Abstract
Panera Group is an organization that is involved with the bakery and delivery of fresh dough products. The company also runs restaurants that sell fresh products to its clients. Since its establishment, the company provides high quality fresh products.
Due to its competitive advantage in quality and freshness of the products, the company charges high prices leading to its revenue growth. The growth in revenue enabled the company to increase its operation in other regions by establishing new units. This study examines the strategic options for the company to grow and expand after analyzing its strengths and weaknesses.
Synopsis
Every organization usually aims at profit maximization and cost minimization. Panera Bread Corporation also has similar objectives in addition to providing high quality fresh dough products to its clients. The company realized increased profit consecutively since 1997. Due to increased revenue, the company diversified by establishing new manufacturing and distribution units in the year 2000.
Due to the legal and policy uncertainties in the year 2000 following political environment, the diversification of the company took longer than thought. However, the long diversification process led to a reduction in the revenue earned by the company with the company realizing only 9.1% and 12% growth in annualized unit volumes and sales revenue in the year 2003.
The analysis of the company reveals that it operates in a highly competitive industry. The company strength of fresh high quality products has enabled the company effectively compete with its competitors.
The company sells its products in outlets including restaurants. However, there is an opportunity for the company to reduce operating costs by using e-commerce and door-to-door deliveries. This approach can enable the company venture into low and middle-income regions. Such strategy will reduce its threats and further improve its gradually reducing revenue.
Company overview
Panera Bread is a Bread company that is based in Missouri. Ken Resenthal established it in 1987 under the name Saint Louis Bakery. The company began trading its shares publicly in 1993 while in 1998 it changed its name to Panera Bread. Apart from bread, the company also bakes other fine bakery products using fine and high quality and pure ingredients.
“Neighborhood bakery” concept is utilized by Panera Bread to measure the level of freshness of bread by the hour. The company is dedicated to high quality production that indicted by high quality baked products. The company participates in corporate social responsibility to the community by giving to the needy the unsold products.
Current Situation
A current Performance
The current position of the bank is not good due to its reducing sales revenue that arises from the low demand of the company’s products. Despite the expansion of the company’s new units, the firm has realized reduced growth in annualized growth volumes and sales when compared to other years. For instance, the increase in the annualized unit volumes and comparable sales increased by only 9.1% and 12% respectively in the year 2000. The performance of the company improved in terms of revenue and profit as indicated in the figure below.
Strategic posture
Mission
The mission statement is “A loaf of bread in every arm” (Panera, 2006, p. 2). The mission is not inclusive because it leaves out its employees in their operations in the bakery.
Objectives
The objective of the bakery is “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” (Shaich, 2003, p. 11).
Strategic managers
Board of Directors
The company has a classified board of directors that is divided into three classes that have equal number of directors. Currently, the company has five members of board of directors that are divided into three classes.
They are “Domenic Colasacco and Robert T. Giaimo, with terms ending in 2003; George E. Kane and Larry J. Franklin, with terms ending in 2004; and Ronald M. Shaich, with a term ending in 2005” (Shaich, 2003, p. 15-20). The shareholders do elect the new directors of the company at each annual general meeting for a full term period of three years.
Top Management
The top management of the company makes decision in consultation with the board of directors. The top management acts as a strategic organ of the company because it strategically makes strategic decision that lead to the improvement of the performance of the company (Wheelen & Hunger, 2010, p. 29-1).
Ronald M. Shaich, who is also a member of the board of directors, leads the top management. The executive Vice President of the company Paul E. Twohig and senior vice presidents heading different departments in the company assist the director. The management is very experienced in business and is responsible for the growth of the company (Wheelen & Hunger, 2010, p. 225).
External Environment
Natural Environment
The natural environment of Panera Bread is based on bread that is baked freshly using natural yeast, flour and water. In order for the company to be successful, the preparation and maintenance of the yeast is a key factor to providing a good product to customers. The yeast must be cultured fed and tended to by the attentive hands of master bakers.
Therefore, if the yeast is not properly maintained the process will slow down and die, and the bread would not rise (Wheelen and Hunger 29-1). Another part of the natural environment is the casual atmosphere that Panera Bread provides for its customers. Panera Bread provides a coffee shop style environment that invites an upscale décor, wireless internet, and a place to meet casually or for business.
Panera Bread delivers its dough products fresh within the most favorable distribution distance radius of 200 miles. However, weather makes the work of distributing the company’s dough products difficult to stores located in regions that experience bad snowstorms.
Societal Environment
In terms of Panera Bread’s societal environment, there are a number of factors involved when it comes to economics, technological, political-legal and socio cultural. The company strategically builds its facilities in affluent populations thus making it attracting to customers who are willing to try different tastes and styles without the worry of paying more (Wheelen and Hunger 29-4).
Panera Bread Company uses state of the art computer hardware and software that collects data and tracks marketing information, the average spending of each customer and product mix (Wheelen and Hunger, 2010, 29-15). The company also embraces the concept of meeting the dining needs of its customers by providing breakfast, lunch, daytime “chill-out” lunch in the evening and take- home bread (Wheelen and Hunger, 2010, p. 29-3).
Political and legal environment for the company are related because most legal regulations are influenced by politics. The uncertainty in legal and regulation policies surround the operations of the company. Political and legal policies uncertainty affected the growth and expansion of the bakery.
For instance, general elections in the year 2000 led to uncertainties in policies that the new political administration will formulate and implement hence slowing the expansion of the company. The social cultural environment for the company affects the operations of the company. Since consumers desire goods that are advertised on TV, the company incurs high expenses on TV adverts and promotion of its products.
Task Environment
Panera Bread’s task environment attracts a variety of customers such as movie- goers, shoppers, seniors, business and sales professionals (Wheelen and Hunger 29-3). The menu offers the expertise and strength of the company’s bakery by proving quality soups, made to order sandwiches and beverages (Wheelen and Hunger 29-9).
Although the company does very little advertising, the company relies on customers to stop in and try them out. No new entrants can be compared to Panera Bread. However, there are competitors who offer something similar with specialty foods and casual dining (Wheelen & Hunger, 2010, p. 109).
Internal Environment
Situation Analysis (SWOT)
Ronald Shaich started the Cookie Jar in 1980, which grew into a joint venture with Louis Kane and eventually became Panera Bread Company (Wheelen & Hunger, 2010, p. 29-2, p. 197). At the time the company went public it would have been considered a divisional structure (Wheelen & Hunger, 2010, p. 29-2, p. 147). As it sold off Au Bon Pain Co, it became more of a functional structure (Wheelen & Hunger, 2010, p. 29-2, p. 147).
Panera Bread’s corporate culture seems to be very good and not anything was said against it. Panera is very dedicated to human resources management and holding a strong professionalism within the company (Wheelen & Hunger, 2010, p. 29-16). Important is how the employees feel and treat the customers that can set the mood for an entire company.
Panera Bread has a lot going for them in the way of resources. As a very important resource, they have their CEO Ronald Shaich and their master artisan baker Mile Marino (Wheelen & Hunger, 2010, p. 29-1, p. 29-13). Ronald Shaich started it all with a phenomenal recipe that grew like wild flowers (Wheelen & Hunger, 2010, p. 29-1). Mile Marino has been with the company since 1987 and he manages the company’s fresh dough baking operations (Wheelen & Hunger, 2010, p. 29-13).
The second resource that Panera has is the franchise operations. Having a successful franchise operation can make the company grow faster along with bringing in a percentage of sales from all the stores (Wheelen & Hunger, 2010, p. 29-11). As of 2003, there were 429 franchised bakery-cafes open and commitments to open up another 409 (Wheelen & Hunger, 2010, p. 29-11).
The third resource that Panera has is the management information system. All the Paneras have computerized cash registers, but they give a lot more information than most businesses (Wheelen & Hunger, 2010, p. 29-15). These systems can do many things, such as help with cost managing, scheduling
Strengths
The first strength of Panera Bread Company lies in its corporate resources. The company has skilled leadership that has ensured its success in not only baking high quality bread and dough products, but also financial performance (Wheelen & Hunger, 2010, p. 42).
Through his leadership, Shaich has led to the development of the competitive advantage of the company in sourdough that enables the company produce and distributes fresh dough products. Using its corporate strategic resources, the company has been able to provide its clients with fresh high quality dough products. Not all companies are able to do that and it has enabled the company to increase it market share.
The second strength of the company is the ability of the company to frequently change its menu in the restaurants to fit into consumer taste and preferences. Panera Bread changes its menu frequently to suit the changing taste and preferences of the consumers. Through this strength, the company has been able to maintain a large number of loyal customers.
Weaknesses
The first weakness of the company is high prices that are charged to its fresh products. The company offers fresh bread and dough products daily to its customers. When it is compared with its competitors that offer organic food products, the company sells its products at higher prices. The high prices that are charged by the company are not favorable to some middle and low-income clients. Additionally, the prices of food products in Panera restaurants are higher than its competitors are.
The second and major weakness of the company is the incompetence of the company in research and development. Although there are limited field of research and development in the industry, the company does not have established department in charger of research and development or innovation.
Opportunities
The company has its first opportunity as diversifying its product mix. This is because it has a diverse culture of consumers who are capable of meeting the company’s price demands without any doubts.
Since the company conducts market research on consumer taste and preferences, it should utilize the report to produce substitutes for specific customer segments. Additionally, the company operates restaurants that offer expresso bar drinks. It should exploit the opportunity of extending its options and offer a variety such as syrups that are sugar free (Wheelen & Hunger, 2010, p. 278-80).
The second opportunity is establishment of international franchise agreements. The company has succeeded in establishment of franchise business. By internationalizing using franchise business, the company will be able to operate in international markets and be able to improve its financial performance further through increased international outlets.
Threats
The first threat facing the Panera Bread is the threat of rivalry from the company’s competitors in the industry. The competitors include Starbucks Corporation, Chipotle Mexican Grill Inc. and Eighnstein Noah Rest Group. The competitors are very aggressive and the company must keep up with the pace on competitiveness in order to maintain its position in the market. The competitors pose a threat to the existence of the company (Wheelen & Hunger, 2010, p. 110-114).
The second threat to the existence of the company is the threat of new entrants in the industry. Due to the free entry and exit in the industry, new entrants have entered the industry leading to market saturation (Wheelen & Hunger, 2010, p. 110-11). Any person or organization with enough capital can establish a restaurant. The advantage of new restaurants is that customers are willing to try them while looking for a variety of meals. Panera competes with new entrants in the industry by providing a variety of meals to its clients.
Review of Current Mission and Objectives
The current mission statement of the company is not effective because it does not reflect the actions and needs of the entire organization. The mission statement does not spell out the organizational culture of the firm especially with in relation to its employees. However, the mission statement is successful in enabling the company achieve fresh delivery of dough products to its clients.
Strategic Alternatives and Recommended Strategy
Strategic Alternatives
The first alternative strategy for the firm is to utilize its internal strength of a strong corporate culture. The company has a very strong corporate structure that is promoted by the management. Using such a culture, the management should increase communication and teamwork. Promotion of teamwork in the company is important because it increase employee performance and strengthen the returns of the company on assets and investments (Wheelen & Hunger, 2010, p. 29-16).
The company ha san alternative strategy of offering substitutes to its clients. Most customers do conduct their meetings in offices rather than in restaurants. The company has established new conference rooms that offer clients a better environment for meetings compared to their offices. In addition, meetings held in the restaurant conference rooms are accompanied by high quality coffee provided by the company restaurants.
The external environment offers the opportunity of franchising to the company. The company should use the franchising opportunity to venture into other countries especially in Europe. Through franchising strategy, the company will be able to reduce operating costs by economies of scale and economies of scope (Wheelen & Hunger, 2010, p. 278-80).
Recommended Strategy
Panera Bread Company is known for the quality of its products. In order to sustain its continued high performance, the management of the company should pursue the diversification strategy. Diversification and integration will ensure growth and expansion of the company while maintaining high revenue as before. Outsourcing is another important strategy that will lead to reduced costs for the company. The company uses wheat and other resources that are used in production.
Sourcing goods from countries such as China where goods are produced cheaply is an option that should not be ignored. The simplification of the company product through value engineering is important for the management because it will reduce operations costs and maintain high quality fresh dough products. Additionally, the company can overcome the competitiveness pressure by producing substitutes to its competitor products (Wheelen & Hunger, 2010, p. 278-80).
Implementation
The above strategies are formulated by the top management of the company and are implemented by the entire workforce in the organization. The management should work with their subordinates to implement the strategies. The success of the implementation depends on the level of communication in the firm.
High level of communication ensures that the management is able to issues instructions to their juniors and their juniors are able to seek clarifications where instructions are not clear. Through high levels of communication in the company, the management can involve their subordinates in formulating policies and programs that will lead to successful implementation of the outsourcing, diversification and integration strategies (Wheelen & Hunger, 2010, p. 272).
Fiscal year 2011 – Panera Bread will begin the implementation of its strategy. The company should begin by market analysis on the cultural diversity of its market and the changes in tastes and preferences. Panera Bread has an active marketing team that collects market consumer information. The team should take a six months survey on the consumer tastes and preferences and the necessary changes required in the firm. The survey findings should be evaluated a plan made to execute the changes.
Fiscal Year 2012 – in this fiscal year, Panera Bread should utilize the market survey and strategic plan to launch new products. The new products should be included in the new menu of the company.
In the course of the year, the company should monitor the performance of each of its outlet units and the recommendations made at the end of the year. Additionally, the company should establish substitutes to its competitors especially the new entrants in the industry. The substitutes can include establishment of conference rooms in its restaurants to pull clients from holding meetings and conferences in offices.
Fiscal year 2013 – the company should close down poor performing outlet units and open new outlets in new strategic markets identified through the market survey. The closure of the poor performing units and their replacement of new high performing units will lead to increased financial performance of the company.
Fiscal Year 2014 – following the increased revenue in the prior year resulting from new ventures and closure of poor performing outlet units, the company should use the earned revenue to set up a research and development center.
The research and development center will supplement the market surveys by carrying out research in food varieties to be provided by the company in the restaurants. The segmentation of the market will help the R&D section to provide food variety to specific market groups such as the diabetic and people with specific needs.
Fiscal year 2015 – the company should continue monitoring its outlets while re-evaluating its pricing strategies. Given the company’s customer loyalty, the company should seek possible mergers and acquisitions even as it evaluates its entire operations.
Evaluation and Control
We are confident that our suggestions for Panera Bread will exceed expectations. However, in order to maintain the successes this strategic plan will bring, Panera Bread must monitor its progress and quickly move to resolve any issues that may arise. The company should use a balanced scorecard to evaluate how its customers and shareholders view it.
Some traditional financial measures such as Return on Investments (ROI), Return on Equity (ROE) and net earnings should be used to measure its financial performance. This form of evaluation monitors Panera Bread’s activities in terms of overall strategy and vision. It also gives the top management a balanced view of its organizational measures of service delivery, operational efficiency and financial performance.
The balanced score card should be measured by a set up team by the firm. The team will be able to provide feedback of internal business processes and external outcomes in order to improve strategic performance and results. The balanced score card is the best method for Panera bread because it includes necessary feedback of the customers of Panera Bread. Ultimately, if customers are not satisfied, they will find other retailers that will meet their needs.
References
Panera, (2006). Panera Bread Conmpany: 2006 Annual Report. Web.
Shaich, R. (2003). Panera Bread Company 2006 Annual Report to Stockholders. Web.
Wheelen, T. & Hunger, D. (2010). Strategic Management and Business Policy Achieving Sustainability. 12 Ed. Prentice Hall.