Panera Bread

8 August 2016

The driving concept behind Panera Bread was to provide a premium specialty bakery and cafe experience to urban workers and suburban dwellers. Its artisan sourdough breads made with a crafts- man’s attention to quality and detail and its award- winning bakery expertise formed the core of the menu offerings.

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Panera Bread specialized in fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages. Panera’s target market was urban workers and suburban dwellers looking for a quick-service meal and a more aesthetically pleasing dining experience than that offered by traditional fast food restaurants.

Panera Bread’s distinctive menu, signature cafe design, inviting ambience, operating systems, and unit location strategy allowed it to compete successfully in five submarkets of the food-away- from-home industry: breakfast, lunch, daytime ‘‘chill out’’ (the time between breakfast and lunch and between lunch and dinner when customers visited its bakery-cafes to take a break from their daily activities), light evening fare for eat-in or take-out, and take-home bread. In 2006, Panera began enhancing its menu in ways that would at- tract more diners during the evening meal hours.

Management’s long-term objective and strategic intent was to make Panera Bread a nationally recognized brand name and to be the dominant restaurant operator in the specialty bakery-cafe segment. According to Scott Davis, Panera’s senior vice president and chief concept officer, the company was trying to succeed by “being better than the guys across the street” and making the experience of dining at Panera so attractive that customers would be willing to pass by the outlets of other fast-casual restaurant competitors to dine at a nearby Panera Bread bakery-cafe.

Management believed that its concept afforded growth potential in suburban markets sufficient to expand the number of Panera bread locations by 17 percent annually through 2010 and to achieve earnings per share growth of 25 percent annually. Panera Bread’s growth strategy was to capitalize on Panera’s market potential by opening both company-owned and franchised Panera Bread locations as fast as was prudent. So far, franchising had been a key component of the company’s efforts to broaden its market penetration.

Panera Bread had organized its business around company-owned bakery-cafe operations, the franchise operations, and fresh dough operations; the fresh bread unit supplied dough to all Panera Bread stores, both company-owned and franchised. Panera Bread competes on a Broad Differentiation strategy. This is a strategy seeking to differentiate the company’s product offerings from rivals’ in ways that will appeal to a broad range of buyers.

Some examples that this company offers under the Broad Differentiation strategy is 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, competing successfully in five submarkets, and considerable willingness of customers to try dining at other parts of the day. What does a SWOT analysis of Panera Bread reveal about the overall attractiveness of its situation? Does the company have any core competencies?

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. My Panera Rewards: Building relationships with loyal customers will be essential for improving sales. Its reward program boasts over 12 million users and send over 8 million offers each quarter. Quality Ingredients: Delivering fresh ingredients to all stores in a prime initiative for management.

Stores receive fresh dough daily and use real avocados, not the paste typically found in kitchens. Market Niche: Consumer tastes and desires evolve over time. Consumers are now wanting a more inviting in-store experience over speed and convenience. Panera put itself in a great position to capitalize on this market. Its helped pioneer the “fast-casual” dining experience, offering a work friendly and relaxing environment. Weaknesses: Brand Presence: Panera lacks a powerful brand image found with its competitors. If Panera can build a brand image to that of Starbucks, the intangibles that come with it would boost profits immensely.

Thin Menu: Its menu is narrowed to soups, salads, and sandwiches. It lacks large entrees with more substance that would be more suitable to attract a dinner crowd. Pricing Power: Any company requiring raw inputs of ingredients to sell a product will face volatility in pricing. For management to improve margins Panera must grow its pricing power in supplier negotiations. Opportunities: Catering: Plenty of demand for Panera soups, salads, and sandwiches outside the store walls. On a two year basis, it has grown its catering business 50% each quarter.

In its last earnings call, management was excited about the potential of catering going forward. You should be, too. Sore Growth: Panera is easily on pace to exceed their goal of 115 new store openings this year. Immense growth potential remains for Panera in a number of cities and markets. Consumer Taste: Trends change, and consumer tastes are constantly evolving. This presents opportunities for Panera to adapt its menu to current trends. For instance, given the current push for organic and diet friendly foods, a small menu addition could help attract incremental customers.

Threats: Buffalo Wild Wings (NASDAQ: BWLD) – Buffalo Wild Wings focuses on a Sports-Bar-and-Grill atmosphere. Popular sporting events occupy much of the year, threatening to steal customers that frequent Panera. Going forward, Buffalo Wild Wings is also competing with Panera for locations in new markets. McDonald’s (NYSE: MCD) – The Golden Arches compete on a different level as their focus remains on customers seeking cheap and convenient foods. McDonald’s has proven to consistently produce profits and will remain a goliath in the fast food industry.

Due to McDonald’s low-cost strategy, it boasts a net margin percentage nearly triple that of Panera. Chipotle Mexican Grill (NYSE: CMG) – Chipotle competes with a similar strategy to Panera. It focuses on better ingredients to improve customer satisfaction and successfully expanded across the U. S. It doesn’t match the in-store atmosphere found at Panera, rather it focuses on quality ingredients and convenience. Cheesecake Factory (NASDAQ: CAKE) – Operating over 158 stores in the U. S doesn’t sound like much, until you factor in the $10 sales volume per location.

Effeciently creating dishes from scratch while limiting waste allows them to offer an upscale menu at a reasonable price. Sales figures prove customers see the value and quality offered by Cheesecake Factory, making it a serious threat going forward. Panera Bread’s core competencies are as followed: In 2010, through its nonprofit Panera Bread Foundation, Panera Bread launched Panera Cares. A nonprofit cafe that provides food and security to individuals in the community. Panera Cares Cafe exist to make a difference by offering the

Panera experience to all in the community-those who can afford it, those who need a hand up and everyone in between. The program was designed to offer an experience different from that of a food panty or soup kitchen, where people leave with their belly full, but not much else. Panera wanted to offer the opposite-an experience that fed the belly and the soul by uplifting those struggling with food insecurity. Just because someone does not have the means to pay for a meal does not mean that they are undeserving of a high quality, nutritious mean in a welcoming environment.

Thus, the company designed this nonprofit to leverage Panera’s core competencies and make the Panera experience accessible to everyone regardless of their means. The company currently has three locations around the country and two more were planned for 2012, these Pay-As-You-Wish location enable customers to order what they want to donate their fair share; there are no prices or cash registers only suggested donation levels. “The goal is to be a temporary food and security solution, that provides an elevated dining experience, with more dignity than might be found in a traditional soup kitchen.

What are the primary components of Panera Bread’s value chain? Inbound Logistics: The case does not provide enough information to comment on the inbound logistics that Panera has with suppliers. However, each franchisee purchased dough directly from Panera Bread. Panera had an interest in each of the franchised stores succeeding because the company received 4%-5% royalties from sales continually. This meant Panera as the supplier had an interest to keep prices of dough as low as possible to maintain viable franchise operations.

Operations: Panera provided and required comprehensive front and back of house training, market analysis, and bakery-cafe certification. This corporate level tactic impacted the company? s franchised and company owned stores by enabling Panera to develop systems used by all the cafes thus applying economies of scale to operations. Since each cafe-bakery did not have to develop its own operations structure this reduced costs for each store. In addition, the methods Panera introduced to each store had proven historically successful, thus increased the learning curve for a new cafe and lowered costs.

Panera had a policy to not finance new franchisees, area development payment agreements, or hold any equity in the new cafes. This operational model resulted in minimal long-term debt and low capital intensity to expand the Panera brand. All the cafes offered an assortment of 20-plus varieties of bread baked daily and as of 2006 at least 22 types of sandwiches. Each of these breads and sandwiches were regularly reviewed to determine whether the products matched regular customer needs, new consumer trends, and seasonal relevance.

The complexity of the product line enabled Panera to match menu items with a variety of customer needs. This process ensured that weak selling items would be removed limited excess inventory. Outbound Logistics: Each franchisee purchased dough directly from Panera Bread. Each dough making facility was able to produce dough for six bakeries. The fresh dough was sold to both company- owned and franchised bakery-cafes at a delivered cost not to exceed 27% of the retail value of the product. These costs margins were achieved by producing the dough at central locations employing economies of scale.

Sales and Marketing: Panera used focus groups to determine customer food and drink preferences, and price points. This work was done by only a few individuals at the corporate level and scaled to the rest of the cafes. The existing company and franchise owned cafes would be able to take advantage of this market information and reduce costs associated with sales and marketing information. The franchising model Panera used required the franchisee to pay 0. 7% of total sales to a national advertising fund and 0. 4 % of total sales as a marketing administration fee.

Franchisees were also required to spend 2.0 % of total sales on advertising in local markets. Panera contributed similar amounts of capital from the company owned stores. Requiring the franchise owned cafes to pay a significant portion of marketing costs allowed Panera Bread to lower the company? s capital contribution. Research and Development: New menu items were rolled out in limited cafes and developed in test kitchens prior to nationwide release. This process addressed two cost drivers. First, by employing economies of scale individual cafes will not have to spend resources and capital investing in the development of new menu items.

Second, through the expertise of the advanced research and development department Panera ensured both quality of product and process. This resulted in less product waste and increased customer satisfaction and in turn lowered costs. Integrated Value Chain Effect: Panera Bread utilized both structural and executional cost drivers to lower costs on the value chain particularly in inbound logistics, operations, outbound logistics, sales and marketing, and research and development. The cost reduction across the value chain gave Panera a strong capability.

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