Panera Bread Company Growth in a Difficult Economy

Panera Bread Company-Growth in a Difficult Economy

Panera Bread Company - Growth in a Difficult Economy

What is Panera Bread's strategy? Which of the five generic competitive strategies & #8230; What type of competitive advantage is Panera Bread trying to achieve?

Panera Bread's business strategy was to make the bread company a brand recognized nationally and to be a dominant restaurant in the specialty bakery-cafe segment. This was to be achieved by using a business model that aimed to satisfy customers' needs by providing quality food in a casual setting. Panera was able to get stable profits that enabled it to give this value to customers through food sales and collection of the franchising fees. Furthermore, the management at the Panera Bread Company intended to expand the business locations by 17% on an annual basis. This was to be done through an expansion strategy that targeted an expansion of one cafe per 160,000 people by 2010 (Thompson, 2012).

This was supported by the business environment within which the company operated. It had a 5% growth in 2006 and hence making its business strategy compatible with market conditions. Because of its operations in a competitive environment, Panera experienced threats from low cost and differentiated products. In order to make use of buyers who wanted good meals at affordable prices, Panera used the best cost provider strategy. The adoption of the best cost provider strategy and its dedication to providing food that customers could trust catapulted Panera to success. However, the competitive nature of the industry could not allow the strength of its strategy to become a competitive advantage. It was through the best cost provider strategy that Panera was able to acquire a market share of 0.5409%, which translated to $345 billion annual sales in the restaurant sector (Thompson, 2012). Evidently, this was a sizeable market share considering the nature of the industry. As a result, Panera developed strong financial position, which enabled it to face the competition. Therefore, Panera's strategy could be said to be effective as it played a role in the growth of the business and the acquisition of new clientele.

For the functional area strategies, Panera's marketing strategy had three main initiatives. One of the initiatives focused in the creation of awareness about Panera through the provision of quality crave-able food that could be trusted by customers. In addition, the strategy involved improving the appeal of its bakery-cafes as gathering places for customers. In the second initiative, the focus was in creating awareness and the trials of Panera at various meal times while the third initiative aimed to stabilize the consumers' perception of Panera as a favorable option for dinner. In an effort to strengthen its marketing strategy, Panera avoided the hard-sell advertising but instead opted for a gentle approach where consumers are allowed to experience the brand by themselves. This marketing strategy was successful as it was noted with the strong financial performance at Panera.

The production and distribution strategy for Panera involved the use of economies of scale and centralized operations for the dough making. In total, seventeen regional fresh dough facilities were strategically placed to serve over a thousand Panera bakery-cafe locations. The centralized operations contributed in the consistent production of quality dough. Ideally, Panera's production strategy supports the intentions of being better than other bread cafes and by having products that would entice customers to come back. This production strategy in Panera was strong and effective since it supported other company strategies.

Panera has unique franchise system where each franchise license served at least 15 bakery-cafes to be opened within a period of six years. The applicants who can meet this criterion are considered for licensing by Panera. It was also a requirement for the applicants to have at least net worth of $7.5 million and resources necessary for the expansion of 15 locations, an experience to operate a restaurant, an a commitment to promote Panera's brand and culture.

2. 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

Panera has demonstrated its ability to build a loyal clientele. More than 81% of its clients showing their willingness to try out the multiple meal times at Panera. Its growth strategy is also strong and attainable as indicated in its expansion strategy (Hitt, Ireland & Loskisson, 2007). The financial position for Panera shows a positive performance especially due to the lack of any long-term debt. Through research and development combined with product innovation, Panera has managed to maintain high quality foods that attract new customers and contribute in their retention.

Weaknesses

Panera has not fully utilized its potential in promotional strategy. The company is also located in some regions leaving out many customers from certain areas unattended. In addition, the frequent diners at Panera only visit the restaurant for one meal per day.

Opportunities

The life cycle in the industry is still growing and hence the company has a chance to expand. Moreover, there are large numbers of small buyers in the industry where the company can still get more customers for expansion plans (Hitt, Ireland & Loskisson, 2007). It is also likely that buyers will be willing to try out the new restaurants and hence clientele will be available for the new restaurants.

Threats

The low switching costs has also led to low customer loyalty. For customers who are not ready to stick to the existing prices at Panera, the substitute products from other companies may be convenient because of the low prices. Because of the increased rivalry from the competitors, any slack in quality delivery will lead to customers going to competitors. Furthermore, the steep learning curve requires Panera to try out new products that sometimes may not impress the customers.

3. What is your appraisal of Panera Bread's financial performance based on the data in case Exhibits 1, 2, and 7? Panera's recent financial performance

Panera has displayed a steady financial performance since 2002. The total revenue recorded in 2002 was $282,225,000 while the same increasing to $1,542,529,000 in 2010. Similarly, there operating profit has also been steady over the years where in was $3,401,400 in 2001 and $185, 069, 000 in 2010. With the increased profits, the main beneficiaries have been the shareholders. For instance, the net income to share holders in 2002, 2007, 2008, 2009 and 2010 were $21,300,000, $57,456,000, $67,436,000 $86,050,000, and $111, 866,000 respectively. Since 2002, the value of the total assets at Panera has grown from $195,431,000 to $328,973,000 in 2010.

Although the overall revenue collection for Panera has been high and steady, the revenues from the franchised stored have been higher than the revenue from the company-operated stores. About this, the revenues collected in 2010 were $1,321 million from the company-operated stores and $1,802 millions from the franchised stores. This could be attributed to the increased number of Panera bakery-cafes.

For the first two quarters of 2011 financial year, Panera recorded an 18% increase in sales revenues from $743.3 million to $873.2 million. Likewise, there was an increase in the net income in the same year from $52.5 million to $68.5. The growth rate of the franchise-operated cafes in 2011 was higher than the growth rate of the company-operated cafes. Since the beginning of 2011, there have been more than 40 new company-operated and franchised bakery-cafes. This boosted the total number of Panera restaurants to about 1500. The management was expecting to add 105 new company-operated cafes by the end of 2011. In the first three weeks of July 2011, the stock price for the Panera Bread was around $132.00 per share. This was an increase from the $101.21 price per share in December 2010 (Thompson, 2012). Truly, the steady performance of the share prices are an indication of the strong financial position the company has been enjoying.

4. Based on the information in case Exhibit 3, which rival restaurant chains appear to be Panera's closest rivals?

According to the list of the restaurants provided in exhibit 3, Starbucks appears to be Panera's closest rival in the restaurant industry. The company has more than 11,000 companies operated and licensed locations in the U.S. alone and more than 5,900 international locations. In terms of financial performance, Starbucks had revenue of $10.7 billion in 2010 with an estimated retail sale of $1.1 million for each company-operated location in U.S. (Smith, 2011). The key menu categories for the Starbucks include the Italian-style espresso beverages, teas, sodas, juices, and a variety of pastries. In some locations, sandwiches and salads are offered. Panera's menu also includes cafe sandwiches, hot beverages such as coffee and tea, fruit juices, and salads. In addition, the company has an espresso bar that offers coffee products and chocolate.

The financial performance of the Panera bread is quite impressive. The company revenues are constantly on the increasing end, a factor that clearly points out at stable financial position. There is a great improvement between these successive years. Below is a presentation the figures and the respective percentage increase in the revenues.

According to exhibit 1

Between 2002 -- 2006

666.1- 212.6 = 453.5

Percentage increase= 453/212.6 x 100 = 213.3%

Between the years 2002 and 2006, the company revenues increased by 213.3% a figure that signifies constant growth.

In the last years, 2009 -- 2010, the company again experienced a significant increase in revenues. Below is the percentage.

1321.1- 1153.3 = 167.8/1153.3 x 100 = 14.5%

The company thus realized increased revenue of 14.5%. This signifies an increase in growth from the previous years. To realize further growth, the company may engage in more strategies that will ensure the most efficient results are achieved. Other programs that will attract more customers need to be introduced to ensure that the company is n the right trend in its market. In addition, the number of bakeries opened at the end of each year increased significantly at an impressive rate. This signifies a proper financial position of the company and its capability to expand its services.

In exhibit 2

According to exhibit 2, the number of bakeries increased steadily from 478 o 1453. This also symbolizes a steadfast financial position since the company is expanding into larger boundaries. It also symbolizes an increase in profit margin hence the best results.

In exhibit 3

This shows the increase in company expansions in various states and locations. It also has 341 locations in the various sixty foreign countries. This signifies an increase in revenue and also development in terms of marketing strategies.

According to these statistics, the company has showna great improvement in terms of its financial perfomance and expansion. The company is stable and capable of achieving great resuls and outputs.

5. What strategic issues and problems does Panera Bread management need to address?

One of the strategic issues that Panera needed to address was utilizing its potential in internal franchising efforts. This could enable it to take advantage of the industry life cycle that is still in the growing phase. Another strategic issue that Panera needs to address is to vary its existing promotion strategy especially in the untapped markets (Schermerhorn, 2011). This will enable the bread company to capture the customers' willingness to venture into new restaurants.

The Panera bread management also needs to address the strategic issue of using its internal strength and capability in developing customer loyalty. This is useful in dealing with the threat of the low switching costs and the low customer loyalty. The final strategic issue to be addressed by Panera is strengthening its research and development department in order to make use of the growing number of buyers in the industry. In addition, the company needs to observe the entry and exit of its competitors. With the current changing trends, the company can keep its competitors under constant observation to ensure that they monitor all the new strategies introduced in the market. The company is experiencing growth in a very competitive market and very fine strategies need to be put in place to ensure that this company remains on top of the competition. It is thus important for the management to consider this aspect.

6. What does Panera Bread need to do to strengthen its competitive position and business prospects vis-a-vis other restaurant chain rivals?

For Panera to invest effectively in the low and untapped markets, Panera Bread needs to pursue a more aggressive promotional strategy. This will help Panera to deal with the stiff competition from both the upcoming restaurants and the established ones like Starbucks. Because of penetrating into the untapped market, Panera will be able to achieve its desired ratio of 1:160,000.