Panera Bread Company Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman

Panera Bread Company

Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman

Contents

1. The Key Question2. Panera Bread Company History/Overview3. External Environment (PEST)4. Market Overview (Demand)5. Industry Overview (Supply)6. Competitive Landscape7. Internal Analysis8. SWOT Analysis9. Recommendations

Key Question for Panera Bread

• Is the plan of expansion and reliance on franchise partners the right strategy for Panera Bread to grow at the rate they want to?

Contents


Panera Bread Company OverviewOrigin 1981 Au Bon Pain Company founded by

Louis Kane and Ron Shaich.

Growth on US East Coast & Internationally 1980’s and 90’s – stores opened in malls, airports, shopping centers.

Acquisition of Saint Louis Bread Co. 1993 – mgt team studied fast food restaurants which led to overhaul of Saint Louis Bread Companies

Sold Au Bon Pain bakery-café division 1999 – sold for $73m to ABP Corp. Renamed to Panera Bread Company

Panera Bread Company Overview

• Strategic Intent– “Make great bread broadly available to consumers across

the United States”

2003 - TNS Intersearch Study •Scored the highest level of customer loyalty among QSR’s

2004 - J.D. Power & Associates Restaurant Satisfaction Study of 55,000 Customers

•Ranked Panera highest among QSR’s in Midwest & NE in all categories •Included environment, meal, service, and cost

2005 – Sandleman & Associates National Customer Satisfaction Survey of 62,000 customers

•For 4th straight year, Panera was the best among 121 competitors•Also won “Best of” awards in nearly every market across 36 states

Contents


PEST Analysis for PaneraCategory Issue Threats/Opportunities Ranking

(1-5)

Political None

Economic Restaurant business extremely competitive

Threat 4

Sales at food service locations in US trend upward

Opportunity 3

Social Increasing level of health consciousness (ex. Good carbohydrates)

Neither -- most restaurants react quickly to changing consumer tastes. Level playing field.

-

Consumers prone to try new establishments

Threat – existing marketsOpportunity – untapped markets

13

Consumers loyal when satisfied with experience

Opportunity 5

Technological None

Contents


Overview of the Industry - Demand• Growth Rate

– 925,000 food service locations in the U.S.– Are customers hungry for more?

1996 20060

100

200

300

400

500

$308b

$511bSales

1955 200605

101520253035404550

25%

47.5%

Food Dollars Spent in Segment

• US restaurant industry growing at 5% annually• Where is the growth coming from?

– $974 per person in 1994 spent on food away from home

– Growth potential in suburban markets?• Panera is a representative in the “fast-casual” food

category• 85% of individuals aware a Panera Bread was nearby

dined there at least once (trial)• 57% of those did so in the last 30 days (repeat)• 81% willing to try Panera other times of the day

Overview of the Industry - Demand

Contents


Industry Overview (Supply)

Porter’s five forces:

Rivalry among existing competitors

Threat of substitute products

HIGH

Bargaining powerof buyers

HIGH

Threat of new entrants

LOW

Bargaining power of suppliers

LOW

Porter’s Five Forces

Factor Analysis Impact

Threat of substitute products

• Substitute products are easily accessible (eat at home, convenient stores)• Economic downturn limits disposable income – substitute products become more appealing.

HIGH

Bargaining power of suppliers

• Panera has multiple options to source each ingredient they use. LOW

Bargaining power of buyers

• Economic downturn’s affect on consumer eating behaviors – cheaper meal at home.• Over 21 direct competitors/alternative eating establishments of Panera.

HIGH

Competitive rivalry • Differentiation and constant menu changes to appeal to consumer preferences. •Many competitors in industry.

INTENSE

Threat of new entrants • High investment threshold to enter market LOW


Factor Ranking (1-5)

Threat of substitute products• Full range of alternatives; eat at home, fast-food, formal dining out •Substitute products offer lower prices and convenience. •The majority of meals are eaten at home – 76%

5

Bargaining power of suppliers• Panera is not limited by sourcing from a single supplier• Several suppliers are available for each ingredient

1

Bargaining power of buyers • Switching costs are non-existent for consumers with varied options

4


Factor Ranking (1-5)

Rivalry among existing competitors• Consumer preferences are constantly being targeted and adapted to by competitors• Competition is competing for $1 bn in daily sales

5

Threat of new entrants• Substitute products offer lower prices and convenience. •The majority of meals are eaten at home – 76% 1

Contents


Competitors # of Locations Select Financials Key Menu Items

Atlanta Bread Company 160 bakery cafes in 27 states Privately held

Fresh-baked breads, salads, sandwiches,

soups, pastas, desserts

Au Bon Pain

190 bakery-cafes in 23 states and 222

locations internationally

$245M in sales in 2005Baked goods, soups, salads, sandwiches,

wraps

Bruegger’s 260 bakery-cafes in 17 states

$155M in revenues in 2005

Bagels, muffins, sandwiches, soups,

salads

California Pizza Kitchen190+ locations in 27 states and 5 other

countries

2005 revenues of $480M

Hearth-baked pizzas, salads, pastas, soups, sandwiches, desserts, appetizers, beverages

Jason’s Deli 150 locations in 20 states Privately held

Sandwiches, salad bar, soups, potatoes, desserts,

catering, box lunches

Typical Competitors within the Fast-Casual Arena

What is the competition doing?

• Most Fast-food and full-service restaurants are also responding to consumer preference.– New offerings– Seasonal menus– New themes and differentiation strategies

• Competitors are going after Panera’s potential first time customers– Strategic attempts to capture the offerings that

entice customers to try the “fast-casual” offerings

Competition beyond commercial eateries

• Bars that offer food, hotels with restaurants, vending, etc. are all forms of competition.– Only 67% of total food service sales spent at

commercial eating places

• Home cooked meals are competition. 76% of meals are eaten at home.

Competitors and strategyHigh Food Quality

Quick dining experience

Full Service Applebee’sChili’s

Lower Food Quality

Slower dining experience

Fast CasualPaneraChipotleBrugger’s

QSRWendy’s McDonalds

Analysis: Panera is in a highly competitive area. QSR and full service aren’t competitors with each other. Fast Casual is positioned between the two and competes with both.

Contents


Internal Analysis – Markets Served• Competing in 5 submarkets 1. Breakfast2. Lunch3. “Chill out”4. Light evening5. Take home bread

• Differentiate with wide variety of menu options and café ambience

• Management goal to make Panera a nationally recognized name brand

• High penetration in St. Louis, Columbus, Jacksonville, Omaha, Cincinnati, Pittsburgh, Washington DC

New York City, Philadelphia, Green Bay, Atlantic City,

Toronto

Salt Lake City, LA, Northern California, Seattle, Phoenix,

Tucson, Vancouver, Albuquerque, Spokane

Miami, Dallas, Houston, San Antonio, Memphis, New

Orleans, Shreveport, Baton Rouge, Little Rock

Low/Untapped Markets

Internal Analysis – Core CompetenciesCore Competency Description

Diverse Menu • Lots of variety, constantly experimenting• Options for all meals and times of day• High quality food at reasonable price

Strong Brand/Customer

Loyalty

• JD Power and Associates satisfaction award for QSR in Midwest and Northeast• “Best Of” awards in nearly all mkts in 36 states

Strong Relationship with Existing Franchise

Partners

• Employee training and certifications• Assistance with site selection and marketing•High satisfaction with concept and support received

Identifying Where to Locate New

Stores

• Proprietary software built to analyze data on attractiveness of new locations• Find attractive places to serve urban and suburban populations

Strong Brand/Cust

omer Loyalty

Diverse Menu

Identifying Where to Locate new

Stores

Strong Relationshi

ps with Existing

Franchise Partners

Core Competencies

Red – Easy for competitors to develop

Yellow – Possible for competitors to develop

Green – Very difficult for competitors to develop

Internal Analysis – Growth Initiative

• Expanding number of locations at a rapid pace

• Heavy reliance on franchise partners

• Targeting 17% increase per year in number of locations by 2010

• No international locations but considering expansion into Canada

• Is this aggressive growth strategy prudent in the highly competitive and mature QSR industry?

YearNumber of

new locations

Total Locations

Percent Increase

1993 0 20 N/A

1999 160 180 800%

2006 155 1027 15%

2010 973 (forecasted)

2000 (forecasted)

49%

Internal Analysis - Franchises• Strong franchise network with strict

requirements to entry• New partners to commit to 15 cafes over 6

years– Average startup cost $1 million to $2.25

million per location ($15 million to $33.75 million for 15)

– Majority of franchise partner financed by debt (highly leveraged)

• Can Panera find enough new franchise partners to meet growth targets?

– Strong franchise partners are critical to preserve consistent quality and atmosphere at Panera restaurants

– Bad partner can damage strong customer loyalty Panera has built

– Panera does have out as it can elect to buy out any franchisee for a predetermined price

Biggest issue existing partners have is desire for more locations

Agreed to open additional 423 locations

Still leaves 550 locations to meet 2000 by 2010

Either by new franchise partners or corporate

2006

42 franchise groups in 54 markets 34 states

Internal Analysis – Supply Chain• 17 regional fresh dough facilities (16 corporate, 1 franchise)

– Service both company and franchise cafes– Manufactures over 50 different products– Dough distributed via 140 trucks, each truck delivering to 6 cafes on

average– Panera corporate recognizes profit on dough sold to franchise

locations– Fresh dough making considered competitive advantage by

management as it helped with consistency and efficiency– With rapid plans for expansion is this advantage in jeopardy as trips

are already exceeding optimal 300 mile trip?• Sweet goods provided by Dawn Food Products in a cost-plus agreement

– Finished onsite by bakers, but single source for sweet goods improves ability to deliver consistent products

Contents


SWOT Analysis for Panera BreadStrengths

•Strong/Loyal Customer Base in NE & Midwest•Menu Options/ Variety•Able to provide healthy options to customers•Analysis of market

Weaknesses•No presence in large markets (south & west)•Want customers to “discover” Panera•Decentralized Distribution – each café placed orders•Rely on franchise partners as key to growth – very tough standards

Opportunities•130m consumers daily•Grow number of customers that consider Panera as a dinner option•Get existing customers to come at different times of the day (ex – breakfast crowd to come for dinner)

Threats•Multiple types of competition – fast food, sit down restaurant, eat at home, QSR, fast casual •Differentiation?? What makes Panera’s different than competitors•76% of meals eaten at home

Contents


Recommendations1. Work with franchisees to acquire Corner Bakery Café??? (Franchisee

locations are more profitable and provide higher ROI)2. Expedite expansion in Canada or International (Europe)??3. Vertically integrate and acquire Dawn Food Products Inc.4. Limit growth in existing markets and begin to focus on expansion into South

and West– Offer existing franchisees opportunity to enter markets first– If limited interest open corporate stores to see if concept works before

opening up new markets to new franchise partners

Documents

Panera Bread Company Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman