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Group 5: Matt Liberty, Joe Piscitelli, Jeff Frechette, Jonathan Nadeau, Nick Kania

ContextAu Bon Pain CompanyFounded by: Louis Kane, Ron Saich 1981Malls, shopping centers, etc.1993: Purchased St. Louis Bread Co. 20 additional locations94-95: Market Research concluded a need for:Quick, Quality dining. Fresh and Fast!

ContextBy 1997Sales volume had increased by 75%Renamed 100+ Stores Panera Bread1998- Ron SaichSold Au Bon Pain Brand for $73 Million(still in operation today)Went all in on Panera Model 180 Locations, Debt Free.

What is Panera Breads 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 Breads StrategyTo provide a premium specialty bakery and caf experience to urban workers and suburban dwellers (their target market)Strategic Intent: To make great bread broadly available to consumers across the United States155 new stores in 2006170-180 new stores in 2006Goal was to have nearly 2,000 stores by the end of 2010Panera Breads StrategyStrategic vision was to create a specialty caf anchored by an authentic, fresh-dough artisan bakery and upscale quick-service menu selectionsPEGS Product, Environment, and Great Service that we count on to deliver success.Managements long-term objective and strategic intent:Make Panera Bread a nationally recognized brand nameTo be the dominant restaurant operator in the specialty bakery-caf segmentBeing better than the guys across the streetPanera Breads Growth StrategyExpand the number of PB locations by 17% annually through 2010 and to achieve EPS growth of 25% annuallyCapitalize on market potential by opening both company-owned and franchised owned Panera Bread locationsMarket PenetrationPanera Breads Franchise StrategyFranchise agreements required the franchise developer to open a number of stores, usually 15 bakery-cafs in six yearsFranchise candidates had to be well capitalized, have a proven track record as excellent multi-unit restaurant operators, and agree to meet an aggressive development scheduleApplicants had to meet eight criteria to gain considerationPanera Breads Franchise StrategyPanera helped out franchises in numerous waysMarket analysisSite selection assistanceLease reviewDesign services and new store opening assistanceA comprehensive 10-week initial training programA training program for hourly employees, managers, and baker certificationContinuing education classesPanera Breads Marketing StrategyTo compete on the basis of providing an entire dining experience rather than by attracting customers on the basis of price onlyHigh quality foods at reasonable pricesUsed focus groups to determine customer food and drink preferences as well as price pointsGrow sales at existing Panera Bread locationsHigh proportion of trial customers to repeat customersPanera Breads Marketing StrategyFood you crave, food you can trustTo raise awareness and boost trial of dining at Panera Bread at multiple meal timesLet customers discover Panera Bread and then convert them into loyal customersTo increase perception of Panera Bread as a viable evening meal optionPanera Breads Menu StrategyDesigned to provide target customers with products built on the companys bakery expertiseRegularly reviewed and revisedCelebrationsAdapting to customer wantsCatering programCatering was generating an additional $80 million in sales by the end of 2005Which Competitive Strategy?Broad DifferentiationTo compete on the basis of providing an entire dining experiencePanera WarmthDistinctive and engaging environmentsG2 cafe designAlluring and hospitable atmosphereFree Wi-FiReal China and stainless silverwareRegular changes in menu offeringsAdapting to consumer wantsCompetitive AdvantageReputationPanera Bread was widely recognized as the nationwide leader in the specialty bread segmentTNS Intersearch surveyJ.D. power and AssociatesSandleman & AssociatesAwardsManagement had concluded the Panera Bread format had broad market appeal and could be rolled out nationwide

Competitive AdvantageFresh dough-making capabilityConsistent quality and efficiencyMore economical to concentrate the dough-making operations in a few facilities dedicated to that function Dining atmosphereFree Wi-FiG2 CafeCompeting successfully in five submarketsConsiderable willingness of customers to try dining at other parts of the dayQuestion 2What 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?

StrengthsThe 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.WeaknessesThe 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.

OpportunitiesI 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.

ThreatsTheir 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 3What is your appraisal of Panera Breadss 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 Paneras recent financial performance.

Panera Bread Financials Year20062005200420032002Revenues:Bakery-caf 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 caf 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-caf 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 2324Financial Ratios Year20062005200420032002Gross Profit Margin16%18%18%19%17%Operating Profit Margin11%13%13%14%12%Net Profit Margin7%8%8%8%8%Earnings per share$1.88 $1.69 $1.28 $1.02 $0.74 ROA10.86%11.93%11.84%11.96%10.92%ROE14.80%16.46%15.92%15.82%14.06%Current Ratio1.161.181.051.581.83Working Capital$18 million $16 million $2.5 million $26 million $27 million Long-term debt-to-equity ratio8.89%10.67%11.44%0.74%0.17%Times-interest-earned ratio987162234351040106425Year2006200520042003200220012000Revenues 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-caf$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-caf$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-end39131122617313211090Franchised bakery-cafes open at year-end636566515429346259172Total bakery-cafes open102787774160247836926226Question 4Based on the information in case Exhibit 9, which rival restaurant chains appear to be Paneras closest rivals?

Au Bon PainApplebeesStrategic MapFast-Casual Dining Price/QualityHigh Low Geographic CoverageFew Locations Many LocationsChilisChipoltePanera BreadQuestion 5What 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 caf experience2) Broaden their stores and locations in the United States3) PEGS Product, Environment, and Great Service4) Long Term is to make Panera a Generically Nationwide known Brand Name.

StrategyProduct Offering IssuesPanera Management needs to make sure customer and stockholders understand the freshness of their ingredients are the best they can offer. Specially train all the chefs 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 IssueThe 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 IssuesIn the past, small role in success. What can be done to make this more prominent and profitable?Developing Brand Awareness by Customer Experience85% 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 Caf Environment IssuesDeveloping a team to decide on the demographics of new locationsFree 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 6What does Panera Bread need to do to strengthen its competitive position and business prospects vis--vis other restaurant chain rivals?

Au Bon PainApplebeesStrategic MapFast-Casual Dining Price/QualityHigh Low Geographic CoverageFew Locations Many LocationsChilisChipoltePanera BreadIndustryDining Industry saw $511 Billion in sales 47.5% of consumer spending on food is at Restaurants5% Growth Annually Despite 76% of meals at home130 Million Customers daily=Daily sales around $1 BillionHighly competitive, Labor Intensive, Very RiskyAdapting to the Market is EssentialCompeting in a unique market Casual/Fast Food/Specialty Dining

TacticsSeasonal OfferingsBirthdays/Events/Sports

Trends in Eating HabitsVegan, low-carb, Organic.

TacticsLoyalty ProgramsCustomer Input/InvolvementCommunity ProgramsMake Customers Identify with the companyEat Multiple mealsEncourage Chill out time patronageWillingness to try new dishes

TacticsPay what you can Business model experimentImplemented in 3 Locations (3500 patrons/week)No prices on menuCashier recommends price for meal60% of people have paid recommended price20% pay more20% pay significantly lessEach store has covered its own expenses wellEncourages Consumption, Charity, & sense of Community

RecommendationsEstablished Quality Fast Casual DiningAmbience, Service, Quality Menu, Convenient.Push Panera more to compete in every meal periodExpand Coffee Offerings (seasonal)Focus on expanding Dinner Menu/ServiceAim to compete with Applebees/Unos (difficult due to lack of alcoholic beverages 12%+ of each companys annual sales)Promote the Family Environment

Value Chain Support Activities InfrastructureFranchising Rigid Restrictions, Well Structured Market PenetrationHRM90% of our retail management associates are "highly satisfied" with their careers (Panera Bread Retail Satisfaction Survey)Tech17 Fresh Dough baking and Transportation facilities Temperature cooled trucks 300-500 mile radius.ProcurementCouples with secondary companies to manage less essential needs

Value ChainPrimary ActivitiesOutbound LogisticsBakery Caf Supply Chain aAverage $10 million in profits capped at 27% of retail pricesWell Organized Shipment System Leased fleet, 300 mile radius. Contracts with secondary companies for periphery needsOperationsSuccessful, Comprehensive FranchisingCarefully chosen locations for added convenienceMeet consumers preferences

Value ChainPrimary Activities Inbound LogisticsBakery Supply Chain- Averages $10,000 Profits 30% growthSales and MarketingRelied heavily on word of mouth Discover Panera85% of population aware of a nearby Panera had dined therePublic Image Food QualityServiceEfficient, responsive, accommodating.

Porters Five ForcesBuyer Power: HighMany restaurant choices for customersForces restaurants to differentiate themselves in order to win the customerSupplier Power: LowObtained dough from a variety of suppliersNumerous suppliers for each ingredient needed and Panera Bread could easily obtain ingredients from another supplier if necessaryPorters Five ForcesThreat of New Entrants: LowEntry barriers are extremely highReputationHigh costs to start a restaurantLow profit marginsThreat of Substitute Products: HighMany restaurants to choose from depending on your preferencesPorters Five ForcesRivalry among existing competitors: HighIndustry members pursue differentiation strategies to set themselves apart from rivalsMost restaurants are quick to adapt their menu offerings to changing consumer tastes and preferencesNorm at many restaurants to rotate menu selections seasonally and introduce new dishesCommon 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 businessMany restaurants have short livesPorters Five ForcesRivalry (cont.)Panera Bread competed with specialty food, casual dining, and quick-service restaurant retailersClosest competitors were fast-casual restaurantsAtlanta Bread CompanyApplebeesChilisStarbucksFast-casual restaurants provided quick-service dining but were distinguished in several areas Final ThoughtsWell positioned in a competitive industryCaters to a unique niche of the market Fresh Bakery CafeSeen Steady Growth since inception, continues to today.Community oriented approach has amplified the Brands perception and built a trustworthy relationship with customers.