After Au Bon Plain Corporation was sold off, Panera Bread Company found it easy to fund the expansion of its company-owned bakery-cafés and franchise-operated bakery-cafés across the United States in order to be one of the leaders in the quick-service restaurant industry.
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Panera Bread Company has endeavored to scrupulously formulate and apply appropriate strategy in order to achieve the objective of being one of the leading quick-service restaurants in the country.
The company has over the years specialized in the provision of freshly baked breads, soups, salads, custom roasted coffees, among other café beverages. The following briefly explain these strategies:
- Divesting Au Bon Pain as a subsidiary of Panera Bread Company with an aim of reserving more resources and focus them on the achievement of the objective.
- Providing a premium specialty bakery and café experience to its customers by specializing on freshly baked breads, soups, salads, custom roasted coffees among others.
- The right choice of target market, urban workers and suburban dwellers, which is appropriate given its core business activity.
- The three-pronged expansion approach: company-owned bakery-cafés, franchised bakery-cafés, and bakery-café supply chain facilities.
- The right choice of site location and signature café design that gives the entire dining experience.
Alternative courses of action
Panera Bread should pursue cost leadership strategy by implementing target costing pattern of reducing production cost and pricing appropriately. Secondly, it should fully adopt bakery-cafés supply chain without limiting it to the production of fresh sourdough.
The company should maintain its competitive advantage with regard to proper and seasonally revised menu, signature café design and ambience. Moreover, it should expand its niche market and include other potential customers other than urban workers and suburban dwellers. Joint ventures or mergers are also important especially with fast-service restaurants.
The implementation of these strategies lies with middle-level managers and departmental heads owing to the nature of the strategies. Panera Bread has a rather solid financial base and the allocation of finances to the strategic business units should be based be based on Igor Ansoff’s model.
Panera Bread Company specializes in the running of bakery-cafés and it positions itself by providing quality and freshly baked breads and other bakery products to its customers across the United States.
The products and services rendered by the company are tailor-made for urban workers and suburban dwellers who require quick-restaurant services. Given the high quality products and services that the company provides, Panera Bread was rated among the best 121 competitors in the quick-service restaurant industry by Sandleman & Associates in 2005 (Thompson, 2007, p. 2).
This success is attributed to Ron Shaich’s wisdom to divest Panera’s subsidiary, Au Bon Pain Corporation in order to allow Panera Bread marshal its resources toward becoming one of the leading fast-casual restaurant chains in the country.
The management adopted a three-pronged approach to its expansion strategy by operating company-owned bakery-cafés, franchise-operated bakery-cafés, and a bakery-café supply chain facility that guarantees the quality of fresh dough used in all Panera outlets.
In the outlets, the company adopted a uniform provision of specialty bakery and café experience in the form of artisan sourdough breads made with craftsman’s attention to quality and detail.
It specialized in freshly baked breads, soups, salads, custom roasted coffees, among other café beverages. Consequently, the company’s competitive advantage was distinctive menu, signature café design, inviting ambience, operating systems, and unit locations. It could thus compete in five submarkets of the food-away-from home industry (Thompson, 2007, p. 3).
Shaich’s wisdom had been adopted as the company’s long-term objective and the above strategy “was to make Panera Bread a nationally recognized brand name and to be the dominant restaurant operator in the specialty bakery-café segment (Thompson, 2007, p. 3).
The management further introduced Panera fresh catering to extend its market to workplaces, schools, parties, and home gatherings. Moreover, its marketing strategy focused on the competition based on providing an entire dining experience, not on lower pricing only.
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The management thus projected to expand the number of Panera Bread locations by 17% annually through 2010 and achieve 25% growth rate of earnings per share annually.
In fact, according to the selected statistics of the company (2000 – 2006), its financial returns were impressive and expansion both by company-owned units and franchised ones, were equally progressive and consistent with the objective.
Panera Bread Company seems to be operating its business smoothly toward the achievement of its objective as one of the leaders in the quick-service restaurant industry in the U.S. The company’s CEO, Ron Shaich managed to convince the board of Au Bon Pain Corporation, then a subsidiary of Panera Bread, to divest the business in order to reserve some resources for the implementation of the strategy.
This was an important step that facilitated the expansion of the business through establishing more company-operated as well as franchise-operated units in target market. Furthermore, extra finances was used by the company to enhance its menu and start providing all round meals apart from the casual/quick-service baked food (Thompson, 2007, p.13).
The concept used by the company enables it to provide a premium specialty bakery and café experience to its customers. It specializes in freshly baked breads, soups, salads, custom roasted coffees et cetera.
The company’s chosen target market, urban workers and suburban dwellers, is appropriate given its core business activity. The rationale is that these customers are busy and in need of quick service meal and an exquisite dining experience.
However, the company should not pursue this crop of customers only if it has to be the leader in the industry for this will limit its customer base in the long run and curtail the achievement of its objective.
Product and service positioning of Panera Bread is excellent for it helps attract customers to the outlets. The distinctive menu that consists of freshly baked food, whole grain foods, and a variety of foodstuffs; the signature café design and cosy ambience; the operating system, et cetera, are strategy that define this positioning.
The positioning was encapsulated in the CEO’s speech during the 2005 annual report: “…it’s our Product, Environment, and Great Service (PEGS) that we count on to deliver our success…” (Thompson, 2007, p. 3). Panera Bread has made PEGS its competitive advantage in the industry and has therefore, attracted more diners in its nationwide outlets.
Panera Bread adopted a novel strategy toward expanding its market share by rolling out a Panera fresh catering program. Through it, the company is able to access the untapped markets in workplaces, schools, parties, and home gatherings.
The ambassadors of the company take Panera’s core business activities outdoors to these places with a bid to win their loyalty to the brand. The strategy of market penetration is good for a company that targets the top position in a country’s restaurant industry. Moreover, Panera’s marketing strategy designed to incorporate PEGS, in addition to low pricing is a plus for the company.
In tandem with the strategy is the company’s policy on site selection and café environment, which should be within the target market and exquisite enough to reinforce the ‘entire dining experience’ marketing strategy (Thompson, 2007, p. 8).
The three-pronged approach that Panera Bread has adopted as an expansion strategy is commendable. It facilitates its growth by operating company-owned bakery-cafés and through franchising, which has been the company’s key component of market penetration.
Given the importance of franchise operation to the company, the management has established stringent criterion for selecting franchisee candidates. The criterion ensures that the franchisee adheres to the standards provided by Panera Bread Company both in terms quality and pricing of its products and services.
Franchising enables the company to get more revenues, paid in form of royalties of about 4% – 5% on sales and a franchise fee of $35,000 per bakery-café; and at the same time expand its customer base. By 2006, the company was in agreement with a total of 42 franchise groups spread in 54 markets in 34 states and were committed to opening 423 additional franchise-operated bakery-cafés (Thompson, 2007, p. 9).
To cut on cost and ensure standardization of fresh dough in all its stores, Panera Bread established a bakery-café supply chain with a network of 17 regional facilities supplying fresh dough to both company-owned and franchised bakery-cafés.
This backward integration is not only economical to the company, but also an aspect of competitive advantage. The latter is achieved through consistent quality and dough-making efficiency by the facilities.
The management reckons that it is far much cheaper to dedicate the production of dough to a few facilities rather than having each bakery-café perform the activity. Besides, the revenue generated by the facility adds to the profitability of the company-run bakery-café segment of the business (Thompson, 2007, p. 11).
From the foregoing discussion, it is evident that Panera Bread Company is scrupulous with its strategy of achieving market leadership objective. However, it faces a somewhat daunting task of outsmarting all the dominant players in the restaurant industry such as McDonald’s, Burger King, Taco Bells, among others.
In other words, competition is rife in the industry and Panera Bread must polish its strategy to counter it. The fierce competition in the industry has thrown competitors to adopt differentiation strategy, by lower pricing, location and ambience, convenience, seasonal menu sensitive to consumers’ frequently changing tastes, et cetera.
According to the report, the industry is lucrative with total forecast sales of about $511 billion in 2006 yet still growing at the rate of 5% per annum (Thompson, 2007, p. 12).
Porter [Michael] would easily attribute this cutthroat competition to the industry growth and since Panera Bread does what everybody else is doing, it is high time it changed tact (Analoui & Karami, 2003).
For instance, it can incorporate in its current business line, fast-casual restaurant services in order to close the gap with its closest rivals and have virtually ‘everything’ in the industry under one brand: Panera Bread.
Alternative Courses of Action
Panera Bread can try cost leadership strategy and further differentiate its products and services to distinguish itself from the rest of players in the industry.
Cost leadership comes with proper target costing measures that will substantially reduce cost of production. The company has partly employed backward integration strategies insofar as acquiring fresh dough is concerned, nevertheless it ought to extend the supply chain strategy to all supplies the way McDonald’s does (Defee, Stank & Esper, 2010).
Business process re-engineering will enable Panera Bread to eliminate the non-value adding activities in the business process with a view of achieving the target cost.
The company has a considerable strength in franchising segment of its business, which has made it expand its market share. To be able to achieve fully its objective, Panera Bread should try joint venture strategy or mergers with fast-casual restaurants to stand out from the rest in the industry.
The combination of company-owned bakery-cafés, franchised bakery-cafés, holistic bakery-café supply chain facilities, and joint ventures incorporated with excellent management will guarantee the achievement of the CEO’s vision of Panera Bread acquiring market leadership position.
Besides cost leadership strategy, holistic backward integration, and forming joint ventures/mergers with fast-casual restaurants, the management at Panera Bread Company should revise it marketing strategy.
The niche marketing that it pursues is proper but it should expand the segment beyond urban workers, suburban dwellers, catering facilities. For instance, it can open its outlets around airports and subway stations to cater for the culinary needs of travelers, which is a relatively big market.
It should maintain the delivery of quality fresh sourdough as well as the signature café design and ambience and make its business consistent with PEGS.
Revising the menu is also recommended owing to the changing lifestyles that Americans lead, which no doubt affects their eating habits. The company must therefore endeavor to satisfy the diverse but changing needs of its customers. The introduction of whole grain food products by the company is a commendable step toward satisfying customer needs.
All the alternative courses of action and recommendations form part of business and operational strategy to be handled by middle-level managers and departmental heads because they are geared toward gaining competitive advantage.
Consequently, resources should be allocated to the strategic business units as per Igor Ansoff’s growth matrix (Barrow & Molian, 2005, p. 176). Given the company’s financial statistics since 2000, it has the capacity to fund the implementation of these strategies.
Analoui, F. & Karami, A. (2003). Strategic management in small and medium enterprises. New York, NY: Cengage Learning EMEA.
Barrow, C. & Molian, D. (2005). Enterprise Development: The Challenges of Starting, Growing and Selling Businesses. New York, NY: Cengage Learning EMEA.
Defee, C.C., Stank, T.P. and Esper, T. (2010). “Performance implications of transformational supply chain leadership and followership” International Journal of Physical Distribution & Logistics Management. 40(10): pp. 763-791.
Thompson, A. (2007). Case 8: Panera Bread Company. The University of Alabama.