Case Analysis

Panera Bread Company in 2015 - What

to Do to Rejuvenate the Company's

Growth

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Introduction

The Panera Bread Company began in 1981 as Au Bon Pain Co., Inc.

Founded by Ron Shaich and Louis Kane, the company thrived along the east coast

of the United States and internationally throughout the 1980’s and 1990’s and

became the dominant operator within the bakery-café category. In the early 1990’s,

Saint Louis Bread company, a chain of 20 bakery-cafes were acquired by the Au Bon

Pain Co. Following this purchase, the company redesigned the newly acquired

company and increased unit volumes by 75%. This new concept was named Panera

Bread. Top management chose to sell their previous bakery-café known as Au Bon

Pain Co. due to the financial and managerial needs of Panera. For Panera to

become one of the leading “fast-casual” restaurant chains in the nation (Thompson,

2018).

Between 1999 and 2006, around 850 additional Panera Bread bakery-cafés

were opened. In 2007, Panera purchased a 51 percent interest in Arizona-based

Paradise Bakery & Café, which operated 70 company-owned and franchised units in

10 states, they purchased the remaining 49 percent in 2009. In 2008, Panera

expanded into Canada. The next several sections will discuss if Panera’s current

strategy is working.

Panera’s Strategy

Panera Bread’s strategy is “to provide a premium specialty bakery and café

experience to urban workers and suburban dwellers. This strategy is most closely

aligned with a broad differentiation strategy or being unique in ways that a broad

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range of consumers find appealing. Prior to taking the concept nationwide, they

performed market research and concluded that consumers could get excited about a

quick, high quality dining experience. The concept is a mix between fast food and

casual dining. By choosing this strategy, Panera is attempting to achieve competitive

advantage in the unique offerings it provides, offerings that rivals do not have and

cannot afford to match. In this case, delicious handcrafted bread arriving fresh daily,

served in an inviting atmosphere is Panera Bread’s competitive advantage and core

competency.

Competitive Analysis Five Forces Model

Rivalry among competing sellers

The competition among competing sellers is high because there are 1.1

million food-service locations throughout the United States. According to The

National Restaurant Association reported “sales at the food service locations in the

United States were forecast to be about $783 billion in 2016 (up from $587 in 2010)”

(Thompson, 2018). According to the case, “the restaurant business was labor-

intensive, extremely competitive, and risky” indicating that the strength of the

competitive force from competing sellers is extremely high (Thompson, 2018). The

inconsistency of profitability in the restaurant industry, “the profitability of a restaurant

location ranged from exceptional too good to average to marginal to money-losing;”

in short, all over the board (Thompson, 2018). Rivalry among competing sellers are

forcing restaurants to continue “seeking to set themselves apart from rivals via

pricing, food quality, menu theme, signature menu selections, dining ambience and

atmosphere, service, convenience, and location” (Thompson, 2018).

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 The strongest competitors of Panera Bread were dining establishments called

fast-casual restaurant category. A fast-casual restaurant provides quick-service

dining (much like fast-food enterprises) but are distinguished by enticing menus,

higher food quality, and more inviting dining environments” (Thompson, 2018).

Potential New Entrants

The threat of new entrants is high because barriers to entry are low and the

pool of entry candidates is large (Thompson, 2018). Consumers are always looking

for different places to eat because of this, new restaurants open often. In "addition

many restaurants do not stay in business for very long due to bad menus food

quality and service (Thompson, 2018). Barriers to entry are low because there are

little regulations from the government there are usually no patent or legal protection

needed and there are little high-tech problems that other industries experience

(Thompson, 2018). Anybody could open a restaurant, as long as they have the

financial resources because there are very limited restrictions.

Substitute Products

There are three main determinants applied by sellers of substitute products

they are: whether substitutes are readily available and attractively priced, whether

buyers view the substitutes as being comparable or better in terms of quality,

performance, and other relevant attributes, and whether the costs that buyers incur

in switching to the substitutes are high or low (Thompson, 2018). The fast-casual

restaurant chains are Panera Bread’s competitors, therefore any other type of

restaurant, would be considered a substitute because they offer different food types,

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service quality, and atmospheres. As a rule, the lower the price of readily available

substitutes, the higher their quality and performance, and the lower the user’s

switching costs, the more intense the competitive pressures posed by the sellers of

substitute products. Other market indicators of the competitive strength of substitute

products include (1) whether the sales of substitutes are growing faster thanthe sales

of the industry being analyzed (a sign that the sellers of substitutes may be drawing

customers away from the industry in question); (2) whether the producers of

substitutes are investing in added capacity and market coverage; and (3) whether

the producers of substitutes are earning progressively higher profits (Thompson,

2018). The threat of substitute products or service is high if it offers a value

proposition that is different from the current offerings in the industry.

Suppliers Bargaining Power

“Whether the suppliers of industry members represent a strong, moderate, or

weak competitive force depends on how much bargaining power suppliers have to

influence the terms and conditions of supply in their favor. Powerful or influential

suppliers can be a source of competitive pressure because of their ability to charge

industry members higher prices and/or make it difficult or costly for industry

members to switch to other suppliers”. (Thompson, 2018). The suppliers of Panera

Bread do not have much bargaining power over them because “Panera operates a

network of 24 facilities (22 company-owned and 2 franchise-operated) to supply

fresh dough for breads and bagels daily to almost all of its company-owned and

franchised bakery-cafés” (Thompson, 2018). The high costs to switch suppliers has

little or no effect on them because “Panera could get ingredients from another

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supplier if needed” (Thompson, 2018). Based on the above factors, Panera can

switch suppliers of ingredients any time without any consequences; so, the

competitive force from suppliers is weak.

Buyers Bargaining Power

Because the market is highly fragmented and saturated, the competitive force

used by buyers is extremely strong. If Panera prices are too high, then buyers will

choose another restaurant or may substitute for a different product. If Panera doesn’t

offer quality food, the same results may occur. Because the number of choices

buyers have dining and eating switching is easy for consumers. Panera and their

competitors must continue to satisfy customers-based on the criteria that they want

to bargain with or else they may end up out of business.

Internal Analysis

The Panera Bread Company is currently in a stable financial position. They

have been able to expand the company without taking on long term debt and have

maintained a stable debt to equity ratio. Its growing owner’s equity indicates

increasing value of the company. The company has been able to increase sales and

net income every year and have proven that they can make money in the industry.

The company's low debt to equity could be an indication they are missing out on

higher profits they need to take on more financial leverage. Another area that causes

worry is the decreasing profit margins. Panera may need to pull in their expenditures

and better manage their costs to tum more of their revenues into net income.

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SWOT Analysis

As one of the leading organizations in its industry, Panera Bread has

numerous strengths that help it to thrive in the market place. These strengths not

only help it to protect the market share in existing markets but also help in

penetrating new markets. Weakness are the areas where Panera Bread can improve

upon. Strategy is about making choices and weakness are the areas where a

company can improve using SWOT analysis and build on its competitive advantage

and strategic positioning. Opportunities are taking your weaknesses and build on

them by making them your opportunity. Threats are external factors that could

jeopardize the entity's success.

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 Strengths Weaknesses Opportunities Threats

High Food Brand Image Go Global Rising Wages

Quality High Practices Core Buying Habits
Strong Market Franchise Competencies Innovative
Presence Issues Cash Flow Products
Cost Advantage
Over Rivals

Value Chain

The primary components of Panera Breads value chain include receiving

basic ingredients and materials, creating or making their products, delivering

products to the customer, and advertising and marketing to strengthen their brand.

The initial process of receiving ingredients involves ordering all products they require

from an outside vender. The second process, creating products, is any step they

take to transform the initial ingredients into what the customer receives. The process

of delivering products to the customer is the steps involved from the time the

customer orders until they leave the restaurant. The final component is comprised of

any effort to reach the customer and encourage them to try the brand or keep

coming back.

Competitive Strategy

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 Panera Bread’s strategy is “to provide a premium specialty bakery and café

experience to urban workers and suburban dwellers.” This strategy is closely aligned

with abroad differentiation strategy because they are unique in ways that a broad

range of consumers find appealing. Prior to taking the Panera concept nationwide,

the owners performed cross-country market research and concluded that consumers

did get excited about a quick, high quality dining experience. The concept is a mix

between fast food and casual dining, or fast casual. By choosing this strategy,

Panera is attempting to achieve competitive advantage in the unique offerings it

provides, offerings that rivals don’t have and can’t afford to match. In this case,

delicious handcrafted bread arriving fresh daily, served in an inviting atmosphere is

the company’s competitive advantage and core competency.

Conclusion

Panera Bread’s target market consists of urban workers and suburban

dwellers. Although Panera has many competitors in the restaurant industry, it’s the

unique product line that differentiates the company from all others. Panera Bread

has proven they have a solid vision, strong strategic plan, a great mission statement

and a top management team. This company values their customers and you can see

this when you visit one of their locations

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