The restaurant industry is very competitive and Panera has to overcome the many challenges including new entrants and high expenses in order for it to continue making profits.
There are many problems being faced by Panera and they have come up with strategies that give them an edge over other similar businesses. Some of the problems and strategies used by Panera include:
- The ease of accessibility of alternatives to the dishes offered at Panera. An example is coffee, which can be swapped with any stimulative drink. They have overcome this challenge by providing a relaxing and comfy environment.
- New entrants in the restaurant business can reduce the number of sales for Panera. They have been able to overcome this by providing a variety of dishes in their menus and changing the menus constantly.
- The buyer can choose to go elsewhere if the food is monotonous or poor service delivery. To ensure customer satisfaction, the service at Panera is excellent and the quality of food exceptional. This way, their rating by law is high, and attractive to consumers.
- To overcome challenges that may arise due to unreliability of the suppliers, Panera buys its ingredients from multiple businesses, and does its own delivery of the bread.
- Panera faces high transport costs due to the few branches located within the dough delivery region. The distance covered requires that the tracks be refrigerated, which is quite expensive.
For Panera to maintain its competitive edge over similar businesses, it has to come up with workable strategies such as:
- Venturing in the catering business more, so that it can increase its sales and draw more people to its restaurants.
- Provide a broader menu to accommodate more fruits and other healthy dishes suitable for dinner, so that they can increase sales during off-peak hours.
To reduce the expenses incurred due to long travel distances in delivery of dough, Panera should open more branches in these regions, so that the cost of delivery can be distributed. Opening cafes in new areas would also increase their market share.
The opening of new cafes and increasing the variety in menus would require strategic advertising. Panera is known for providing an aesthetic environment and healthy foods. This should be their primary focus when advertising. Expansion of their catering services in new communities would also help to draw more people to their restaurants.
Panera case analysis
About $1 billion is spent by US consumers at eating establishments, making the restaurant industry very competitive. There are many fears in the industry including the struggle to make profits as well as the entry of new competitors. The main competitors of Panera in specialty foods and fast informal dining are Subway, Starbucks and McDonald’s.
The competition that Panera faces comes from various directions, including both the local and national markets (Locke, 2008). One of the strategies used by Panera in order to stay profitable is the regular review and revision of their menus. This is aimed at meeting the requirements of the different seasons of the year, satisfying the changing preferences of the customers and maintaining the interest of the usual customers (Locke, 2008).
Main problems facing the firm and their solutions
Threat imposed by alternatives
One of the problems facing Panera is the availability of substitutes to their coffee selections and atmosphere. The fact that food is a basic need means that people have to consume something, which implies that the market is ever present. The problem lies in the variety of places available for people to eat (Locke, 2008).
The atmosphere at Panera is one that allows for people to work and hold meetings. The alternative to this is that people can choose to do their work from the comfort of their houses or meet in the workplace (Locke, 2008). Panera has overcome this by providing a distraction free and serene surrounding that is necessary to perform well in their duties.
Coffee is one of the main menu items for Panera, and it can be easily substituted with a power drink. The provision of such an alternative could limit the number of people going for coffee at Panera, though the chances of switching from one to the other is low, and the market for coffee is therefore not diminishing (Locke, 2008).
Threat imposed by new restaurant businesses
This is a threat since the people who can get into the business is unlimited due to the few barriers to entry including minimal government regulations, no need for a patent and lack of technological shortcomings. There are new restaurants opening up in various places due to the high demand imposed by customers who like eating in new and different places.
At the same time, the restaurants are short lived due to poor delivery of services, including menus that do not meet customer needs and dining events that are unsatisfactory. The motivation for opening up new restaurants is consumer adventure, since consumers like to visit new places. Panera keeps up with new business ventures by altering their menus regularly, in order to meet the periodical needs and diets of the clients (Thompson, 2009).
Bargaining power of the buyer
The consumers have access to information regarding value and nourishment which makes the restaurant industry very competitive. The patrons can easily switch to other restaurants if their preferences are not satisfied, which means that the conditions and quality maintained by these restaurants must be high and satisfactory.
It is easy for a customer to change their eating place from Panera, since the only variable may be the cost of food (Thompson, 2009). Panera is well aware of this, and solves the problem by providing the customers with a wide variety of menu items. The customers can therefore enjoy various items on different days of the week.
The power of the consumer is greatly increased due to the accessibility of information regarding the restaurant industry. The food products are provided with nutrition information, and this is appealing to the customers. Restaurants are also required by law to post inspection results in a visible place, and therefore poor results may be bad for business (Thompson, 2009).
Bargaining power of the supplier
Panera makes their bread on a daily basis as it is their number one product. They also have their own transport tracks that provide the bread to stores within a 500 mile radius daily, which makes the delivery fully controllable (Thompson, 2009). To increase their efficiency, they ensure that the suppliers have limited control over the cost of products. This is achieved by contracting various suppliers for the ingredients.
This means that the shift from one supplier to the other is relatively easy for them, which ensures that the suppliers making the deliveries do so promptly and error free. Panera is able to control the costs of supplies by use of contracts with both the suppliers and distributors. Panera is therefore very cautious with its presentation and reliability to the market, by ensuring that the prices of supplies remain unchanged, using contracts (Thompson, 2009).
Strategies used by Panera
One of their main strategies is the provision of a menu with wide variety, and good service delivery in an inviting ambience. People who lack the time to dine in traditional restaurants appreciate quality foods contained in Panera’s menus. The provision of freshly baked bread is also advantageous to Panera, since the customers can be assured that there is no musty bread.
Panera provides a comfortable setting, which includes comfortable seating and the provision of Wi-Fi connections, suitable for customers during any time of the day. This, added to their strategic location in the urban and suburban areas encourages the customers to stay longer (Locke, 2008).
Panera has ensured consistency in the quality of its products especially bread, by creating strong networks with the suppliers. They also have a variety of suppliers who provide them with the essential products, which denies them leverage, therefore enabling costs within the franchises to remain low.
The facilities responsible for the supply of dough are strategically located throughout the country, and this ensures fresh supply of dough (Locke, 2008). Panera provides its customers with a unique dining experience. This is achieved by welcoming atmosphere, the designs of the cages as well as the variety of foods provided in the menus.
Unlike other restaurants that prefer to remain small, Panera restaurants are large, which is advantageous to them since they can prepare a variety of meals, and therefore tend to attract customers with a variety of taste. Their large operations allow them to keep their prices lower than the traditional restaurants, and provide fast delivery of meals, which allows the customers to enjoy their meals and ambiance with no rush (Locke, 2008).
One of the problems faced by Panera is the huge sum of money spent in transportation of fresh dough to its cafes. The distance travelled by the tracks is at least 300 miles, and the deliveries are made to only six branches. Due to the distance, the temperature of the tracks has to be controlled.
Investors in Panera have been discouraged by the large capital requirement, since potential owners are required to simultaneously open twelve restaurants. This requires people to invest about $1 million. Panera provides a variety of dishes in its menus, which broadens its target market, enabling them to create loyalty within its customers (Locke, 2008).
Current issues facing Panera
Increasing competition in the fast-casual food industry has been one of the biggest contributors to the reducing profits at Panera. At the same time, their stringent operating criterion has raised the expenses, with the costs of administration being much higher.
Panera has penetrated larger markets though it is unable to open stores faster than the competition, due to the requirement that every new owner must open a minimum of fifteen cafes at once, which is expensive for them (Locke, 2008). Due to this reason, Panera has been unable to penetrate individual communities that can provide them with more opportunities.
The fast-casual dining industry is very competitive, and in order for Panera to minimize its expenses and maximize on profits, it needs to:
- Open more cafes within a particular region
- Open new cafes to cater for individual communities and
- Invest more in the catering services
- Advertise the use of natural ingredients in their meals
- Provide menus for off-peak hours
One of the expenses that Panera experiences is the transportation of dough over long distances to very few stores, two in Miami and several in Dallas (Thompson, 2009). In order to compete with the other restaurants like Starbucks, they need to open mores stores in these areas.
This will increase the number of stores within the travelling distance of the dough tracks, hence improving on the efficiency of delivery and reducing the overall expenses. In addition to this, there are many markets that Panera has neglected, which would appreciate their artistic and lovely environment as well as their quality meals.
Such a move would result in the creation of more cafes by the owners in the region, and their familiarity with the population would enable them to cater for the varying needs of the patrons, allowing them to gain the loyalty of the masses (Thompson, 2009). New York would be a nice place to open a few cafes.
The catering services would be in a position to expand due to the good reputation that Panera has within the societies, and its expansion in new and current markets. Panera would be able to meet the needs of its consumers easily by opening more cafes, which would also increase its market share and consequently bring more people to its restaurants.
Expansion through catering would be good for Panera to grow its restaurant’s brand. Advertising is important for the success of any business. Since Panera is known for the provision of a diverse and healthy menu, advertising by letting people know of their use of natural ingredients would attract more patrons to their restaurants.
They would also attract more customers if they expanded their menus in order to accommodate more options that are suitable for patrons who prefer to dine during off-peak hours, therefore increasing their sales (Thompson, 2009).
Implementation of the strategies
Expansion of the catering division would allow Panera to venture into new markets without changing their brand image, therefore increasing their sales. By taking advantage of their already popular healthy meals, with many vegetables, Panera should increase its variety of fruit choices in the menus, which would draw more people in to the restaurants.
In addition to this, their menu contains healthy chicken, antibiotic-free, though most of its patrons are not aware (Thompson, 2009). A nice marketing strategy would be advantageous in making people aware of the healthy dishes that are available at Panera. This would definitely increase their sales since most people prefer to shop in groceries, and would not mind having a good healthy meal without preparing it themselves.
The busiest hours for Panera are the lunch hours, due to their menus. More sales would be achieved if they were to introduce suitable dishes for dinner, which is an off-peak time. One of the dishes that could be added to the menus is a chicken dish or healthy pasta, which would complement their brand image (Thompson, 2009).
Locke, B. (2008). Panera Bread Company. Retrieved from https://scribd.com/doc/30761424/Panera-Case-Analysis
Thompson, A. A. (2009). Panera Bread Company. Crafting and Executing Strategy: Concepts and Cases, 17th Edition.