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Comprehensive Strategic AnalysisPanera Bread and the Fast Food IndustryAmy Mayhall, Nick Milberger, Ian Euler, Deleon DallasConcordia University, 2013Comprehensive Strategic AnalysisPanera Bread and the Fast Food IndustryAmy Mayhall, Nick Milberger, Ian Euler, Deleon Dallas1. What are the dominant characteristics of the industry? There are many characteristics in the fast-casual industry. These characteristics are all important for competing restaurants to consider when trying to gain competitive advantage. The characteristics that are most relevant to this industry are; market size and growth rate, number of rivals, scope of competitive rivalry, number of buyers, degree of product differentiation and vertical integration. Market size and growth rate are rapidly increasing. Sales reached $23 billion in 2010, that is 30 percent higher than it was in 2006. Survey results in 2010 mentioned that the reason for many people not eating at a fast casual restaurant in the last month was because there was a lack of availability. This means that there are people searching for fast casual because of the healthier choices but there are not as many establishments as there are of fast-food choices. This gives the industry a lot of room to grow. (Sena, 2011)In 2009 there were approximately 600 fast-casual establishments in the U.S. Rivalry for this market is strong. There are hundreds of fast casual establishments that offer quick and easy food. This makes rivalry high. There is always a threat of a company breaking into the market with a new idea that will steal consumers and revenue. This threat causes companies to try whatever it takes to have an advantage over their rivals. (Sena, 2011)One of the main pulls of fast casual restaurants is the experience and ambiance of dining in one of their establishments. The experience that they put forward is closer to a sit down restaurant rather than a fast food establishment. They can be a perfect place to read, study or hold a casual meeting. This industry is usually trying to capture their audience with the healthy options that they believe in. The food is a pricier than a fast food restaurant and can range anywhere from $8 to $15. This food is of better quality and is more nutritious for the consumers overall health. This is how they differentiate from fast food. It is the scope of competitive rivalry. Buyers in this industry, Americans who eat outside of their homes, are growing, partly because of the obesity crisis in America. ?The whole draw to a fast casual restaurant and their product is the quality fresh food you can get while having that cozy coffee house feel, otherwise known as a “third place.” Buyers are flocking to this concept of nice healthy food with a comfortable clean environment. The fast casual food market is large and has many food types and different products to offer. Clients have a plethora of choices. Other than just types of food people must into account dining experience as well because these restaurants have many different environments. For example the consumer can choose between Chipotle (Mexican food), Noodle and Company (pastas and soups) or a place like Panera (cafe and bakery). These three only touch the surface of the degree of product differentiation in the industry. Panera bread has does integrate vertical integration into their business strategy. Fresh bread is Panera’s main draw into the store because the bread is made fresh everyday. However, they are not totally vertically integrated. They still use other companies to get their meat, cheese, lettuce, coffee beans and other supplies that they sell. They vertically integrate through their bread. 2. ?What is competition like in the industry? Power of suppliers is a weak force. Large fast casual chains have thousands of suppliers to choose from. Switching costs are low and it is done easily. Fast-casual and other restaurants in general are very large revenues for suppliers. The switching costs are low, so the bargaining power of suppliers is also low.Power of buyers is Weak. The consumers, people in America of fast casual restaurants are the buyers. According to statistics, about 1 out of 4 people in America eat in a restaurant every day.” The reason the bargaining power of buyers is low is because the volume of buyers is so high (Glen, 2010).The threat of substitutes is a strong force. There are many different fast food chains in America. They might offer slightly different things but they are trying to compete with their substitutes by offering the customer food and service. There are also casual and fine dining that could be a substitute. There are low switching costs and there are a high number of substitutes making the threat of a substitute very petition from Rivals is a strong force. As stated above there are hundreds of fast casual restaurants in America that enter the market and have a product to offer, making it a competitive industry. The restaurants in the industry typically offer similar items on their menus. They are looking for competitive advantage over their competition, constantly. The customer base is not growing as fast as the industry is making rivalry a strong force.New Entrants into the industry is a strong force. The barriers to get into the industry are low therefore making the threat of new entrants high. Economies of scale are an advantage when fast-food restaurants can achieve it but it is hard for companies to gain economies of scale because it’s hard to make a quick service restaurant and have it grow rapidly. 3. ?How is the industry changing? ?What is driving change? How will these forces impact the industry?The industry has changed since it first began. The driving force behind this change is technology. The better the technology, the more services Panera can provide. Panera strives to please their customers. They have installed a couple of programs that better serve their customers. Panera has installed free Wi-Fi in all their stores. This helps compete against their rivals and it provides their customers with a “third place.” Another feature that they have implemented is called their buzzer system. Panera Bread’s waiters bring the food out to you, instead of you waiting by the counter for it. This is moving the industry closer to a casual dining establishment where the consumers are waited on by a server, rather than a fast food restaurant. Service at these restaurants can be arguably be better than at fast food restaurants. Also, Panera bread has My Panera feature on their website. This helps keep the customer informed on the nutritional value of what they eat at their stores. They also provide some similar recipes on this page as well. Panera is trying to help fight the obesity crisis with their awareness of caloric intake and providing nutritional value in their foods. ??The economic issue facing fast casual restaurants is the recession and the hard times facing many Americans. The prices of the higher quality food can be hard to overcome because of the recession. Fast casual restaurants take a hit financially when the economy is not doing well. Middle and upper class citizens really like the social status that these restaurants give. The environment is classy and clean. There are legal regulations enforced from the FDA about how to keep food poisoning out of foods. These regulations can financially hurt a company if they are not following them. Other regulations about employees are important to follow as well. The new laws being passed over full time and part time employees and who will need to receive benefits can become financially dangerous for businesses. 4. ?If applicable, draw a strategic group map using two relevant and differentiating characteristics.5. ?What key factors determine the success of members of this industry? Differentiation is a determining factor of success in this industry because there are so many competitors. The Fast-food industry can be difficult to differentiate on a single product. Differentiation in this industry can be focused more on the atmosphere and unique menu items. Brand and product advertisement can be key factors in becoming a strong brand name used in households and bringing customers in the doors.Making low operating costs for a fast casual industry will prove successful. In an industry that has easy substitutes it is important to cut down overhead prices to make the most from your sales. Integrating vertically could cut operating costs making profit increase. Location is a key success factor. Most consumers at a fast casual restaurant will be middle or upper class. It is important to locate these restaurants near demographic areas where many middle or upper class people can access the business. Many fast casual restaurants try to create a “third place.” The location of this restaurant is important because it should be placed in a central location where other commodities are surrounding it. It will increase customer traffic with a good location.6. ?What is the organization’s mission and vision? ?Does it seem appropriate and adequate for the foreseeable future?Panera Bread’s Vision: “A loaf of bread in every arm.” They also put a lot of emphasis on what they call Bread Leadership. Bread Leadership is Panera’s desire to make fresh quality bread for people to enjoy. Their website states: “With the single goal of making great bread broadly available to consumers across America, Panera Bread freshly bakes more bread each day than any bakery-cafe concept in the country. Every day, at every location, trained bakers' craft and bake each loaf from scratch, using the best ingredients to ensure the highest quality breads. Panera Bread is widely recognized for driving the nationwide trend for specialty breads. As reported by The Wall Street Journal, Panera Bread scored the highest level of customer loyalty among quick-casual restaurants, according to research conducted by TNS Intersearch. It ranked #2 among Excellent Large Fast-Food Chains (500 or more units) and #1 Attractive/Inviting Restaurant in that category in the Sandelman & Associates 2012 Quick-Track? Study.” Panera mission to their customers is to provide quality bread because that makes a quality meal. (Panera Bread Co, 2013) As you can see from the mission, vision and goals listed above for Panera Bread, they are incredibly focused on creating the best product they can for their customers. Their focus of making quality breads and ensuring that every person in America can experience Panera Bread’s top quality meals is what drives them to success. They won’t just settle for making quick and easy food, but rather they want to “Showcase the art and craft of bread making,” making “the highest quality bread”. I think that this focus and vision has proven to be very successful in the past will continue to drive them and keep them at the top of their industry. Customers go to Panera bread for the fresh, quality food, as well as the casual dining atmosphere, and I don’t see either of these things changing at Panera Bread. As long as the company focuses on continuing to develop the best product possible, and developing new ideas that fall in line with their vision and mission, there’s a bright and successful future for Panera Bread.7. ?What is the organization’s business model? ?Panera has a "pay what you can" type business model, they started with an experiment in 2010, called Panera Cares, which lets customers determine themselves what they pay for the meal they choose. The idea is charitable by nature, aimed at helping US families that are struggling to piece together their daily bread. People who can pay a little more are requested to leave some extra cash to support people who are short some. The program currently runs in 3 full-concept dedicated restaurants, serving about 3500 people a week. The results so far are very surprising: 60% of the customers pay the amount the cashier suggest them to pay, 20% pay more, and the remaining 20% pay significantly less. Each store has been earning its keep so far, covering its’ own expenses.The company generates revenues through three business segments: company bakery-café operations, franchise operations and fresh dough operations. The company’s bakery-café operations segment is comprised of the operating activities of the bakery-cafes, owned directly and indirectly by Panera. Their franchise operations segment is comprised of the operating activities of its franchise business unit, which licenses qualified operators to conduct business under the Panera Bread and Paradise Bakery & Café names while the fresh dough operations segment supplies fresh dough items and indirectly supplies proprietary sweet goods items through a contract manufacturing arrangement to both company-owned and franchise-operated bakery-cafes.8. ?Which of the five generic strategies most closely fits the organization? ?As you consider the typical marketing, finance, and HR activities of the organization, what are the chief elements of the organization’s strategy? Panera Bread has a Broad Differentiation strategy. Panera Bread Company has evaluated that in certain areas of America people are willing to pay for their unique product. They like fast food but Panera Bread has created fast casual. They have healthier meals and they also appeal to many different customers with their wide variety of tastes and flavors on their menu. It is not a deli but it is a fast food service that is conscious of the calories that they put in their food. Panera is gaining a competitive advantage by offering goods and services that rivals can’t afford to match. Panera Bread offers handcrafted bread that is fresh daily; it is a huge advantage over other fast food restaurants. PBC has created a home-like, comfortable environment that people enjoy. It is a lot like Starbucks, by creating the 3rd place. While PBC might not have a “3rd place” as their main goal they try to differentiate from other fast food restaurants by creating a comfortable environment for people to sit and have a meal with friends or work alone. Panera offers slightly higher prices than most fast food services but the customers are willing to pay the price for the quality. The company has proven itself to have excellent customer service and customer satisfaction willing the trust and loyalty of many buyers. (Gustavo, 2010) (Thompson, Peteraf, Gamble, Strickland, 2010.)9. ?Perform a SWOT analysis. ?What does this analysis reveal about the overall attractiveness of the situation?There are many strengths to Panera Bread Company. They have an attractive and appealing menu for their consumers. The menu draws in the consumers who want to eat healthy. The company has a differentiation of Bread-baking expertise-signature products compared to their competitors. They are also a nationwide leader in the bakery-café segment. Surveys have proven they have high ratings in customer satisfaction. Panera has a positive and strong brand image partly because they have grown so much and have many locations. They offer fresh food and good quality to those looking for a healthy option. Panera has a catering business that they are using to increase their revenue and it is doing well. The company’s financially healthy because the have experienced growth without debt. Revenue in 2007-2008 increased by 21.8% and their net profit in 2007-2008 increased by 17.4%. Panera has many franchises and maintains a strong relationship with them to ensure alignment. Panera is trying to acquire other similar businesses like Paradise Cafe, (bought 51% of outstanding stock of Paradise.) Customers are returning to the establishment. Panera Rewards Cards are building customer loyalty and giving specials to customers who are proving their loyalty.There are a few things that PBC could try to improve on. Panera has higher prices than rivals, which could be due to their operating costs. Panera has expanded in the past years but the locations are concentrated geographically. They have smaller revenues compared to rivals; this may be because of a poor balance sheet. ?Sales at franchise store run higher than company owned stores, this is odd, maybe management should try to find out why these sales are higher and try to model after them. Some of the off-site dough preparation and delivery is producing a high operating cost. Panera has opportunities to continue their success in the fast casual industry. They can try to control operating costs that might be out of hand or unnecessary. The company should consider expanding into new markets and expanding geographically, even internationally. Products can continually be made based on current food trends. The peak hours at Panera are breakfast and lunch, efforts could be made to attract a larger dinnertime rush.Threats are consistent in the industry for most establishments; these are specific threats to PBC. ?Rivals are trying to imitate the menu and rivals are trying to imitate the atmosphere. The delivery of fresh dough every day (in vehicles with temperature control), the bread might not make it “safely.” While Panera offers healthy options, current trends are calling for even healthier food than Panera. Panera’s operating costs are too high. ?10. How well is the organization performing from a financial perspective? ?What kind of financial health do you anticipate several years from now?In reviewing the financials for Panera Bread they had some impressive numbers that stood out and represented the success of the company. In their letter to investors that was published on their website they go on to say,” In 2011 with $223 million of cash on our balance sheet and no debt. We have been able to deploy more than $400 million in excess capital since the first half of 2010 to increase shareholder value and drive EPS. The ration of their cash to debt is very impressive and it is definitely a driving factor in the financial success of the business. In 2011 they opened 112 new stores, and these bakery’s averaged a weekly sale of $41,637 which is a solid number in helping pay off the building and costs of start up quickly and upfront. What really stood out to me however was Panera breads stock price, which is currently $162.79. Even more impressive is how quickly this stock price per share made its jump. At the start of 2009 Panera Breads stock was around $37 dollars. In only 4 years, that’s roughly a 439% increase, which is incredibly impressive to me. They go on to expand on their emphasis of return on investment, “We believe that our strategy of increasing our store profit through investing in the quality of our customers’ experience to drive differentiation and competitive advantage, unit growth, driving operating leverage and deploying our excess capital in high-ROI investments positions us well to continue to deliver our targeted long-term EPS growth rate of 15% - 20% annually.” Judging from Panera Breads success in their past and their goals and drive to perform well in the future, I believe that financial success will continue to boom for them. ?They have high liquidity ratios and turn impressive profits every year, not to mention the ways that their stocks have performed which keeps investors satisfied. Not only is Panera a company that does business the right way, the do it in a highly profitable way. 11. How well is the organization performing from a strategic perspective? In our research we have concurred that Panera Bread is doing a very good job at implementing its strategies. They are doing a great job at raising their company’s quality awareness in terms of their store’s environment, product and exceptional services. Their cafes appeal to higher end customers that are looking for a comfortable environment with their dining experience. Their bakery-cafe has done this very effectively. Elements such as fireplaces, couches, warm lighting and a quiet studious environment have propelled Panera Bread in this category. All of their bread is baked fresh and in house as they have been striving towards providing the best quality food and products for valued customers. This lounge and home away from home environment is very appealing to their customers and is one of the key factors to Panera Bread’s success.They have also done incredibly well in terms of growth and expansion; their CAGR for total revenue from 2002 to 2006 was 30.9%.?However one negative that could be seen about this is that the majority of these expansion restaurants have been franchises rather than majorly company owned. They have room to move and continue to grow which will surely help their performance and profits in the future, as they have showed in the past few successful years of their expansion. Opening 123 new cafe-bakeries in 2012 alone, and 112 brand new stores in 2011. The opening of new stores is due to the amount of cash revenue the stores has produced, while proudly being able to say that the company has no debt.As long as Panera Bread continues to produces exceptional quality products they will be successful in a very tough and extremely competitive market. While we could not find any examples or listings of Panera Bread’s market share they have settled them into a comfortable niche and will look to continue to improve upon their stores in any way they can. Companies like Chipotle, Starbucks, Einstein’s bagels are the major competition that Panera bread faces. What makes this competition interesting is the way in which these companies vary. Einstein’s focuses on bagel products while offering breakfast sandwiches and coffee, Starbucks focuses on coffee products while offering breakfast foods and a small selection of baked goods. Chipotle focuses its resources on providing burritos and Mexican food. Panera has an instant advantage over all of these companies as they offer quality baked breads, soups, sandwiches, salads as well as beverages. They also offer the coffee shop environment, which is very appealing to many who are looking for quality food and a studious environment. While growth is a plus it is important for them to ensure that company values and culture can remain in their franchised locations. 12. How well is the organization implementing its chosen strategy? Broad differentiation strategies depend on meeting customer needs in a unique way or creating new needs, through activities such as innovation or persuasive advertising. The objective is to offer customers something that rivals can’t or at least in terms of the level of satisfaction. There are four basic routes to achieve this objective. The first is to incorporate product attributes and user features that lower the buyer’s overall costs of using the company product. Panera does not follow this route effectively because they have high operating costs forcing them to increase or continue to sell their products at a high price compared to their rivals. In FY2009, Panera Bread's revenues reached $1.35 billion, a 4.1% increase over its FY2008 revenues, while net income rose 28% to $86 million. Operating margins have increased by over 1% for each of the last seven quarters, with FY2009 operating margin reaching 10.4%.[3] Comparable bakery-café sales growth increased by 0.5% overall in FY2009. However Panera’s operating income has struggled and hasn’t been very consistent through the years and has resulting in the increase of prices (Wikinvest). However with all this being said, Panera has still been able to turn a profit and manage to work without much if any debt even while they have been steadily expanding. If they can begin to manage and start to hedge their operating expenses they will be able to see an increase in their operating income, meaning more profits and a stronger bottom line.The second route is to incorporate tangible features that increase customer satisfaction with the product. Panera is doing a great job executing this route. Panera was the leading free Wi-Fi provider in 2006-2007. They offer a “the third place” environment to customers. The third route to a differentiation-based advantage is to incorporate intangible features that enhance buyer satisfaction in non-economic ways. Panera has created a strong brand image that puts them ahead of other bakeries and cafes. They also are helping the community with their programs in that affect the local communities.The last route is to signal the value of the company’s product offering to buyers. Panera follows this route to differentiating themselves the closest. They signal the values of Panera with a high price, which implies high quality of food. Panera also promotes a strong emphasis on customer service, brand management, and the use of technology in their cafes. These things support differentiation from rivals. The company is successful because buyer needs are great. There is a very large and diverse population of people that buy from Panera Bread. The products have many options and ways to differentiate it and they all create a value to the customer. Currently, there are not many rivals that are offering exactly what Panera offers. Panera is one of the only “fast-casual” restaurants. Panera has plenty of rivals in the food/restaurant industry but there are not many that are trying to replicate Panera Breads differentiation strategy. Panera is also trying to increase the use of technology in their cafe’s to create an even greater advantage in the market (Thompson. , Peteraf, , Gamble, , & Strickland, 2010).13. What recommendations do you have?We have a few recommendations that can further Panera’s growth. I have noticed in past years, that Panera has become more of a restaurant than just offering high variety of baked goods. We think that they need to go back to their focus on bread. That made them unique before, and Panera should try to incorporate that into every meal. By doing this, Panera won’t be another high-end café competing with Starbucks.Another thing that we think that Panera could do, instead of making their dough at bakeries, Panera makes their dough at their stores. This could eliminate the middleman, and possibly eliminating excess materials in the process (including a reduction in transportation costs). For some companies, anything that helps the bottom line is a good thing.Panera doesn’t really market itself as a whole. When was the last time you saw a Panera bread commercial and remembered it? Right now, Panera advertises itself as a franchise standpoint, where they should market themselves as a Company standpoint. Providing people with the basic knowledge behind Panera. Going along with the marketing focus, we believe that they should target students, for later hours. Marketing to them that they have free Wi-Fi, could bring in extra customers. The catering business is becoming more popular within the food industry. We think that if Panera Bread opens their business to catering discounts for schools and workplaces. This will allow them to get their brand out there to a significant amount of people at a time. Finally, I think that they should apply dinner specials so that more customers come in during that time; this would be to increase sales during dinner times. Another idea is for online ordering, for the customers on the go. This way they can have a higher turnover rate when it comes to waiting in lines. 14. Every case is unique, so a common outline may not provide space for very important observations. ?Please include those here. ?Thanks!Panera Bread was born in 1981 as the Au Bon Pain Co. Inc. founded by Louis Kane and Ron Shaich. The company bought the St. Louis Bread Company. Panera dominated the bakery-cafe industry during the 1980s and 1990s. The headquarters are in St. Louis. 1999 was a monumental year for Panera because it transformed and expanded into a national restaurant and Au Bon Pain sold all its other chains including Au Bon Pain. Panera has expanded itself across the country and even internationally. There are 1652 company-owned and franchised stores in 44 states. Internationally, Panera has opened stores in Canada. Panera Bread owns Saint Louis Bread Company and Paradise Bakery and Cafe. Ron M. Shaich is Chairman of the board and co-CEO and William W. Moreton are President and co-CEO.Panera Bread created Dough-Nation in 1992 to formalize its commitments to community involvement. Dough-Nation has four different categories that can help the community; Community Breadbox cash collection boxes, the Day-End Dough-Nation program, Panera/SCRIP Card fundraising, and they participate in community events. The Day-End Dough-Nation program gives the unsold bread and baked goods to local food banks, hunger relief, agencies and charities. Panera Bread roughly donated a retail value of $100 million worth of bread and baked goods to people in need. Panera also created a non-profit organization called Panera Cares these sites in Portland, Chicago, St. Louis and Boston help approximately 3,500 people per week. (Panera Bread Company Overview)Panera has really adapted to trends in America. The fight to end obesity is getting a lot of publicity. Healthier options have been offered at Panera than other fast food restaurants. Panera was the first restaurant to post calorie information voluntarily. This gave them an advantage above other fast healthy substitutes because it helps address the nutritional value of the options offered at Panera. It makes it easy for people who are trying to be health conscious.Panera also offers free Wi-Fi, which is helpful for creating a “third place.” Panera Bread, in 2006-2007 was the largest free Wi-Fi provider in the United States. The third place is very popular in the busy society of Americans. A third place is basically creating “a second home” for people. It is a place where a person can sit down for a while, have a meeting with a friend, or a group, surf the web and also be a comfortable environment to read, relax or enjoy a meal. Panera has successfully created a third place.REFERENCES:1. Glen, W. (2010). Fast Food Facts. retrieved May 04 2013, from Viva Veggie Web Site: . Hernandez, Gustavo. "1. ???PaneraBread's Strategy." Panera. N.p., 21 July 2010. Web. 27 Mar. 2013.3. Panera Bread Company overview. Retrieved from . Panera Bread Stock Quote retrieved from: . Panera Bread Company 2012 Annual Report to Stockholders Retrieved from pdf/ar-2012.pdf6. Panera Bread Company Names of Competitors retrieved from: 7. Panera Bread Company 2012 Annual Report to Stockholders pdf/ar-2012.pdf8. Sena, M. (2011). Fast Casual Industry Analysis 2013 – Cost & Trends. retrieved May 04 2013, from Franchise Help Web Site: . ?Thompson. , Peteraf, , Gamble, , & Strickland, (2010).Crafting and executing strategy: The quest for competitive advantage. (18th ed.). New York, NY: McGraw-Hill. ................
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