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Group J - Module 4 Panera Bread Assignment (Word Count 1907)

Panera Bread Company in 2016: 1. What is Panera Bread's strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Panera Bread is taking? Panera Bread’s strategy is to become a market leader in the “fast-casual” dining experience restaurants in the USA. This is to be accomplished through the almost doubling its stores with an aggressive timeline over the past six years. All while maintaining the quality and atmosphere that Panera Bread has built a brand and won awards around. Panera Bread uses a broad differentiation strategy as they focus on suburban workers and families while offering many food and beverage choices with lots of user customizability throughout all times during the day. What type of competitive advantage is Panera Bread trying to achieve? Panera Bread concept is a mix between fast food and casual dining. Their high-quality breads and baked goods are the Panera’s competitive advantage. Panera Bread hopes utilize this strategy to win over customers from its competitors and to keep customers coming back for more. 2. What does your strategic group map of this industry segment look like? Is Panera Bread well positioned? Why or why not?

Group J - Module 4 Panera Bread Assignment (Word Count 1907)

The strategic group map indicates that Panera is well positioned in relation to its competitors in terms what people spend and what they get for their money. They don’t have the reach of some of their competitors potentially making them a little less of a known commodity. 3. 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  Leading segment in quality of food and made to order customization  Strong growth possibility; market is growing and economic conditions are helping with store expansion.  Target market is diverse with good income  Strong reviews with many awards for atmosphere and food.  Innovative technologies and new ideas implemented prior to main competitors. Weakness  Competition is dependent on the time of day, Panera competes with different companies for each type of meal a customer is looking for. For example, in the morning, Panera competes with Starbucks and Cafés.  Weaker brand image as compared to competitors that have more focused target menus and markets. (Starbucks, McDonalds, 5 Guy’s)

Group J - Module 4 Panera Bread Assignment (Word Count 1907)

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Lots of competition, easy to enter and exit the market. Declining profits Lack proper marketing structure Difficult to obtain a franchisee (strict guidelines for prospective franchisee candidates)

Opportunities  Healthy eating is trendy, providing a healthier option for food compared to some of its competitors  Great opportunity with store expansion with the ability of choosing excellent locations for new stores. Both in the urban and suburban locations.  At the end of 2015 and moving forward Panera might be in a position for a takeover. This could be both a threat or an opportunity. Depends on how managements end goal is.  Penetrating wholesale market by developing and utilizing its "Panera at Home"  strategy;  Boosting sales by faster implementation of Panera Bread's catering program, online ordering and delivering orders to customers.

Threats  Strong competition from the individual competitors in each segment. For example, Starbucks is much stronger than Panera when it comes to morning brand perception.  The segment of “fast-casual” dining has relatively low barriers of entry and exit, making it simpler for smaller one location operations to compete locally with Panera.  Franchise model does not look like it is working so well as corporate-owned stores.  Slowdowns in market growth.  New fad will decrease market share  Over saturation of bakery/cafe restaurants Panera Bread has a moderate attractiveness. It has already won customer recognition for their top quality and friendly ambience. The company’s core competencies include freshly baked bread made of all-natural ingredients and antibiotic-free chicken, which is appealing to health-conscious consumers, as well as innovative technologies that it is trying to implement to stay on top of the competition. However, rivalry among similar cafés is very strong. Competitors adopt successful strategies very fast. Panera Bread does not have a distinct competitive advantage over its main rivals because its strategies can also be easily implemented by rivals without too much investment. Sales are not increasing at projected rate, meaning that some customers might have shifted towards some other competitor.

Does the company have any core competencies or distinctive competencies? Core competencies or distinctive competency  Focused on fresh, healthy food

Group J - Module 4 Panera Bread Assignment (Word Count 1907)

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Atmosphere Strong ability to grow Store location selection seems to be better than some other competitors

4. What are the primary components of Panera Bread's value chain? Supply chain management (Inbound Logistics) 24 facilities to supply fresh dough for bread and bagels on a daily basis. One of the companies facilities located at a company-owned bakery-café in Ontario supplied dough to 17 Panera bakery-cafés in that market. Operations By 2016 Panera Bread had approximately 47,200 employees. 44,400 were employed in Panera’s bakery-cafe 1,400 were employed in the fresh dough facility operations, and 1,300 were employed in general or administrative functions Panera Bread offers a 20-plus variety of bread baked daily. Each of these breads and sandwiches was regularly reviewed to determine whether the products matched customer needs and seasonal demands. Panera also provided comprehensive training by utilizing digital software to provide training to employees at bakery-cafés, and online baking instructions for the baking personnel at each café. Distribution (Outbound Logistics) Panera Bread supplies dough and other products to all Panera Bread stores, both company-owned and franchised facilities at a delivery cost not to exceed 27 percent of the retail value of the product. These costs margins were achieved by producing the dough at central locations as well as employing economies of scale. Sales and marketing service Panera Bread researched customer food and drink preferences, and price points. Franchise owned cafés applied this market information and reduced costs associated with sales and marketing information. Panera also runs The MyPanera Loyalty Program which rewards customers that dine at Panera Bread locations. 5. What does the data in case Exhibit 1 reveal about Panera Bread's financial performance? How well is the company doing financially? You should use the financial ratios in Table 4.1 of Chapter 4 in performing the calculations needed to arrive at an analysis-based answer to your assessment of Panera's recent financial performance. In addition to the ratios in Table 4.1, you will also need to calculate compound average growth rates (CAGR) for certain financial measures. The formula for calculating CAGR (in percentage terms) is as follows: CAGR % = [ending value / beginning value] 1/n-1 x 100 (where n = the number of year-toyear or period-to-period changes)

Group J - Module 4 Panera Bread Assignment (Word Count 1907)

Ratios 2011 2012 2013 2014 Gross profit margin 0.2304 0.2348 0.2295 0.2162 Operating profit margin 0.1209 0.1328 0.1299 0.1091 Net profit margin 0.0746 0.0814 0.0823 0.0709 ROA 0.1323 0.1368 0.1661 0.1289 ROE 0.2075 0.211 0.2803 0.2435 Earnings per share - basic 4.59 5.94 6.85 6.67 Earnings per share 4.55 5.89 6.81 6.64 diluted CAGR % = [ending value / beginning value] 1/n-1 x 100 2014

2013

2015 0.2036 0.0901 0.0557 0.1012 0.3003 5.81

Declining Declining Declining Declining since 2013 Upwards due to shares buyback Upwards

5.79 Upwards

Year

2015

2012

Gross Profit Margin

-7.09%

-3.36%

3.65%

9.85%

Net profit margin (or net return on sales Net return on total assets (ROA) Total debt-to-assets ratio

-7.05%

-1.69%

12.04%

3.35%

-6.48%

-0.87%

12.04%

3.35%

5.20%

9.12%

-35.57%

-63.29%

Panera Bread’s financial performance is not strong compared to 2010. Profit margins and return on assets are declining. The data in Exhibit 1 indicate a decrease in operating profit margins from 12.09% in 2011 to 9.01% in 2015. The compound annual growth rate (CAGR) was calculated to be -7.09% annual shrinkage. Net return on total assets decreased from 13.23% in 2011 to 10.12% in 2015 while a significant increase in total debt caused the Total debt-to-assets ratio to increase from 36.23% to 44.38% Return on equity and earnings per share are growing since the company expanded its sharerepurchase plan and sold 73 bakery-cafés to franchisees. The company still provides an adequate return on invested capital to its shareholders. However, declining profitability may signal that the business is not healthy. Some shareholders might be willing to invest elsewhere if they don’t see any serious measures taken to improve financial performance. 6. What does the data in case Exhibit 2 reveal about Panera Bread's operating performance? The system-wide store revenues have increased 54.86% indicating that Panera Bread’s operating performance is good. The average return on both company-owned and franchised bakery-cafes have improved continuously from 2010, This is largely due to their performance model, constantly building their loyal customer base through continued quality, improved efficiency, and a unique but efficient marketing approach.

Group J - Module 4 Panera Bread Assignment (Word Count 1907)

In 2011 Panera owned 662 company outlets and 791 franchised outlets bringing the total units to 1,453. This increased to 901 company outlets and 1071 franchised outlets totaling 1,972 units. The continued expansion of cafés in new markets showed that Panera was operating successfully within the framework of the intended strategy. 7. What does the data in case Exhibit 7 reveal about Panera's 3 business segments? Panera Bread’s three business segments include company-owned bakery-cafes, franchise-owned bakery-cafes, and regional fresh dough facilities. The segment revenues indicate an upward trend where revenues increased from 2011 to 2015 by 47.18 percent, Operating profit increased 26.79 percent, as well capital expenditures and segmented assets increased 107.48% and 100.05% respectively. Panera’s franchise operations are highly profitable for the company with low operating expenses, The revenue growth from 2014 to 2015 was 12.03%, operating profit increased by 13.31%. The revenue increased by 5.76% and operating profit decreased by 8.33%. The Fresh dough and other product operations at regional facilities revenue increased by 3.27% and operating profit increased by 2.82%. Since the Panera Bread’s owned units are direct assets of the company, they comprise the majority of both revenues and expenses while producing the most profit, however requiring the most expenditures. Franchise-owned units produce significant amounts of revenue, however, only a portion of the profits are paid to Panera Bread in royalties, along with the franchising fee. 8. What strategic issues and problems does Panera Bread management need to address? What does Panera Bread need to do to strengthen its competitive position and business prospects vis-à-vis other restaurant chain rivals? What does Panera Bread need to do to strengthen its competitive position and business prospects vis-à-vis other restaurant chain rivals? Strategic issues, problems and recommendations for the management:  Continue differentiating itself from competition: this allows the company to keep its loyal customer satisfied and entice new customers to try Panera’s offering.  Decrease barriers for franchisee: Prospective franchisee could not open single unit café. The requirement of the franchise to open 15 restaurants in 6 years discourages potential franchisee. Franchisee could help Panera to penetrate untapped market (overseas or domestic).  Expand catering and wholesale business: Catering sales has grown to 26% in 2010 and wholesale business introduced in 2013 Panera at home has been growing at 50% annually with sales totaling $150 million.  Expand to a new market (domestic and overseas): Many of Panera competition has a presence worldwide. Panera is only in US and Canada.  Increase marketing to increase brand awareness: Market itself as high quality, healthy food provider. With consumer being more health conscious, Panera’s strategy to add more healthy choice to its menu is a good step. Panera should highlight this aspect in their marketing.

Group J - Module 4 Panera Bread Assignment (Word Count 1907)...