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Comprehensive Strategic Analysis

Panera Bread and the Fast Food Industry

Amy Mayhall, Nick Milberger, Ian Euler, Deleon Dallas
Concordia University, 2013

Comprehensive Strategic Analysis

Panera Bread and the Fast Food Industry
Amy Mayhall, Nick Milberger, Ian Euler, Deleon Dallas
1. What are the dominant characteristics of the industry?
There are many characteristics in the fast-casual industry. These characteristics
are all important for competing restaurants to consider when trying to gain competitive
advantage. The characteristics that are most relevant to this industry are; market size and
growth rate, number of rivals, scope of competitive rivalry, number of buyers, degree of
product differentiation and vertical integration.
Market size and growth rate are rapidly increasing. Sales reached $23 billion in
2010, that is 30 percent higher than it was in 2006. Survey results in 2010 mentioned that
the reason for many people not eating at a fast casual restaurant in the last month was
because there was a lack of availability. This means that there are people searching for
fast casual because of the healthier choices but there are not as many establishments as
there are of fast-food choices. This gives the industry a lot of room to grow. (Sena, 2011)
In 2009 there were approximately 600 fast-casual establishments in the U.S.
Rivalry for this market is strong. There are hundreds of fast casual establishments that
offer quick and easy food. This makes rivalry high. There is always a threat of a company
breaking into the market with a new idea that will steal consumers and revenue. This
threat causes companies to try whatever it takes to have an advantage over their rivals.
(Sena, 2011)
One of the main pulls of fast casual restaurants is the experience and ambiance of
dining in one of their establishments. The experience that they put forward is closer to a
sit down restaurant rather than a fast food establishment. They can be a perfect place to
read, study or hold a casual meeting. This industry is usually trying to capture their
audience with the healthy options that they believe in. The food is a pricier than a fast
food restaurant and can range anywhere from $8 to $15. This food is of better quality and
is more nutritious for the consumers overall health. This is how they differentiate from
fast food. It is the scope of competitive rivalry.
Buyers in this industry, Americans who eat outside of their homes, are growing,
partly because of the obesity crisis in America. The whole draw to a fast casual
restaurant and their product is the quality fresh food you can get while having that cozy
coffee house feel, otherwise known as a third place. Buyers are flocking to this concept
of nice healthy food with a comfortable clean environment.
The fast casual food market is large and has many food types and different
products to offer. Clients have a plethora of choices. Other than just types of food people
must into account dining experience as well because these restaurants have many
different environments. For example the consumer can choose between Chipotle
(Mexican food), Noodle and Company (pastas and soups) or a place like Panera (cafe and
bakery). These three only touch the surface of the degree of product differentiation in the

Panera bread has does integrate vertical integration into their business strategy.
Fresh bread is Paneras main draw into the store because the bread is made fresh
everyday. However, they are not totally vertically integrated. They still use other
companies to get their meat, cheese, lettuce, coffee beans and other supplies that they
sell. They vertically integrate through their bread.
2. What is competition like in the industry?
Power of suppliers is a weak force. Large fast casual chains have thousands of
suppliers to choose from. Switching costs are low and it is done easily. Fast-casual and
other restaurants in general are very large revenues for suppliers. The switching costs are
low, so the bargaining power of suppliers is also low.
Power of buyers is Weak. The consumers, people in America of fast casual
restaurants are the buyers. According to statistics, about 1 out of 4 people in America eat
in a restaurant every day. The reason the bargaining power of buyers is low is because
the volume of buyers is so high (Glen, 2010).
The threat of substitutes is a strong force. There are many different fast food
chains in America. They might offer slightly different things but they are trying to
compete with their substitutes by offering the customer food and service. There are also
casual and fine dining that could be a substitute. There are low switching costs and there
are a high number of substitutes making the threat of a substitute very strong.
Competition from Rivals is a strong force. As stated above there are hundreds of
fast casual restaurants in America that enter the market and have a product to offer,
making it a competitive industry. The restaurants in the industry typically offer similar
items on their menus. They are looking for competitive advantage over their competition,
constantly. The customer base is not growing as fast as the industry is making rivalry a
strong force.
New Entrants into the industry is a strong force. The barriers to get into the
industry are low therefore making the threat of new entrants high. Economies of scale are
an advantage when fast-food restaurants can achieve it but it is hard for companies to
gain economies of scale because its hard to make a quick service restaurant and have it
grow rapidly.
3. How is the industry changing? What is driving change? How will these forces impact
the industry?
The industry has changed since it first began. The driving force behind this
change is technology. The better the technology, the more services Panera can provide.
Panera strives to please their customers. They have installed a couple of programs that
better serve their customers. Panera has installed free Wi-Fi in all their stores. This helps
compete against their rivals and it provides their customers with a third place. Another
feature that they have implemented is called their buzzer system. Panera Breads waiters
bring the food out to you, instead of you waiting by the counter for it. This is moving the

industry closer to a casual dining establishment where the consumers are waited on by a
server, rather than a fast food restaurant. Service at these restaurants can be arguably be
better than at fast food restaurants.
Also, Panera bread has My Panera feature on their website. This helps keep the
customer informed on the nutritional value of what they eat at their stores. They also
provide some similar recipes on this page as well. Panera is trying to help fight the
obesity crisis with their awareness of caloric intake and providing nutritional value in
their foods.
The economic issue facing fast casual restaurants is the recession and the hard
times facing many Americans. The prices of the higher quality food can be hard to
overcome because of the recession. Fast casual restaurants take a hit financially when the
economy is not doing well. Middle and upper class citizens really like the social status
that these restaurants give. The environment is classy and clean.
There are legal regulations enforced from the FDA about how to keep food
poisoning out of foods. These regulations can financially hurt a company if they are not
following them. Other regulations about employees are important to follow as well. The
new laws being passed over full time and part time employees and who will need to
receive benefits can become financially dangerous for businesses.
4. If applicable, draw a strategic group map using two relevant and differentiating

5. What key factors determine the success of members of this industry?

Differentiation is a determining factor of success in this industry because there are
so many competitors. The Fast-food industry can be difficult to differentiate on a single
product. Differentiation in this industry can be focused more on the atmosphere and
unique menu items. Brand and product advertisement can be key factors in becoming a
strong brand name used in households and bringing customers in the doors.
Making low operating costs for a fast casual industry will prove successful. In an
industry that has easy substitutes it is important to cut down overhead prices to make the
most from your sales. Integrating vertically could cut operating costs making profit
Location is a key success factor. Most consumers at a fast casual restaurant will
be middle or upper class. It is important to locate these restaurants near demographic
areas where many middle or upper class people can access the business. Many fast casual
restaurants try to create a third place. The location of this restaurant is important
because it should be placed in a central location where other commodities are
surrounding it. It will increase customer traffic with a good location.
6. What is the organizations mission and vision? Does it seem appropriate and adequate
for the foreseeable future?
Panera Breads Vision: A loaf of bread in every arm. They also put a lot of
emphasis on what they call Bread Leadership. Bread Leadership is Paneras desire to
make fresh quality bread for people to enjoy. Their website states: With the single goal
of making great bread broadly available to consumers across America, Panera Bread
freshly bakes more bread each day than any bakery-cafe concept in the country. Every
day, at every location, trained bakers' craft and bake each loaf from scratch, using the best
ingredients to ensure the highest quality breads. Panera Bread is widely recognized for
driving the nationwide trend for specialty breads. As reported by The Wall Street Journal,
Panera Bread scored the highest level of customer loyalty among quick-casual
restaurants, according to research conducted by TNS Intersearch. It ranked #2 among
Excellent Large Fast-Food Chains (500 or more units) and #1 Attractive/Inviting
Restaurant in that category in the Sandelman & Associates 2012 Quick-Track Study.
Panera mission to their customers is to provide quality bread because that makes a quality
meal. (Panera Bread Co, 2013)
As you can see from the mission, vision and goals listed above for Panera Bread,
they are incredibly focused on creating the best product they can for their customers.
Their focus of making quality breads and ensuring that every person in America can
experience Panera Breads top quality meals is what drives them to success. They wont
just settle for making quick and easy food, but rather they want to Showcase the art and
craft of bread making, making the highest quality bread. I think that this focus and
vision has proven to be very successful in the past will continue to drive them and keep
them at the top of their industry. Customers go to Panera bread for the fresh, quality food,
as well as the casual dining atmosphere, and I dont see either of these things changing at

Panera Bread. As long as the company focuses on continuing to develop the best product
possible, and developing new ideas that fall in line with their vision and mission, theres a
bright and successful future for Panera Bread.
7. What is the organizations business model?
Panera has a "pay what you can" type business model, they started with an
experiment in 2010, called Panera Cares, which lets customers determine themselves
what they pay for the meal they choose. The idea is charitable by nature, aimed at helping
US families that are struggling to piece together their daily bread. People who can pay a
little more are requested to leave some extra cash to support people who are short some.
The program currently runs in 3 full-concept dedicated restaurants, serving about 3500
people a week. The results so far are very surprising: 60% of the customers pay the
amount the cashier suggest them to pay, 20% pay more, and the remaining 20% pay
significantly less. Each store has been earning its keep so far, covering its own expenses.
The company generates revenues through three business segments: company
bakery-caf operations, franchise operations and fresh dough operations. The companys
bakery-caf operations segment is comprised of the operating activities of the bakerycafes, owned directly and indirectly by Panera. Their franchise operations segment is
comprised of the operating activities of its franchise business unit, which licenses
qualified operators to conduct business under the Panera Bread and Paradise Bakery &
Caf names while the fresh dough operations segment supplies fresh dough items and
indirectly supplies proprietary sweet goods items through a contract manufacturing
arrangement to both company-owned and franchise-operated bakery-cafes.
8. Which of the five generic strategies most closely fits the organization? As you
consider the typical marketing, finance, and HR activities of the organization, what are
the chief elements of the organizations strategy?
Panera Bread has a Broad Differentiation strategy. Panera Bread Company has
evaluated that in certain areas of America people are willing to pay for their unique
product. They like fast food but Panera Bread has created fast casual. They have healthier
meals and they also appeal to many different customers with their wide variety of tastes
and flavors on their menu. It is not a deli but it is a fast food service that is conscious of
the calories that they put in their food. Panera is gaining a competitive advantage by
offering goods and services that rivals cant afford to match. Panera Bread offers
handcrafted bread that is fresh daily; it is a huge advantage over other fast food
restaurants. PBC has created a home-like, comfortable environment that people enjoy. It
is a lot like Starbucks, by creating the 3rd place. While PBC might not have a 3rd place
as their main goal they try to differentiate from other fast food restaurants by creating a
comfortable environment for people to sit and have a meal with friends or work alone.
Panera offers slightly higher prices than most fast food services but the customers are
willing to pay the price for the quality. The company has proven itself to have excellent
customer service and customer satisfaction willing the trust and loyalty of many buyers.
(Gustavo, 2010) (Thompson, Peteraf, Gamble, Strickland, 2010.)

9. Perform a SWOT analysis. What does this analysis reveal about the overall
attractiveness of the situation?
There are many strengths to Panera Bread Company. They have an attractive and
appealing menu for their consumers. The menu draws in the consumers who want to eat
healthy. The company has a differentiation of Bread-baking expertise-signature products
compared to their competitors. They are also a nationwide leader in the bakery-caf
segment. Surveys have proven they have high ratings in customer satisfaction. Panera has
a positive and strong brand image partly because they have grown so much and have
many locations. They offer fresh food and good quality to those looking for a healthy
option. Panera has a catering business that they are using to increase their revenue and it
is doing well. The companys financially healthy because the have experienced growth
without debt. Revenue in 2007-2008 increased by 21.8% and their net profit in 20072008 increased by 17.4%. Panera has many franchises and maintains a strong relationship
with them to ensure alignment. Panera is trying to acquire other similar businesses like
Paradise Cafe, (bought 51% of outstanding stock of Paradise.) Customers are returning to
the establishment. Panera Rewards Cards are building customer loyalty and giving
specials to customers who are proving their loyalty.
There are a few things that PBC could try to improve on. Panera has higher prices
than rivals, which could be due to their operating costs. Panera has expanded in the past
years but the locations are concentrated geographically. They have smaller revenues
compared to rivals; this may be because of a poor balance sheet. Sales at franchise store
run higher than company owned stores, this is odd, maybe management should try to find
out why these sales are higher and try to model after them. Some of the off-site dough
preparation and delivery is producing a high operating cost.
Panera has opportunities to continue their success in the fast casual industry. They
can try to control operating costs that might be out of hand or unnecessary. The company
should consider expanding into new markets and expanding geographically, even
internationally. Products can continually be made based on current food trends. The peak
hours at Panera are breakfast and lunch, efforts could be made to attract a larger
dinnertime rush.
Threats are consistent in the industry for most establishments; these are specific
threats to PBC. Rivals are trying to imitate the menu and rivals are trying to imitate the
atmosphere. The delivery of fresh dough every day (in vehicles with temperature
control), the bread might not make it safely. While Panera offers healthy options,
current trends are calling for even healthier food than Panera. Paneras operating costs are
too high.

10. How well is the organization performing from a financial perspective? What kind of
financial health do you anticipate several years from now?
In reviewing the financials for Panera Bread they had some impressive numbers
that stood out and represented the success of the company. In their letter to investors that
was published on their website they go on to say, In 2011 with $223 million of cash on
our balance sheet and no debt. We have been able to deploy more than $400 million in

excess capital since the first half of 2010 to increase shareholder value and drive EPS.
The ration of their cash to debt is very impressive and it is definitely a driving factor in
the financial success of the business. In 2011 they opened 112 new stores, and these
bakerys averaged a weekly sale of $41,637 which is a solid number in helping pay off
the building and costs of start up quickly and upfront. What really stood out to me
however was Panera breads stock price, which is currently $162.79. Even more
impressive is how quickly this stock price per share made its jump. At the start of 2009
Panera Breads stock was around $37 dollars. In only 4 years, thats roughly a 439%
increase, which is incredibly impressive to me. They go on to expand on their emphasis
of return on investment, We believe that our strategy of increasing our store profit
through investing in the quality of our customers experience to drive differentiation and
competitive advantage, unit growth, driving operating leverage and deploying our excess
capital in high-ROI investments positions us well to continue to deliver our targeted longterm EPS growth rate of 15% - 20% annually. Judging from Panera Breads success in
their past and their goals and drive to perform well in the future, I believe that financial
success will continue to boom for them. They have high liquidity ratios and turn
impressive profits every year, not to mention the ways that their stocks have performed
which keeps investors satisfied. Not only is Panera a company that does business the
right way, the do it in a highly profitable way.

11. How well is the organization performing from a strategic perspective?

In our research we have concurred that Panera Bread is doing a very good job at
implementing its strategies. They are doing a great job at raising their companys quality
awareness in terms of their stores environment, product and exceptional services. Their
cafes appeal to higher end customers that are looking for a comfortable environment with
their dining experience. Their bakery-cafe has done this very effectively. Elements such
as fireplaces, couches, warm lighting and a quiet studious environment have propelled
Panera Bread in this category. All of their bread is baked fresh and in house as they have
been striving towards providing the best quality food and products for valued customers.
This lounge and home away from home environment is very appealing to their customers
and is one of the key factors to Panera Breads success.
They have also done incredibly well in terms of growth and expansion; their
CAGR for total revenue from 2002 to 2006 was 30.9%. However one negative that could
be seen about this is that the majority of these expansion restaurants have been franchises
rather than majorly company owned. They have room to move and continue to grow
which will surely help their performance and profits in the future, as they have showed in
the past few successful years of their expansion. Opening 123 new cafe-bakeries in 2012
alone, and 112 brand new stores in 2011. The opening of new stores is due to the amount
of cash revenue the stores has produced, while proudly being able to say that the
company has no debt.
As long as Panera Bread continues to produces exceptional quality products they
will be successful in a very tough and extremely competitive market. While we could not
find any examples or listings of Panera Breads market share they have settled them into
a comfortable niche and will look to continue to improve upon their stores in any way
they can. Companies like Chipotle, Starbucks, Einsteins bagels are the major
competition that Panera bread faces. What makes this competition interesting is the way
in which these companies vary. Einsteins focuses on bagel products while offering
breakfast sandwiches and coffee, Starbucks focuses on coffee products while offering
breakfast foods and a small selection of baked goods. Chipotle focuses its resources on
providing burritos and Mexican food. Panera has an instant advantage over all of these
companies as they offer quality baked breads, soups, sandwiches, salads as well as
beverages. They also offer the coffee shop environment, which is very appealing to many
who are looking for quality food and a studious environment. While growth is a plus it is
important for them to ensure that company values and culture can remain in their
franchised locations.
12. How well is the organization implementing its chosen strategy?
Broad differentiation strategies depend on meeting customer needs in a unique
way or creating new needs, through activities such as innovation or persuasive
advertising. The objective is to offer customers something that rivals cant or at least in
terms of the level of satisfaction. There are four basic routes to achieve this objective.
The first is to incorporate product attributes and user features that lower the
buyers overall costs of using the company product. Panera does not follow this route
effectively because they have high operating costs forcing them to increase or continue to
sell their products at a high price compared to their rivals. In FY2009, Panera Bread's

revenues reached $1.35 billion, a 4.1% increase over its FY2008 revenues, while net
income rose 28% to $86 million. Operating margins have increased by over 1% for each
of the last seven quarters, with FY2009 operating margin reaching 10.4%.[3] Comparable
bakery-caf sales growth increased by 0.5% overall in FY2009. However Paneras
operating income has struggled and hasnt been very consistent through the years and has
resulting in the increase of prices (Wikinvest). However with all this being said, Panera
has still been able to turn a profit and manage to work without much if any debt even
while they have been steadily expanding. If they can begin to manage and start to hedge
their operating expenses they will be able to see an increase in their operating income,
meaning more profits and a stronger bottom line.
The second route is to incorporate tangible features that increase customer
satisfaction with the product. Panera is doing a great job executing this route. Panera was
the leading free Wi-Fi provider in 2006-2007. They offer a the third place environment
to customers.
The third route to a differentiation-based advantage is to incorporate intangible
features that enhance buyer satisfaction in non-economic ways. Panera has created a
strong brand image that puts them ahead of other bakeries and cafes. They also are
helping the community with their programs in that affect the local communities.
The last route is to signal the value of the companys product offering to buyers.
Panera follows this route to differentiating themselves the closest. They signal the values
of Panera with a high price, which implies high quality of food.
Panera also promotes a strong emphasis on customer service, brand management,
and the use of technology in their cafes. These things support differentiation from rivals.
The company is successful because buyer needs are great. There is a very large and
diverse population of people that buy from Panera Bread. The products have many
options and ways to differentiate it and they all create a value to the customer. Currently,
there are not many rivals that are offering exactly what Panera offers. Panera is one of the
only fast-casual restaurants. Panera has plenty of rivals in the food/restaurant industry
but there are not many that are trying to replicate Panera Breads differentiation strategy.
Panera is also trying to increase the use of technology in their cafes to create an even
greater advantage in the market (Thompson. , Peteraf, , Gamble, , & Strickland, 2010).
13. What recommendations do you have?
We have a few recommendations that can further Paneras growth. I have noticed
in past years, that Panera has become more of a restaurant than just offering high variety
of baked goods. We think that they need to go back to their focus on bread. That made
them unique before, and Panera should try to incorporate that into every meal. By doing
this, Panera wont be another high-end caf competing with Starbucks.
Another thing that we think that Panera could do, instead of making their dough at
bakeries, Panera makes their dough at their stores. This could eliminate the middleman,
and possibly eliminating excess materials in the process (including a reduction in
transportation costs). For some companies, anything that helps the bottom line is a good
Panera doesnt really market itself as a whole. When was the last time you saw a
Panera bread commercial and remembered it? Right now, Panera advertises itself as a
franchise standpoint, where they should market themselves as a Company standpoint.

Providing people with the basic knowledge behind Panera. Going along with the
marketing focus, we believe that they should target students, for later hours. Marketing to
them that they have free Wi-Fi, could bring in extra customers.
The catering business is becoming more popular within the food industry. We
think that if Panera Bread opens their business to catering discounts for schools and
workplaces. This will allow them to get their brand out there to a significant amount of
people at a time.
Finally, I think that they should apply dinner specials so that more customers
come in during that time; this would be to increase sales during dinner times. Another
idea is for online ordering, for the customers on the go. This way they can have a higher
turnover rate when it comes to waiting in lines.
Every case is unique, so a common outline may not provide space for very
important observations. Please include those here. Thanks!
Panera Bread was born in 1981 as the Au Bon Pain Co. Inc. founded by
Louis Kane and Ron Shaich. The company bought the St. Louis Bread Company. Panera
dominated the bakery-cafe industry during the 1980s and 1990s. The headquarters are in
St. Louis. 1999 was a monumental year for Panera because it transformed and expanded
into a national restaurant and Au Bon Pain sold all its other chains including Au Bon
Pain. Panera has expanded itself across the country and even internationally. There are
1652 company-owned and franchised stores in 44 states. Internationally, Panera has
opened stores in Canada. Panera Bread owns Saint Louis Bread Company and Paradise
Bakery and Cafe. Ron M. Shaich is Chairman of the board and co-CEO and William W.
Moreton are President and co-CEO.
Panera Bread created Dough-Nation in 1992 to formalize its commitments
to community involvement. Dough-Nation has four different categories that can help the
community; Community Breadbox cash collection boxes, the Day-End Dough-Nation
program, Panera/SCRIP Card fundraising, and they participate in community events. The
Day-End Dough-Nation program gives the unsold bread and baked goods to local food
banks, hunger relief, agencies and charities. Panera Bread roughly donated a retail value
of $100 million worth of bread and baked goods to people in need. Panera also created a
non-profit organization called Panera Cares these sites in Portland, Chicago, St. Louis
and Boston help approximately 3,500 people per week. (Panera Bread Company
Panera has really adapted to trends in America. The fight to end obesity is
getting a lot of publicity. Healthier options have been offered at Panera than other fast
food restaurants. Panera was the first restaurant to post calorie information voluntarily.
This gave them an advantage above other fast healthy substitutes because it helps address
the nutritional value of the options offered at Panera. It makes it easy for people who are
trying to be health conscious.
Panera also offers free Wi-Fi, which is helpful for creating a third place.
Panera Bread, in 2006-2007 was the largest free Wi-Fi provider in the United States. The
third place is very popular in the busy society of Americans. A third place is basically
creating a second home for people. It is a place where a person can sit down for a
while, have a meeting with a friend, or a group, surf the web and also be a comfortable
environment to read, relax or enjoy a meal. Panera has successfully created a third place.

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