Panera Porters 5 Forces
Porter’s Five Forces
Rivalry Among Competing Sellers: HIGH/MODERATE The rivalry among competing sellers, often the strongest competitive pressure, is also fairly high for Panera in the restaurant industry. No switching costs, numerous competitors, and an increase in the availability of healthy food For a company in the restaurant industry, there are no switching costs for consumers. It is not like, for instance, the cable industry where cancellation fees are prevalent or an electronics industry where prices for a new product are high. If one day, the consumer decides that he or she would like to go to Sweet Green for lunch instead of Panera, the only switching cost would be the price difference between the two meals (which may be negligible or favorable for the consumer).
Panera Porters 5 Forces Essay Example
This makes competition more important. Something that Panera must be mindful of is the potential for decreased differentiation between their products and competing brands. Currently they have a strong reputation of providing high quality, healthy, and preservative-free food choices. Demand for this type of food is growing rapidly. As we look to the future it may become less of a strength for Panera and more of an industry standard. With increased demand, more restaurants will be willing to offer this type of product. Already we see a change occurring, according to research done by the Natural Restaurant Industry in 2010-2011 which indicated that more than half of all restaurants are offering locally sourced produce. Related, is the fact that there are an incredibly large number of competitors in the restaurant industry in general, whether they offer organic/healthy options or not. Restaurants that offer Asian, Mexican, American, Italian, etc. must all be considered. There is an incredibly high number of competing restaurants for consumers to choose between. The number of eating place establishments in the US is 970,000.
There are a couple factors that work in Panera’s favor. The buyer demand is growing at a fast pace. As the book states, declining growth or slow growth (1 or 2 percent) facilitates high competitive pressure. Food and drink sales are expected to grow at around 3.5% in 2012. In addition to this, there is a rapid increase in demand for organic, fresh, and healthy food options and Panera is one of the best at offering this. Panera is also consistently referred to as “the leader in the fast-casual industry.” This leads us to believe that there are not a plethora of competitors with equal size and competitive strength at the moment. Panera also has one of the most loyal consumer bases in the industry. TNS Intersearch conducted a study in 2011 that scored Panera the highest level of customer loyalty among quick-casual restaurants. They are less likely to switch to rival competitors. Threat of New Entrants: MODERATE
The threat of new entrants is measured by the level of entry barriers, brand reputation and customer loyalty, potential for existing competitors to expand, growth of buyer demand, In terms of the restaurant industry, the capital requirements for entry are not large. Buildings can be leased, input food supplies can be bought fairly cheaply, and the fees for opening a business, as long as there are not liquor licenses involved, are manageable.
Other barriers to entry play a larger role. Reputation is very important in the restaurant industry. It is difficult to build a brand/reputation from scratch. Panera possesses a strong advantage because they already have a great reputation. In 2011, Zagat gave Panera the #1 rating for “Best Salads” as well as “Top Rated Facilities.” It was also in BusinessWeek’s 2010 list of the 25 best companies for customer service. They have established their brand in a way that will be difficult to match for new entrants. In relation to other industries, the restaurant industry does not inherently have high barriers to entry. As stated, the financial barriers are manageable, there are not high capital requirements, and government regulations for a non-alcoholic restaurant are low. The biggest barriers lie with reputation and brand loyalty. These are areas in which Panera excels. Threat of Substitutes: HIGH/MODERATE
The threat of substitutes is dictated by the availability of substitute products, the quality of substitutes, and the cost switching. There is a high availability of substitute products. Consumers can choose from 970,000 eating establishments with choices of Asian food, American, Mexican Italian, etc. Since there are so many restaurants, a consumer would be able to find quality within any one of these substitutes. Additionally, there is no cost of switching to a substitute aside from the cost of the meal, and the opportunity cost of any discounts that Panera may be able to offer to loyal customers. Supplier Power: LOW
Supplier Power is based on the dependence that a company has on the suppliers of their input products. This refers to the supplier’s ability to dictate price and offer differentiated/high quality products, as well as the ability of the company to perform the supplier’s task (i.e. If the company could readily create the input, the supplier power is low). Panera is a very vertically integrated company.
They manufacture their own dough, bake it, and sell it to the consumer. The dough made at their factories was sold to the company-owned and franchised facilities alike. The only reliance they have on outside suppliers is with the original ingredients as well as sweets and various other products that they sell. Panera often uses one supplier for one of their ingredients, but it is not difficult for them to get ingredients from other suppliers if necessary.
They have three different suppliers for their antibiotic-free chicken, but alternative sources could be used. With almost every one of their suppliers, there are easy alternatives that could be used. Panera further manages supplier power by entering into annual or multi-year contracts to decrease the risk of cost fluctuation. Buyer Power: HIGH
Buyer power refers to the extent to which buyers have bargaining power and how price-sensitive they are. Buyer power is one of the driving forces for Panera. Consumers in the restaurant industry are very price sensitive.
When they come to Panera, they expect to pay a certain price and obtain a certain quality. If that value is not met, then there are an abundance of other options for them to choose from. Again, the lack of costs of switching contributes to this competitive pressure. Panera must be wary of the fact that a consumer can freely go between restaurants. Another component of buying power is the knowledge of consumers. Consumers are becoming increasingly knowledgeable about the quality and nutrition of food as well as the prices of competing brands. The internet allows them to access this information with ease. For this reason, Panera must continue to offer high value for the buyers or else they risk losing them.