Case 9 Teaching Note Panera Bread Company in 2014
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fee. Franchisees were also required in 2013 to spend amounts equal to 1.6 percent of their net sales
on advertising in their local markets. Over the past eight years, Panera had raised the contribution of
both company-owned and franchised bakery cafés to the national advertising fund—from 0.4 percent
of net sales prior to 2006 to 0.7 percent beginning January 2006 to 1.2 percent beginning July 2010 to
To support its new national advertising campaign beginning in 2014, Panera exercised its right to require
franchisees to pay the maximum 2.6 percent of net sales to the company’s national advertising fund.
In recent years, Panera had put considerable effort into (1) improving its advertising messages to
n Open several non-profit “Pay-what-you-want” bakery-café locations and, hopefully, enhance Panera’s
We think students should have little trouble recognizing that Panera Bread’s competitive strategy most
closely resembles a broad differentiation strategy. Assuming students have also read the material in Chapter
Management’s attempts to attract and retain customers and create a differentiation-based competitive
advantage revolved around what it called “Concept Essence.” As indicated just above, Concept Essence
embraced six elements or themes that were the basis for building a differentiation-based competitive
advantage over rivals:
nOffering an appealing selection of artisan breads, bagels, and pastry products that were handcrafted and
baked daily at each café location.
nServing high-quality food at prices that represented a good value.
2. What does a SWOT analysis of Panera Bread reveal about the overall attractive-
ness of its situation? Does the company have any core competencies or dis tinctive
competencies?
Panera’s Resource Strengths and Competitive Assets
n An attractive and appealing menu (see case Exhibit 5)—Panera offers high quality food at a good price
n Bread-baking expertise (definitely a core competence)—artisan breads are Panera’s signature product
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n The nationwide leader in the bakery-café segment
nThe regional facilities and eet of temperature controlled trucks that supplied fresh bread and bagel
dough (along with tuna, cream cheese spreads, and certain fresh fruits and vegetables) to company-
n Off-premise catering capabilities—extends the company’s market reach
n Capable and financially-strong franchisees—from 2002 through 2011, sales at franchised stores ran a bit
higher than those at company-owned stores, but in 2012–2013, the reverse was true (see case Exhibit 2)
n The financial strength to fund the company’s growth and expansion without burdening the company’s
balance sheet unduly with debt (see the relatively small numbers for Total liabilities and the sizable Net
Panera’s Resource Weaknesses and Competitive Liabilities
n A less well-known brand name than some rivals (Applebee’s, Starbucks)
nComparable bakery-café sales percentage increases at both company-owned outlets and franchised
outlets were lower than in 2012. Moreover, Panera’s top management in February 2014 indicated that
Panera’s Market Opportunities
External Threats to Panera’s Future Well-Being and Profitability
nThe sluggish slow-growth economic environment in the United States
nRivals begin to imitate some of Panera’s menu offerings and/or dining ambience, thus stymieing to
n New rival restaurant chains grab the attention of consumers and draw some patrons away from Panera—
n Panera Bread begins to saturate the market with outlets, such that it becomes harder to find attractive
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Conclusions Concerning the Attractiveness of Panera Bread’s Overall Situation: It is nearly
always a good idea to impress upon students that SWOT analysis involves more than making four lists. One
The above SWOT listings for Panera Bread reveal that Panera has some formidable resource strengths/
competitive assets and few resource weaknesses/competitive liabilities. And it seems to have adequate
Hence, Panera’s overall situation is attractive and its future prospects seem very promising—assuming
that management can successfully combat the smaller gains in sales revenues at both company-owned
and franchised bakery cafés. Its backward vertical integration into dough-making and other products that
3. What are the primary components of Panera Bread’s value chain?
Panera’s value chain has 6 primary value chain components that students should identify:
nMarketing and brand name building
nDesigning, locating, and opening new restaurants
4. What is your appraisal of Panera Bread’s financial performance based on the data
contained in case Exhibit 1? 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:
If your students do a creditable job of poring through the data in case Exhibit 1 and crunching some CAGR
values, they should come up with the following:
nFrom 2009 through the end of 2013, Panera Bread’s bakery-café sales at company-owned restaurants
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n Franchise royalties and fees are up from $27.89 million in 2002 to $163.45 million in 2013, a CAGR of
13.5%.
n Fresh dough and other product sales to franchisees have grown from $41.7 million (14.8% of total
n The following table shows various operating and financial ratios calculated for case Exhibit 1:
2013 2012 2011 2009 2002
Bakery-café expenses as a % of bakery-café sales
Food and paper products 29.7% 29.4% 29.5% 29.3% 29.8%
Labor 29.7 29.8 30.4 32.1 29.7
Occupancy 7.1 7.0 7.2 8.3 7.2
Other operating expenses 14.0 13.6 13.6 13.5 13.2
Total bakery café expenses 80.4% 79.8% 80.7% 83.2% 79.9%
The numbers in the table show generally good improvement during the 2002–2013 period, although
2009 was a down year in terms of profit margins and operating expense ratios (largely recession-induced,
one suspects). From the table, it can be seen that Panera had
• Lower total labor expense percentages in 2012 and 2013 compared to 2009 and 2010.
• Declining general and admin expenses as a percentage of total revenues.
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Conclusions: On the whole, we would rate Panera Bread’s overall financial performance since 2009 as an
A˗ or B+. The company’s growth rate has been commendable in light of the tough economic times the U.S.
5. What is your appraisal of Panera Bread’s operating performance based on the data
contained in case Exhibit 2?
The numbers in case Exhibit 2 reveal the following about Panera Bread’s operating performance:
nRevenues at company-operated stores have risen from $212.6 million in 2002 to $2,108.9 million in
2013, a healthy CAGR of 23.2%.
nRevenues at franchised stores have risen from $542.6 million in 2002 to $2,175.2 million in 2013, a
respectable CAGR of 13.5%.
6. What does the data in case Exhibit 7 reveal about Panera Bread’s 3 business segments?
There is important financial performance data for Panera’s three business segments in case Exhibit 7:
nStudents should see that the lion’s share of Panera Bread’s revenues and profits come from its operations
of company-owned bakery-cafés.
nPanera’s profits from franchise operations are quite lucrative. For instance in 2013, revenues from
franchise operations were $112.6 million and operating profits from this business segment were $106.4
nFresh dough and other product operations are a distant third among the three business segments in
contributing to companywide operating profits—$21.3 million in 2013, $17.7 million in 2012, $20.0
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nOperating profit as a % of revenues were highest for franchise operations (94.5% in 2013, 93.5% in
2012, 92.8% in 2011), second highest for company-owned bakery-café operations (equal to 19.6%
nThe company’s capital expenditures totaled $192.0 million in 2013, of which $153.6 million (or 80.0%)
7. Which rival restaurant chains appear to be Panera’s closest rivals?
The data in case Exhibit 3 provides a fairly complete list of the primary restaurant chains that could be
Breakfast hours:
Chill periods:
Lunch/dinner hours:
Atlanta Bread Co., Au Bon Pain, Bruegger’s, Corner Bakery Café, Culver’s, Firehouse Subs, Jason’s
Deli, McAlister’s Deli, Noodles & Company, and for those who like Mexican food—Chipotle Mexican
8. What strategic issues and problems does Panera Bread management need to address?
There are two issues that students should put on Panera Bread management’s worry list:
n What more to do, if anything, to try to boost Panera’s traffic counts at its stores during dinner hours. So
n What additional or different actions should Panera management consider, if any, to rejuvenate the
9. What does Panera Bread need to do to strengthen its competitive position and business
prospects vis-à-vis other restaurant chain rivals?
There are no big or threatening problems/issues that need fixing or correcting at Panera Bread. There is
certainly no reason to overhaul or do major surgery on the company’s broad differentiation strategy. But
there are some actions that students might constructively propose:
n Continue to open new stores as rapidly as economic conditions permit. There is a first-mover advantage
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n Continue to work hard on developing new menu items that will drive up traffic counts at Panera locations
n Continue with the strategy of opening both company-owned and franchised stores.
nContinue to try to drive growth in off-premise catering sales. The catering strategy seems quite sound
and on target.
nContinue with the shift to more national advertising (with attendant lesser emphasis on local advertising,
especially by franchises). There are enough Panera locations now to focus more on national ads that
nDoes it seem likely that Panera Bread can avoid a growth slowdown in 2014?
10. Does it seem likely that Panera Bread can avoid a growth slowdown in 2014?
To avoid the growth slowdown foreseen by Panera management (part of which may be due to continued
sluggish economic growth nationwide), Panera’s new national advertising program will need to be very
successful in stimulating additional traffic at Panera bakery cafés. In addition, several things can be
Epilogue
In July 2014, Panera Bread Company reported total revenues of $1.24 billion, net income of $91.6 million, and
earnings equal to $3.36 per diluted share for the twenty-six weeks ended July 1, 2014. These results compared
to total revenues of $1.15 billion, net income of $99.2 million, and earnings of $3.38 per diluted share, for the
twenty-six weeks ended June 25, 2013. Management also announced that it was revising its diluted EPS target
for full-year 2014 downward from $6.80 to $6.65.
In the first two quarters of fiscal 2014, sales at Panera’s company-owned bakery-cafés open at least 12 months
grew 0.1% in Q1 and 0.1 % in Q2, while sales at Panera’s franchised bakery-cafés grew 5.2 % in Q1 and declined
0.2% in Q2. Panera management’s forecasted range of comparable bakery-café sales growth for full-year 2014
was 0.0% to 1.5%.
Average weekly sales for all Panera Bread locations (company-owned and franchised) was $47,360 for the first
26 weeks of fiscal 2014, as compared to weekly averages of $47,403 for full-year 2013 and $46,676 for full-
year 2012. However, average weekly sales at 26 company-owned Panera bakery-cafés that opened in 2014 were
$48,300—substantially above the AWS average of $41,436 at 63 company-owned Panera bakery-cafés that
opened in fiscal 2013. The numbers were even better for newly-opened franchised Panera locations: average
weekly sales at the 20 franchised Panera bakery-cafés that opened in the first 26 weeks of 2014 were $53,882—
substantially above the AWS average of $43,727 at 70 franchised Panera bakery-cafés that opened in fiscal 2013.
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Panera had 1,818 bakery-café locations open in 45 states and Ontario, Canada, as of July 1, 2014, an increase of
46 bakery-cafés over year-end 2013. Management reiterated its target of opening 115 to 125 new bakery-cafés
system-wide during 2014.
In April 2014, Panera announced that it would soon begin introducing “Panera 2.0”—a series of integrated
technologies to enhance the guest experience for both “eat-in” and “to-go” customers—at its bakery-cafés.
Panera 2.0 enabled customers to
nPlace an online/mobile order up to 5 days in advance for pick-up at a predetermined time without waiting in
line.
nPlace an online/mobile order within a café and have it delivered to their table.
nSave customized orders at in-café iPad kiosks for easy ordering on their next visit—when linked to the
MyPanera Loyalty program and a credit card, Panera 2.0 created a frictionless and faster service experience
for users.
nUse the company’s website or a mobile app to store their purchase history and credit card information for
future use.
A new test bakery facility to test new recipes for breads and other menu items and to study ways to lay out, staff,
and operate the companies bakeries was opened in New Haven, CT, in May 2014.
In June 2014, Panera closed on a five-year $100 million loan from Bank of America, Wells Fargo, and TD Bank
that called for a oating interest rate tied to LIBOR (initially the rate was 1.15%); the company planned to use
the money for general corporate purposes, including the rollout of Panera 2.0.
There was no other strategic or financial news of significance to report at the time this teaching note was prepared.
For the very latest information on developments at Panera Bread, we urge that you check the press releases and
the investor relations sections at www.panerabread.com.