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Panera Bread Business Case Study

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Updated: Dec 22nd, 2019

Company Background

Founded in 1981 by Ron Shaich and Louis Kane, the famous Panera Bread Company started operating under the brand name Au Bon Pain Co. Inc. It first grew along the United States’ east coast before it was internationalized between early 1980’s to 1990’s.

This immense growth had the implication of making the company a dominant business operator in the category of bakery-cafe. In 1993, Au Bon Pain Co. Inc. bought St.Louis Bread Company. At the time of this acquiring, St.Louis Bread Company had 20 bakery cafes. In 1993 to 1997, the company recorded an increment of 75 percent in its mean unit volumes.

This prompted the alteration of the brand name from Au Bon Pain Co. Inc. to Panera Bread Company. In 1997, the Panera Bread Company recognized its capacity for growth to become a leading bread maker in the United States. However, to achieve this noble potential, heavy investment of monetary resources was required.

Indeed, in 1999, the company completed a transaction involving a sale of the business units of Au Bon Pain Co., Inc. only remaining with those of the Panera Bread Company. With regard to Panera Bread, after the completion of this transaction, “the company’s stock has grown thirteen-fold, and over $1 billion shareholder value has been created” (Para. 5).

The company acquired the title of the best performer under the category of restaurants with 1, 5, and 10-year shareholders’ returns. Later, in 2007, Panera Bread Company also purchased paradise bakery and cafe. As Panera Bread points out, “in March 2012, the company announced that Bill Moreton and Ron Shaich would both assume the roles of chief executive officers” (Para. 2).

Currently, Shaich acts as the co-CEO and the chairperson of the board of directors. On the other hand, Bill Moreton is the co-CEO and the president of Panera Bread Company. As at September 2012, the company had established business presence in 44 states where it operated 1,625 bakeries.

SWOT Analysis

SWOT analysis involves strategic planning approaches engineered to evaluate strengths, limitations, and opportunities without negating threats that businesses face in their operation environment. Strengths are the traits that make it possible for an organization to have an advantage in comparison to other organizations.

For the case of Panera Bread Company, the strengths include appealing and attractive food menus that comprise a variety of products from which customers can choose. According to Panera Bread Company Quarterly Report on Form 10-Q, these products include “fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other complementary products” (10).

Due to the company’s strong financial position, it has managed to invest in cozy cafes, which create a smoothing environment for the customers. This has the impact of making the company build a strong customers’ experience.

The strength is implied in the company’s statement of goals, missions, and aims in which it stipulates that the central goal is to ensure that Panera Bread Company is the first choice of all customers who crave for sandwiches, soup, and salads. In addition to these strengths, the company has an enormous distribution ability covering a large geographic area (44 states as of Septembers 2012).

It has products having relatively better quality while compared to its competitors. It has differentiated its services with the rival companies besides accumulating customers’ beliefs that the company stocks fresh breads. Besides, it has developed a powerful and winning business strategy. Amid the above-cited strengths, Panera Bread Company encounters some weaknesses.

These include the traits of Panera Bread Company that place it at a disadvantage in comparison with rival companies operating in the same industry. One of the weaknesses is the heavy investments in bread centric line of business, which means that Panera Bread Company has a narrow product line.

Other weaknesses are higher prices at the company-owned stores in comparison to the franchises, declining customer service, and customer preferences. In particular, alterations of preferences and customer tastes may make them consider opting for buying more nutritious food items in other restaurants.

Contextualization of this weakness introduces some chances that the company may consider as existing external chances, which, while utilized, may make it improve its performance. They include international expansions and opening of new outlets to tap the growth potential within the suburban markets.

The fact that the company has a weakness of narrow product line introduces an opportunity for introduction of new items in the product line. On the other hand, Panera Bread Company encounters external chances that impair its performance. These are threats to the operation of the company.

They include lawsuits, government regulations, and competition from rival companies such as Sturbucks and Mc Donald among other local and international restaurants offering fast foods. In the context of lawsuits and drawing from Panera Bread Company Quarterly Report on Form 10-Q, the company admits that it is “subjected to other routine legal proceedings, claims, and litigations in the ordinary course of its business” (10).

This requires heavy commitment of financial resources and management attention. Saturation of the market creates another incredible threat. The company would encounter challenges in getting strategic places for opening new outlets consistent with its strategic plan of enhancing profitability through rapid expansion.

Strategies to attack major problems faced by Panera Bread

Panera Bread Company encounters several problems in the derivation of its strategic plans to enhance a continuous growth in an environment that is saturated by a variety of companies offering similar or substitute products. One of the problems of the company is that it offers products in its company-owned stores at prices that are higher than the franchises.

A significant reason for these differences is the need to gain higher profit margins to cater for the costs of running the business-associated issues that are extrinsic from the control of the company such as the cost of settlement of lawsuits filed against the company by past employees.

For instance, in 2009, Nick Sotoudeh filed a case costing the company 5 million dollars in its settlement (Panera Bread Company Quarterly Report on Form 10-Q 2 4). In 2010, Corey Weiner, Caroll Ruiz, and Denarius Lewis filed another case against the company costing 1.5 million dollars in its resolution (Panera Bread Company Quarterly Report on Form 10-Q 2 4).

To meet this cost to ensure that Panera Bread Company is able to offer bread at its own stores at competitive prices, it is crucial that the company results to intensive growth. On the positive side, growth is vital since it will provide the necessary economies of scale. This means that the company will remain profitable amid making small profit margins for every product sold.

The negative side of this strategic move qualifies as a technique of enhancing growth such as forming joint ventures with other big competitors such as McDonald who will deprive the company of its executive control power. Panera Bread Company is likely to experience the problem of reduced profitability due to narrow product lines. To resolve this problem, it is crucial that it focuses on widening its product lines.

This strategic move will, on the positive side, help in drawing more customers to its stores. Hence, the revenue will also hike. On the other hand, the strategic move will increase the logistical costs and other costs associated with service delivery at the stores. Therefore, under certain circumstances, increment in revenues would be outweighed by the resulting additional costs.

Somewhat different from the above two strategic moves, to address the challenge of how to increase revenues, the company can resolve to recruit more franchises besides opening more stores that are company-owned. On the positive end, this would increase revenues.

On the other hand, increasing the number of company-owned stores would truncate into recruiting more staff, a case that increases the risk of experiencing more employees’ filed lawsuits. Another strategy that has not perhaps been considered by the company is focusing on extending its services away from America and Canada to other continents of the world.

On the positive side, this would increase the sales of the company since being global implies meeting new fresh markets in which the company can develop products consistent with the demand requirements. Unfortunately, the option would expose the company to different political, legal, and cultural environments.

Consequently, Panera Bread Company would have to change some of its practices to match the new demand. For instance, there might be a conflict between the accounting standards. The company deploys the U.S’ GAAP, which might contradict the national generally accepted accounting principles of the new nations in the global space.

Strategy that works

With the current financial and business environment of the Panera Bread, the best option for dealing with the challenge of the need to increase profitability of the company is via recruitment of more franchises besides opening company- owned stores within Canada and America. Hence, I would open 300 new company-owned stores and franchises at the first phase of expansion of Panera Bread Company.

The rationale for this strategy is based on the argument that, as evidenced by the estimations of good will in its balance sheet, the company has an immense market value. Additionally, in comparison to potential competing companies, Panera Bread Company has an incredible market position by virtue of its strengths. However, as argued before, the market is highly saturated with restaurants.

Hence, there is a dominant challenge of acquiring buildings in strategic places within many cities where the company may consider as having the requisite market segment it targets. Additionally, at the entry level, many of these competing restaurants have the will and ability to pose competitive challenges to the company at the new franchises and or company-owned stores since they will have secured their market share.

However, given the brand image and the quality of products and services offered by Panera Bread, the company has probabilities of getting some of this market share to build the clientele level at the new stores and franchises. The claim holds especially when it invests to improve its service delivery experience to levels above those of the existing restaurants in the new markets.

Utilizing the strategy of growth through recruitment of more franchises and company-owned stores is particularly significant in enhancing Panera Bread Company’s competitive position since it will make it develop the capacity to take a full advantage of the economies of scale.

At the current size of Panera Bread Company, attempts to exploit the markets of all continents of the world are found unworthy due to many standards and legal compliance issues, which go into adding the cost of running the company.

Implementation of the strategy

In the implementation of the strategy of recruiting more franchises and opening of new company-operated stores, several considerations are vital before the implementation process kicks off. In the first place, this strategy needs financing. It is thus vital to consider whether the financial position of the company and the anticipated incomes can support the strategy.

If not, it is critical to consider whether there are alternative sources of finance. Fortunately, with regard to Panera Bread Annual Report on Form 10-K, the company charges a “franchise fee of $35,000 per bakery-cafe (of which it generally receives $5,000 at the signing of the ADA and $30,000 at or before the bakery-cafe opening)” (4).

By noting that Panera Bread Company does not support the construction of the franchises, the money raised through the fees is utilizable in opening of the additional company-owned stores. According to Panera Bread Annual Report on Form 10-K, the company also has accessibility to a loan facility of 250 million dollars as an additional source of capital (3).

Similar to the old food dealers like Mc Donald, the implementation of the strategy proposed above means the focus would entail opening a store or franchise and then waiting for the customer to do the purchasing. Based on the experience he or she gains with the product, he or she becomes loyal and hence a regular customer. Therefore, the strategy is customer-centric.

For the success of such a strategy, it is crucial that an organization possesses the capability to penetrate new markets. It should develop services and products, which create an immense appeal to the customers besides possessing the capacity to offer outstanding customer services (Wheelen and Hunger 851).

Fortunately, these are some of the strengths of Panera Bread Company. With these strengths, the challenges in the implementation process rests in the development of customer-centric growth strategies in the new company-owned stores and franchises. I would accomplish the implementation of the strategy from three customer-centric paradigms.

These are identification of core business, creation of propositions that have high value and impacts, and focusing on businesses that are highly linked to the core business of the company. Determination of the core business of the new stores starts with the identification of the core business that will be conducted in the stores and the franchises.

In other words, expansion through the opening of new stores and franchises is not done blindly but rather with considerations of geographic areas and channels that would help to generate the highest amount of revenues.

Therefore, before the company’s financial resources are committed to opening and subsequent running of the stores, profitability benchmarking and evaluation of the reputation of the company within the new geographical areas are necessary. In this approach, the stakeholders of the company are fully involved in the implementation process.

Some of the stakeholders that I would include are non-loyal and loyal customers of the existing stores. The views of the loyal customers on why they embrace the products of the company are critical success factors of the strategy implementation. They would help in incorporating the attributes of the company that attract them in the new stores and franchises.

On the other hand, the views of the disloyal customers create opportunities of establishing new stores that have improved customer service experience. This would help to avoid replication of the past mistakes in the new franchises and stores. Arguably, this step of implementation of the project involves planning and analysis stage. It would take six months and an estimated cost of $ 210, 000.

The second implementation step is the creation of propositions that have high values and impacts on the sub-segments of the potential customers.

Based on the results of the first step discussed above, sub-segmentation of the customers’ groups in the new franchises and stores based on the found needs and anticipated buying patterns coupled with the profit contributions of the forecasted sales are vital in setting of a mechanism of reaping most from the new markets.

This mechanism encompasses creation and innovation of value propositions targeting the sub-segments that are likely to be most attractive. This step is followed by conducting a field test of the impacts of the propositions. Based on the results of the field tests, scaling up is done. This step of the implementation process of the strategy is the analysis phase of the project. It is anticipated to take about 3-31/2 months.

Its budget is $1 million. Most of this money caters for the wage expenses of analysts and data collection staff. Lastly, there is a need to focus on businesses that are highly linked to the core business of the company.

The need implies that, after conducting a number of field tests and analyzing the potential of the success of the growth strategy, the next course of action will be to channel the resources of the company to open stores and accept franchise requests in areas that are likely to have large clientele.

The point here is that there is no need of investing in an area where no substantive sales can be made to make the stores break even in the shortest time possible. Thus, the idea is to open stores selectively depending on the competitiveness of the market segments and sub-segments.

Conclusion/Evaluation of Strategy’s success

Upon implementation of the growth strategy, it is crucial to evaluate its success capacity. In the context of the proposed strategy for solving the problems of the Panera Bread Company, success refers to the accomplishment of the predicted outcomes when the strategy is implemented.

The desired outcome is the increment of the revenue levels of the new stores and franchises such that the stores would be able to break even in the shortest time possible. On the other hand, it is desired that the new franchises end up being profitable so that Panera Bread Company can get substantive royalties. Measuring success calls for the evaluation of the strategy on its capacity to realize the core objective of the company.

Measuring success in the context of the strategy for growth of the Panera Bread Company takes six approaches. In the first place, the strategy is implemented within fixed timelines. Therefore, one of the measurable success factors is whether the various time schedules for the strategy implementation were accomplished within the set timeframes. The other success factor is the degree to which the scope of the growth strategy has been released.

The original plan is to open 300 stores and franchises. Thus, success is measured in terms of the number of the new company-owned stores and franchises opened. Thirdly, the implementation of the strategy must be consistent with the set budget. Consequently, the degree of success of the strategy is measurable from the context of the degree to which the implemented strategy complies with the budget constraints.

Fourthly, it was argued in the implementation section that the overall goal of the strategy is to focus on opening stores in regions that will attract large clientele only who would get loyalty based on the company’s products. Thus, success may be measured from the dimension of the degree of customers’ loyalty, which is measurable through customers’ satisfaction levels.

Unfortunately, satisfaction is only measurable qualitatively (either happy or unhappy). A subtle strategy of organizational growth needs to reduce the weakness and threats of an organization within the new operational centers.

For this purpose, SWOT analysis is vital in determining whether the threats and weaknesses of the old stores and franchises have been replicated in the new geographical locations of the Panera Bread company-owned stores and franchises. Lastly, the success of the strategy may be measured in terms of the improvements of service quality in the new company-owned stores and franchises.

Therefore, the growth sort for Panera Bread Company is not only in terms of numbers of stores and franchises but also in terms of increased quality service delivery in every new company-owned store or franchise that opens. Measuring success this way is inspired by the argument that learning organizations stand better chances of success than those, which do not learn.

Works Cited

Panera Bread Annual Report on Form 10-K. Annual Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange Act Of 1934 For The Fiscal Year Ended December 27, 2011. Web.

Panera Bread Company Quarterly Report on Form 10-Q. Quarterly Report Pursuant To Section 13 Or 15(D) of the Securities Exchange Act Of 1934 For the quarterly period ended September 25, 2012. Web.

Panera Bread. Company Overview. Web.

Wheelen, Thomas, and David Hunger. Strategic Management and business policy. New Jersey, NJ: Prentice Hall, 2007. Print.

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