Panera Bread Company Overview Origin1981 Au Bon Pain Company founded by Louis Kane and Ron Shaich. Growth on US East Coast & Internationally1980s and 90s – stores opened in malls, airports, shopping centers. Acquisition of Saint Louis Bread Co.1993 – mgt team studied fast food restaurants which led to overhaul of Saint Louis Bread Companies Sold Au Bon Pain bakery-café division1999 – sold for $73m to ABP Corp. Renamed to Panera Bread Company
Panera Bread Company Overview Strategic Intent – Make great bread broadly available to consumers across the United States 2003 - TNS Intersearch Study Scored the highest level of customer loyalty among QSRs 2004 - J.D. Power & Associates Restaurant Satisfaction Study of 55,000 Customers Ranked Panera highest among QSRs in Midwest & NE in all categories Included environment, meal, service, and cost 2005 – Sandleman & Associates National Customer Satisfaction Survey of 62,000 customers For 4 th straight year, Panera was the best among 121 competitors Also won Best of awards in nearly every market across 36 states
Overview of the Industry - Demand Growth Rate – 925,000 food service locations in the U.S. – Are customers hungry for more?
US restaurant industry growing at 5% annually Where is the growth coming from? – $974 per person in 1994 spent on food away from home – Growth potential in suburban markets? Panera is a representative in the fast-casual food category 85% of individuals aware a Panera Bread was nearby dined there at least once (trial) 57% of those did so in the last 30 days (repeat) 81% willing to try Panera other times of the day Overview of the Industry - Demand
Industry Overview (Supply) Porters five forces: Rivalry among existing competitors Threat of substitute products HIGH Bargaining power of buyers HIGH Threat of new entrants LOW Bargaining power of suppliers LOW
Porters Five Forces FactorAnalysisImpact Threat of substitute products Substitute products are easily accessible (eat at home, convenient stores) Economic downturn limits disposable income – substitute products become more appealing. HIGH Bargaining power of suppliers Panera has multiple options to source each ingredient they use. LOW Bargaining power of buyers Economic downturns affect on consumer eating behaviors – cheaper meal at home. Over 21 direct competitors/alternative eating establishments of Panera. HIGH Competitive rivalry Differentiation and constant menu changes to appeal to consumer preferences. Many competitors in industry. INTENSE Threat of new entrants High investment threshold to enter marketLOW
Industry Overview (Supply) FactorRanking (1-5) Threat of substitute products Full range of alternatives; eat at home, fast-food, formal dining out Substitute products offer lower prices and convenience. The majority of meals are eaten at home – 76% 5 Bargaining power of suppliers Panera is not limited by sourcing from a single supplier Several suppliers are available for each ingredient 1 Bargaining power of buyers Switching costs are non-existent for consumers with varied options 4
Industry Overview (Supply) FactorRanking (1-5) Rivalry among existing competitors Consumer preferences are constantly being targeted and adapted to by competitors Competition is competing for $1 bn in daily sales 5 Threat of new entrants Substitute products offer lower prices and convenience. The majority of meals are eaten at home – 76% 1
Competitors# of LocationsSelect FinancialsKey Menu Items Atlanta Bread Company 160 bakery cafes in 27 states Privately held Fresh-baked breads, salads, sandwiches, soups, pastas, desserts Au Bon Pain 190 bakery-cafes in 23 states and 222 locations internationally $245M in sales in 2005 Baked goods, soups, salads, sandwiches, wraps Brueggers 260 bakery-cafes in 17 states $155M in revenues in 2005 Bagels, muffins, sandwiches, soups, salads California Pizza Kitchen 190+ locations in 27 states and 5 other countries 2005 revenues of $480M Hearth-baked pizzas, salads, pastas, soups, sandwiches, desserts, appetizers, beverages Jasons Deli 150 locations in 20 states Privately held Sandwiches, salad bar, soups, potatoes, desserts, catering, box lunches Typical Competitors within the Fast-Casual Arena
What is the competition doing? Most Fast-food and full-service restaurants are also responding to consumer preference. – New offerings – Seasonal menus – New themes and differentiation strategies Competitors are going after Paneras potential first time customers – Strategic attempts to capture the offerings that entice customers to try the fast-casual offerings
Competition beyond commercial eateries Bars that offer food, hotels with restaurants, vending, etc. are all forms of competition. – Only 67% of total food service sales spent at commercial eating places Home cooked meals are competition. 76% of meals are eaten at home.
Competitors and strategy High Food Quality Quick dining experience Full Service Applebees Chilis Lower Food Quality Slower dining experience Fast Casual Panera Chipotle Bruggers QSR Wendys McDonalds Analysis: Panera is in a highly competitive area. QSR and full service arent competitors with each other. Fast Casual is positioned between the two and competes with both.
Internal Analysis – Markets Served Competing in 5 submarkets 1.Breakfast 2.Lunch 3.Chill out 4.Light evening 5.Take home bread Differentiate with wide variety of menu options and café ambience Management goal to make Panera a nationally recognized name brand High penetration in St. Louis, Columbus, Jacksonville, Omaha, Cincinnati, Pittsburgh, Washington DC New York City, Philadelphia, Green Bay, Atlantic City, Toronto Salt Lake City, LA, Northern California, Seattle, Phoenix, Tucson, Vancouver, Albuquerque, Spokane Miami, Dallas, Houston, San Antonio, Memphis, New Orleans, Shreveport, Baton Rouge, Little Rock Low/Untapped Markets
Internal Analysis – Core Competencies Core CompetencyDescription Diverse Menu Lots of variety, constantly experimenting Options for all meals and times of day High quality food at reasonable price Strong Brand/Customer Loyalty JD Power and Associates satisfaction award for QSR in Midwest and Northeast Best Of awards in nearly all mkts in 36 states Strong Relationship with Existing Franchise Partners Employee training and certifications Assistance with site selection and marketing High satisfaction with concept and support received Identifying Where to Locate New Stores Proprietary software built to analyze data on attractiveness of new locations Find attractive places to serve urban and suburban populations Strong Brand/Customer Loyalty Diverse Menu Identifying Where to Locate new Stores Strong Relationships with Existing Franchise Partners Core Competencies Red – Easy for competitors to develop Yellow – Possible for competitors to develop Green – Very difficult for competitors to develop
Internal Analysis – Growth Initiative Expanding number of locations at a rapid pace Heavy reliance on franchise partners Targeting 17% increase per year in number of locations by 2010 No international locations but considering expansion into Canada Is this aggressive growth strategy prudent in the highly competitive and mature QSR industry? Year Number of new locations Total Locations Percent Increase 1993020N/A 1999160180800% 2006155102715% 2010 973 (forecasted) 2000 (forecasted) 49%
Internal Analysis - Franchises Strong franchise network with strict requirements to entry New partners to commit to 15 cafes over 6 years – Average startup cost $1 million to $2.25 million per location ($15 million to $33.75 million for 15) – Majority of franchise partner financed by debt (highly leveraged) Can Panera find enough new franchise partners to meet growth targets? – Strong franchise partners are critical to preserve consistent quality and atmosphere at Panera restaurants – Bad partner can damage strong customer loyalty Panera has built – Panera does have out as it can elect to buy out any franchisee for a predetermined price Biggest issue existing partners have is desire for more locations Agreed to open additional 423 locations Still leaves 550 locations to meet 2000 by 2010 Either by new franchise partners or corporate 2006 42 franchise groups in 54 markets 34 states
Internal Analysis – Supply Chain 17 regional fresh dough facilities (16 corporate, 1 franchise) – Service both company and franchise cafes – Manufactures over 50 different products – Dough distributed via 140 trucks, each truck delivering to 6 cafes on average – Panera corporate recognizes profit on dough sold to franchise locations – Fresh dough making considered competitive advantage by management as it helped with consistency and efficiency – With rapid plans for expansion is this advantage in jeopardy as trips are already exceeding optimal 300 mile trip? Sweet goods provided by Dawn Food Products in a cost-plus agreement – Finished onsite by bakers, but single source for sweet goods improves ability to deliver consistent products
SWOT Analysis for Panera Bread Strengths Strong/Loyal Customer Base in NE & Midwest Menu Options/ Variety Able to provide healthy options to customers Analysis of market Weaknesses No presence in large markets (south & west) Want customers to discover Panera Decentralized Distribution – each café placed orders Rely on franchise partners as key to growth – very tough standards Opportunities 130m consumers daily Grow number of customers that consider Panera as a dinner option Get existing customers to come at different times of the day (ex – breakfast crowd to come for dinner) Threats Multiple types of competition – fast food, sit down restaurant, eat at home, QSR, fast casual Differentiation?? What makes Paneras different than competitors 76% of meals eaten at home
Recommendations 1.Work with franchisees to acquire Corner Bakery Café??? (Franchisee locations are more profitable and provide higher ROI) 2.Expedite expansion in Canada or International (Europe)?? 3.Vertically integrate and acquire Dawn Food Products Inc. 4.Limit growth in existing markets and begin to focus on expansion into South and West – Offer existing franchisees opportunity to enter markets first – If limited interest open corporate stores to see if concept works before opening up new markets to new franchise partners