Panera Bread:

A Case Study

Misti Walker

Panera Bread: A Case Study

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Strategy

Panera Bread’s strategy is “to provide a premium specialty bakery and café experience
to urban workers and suburban dwellers.” This strategy is most closely aligned with a
broad differentiation strategy, or being unique in ways that a broad range of consumers
find appealing. Prior to taking the Panera concept nationwide, the owners performed
cross-country market research and concluded that consumers could get excited about a
quick, high quality dining experience. The concept is a mix between fast food and
casual dining, or fast casual. By choosing this strategy, Panera is attempting to achieve
competitive advantage in the unique offerings it provides, offerings that rivals don’t have
and can’t afford to match. In this case, delicious handcrafted bread arriving fresh daily,
served in an inviting atmosphere is the company’s competitive advantage and core
competency.

SWOT Analysis

Strengths - Repeat customers, learning curve, word-of-mouth, fresh, quality food, rapid
market penetration, economies of scale, customer service, good atmosphere

Weaknesses - leased land, off-site dough preparation and delivery, many untapped
markets, no sustainable competitive advantage, unclear strategic direction, unfavorable
financial trends

Opportunities – catering, national focus on health, dinner crowd, global sales

Threats – bad economy, high gas prices, highly competitive industry

Financials

2006 2005 2004 2003 2002

Net profit .071 .081 .081 .084 .076
margin
Return on 14.8% 16.5% 15.9% 15.8% 14%
stockholder’s
equity
Debt to .365 .381 .345 .239 .215
Equity Ratio
Current Ratio 1.16 1.18 1.05 1.58 1.83

Return on Sales (by business segment)

2006 2005 2004 2003
Company stores 18.5% 19.6% 19.8% 20.7%

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Franchises 88.0% 87.7% 88.0% 88.7%
Dough 9.9% 9.0% 6.7% 7.0%
Combined 23.3% 24.5% 24.6% 25.8%
The franchise business segment is showing above average returns on sales. This is
due to the fact that the start-up costs tied to the franchise segment are not reflected in
the company’s 10-K reports.

Competitors
Panera Bread’s closest rivals include: Atlanta Bread Company, Au Bon Pain, Chipotle,
and Starbucks. These restaurants are also in the fast-casual dining segment of the
industry. Like Starbucks, Panera Bread hopes to convey a casual, friendly atmosphere
for people to “chill out” and enjoy the Wi-Fi and good times with friends. While these
are the closest rivals, Panera must also compete with casual dining restaurants, fast-
food places and any number of other locally-owned establishments.

Recommended Action

In order to compete effectively in this highly-competitive industry, management needs to

define a clear-cut strategy that addresses the company’s distinctive competence – it’s
wholesome, delicious artisan crafted bread products. The name of the company is
Panera Bread, the bread is its distinctive competence, and the company should
promote it as such. Given the industry’s competitiveness and the fickleness of its
consumers, management can strengthen its competitive position by providing a superior
product at the best value to consumers. Already Panera is competitively priced but
many external events might curb the company’s profitability. By implementing a best
cost provider strategy, the company would be somewhat shielded from downturns in the
economy.

Further, the company’s profitability is trending downward. To address this issue and
attain best cost provider status, management should consider eliminating the fresh
dough segment of the company, and instead bring the bread making into each store.
This will reduce the risk of higher gas prices eating into the profit margin. It will also aid
in the goal of creating an inviting environment for its guests. Who doesn’t love the smell
of fresh bread? And kids would love to watch the bread artisans practice their trade.

Finally, research has shown that once a person has visited a Panera bakery-café, they
are more likely to return and tell their friends about their visit. Panera is a relatively
young company that has experienced high growth in the past few years. Management
needs to raise awareness of the brand and the rest will take care of itself. To achieve
this goal with limited cost, the company should increase its marketing budget and share
the associated cost with its franchises. The marketing campaign should focus on the
competitive advantage of the company, value, nutrition, and warmth.