Panera Bread Must Continue to

Panera Bread must continue to execute the strategy that has allowed it to become successful thus far. There is no evidence of difficulty at the company. There are no major strategic issues. With revenues, net income, earnings per share and shareholder equity all on strong, steady growth trajectories, the main strategic area of concern for Panera Bread is how best to keep the firm's momentum. Industry Analysis The quick service restaurant industry is a challenging one in which to operate. Competition in the industry is intense.

In many markets, there is overcapacity, which leads to a high restaurant turnover rate. The only saving grace is that customers have a high propensity to switch among restaurants, which gives all new market entries the opportunity to succeed, if they are able to excel. The nature of competition depends on the segment of the industry. In Panera's space, price and consistency of experience (both food and atmosphere) are the key demand drivers.

Panera faces competition from a wide range of food providers, some of whom are larger and more experienced, but most of which are smaller and less experienced. As a result, Panera can be expected to have a competitive advantage over many of its competitors in any given market. It must also combat market share incursions by other chains, however, in particular those with stronger brands and more experience in the industry. Although most consumers eat out regularly, dining out is for many a luxury item.

As such, the restaurant business tends to suffer during economic downturns. The space in which Panera Bread operates could benefit from customers trading down but customers may also substitute home meals and cheaper takeaway fare from the Panera Bread experience. The high propensity for buyers to substitute and the industry's chronic overcapacity means that buyers have significant pricing power. They negotiate price with their business -- a restaurant that does not deliver quality equivalent to their price points is unlikely to succeed.

A chain like Panera Bread has high pricing power over its suppliers, due to the high volume of business that they do. Internal Competencies Panera Bread is developed competencies primarily in marketing, but also in consistency and in franchisee selection. Panera's brand has grown due to the firm's aggressive marketing, which has exposed the brand to consumers. The marketing allows Panera to cultivate an image of having artisan bread, even though it comes from factories, thereby differentiating Panera from other marketers of industrial fast food.

This differentiation places Panera in a favorable market position vis-a-vis its most direct competitors and against the major fast food chains. The extensive marketing gives Panera strong brand recognition and brand equity, resulting in a competitive advantage over small chain and independent competitors. The other major internal competency is the ability of the firm to deliver a consistent customer experience with respect to both food and atmosphere (Rockwood, 2009).

Panera has a specific look and feel that it wishes to have in its stores and works with franchisees to ensure that this is consistent throughout the chain. The consistency of experience works in concert with marketing to allow consumers to feel comfortable with the quality of the food and atmosphere at any Panera Bread outlet. The firm also has a competency in the franchisee selection process. The stringent requirements allow Panera stores to be managed only by those with the financing and experience to run such stores successfully.

Franchises are sold to owners who can deliver upwards of 15 stores in a geographic area, rather than to single unit owners (Schaefer, 2009). There are additional controls in place to ensure that the company can reclaim a store that is not being run properly. The result is that Panera stores are not subject to the same failure rate as the industry in general. Going Forward Panera Bread's current growth trajectory is based on the goal of having 2000 outlets opened by the end of 2010.

This requires a high growth strategy, focused on building out the franchise rapidly. As the company grows, however, it has the free cash flow to do this with company-owned stores, and can expect to have high demand from potential franchisees as well. There is no indication that Panera will be unable to grow through 2010 as expected. The main question is with regards to the post-2010 strategy. Panera must consider the value of its franchisee program and must also consider the markets in which it wants to operate.

The franchisee program should continue to draw new potential owners due to the growth and strength of the Panera brand. Geographic growth opportunities are also strong. The company has many unsaturated markets. If the company can achieve St. Louis-level saturation (1 store per 67,000 people) in all major markets, there is room for strong domestic growth for many years to come. The firm will need to begin expanding into the remaining major markets, however, in order to solidify its national presence.

The New York City area, the southwest, the Pacific Northwest, much of Texas, South Florida and Canada all represent large underserved territories. Panera should begin to establish a presence in most of these markets, the possible exception being Canada due to the added difficulty of operating internationally. Another issue going forward for Panera Bread is with regards to smoothing out its sales over the course of the day.

The company has worked in the past few years to develop menus for both morning and dinner, but remains oriented towards the mid-day. The company has several options for addressing this issue further. With regards to morning, the company has two key areas in which it can differentiate itself. One is with respect to coffee. The company's current offerings are not differentiated sufficiently, either in terms of price or quality.

Expanding and improving the coffee options would complement the firm's existing strength in the perception of its bread and pastry products and the high image of its in-shop atmosphere. Drive-through service could enhance morning sales as well, albeit at the expense of the Panera atmosphere and the highly visual product displays. With respect to dinner options, Panera is somewhat more limited. The lack of full kitchen facilities makes Panera a less compelling option for dinner and the company has not competency in dessert.

It offers pastries, but the evening remains a weak point in its menu. Panera may simply decide not to pursue the dinner option, but it remains an opportunity at present if the company can deal with the logistical challenges of producing acceptable dinners without full kitchen facilities. Recommendations and Conclusion Panera's main concerns at present are to continue the expansion of the chain to meet its store number goals for 2010. The current system combining in-house stores with franchised stores has worked successfully and shows no major weak points.

There is no reason to change a winning formula at this point in time. It is recommended therefore that the existing system for adding new stores.