978-0077720599 Case 9 Panera Bread Part 1

subject Type Homework Help
subject Pages 7
subject Words 1909
subject Authors A. Strickland, Arthur Thompson, John Gamble, Margaret Peteraf

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TEACHING NOTE
CASE 9
Panera Bread Company in 2014
Overview
In spring 2014, Panera Bread was widely regarded as the clear leader of the “fast-casual” segment of the
restaurant industry—fast-casual restaurants were viewed as being a cut above traditional quick-service
restaurants like McDonald’s because of better food quality, limited table service, and, in many instances,
often wider and more upscale menu selections. On average, close to 8 million customers patronized Panera
Bread restaurants each week, and Panera baked more specialty breads daily than any other bakery-café enterprise
in North America. There were 1,777 company-owned and franchised bakery-cafés in operation in 45 states, the
District of Columbia, and Ontario, Canada, under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery
& Café names. In 2013, the company had corporate revenues of $2.4 billion, systemwide store revenues of $4.3
billion, and average sales of almost $2.5 million per store location.
The number of Panera Bread locations was up from 1,027 units in 36 states at the end of 2006, but well short of
the ambitious target the company set in 2006 to have 2,000 outlets in operation by the end of 2010. While the
Great Recession of 2008–2009 had forced management to scale back Panera’s expansion plans, the company
decided to reinstitute its rapid-growth strategy by opening a net of 76 new company-operated and franchised
units in 2010, 88 new units in 2011, 111 new units in 2012, and 125 units in 2013. Plans called for opening 115
to 125 new company-operated and franchised units in 2014.
But despite the recent acceleration of store openings, there were signs in 2014 that the company’s revenue
growth in 2014 would not match the robust 19.9 percent compound average growth achieved from 2009 through
year-end 2013. Top management in February 2014 indicated that it was expecting 2014 sales gains of just 2 to 4
percent at Panera bakery-cafés open at least one year, below the percentage gains in each of the past three years.
Moreover, diluted earnings per share in 2014 were projected to increase only 5 to 8 percent, well below the
company’s targeted long-term EPS growth rate of 15 to 20 percent annually.
The case contains detailed information about the components of Panera Bread’s strategy, plus it provides good
financial data on Panera, information about the fast-casual segment of the restaurant industry, and brief profiles
of Panera’s many rivals in the restaurant industry.
Suggestions for Using the Case
The Panera Bread case is a good vehicle for having students identify a company’s strategy and evaluate its pros
and cons. There is plenty of information in the case for students to conduct a full-blown SWOT analysis. Doing
a SWOT analysis, evaluating Panera’s financial performance, and sizing up the competition from rival restaurant
chains constitutes the bulk of the analysis that students will need to do here, once they get a solid grip on Panera’s
competitive strategy (which mirrors that of broad differentiation). The relatively modest 19-page length of the
case will please students, and students will easily grasp the nature of Panera’s business.
Because the analysis of Panera Bread is not as demanding as some other cases, it is highly suitable for use in the
first half of the course, essentially any time after class members have covered Chapters 1–6.
Can a Slowdown in the Company’s
Growth Be Avoided?
:
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The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
Videos for Use with the Panera Bread Case. There are three pertinent YouTube videos that can be shown on
the day you cover the Panera Bread case in class (or that you can have students watch on their own):
nA 1:00-minute November 13, 2014 video entitled “Panera Bread Slices Full-Year Earnings Forecast” that
can be accessed at https://www.youtube.com/watch?v=ex2q9XcpItg.
The Connect-based Case Exercise for the Panera Bread Case. We developed a case preparation
exercise for the Panera Bread case for inclusion in the publishers Connect Management web-based
assignment and assessment platform because
nThe case is very appropriate for use in the first half of the course (following coverage of Chapters 1, 2, 3, 4,
5, and 6).
nTwo chief purposes of the Connect-based case exercises are to drill students in (1) applying the concepts and
analytical tools discussed in the chapters to the circumstances posed in the cases and (2) doing some needed
This exercise for Panera Bread Company requires class members to develop answers to the following questions:
1. What are the key success factors for a restaurant chain that operates in the fast-casual segment of the
restaurant industry?
2. What does a SWOT analysis reveal about the attractiveness of Panera Bread’s situation and future prospects?
3. What are the primary components of Panera Bread’s value chain?
4. What are the chief elements of Panera Bread’s strategy?
5. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Panera Bread’s is employing?
6. What does the data in case Exhibit 1 reveal about Panera Bread’s financial performance?
7. What does the data in case Exhibit 2 reveal about Panera Bread’s operating performance?
8. What does the data in case Exhibit 7 reveal about Panera Bread’s 3 business segments?
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All aspects of the 8 questions in this exercise are automatically graded and entered in your electronic grade book
that is part of the Connect platform, which makes it easy for you to evaluate the caliber of each class members
work on the Panera case exercise. Generally, it makes sense to require all class members to complete the exercise
before coming to class on the day the case has been assigned for class discussion
What to Tell Students in Preparing the Panera Bread Case for Class. To give students definitive
guidance in what to do and think about in preparing the Panera Bread case for class discussion, we strongly
recommend the following:
1. Have class members complete the Connect-based exercise for the Costco case (in the event you have
opted to make the Connect supplement for the 20th Edition a part of the materials required for your
course).
OR
2. Provide class members with assignment questions and insist that they prepare good notes/answers
to these questions before coming to class—this is critical if you are not using the Connect-based
software in your class.
It is really very difficult to have an insightful and constructive class discussion of an assigned case unless
students have not only read the case but also conscientiously worked their way through a set of well-conceived
assignment or study questions before they come to class. In our classes, we expect students to bring their notes
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis We
heartily recommend use of the Panera Bread case for written assignments and oral team presentations. Three
good assignment questions are:
1. Panera Bread management has employed you as a consultant and asked you to assess the company’s strategy,
competitive market position and overall situation, and recommend a set of actions to help ensure that the
• an identification of the key elements of the company’s strategy,
• a discussion of which of the five generic competitive strategies described in Chapter 5 seem most
closely match the competitive strategy that Panera Bread is employing,
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• the strategic issues and problems that Panera Bread’s management needs to address, and
• a set of action recommendations to deal with these issues and problems.
Your report should be 5–6 pages, plus it should include an assortment of charts, tables, and exhibits to
Assignment Questions
1. What is Panera Bread’s strategy? Which of the five generic competitive strategies discussed in Chapter 5
most closely fit the competitive approach that Panera Bread is taking? What type of competitive advantage
is Panera Bread trying to achieve?
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?
3. What are the primary components of Panera Bread’s value chain?
4. What does the data in case Exhibit 1 reveal about Panera Bread’s financial performance? How well is
the company doing financially? Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the
calculations needed to arrive at an analysis-based answer to your assessment of Panera’s recent financial
performance. In addition to the ratios in Table 4.1, there are occasions when you will also need to calculate
compound average growth rates (CAGR) for certain financial measures. The formula for calculating CAGR
(in percentage terms) is as follows:
CAGR % = [ending value ÷ beginning value] 1/n – 1 x 100
(where n = the number of year-to-year or period-to-period changes)
5. What does the data in case Exhibit 2 reveal about Panera Bread’s operating performance?
6. What does the data in case Exhibit 7 reveal about Panera Bread’s 3 business segments?
7. Based on the information in case Exhibit 3, which fast-casual and full-service restaurant chains appear to be
Panera’s closest rivals?
8. What strategic issues and problems does Panera Bread management need to address?
9. What does Panera Bread need to do to strengthen its competitive position and business prospects vis-à-vis
other restaurant chain rivals?
10. Does it seem likely that Panera Bread can avoid a growth slowdown in 2014?
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Teaching Outline and Analysis
1. What is Panera Bread’s strategy? Which of the five generic competitive strategies
discussed in Chapter 5 most closely fit the competitive approach that Panera Bread is
taking? What type of competitive advantage is Panera Bread trying to achieve?
Panera Bread’s identity was rooted in its fresh-baked, artisan breads made with a craftsperson’s attention
to quality and detail, and its breads and baked products were the platform for the dining experience at its
bakery-cafés and a major basis for differentiating Panera from its competitors. The featured menu offerings
Recognizing that diners chose a dining establishment based on individual food preferences and mood,
Panera strived to be the first choice for diners craving fresh-baked goods, a sandwich, soup, a salad, or a
beverage served in a warm, friendly, comfortable dining environment. Its target market was urban workers
and suburban dwellers looking for a quick-service meal or light snack and an aesthetically pleasing dining
The driving concept behind Panera Bread was to provide a premium specialty bakery and café experience
to urban workers and suburban dwellers. Its artisan sourdough breads made with a craftsman’s attention to
quality and detail and its award-winning bakery expertise formed the core of the menu offerings. Panera
Management’s long-term objective and strategic intent was to make Panera Bread a nationally recognized
brand name and to be the dominant restaurant operator in the specialty bakery-café segment. Three key
The Chief Elements of Panera Bread’s Strategy
Class members should be able to identify the following strategy elements:
n Grow the business by opening both company-owned and franchised outlets.
• Panera Bread’s franchising strategy was to enter into franchise agreements which required the
franchise developer to open a number of units, typically 15 bakery-cafes in a period of 6 years.
nPanera management’s blueprint for attracting and retaining customers was called Concept Essence.
Concept Essence underpinned Panera’s strategy and embraced several themes that, taken together, acted
to differentiate Panera from its competitors:
• Offering an appealing selection of artisan breads, bagels, and pastry products that were handcrafted
and baked daily at each café location.
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• Serving high-quality food at prices that represented a good value.
nHave a distinctive menu that positioned Panera Bread to compete successfully in multiple segments of
the restaurant business: breakfast, AM “chill” (when customers visited to take a break from morning-
hour activities), lunch, PM “chill” (when customers visited to take a break from afternoon activities),
n Regularly review and revise the menu to sustain the interest of regular customers, satisfy changing
consumer preferences, and be responsive to various seasons of the year.
• New menu items were developed in test kitchens and then introduced in a limited number of the
bakery-cafés to determine customer response and verify that preparation and operating procedures
• New product introductions were integrated into periodic or seasonal menu rotations, referred to as
“celebrations.” Panera introduced 10 new menu items in 2010, added 14 new or improved items
n Include healthy, more nutritious items on the menu (fruit smoothies, yogurt granola parfaits, reduced-
fat spreads) and use organic and natural ingredients in recipes and unbleached flours in some bread
selections to help attract the growing numbers of health-conscious, nutrition-conscious consumers.
• Panera’s web site had detailed nutritional information for individual products and a nutritional
nPromote and grow the MyPanera Loyalty Program to reward frequent customers.
nCreate a signature café design with inviting ambiance—make Panera “better than the guys across the
street” and make the experience of dining at Panera so attractive that customers will be willing to pass
by the outlets of other fast-casual restaurant competitors to dine at a Panera Bread bakery-café. Each
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n Locate Panera Bread units in suburban, strip mall, and regional mall locations. In evaluating a potential
location, Panera studied the surrounding trade area, demographic information within that area, and
information on competitors. Based on analysis of this information, including utilization of predictive
n Supply dough to all Panera Bread stores, both company-owned and franchised—dough-making
operations functioned as a profit center. Management believed the company’s fresh dough-making
Students should recognize here that integrating backward into dough-making and the supply of certain
nGrow Panera’s off-premise catering sales and extend its market reach into the workplace, schools,
and parties and gatherings held in homes. Panera management saw catering as an opportunity to grow
• Panera’s catering menu drew upon items appearing on the regular menu and was posted for viewing
at the company’s Web site. Selections included an assortment of bagels and morning pastries (with
• A catering coordinator was available to help customers make menu selections, choose between
• Orders came complete with plates, napkins, and utensils, all packaged and presented in convenient,
n Grow sales at existing and new unit locations by (1) developing and promoting appealing new menu
selections, (2) continuously improving the customer experience at Panera restaurants, (3) encouraging
frequent customer visits via the new menu items featured during the periodic celebrations, (4) increased
nBuild the Panera Bread brand name and grow consumer awareness of Panera.
To reach target customer groups, Panera employed a mix of radio, billboards, social networking,
television, and in-store sampling days. Advertising expenses totaled $33.2 million in 2011 (1 percent of
system-wide bakery-café sales), $44.5 million in 2012 (1.15 percent of system-wide bakery-café sales),
Franchise-operated bakery-cafes were required to contribute a specified percentage of their sales to a
national advertising fund. In 2013, Panera’s franchise-operated bakery-cafés were required to contribute

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