cont.)
Panera Bread competed with specialty food, casual dining, and quick-service restaurant retailers
Closest competitors were “fast-casual” restaurants
Atlanta Bread Company
Applebee’s
Chili’s
Starbucks
Fast-casual restaurants provided quick-service dining but were distinguished in several areas
Final Thoughts Well positioned in a competitive industry
Caters to a unique niche of the market Fresh Bakery Cafe
Seen Steady Growth since inception, continues to today.
Community oriented approach has amplified the Brand’s perception and built a trustworthy relationship with customers.