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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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

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ualit

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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.