Panera Bread Case Submission

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Panera Bread Case Submission

November 21, 2011

I. Executive Summary

Panera Bread Company began when its careful market research led to the decision to

divest itself of Au Bon Pain and focus on bread-based meal and beverage sales in a

comfortable dining atmosphere which would attract customers throughout the day. Its

operations included company-owned bakery-cafes, franchises, and fresh dough sales to

each of the bakery-cafes. Marketing expenses and initiatives were limited; the product sold

itself through successfully attracting new customers and retaining their loyalty. It had

successful developed a distinct brand and market niche. Despite its tremendous success,

which has won numerous “best of awards”, market penetration continued to be limited

based on conservative growth principles which required franchise owners to purchase

multiple franchises and exhibit proof of high levels of capital. It is recommended that the

Board of Directors consider and test lowering franchise ownership standards. This

development opportunity requires little up-front capital and may result in tremendous

growth opportunities.

II. Situational Analysis

A. Environment

1. Economic conditions and trends

i. In 2006, North Americans overall had high purchasing power, either with liquid funds or

credit. They had the capacity for impulse spending. In 2006, the US experienced its lowest

savings rate since 1933.[1]2 A largely unregulated free market economy allowed for the

competitive development of multiple businesses within sectors, such that many companies

begin only to go out of business and the most customer-appealing ones may gain

significant market share.

2. Cultural and social values and trends

i. Every day in 2006, Americans spent one billion dollars on dining outside the home,

constituting 24% of meals consumed. Spending was growing at 5% nationally. Consumers

purchase meals at any time of the day and night, as well as snacks, and various beverages

including sodas, caf beverages, bottled water, and alcohol. Catering reaches new corporate

and party market segments.

ii. The buregeoning success of fast food establishments proved that Americans are willing

to pay low to moderate fares for a significant percentage of their meals, in exchange for

quick service. Yet there was additional tremendous market potential still to be tapped.

While not relaxing their demand for speed and low price, customers also sought more

variety, as well as a higher perceived quality of options, such as health-conscious,

speciality, “artesian”, “upscale,” or international food options. They also valued a more

comfortable dining setting for relaxing, socializing, or catching up on work. Casual fast

dining restaurants met these customer demands and quickly expanded in their own market

segment. These include restaurants with counter-ordering, self-service, and waited tables.

Customers have responded positively to large wall menus as well as the ability to view

selections in well-lit displays before placing orders.

iii. Because of the increasingly low proportion of stay-at-home parents, and long work and

commute hours outside the home, it is highly likely that Americans will continue to dine

away from home for a significant proportion of their meals.

3. Political and Legal Issues

i. The restaurants are subject to federal and state laws regarding franchise relationships,

building construction and zoning requirements, environmental matters, the preparation of

safe food, and employment. State and local laws regulate its business operations, health,

fire and safety codes.[1]3

ii. The United States is a highly litigious society. It also provides its consumers with

national-wide media broadcasting of news items with shock value. A public health issue

resulting from foods served could be disastrous for a restaurant enterprise.

4. Summary of environmental opportunities and threats:

i. North Americans will continue to purchase a high percentage of ready-made meals and

snacks outside the home, for many reasons including dining while commuting or traveling,

sharing a meal with others, and relaxing in a comfortable setting. Recent years have

brought new demands for “upscale”, health-conscious, and international menu items,

perhaps spurred by increasing attention to these choices through media such as the popular

“Food Network” television station. As evidenced by the continuing expansion of Panera

Bread and other offerings, the market is not yet fully developed with these items delivered

at high speed and low prices.

ii. Profit margins for restaurants are low. While the demand for quick meals is very high,

so is the competition. At almost any shopping plaza or main thoroughfare throughout the

country, a hungry driver can locate multiple fast dining choices which may include:

high-volume fast service cafes, bakeries, diners, pizzarias, tacquerias, and bars; salad bars

and ready-made hot meals and deli items sold in supermarkets; and fast food restaurants

with drive-thrus or sit down dining options.

5. Implications for strategy development:

i. A successful restaurant enterprise will attract first-time customers and retain their steady

patronage, gaining their loyalty to lure them away from the multiplicity of other options.

ii. Market share can be obtained and maintained:

1. by developing delicious and appealing menu choices and an overall dining

experience which are more attractive to customers than other options, while

maintaining competitively low cost and quick service; and

b. by establishing a standard distinctive character to brand itself in the minds of its

customers and secure a stable and growing market niche.

ii. Market share can continue to develop, as funds allow and if supported by past trial

successes:

a. by continuing market development through franchise placement in areas with high

anticipated demand based on local market research; and

b. instead of depending solely on attracting customers, bring a quality, trusted product to

customers in their locations through flexible catering solutions including large-production

offerings to airlines, theme parks, and educational and corporate cafeterias.

B. Industry

1. Classification and definition of industry