Panera Bread Company Dan McLindon Kyle McDaniel Jeremy Smiley

Panera Bread Company Dan McLindon Kyle McDaniel Jeremy Smiley
Tom Anderson Ray Moorman

Contents The Key Question Panera Bread Company History/Overview
External Environment (PEST) Market Overview (Demand) Industry Overview (Supply) Competitive Landscape Internal Analysis SWOT Analysis Recommendations

Key Question for Panera Bread
Is the plan of expansion and reliance on franchise partners the right strategy for Panera Bread to grow at the rate they want to?

Panera Bread Company Overview
Origin 1981 Au Bon Pain Company founded by Louis Kane and Ron Shaich. Growth on US East Coast & Internationally 1980’s and 90’s – 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 division 1999 – 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” TNS Intersearch Study Scored the highest level of customer loyalty among QSR’s J.D. Power & Associates Restaurant Satisfaction Study of 55,000 Customers Ranked Panera highest among QSR’s in Midwest & NE in all categories Included environment, meal, service, and cost 2005 – Sandleman & Associates National Customer Satisfaction Survey of 62,000 customers For 4th straight year, Panera was the best among 121 competitors Also won “Best of” awards in nearly every market across 36 states

PEST Analysis for Panera
Category Issue Threats/Opportunities Ranking (1-5) Political None Economic Restaurant business extremely competitive Threat 4 Sales at food service locations in US trend upward Opportunity 3 Social Increasing level of health consciousness (ex. Good carbohydrates) Neither -- most restaurants react quickly to changing consumer tastes. Level playing field. - Consumers prone to try new establishments Threat – existing markets Opportunity – untapped markets 1 Consumers loyal when satisfied with experience 5 Technological

Overview of the Industry - Demand
Growth Rate 925,000 food service locations in the U.S. Are customers hungry for more? Indicators of demand: Over 925,000 food service locations in the US. Sales increase of 65% in the food service category. Could just be more expendable income etc.. But: Food dollars spent shows consumers are willing to spend twice as much in this category as they were 50 years ago. More customers spending more means more demand.

Overview of the Industry - Demand
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 5% growth does not sound exciting but: Panera’s marketing study, which looks mainly at Panera but I think can be expanded to include all fast-casual operations, shows the demand is there. The point is the Panera study represents consumer demand for the effective “fast-casual” experience. If 57% of the 85% trial customers are repeat and 81% are willing to expand there experience to other meal times in this segment, the demand is there. It is there strategy going forward that will determine how much of that they are willing to capture and translate into sales, especially repeat sales.

Industry Overview (Supply)
Porter’s five forces: Threat of substitute products HIGH Bargaining power of suppliers LOW Rivalry among existing competitors Bargaining power of buyers HIGH Threat of new entrants LOW

Porter’s Five Forces Factor Analysis Impact
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 downturn’s affect on consumer eating behaviors – cheaper meal at home. Over 21 direct competitors/alternative eating establishments of Panera. 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 market

Factor Ranking (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

Factor Ranking (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

Typical Competitors within the Fast-Casual Arena
# of Locations Select Financials Key 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 Bruegger’s 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 Jason’s Deli 150 locations in 20 states Sandwiches, salad bar, soups, potatoes, desserts, catering, box lunches

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 Panera’s 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 Full Service Applebee’s Chili’s Fast Casual Panera Chipotle Brugger’s Slower dining experience Quick dining experience QSR Wendy’s McDonalds Lower Food Quality Analysis: Panera is in a highly competitive area. QSR and full service aren’t competitors with each other. Fast Casual is positioned between the two and competes with both.

Internal Analysis – Markets Served
Competing in 5 submarkets Breakfast Lunch “Chill out” Light evening 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 Low/Untapped Markets 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

Internal Analysis – Core Competencies
Core Competency Description 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 Core Competencies Strong Brand/Customer Loyalty Diverse Menu Identifying Where to Locate new Stores Strong Relationships with Existing Franchise Partners 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 1993 20 N/A 1999 160 180 800% 2006 155 1027 15% 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 2006 42 franchise groups in 54 markets 34 states Agreed to open additional 423 locations Still leaves 550 locations to meet 2000 by 2010 Either by new franchise partners or corporate Biggest issue existing partners have is desire for more locations

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 Panera’s different than competitors 76% of meals eaten at home

Recommendations Work with franchisees to acquire Corner Bakery Café??? (Franchisee locations are more profitable and provide higher ROI) Expedite expansion in Canada or International (Europe)?? Vertically integrate and acquire Dawn Food Products Inc. 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

Panera Bread Company Dan McLindon Kyle McDaniel Jeremy Smiley

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