Case # 5 Panera Bread Company 1. What is Panera Bread’s strategy? Which of the four generic competitive strategies discussed in Chapter 3 most closely fit the competitive approach that Panera Bread is taking? What specific kind of competitive advantage is Panera Bread trying to achieve? Driving concept: to provide a premium specialty bakery and café experience to urban workers and suburban dwellers. Generic: Broad differentiation strategy. Competitive advantage: striving to build a competitive advantage based on the triple combination of Product, Environment, and Great Service (PEGS).
2. What does a SWOT analysis of Panera Bread reveal about the overall attractiveness of its situation? Strengths:
Attractive & appealing menu
Bread-baking expertise (a core competence) – competence) – artisan artisan breads are Panera’s signature product.
Nationwide leader in the bakery-café segment
High ratings in customer satisfaction studies
Good brand name
Fresh dough operations & sales to franchised stores
Initial success in catering
Good franchisees – franchisees – higher higher sales in franchised stores compared to company-owned
Financial strength of the company – company – able able to grow without taking on too much debt
Weaknesses:
A less well-known well-known brand name than some rivals (Applebee’s, Starbucks)
Sales at franchised stores higher than company-owned stores – Why? Why?
External Threats
Rivals begin to imitate menu offerings/or dining ambience – easy easy to copy?
Competition from other chains
Saturate the market – market – will will it become harder to find attractive locations for new stores and slow company’s growth
Opportunities
Open more outlets – outlets – untapped untapped growth potential in a number of suburban markets (see Exhibit 3)
International expansion
3. What is your appraisal of Panera Bread’s financial performance based on th e data in case Exhibits 1, 2 and 8? How well is the company doing financially? Use the financial ratios in Table 5.1 of Chapter 5 as a guide in doing the calculations needed to arrive at an analysis based answer to your assessment assessment of Panera’s recent financial financial performance. Strong CAGR in a number of important areas – areas – total total revenues, royalties, fresh dough sales, net income and EPS. Declines in G & A expense a desirable trend – trend – some some erosion in operating profit margins bears watching (not a desirable trend). Declines in liquidity (as measured measured by current ratio and working capital numbers) and a fluctuating but still acceptable ROE also warrant attention. Overall, the data indicate that Panera is growing quite rapidly and is performing well, although not spectacularly. While there are some areas of concern, the areas of weakness as of 2006 are from alarming. CAGR
2006
2005
2004
2003
2002
Total Revenues Franchise royalties & fees Fresh dough sales to franchises
30.9
828,971
640,422
362,121
265,933
212,645
21.8
61,531
54,309
44,449
36,245
27,892
24.8
101,299
86,544
72,569
61,524
41,688
Net Income Income
28.9
58,849
52,183
38,430
30,669
21,300
1.65
1.25
1.00
.71
110,628
84,284
73,102
46,323
Earnings Per Share 26.879 1.84 Net cash provided by operating activities 22.67 104,895 CAGR – Compound Compound Average Growth Rate 2006 Current Ratio General & Administrative expenses as a % of total revenue Operating profit as a % of total revenues (operating profit margin) Net income income as a % of stockholders’ equity ((ROE)
2005 200 5
2004
2003
2002
1.16
1.18
1.05
1.58
1.83
7.2
7.2
7.0
7.7
8.9
11.0
12.7
12.9
13.7
12.0
14.8
16.5
15.9
15.8
14.1
4. What strategic issues and problems does Panera Bread management need to address?
What to do to correct Panera Bread’s narrowing profit margins What more to do, if anything, to try to boost Panera’s traffic counts at its stores during dinner hours. What actions to take to boost sales at company-owned bakery cafes (and put them more on a par or even above the annual and weekly sales levels being achieved at franchised cafes).
5. What actions would you recommend that Panera Bread management take to strengthen the company’s competitive position and business prospects vis -à-vis other restaurant chain rivals?
There are no big or threatening problems/issues problems/issues that needs fixing or correcting. correcting. No need to overhaul or do major major surgery on the company’s broad differentiation differentiatio n strategy. Some possible actions: Continue to exploit first-mover advantage – advantage – secure secure prime retail locations in urban areas where Panera Bread has little or no market penetration. Attack the causes of eroding operating and net profit margins. Do a better job of controlling expenses. Continue to work hard on developing new menu items that will drive up traffic counts, particularly particularly during the evening meal hours when traffic is somewhat somewhat light.
