Case # 5 Panera Bread Company

1. What is Panera Breads 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 caf 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) artisan breads are Paneras signature product.
Nationwide leader in the bakery-caf segment
High ratings in customer satisfaction studies
Good brand name
Fresh dough operations & sales to franchised stores
Initial success in catering
Good franchisees higher sales in franchised stores compared to company-owned
Financial strength of the company able to grow without taking on too much debt

Weaknesses:
A less well-known brand name than some rivals (Applebees, Starbucks)
Sales at franchised stores higher than company-owned stores Why?
External Threats
Rivals begin to imitate menu offerings/or dining ambience easy to copy?
Competition from other chains
Saturate the market will it become harder to find attractive locations for new stores and slow companys
growth
Opportunities
Open more outlets untapped growth potential in a number of suburban markets (see Exhibit 3)
International expansion

3. What is your appraisal of Panera Breads 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 5.1 of Chapter 5 as a guide in doing the calculations needed to arrive at an analysis based
answer to your assessment of Paneras recent financial performance.
Strong CAGR in a number of important areas total revenues, royalties, fresh dough sales, net income
and EPS.
Declines in G & A expense a desirable trend some erosion in operating profit margins bears watching
(not a desirable trend). Declines in liquidity (as 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

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 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 as a % of stockholders
equity ((ROE)

2005

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 Breads narrowing profit margins

What more to do, if anything, to try to boost Paneras 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 companys competitive position and business prospects vis--vis other restaurant chain rivals?

There are no big or threatening problems/issues that needs fixing or correcting. No need to
overhaul or do major surgery on the companys broad differentiation strategy. Some possible
actions:
Continue to exploit first-mover advantage 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 during the evening meal hours when traffic is somewhat light.