Case # 5 Panera Bread Company
1. What is Panera Bread’s 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 café 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 Panera’s signature product.
Nationwide leader in the bakery-café 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 (Applebee’s, 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 company’s
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 Bread’s 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 Panera’s 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 30.9 828,971 640,422 362,121 265,933 212,645
Franchise royalties &
fees 21.8 61,531 54,309 44,449 36,245 27,892
Fresh dough sales to
franchises 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
Earnings Per Share 26.879 1.84 1.65 1.25 1.00 .71
Net cash provided by
operating activities 22.67 104,895 110,628 84,284 73,102 46,323
CAGR – Compound Average Growth Rate
2006 2005 2004 2003 2002
Current Ratio 1.16 1.18 1.05 1.58 1.83
General & Administrative expenses
as a % of total revenue 7.2 7.2 7.0 7.7 8.9
Operating profit as a % of total
revenues (operating profit margin) 11.0 12.7 12.9 13.7 12.0
Net income as a % of stockholders’
equity ((ROE) 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 Bread’s narrowing profit margins
What more to do, if anything, to try to boost Panera’s 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 company’s competitive position and business prospects vis-à-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 company’s 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.
