Group 5: Matt Liberty, Joe Piscitelli,

Jeff Frechette, Jonathan Nadeau, Nick Kania

Context
Au Bon Pain Company
Founded by: Louis Kane, Ron Saich 1981

Malls, shopping centers, etc.

1993: Purchased St. Louis Bread Co.
20 additional locations

94-95: Market Research concluded a need for:

Quick, Quality dining. Fresh and Fast!

Context
By 1997
Sales volume had increased by 75%
Renamed 100+ Stores Panera Bread

1998- Ron Saich

Sold Au Bon Pain Brand for $73 Million
(still in operation today)

Went all in on Panera Model

180 Locations, Debt Free.

Question 1
What is Panera Breads strategy? Which of

the five generic competitive strategies in

Chapter 5 most closely fit the competitive
approach that Panera Bread is taking? What
types of competitive advantages is Panera
Bread trying to achieve?

Panera Breads
Strategy

To provide a premium specialty bakery and

caf experience to urban workers and

suburban dwellers (their target market)
Strategic Intent: To make great bread

broadly available to consumers across the

United States
155 new stores in 2006
170-180 new stores in 2006
Goal was to have nearly 2,000 stores by the end of

2010

Panera Breads
Strategy

Strategic vision was to create a specialty caf

anchored by an authentic, fresh-dough artisan

bakery and upscale quick-service menu selections
PEGS Product, Environment, and Great Service

that we count on to deliver success.

Managements long-term objective and strategic

intent:
Make Panera Bread a nationally recognized brand name
To be the dominant restaurant operator in the specialty

bakery-caf segment

Being better than the guys across the street

Panera Breads Growth Strategy

Expand the number of PB locations by

17% annually through 2010 and to

achieve EPS growth of 25% annually
Capitalize on market potential by

opening both company-owned and

franchised owned Panera Bread
locations
Market Penetration

Panera Breads Franchise Strategy

Franchise agreements required the

franchise developer to open a number of

stores, usually 15 bakery-cafs in six
years
Franchise candidates had to be well

capitalized, have a proven track record as

excellent multi-unit restaurant operators,
and agree to meet an aggressive
development schedule
Applicants had to meet eight criteria to gain

consideration

Panera Breads Franchise Strategy

Panera helped out franchises in numerous ways
Market analysis
Site selection assistance
Lease review
Design services and new store opening assistance
A comprehensive 10-week initial training program
A training program for hourly employees,

managers, and baker certification

Continuing education classes

Panera Breads Marketing

Strategy
To compete on the basis of providing an entire

dining experience rather than by attracting

customers on the basis of price only
High quality foods at reasonable prices

Used focus groups to determine customer

food and drink preferences as well as price

points
Grow sales at existing Panera Bread locations
High proportion of trial customers to repeat

customers

Panera Breads Marketing

Strategy
Food you crave, food you can trust
To raise awareness and boost trial of

dining at Panera Bread at multiple meal

times
Let customers discover Panera Bread

and then convert them into loyal

customers
To increase perception of Panera Bread as

a viable evening meal option

Panera Breads Menu Strategy

Designed to provide target customers with

products built on the companys bakery

expertise
Regularly reviewed and revised
Celebrations
Adapting to customer wants
Catering program
Catering was generating an additional $80 million in

sales by the end of 2005

Which Competitive Strategy?

Broad Differentiation
To compete on the basis of providing an entire

dining experience
Panera Warmth
Distinctive and engaging environments

G2 cafe design
Alluring and hospitable atmosphere
Free Wi-Fi
Real China and stainless silverware
Regular changes in menu offerings
Adapting to consumer wants

Competitive
Advantage

Reputation

Panera Bread was widely recognized as the

nationwide leader in the specialty bread segment

TNS Intersearch survey
J.D. power and Associates
Sandleman & Associates
Awards

Management had concluded the Panera

Bread format had broad market appeal

and could be rolled out nationwide

Competitive
Advantage

Fresh dough-making capability

Consistent quality and efficiency

More economical to concentrate the dough-making

operations in a few facilities dedicated to that function

Dining atmosphere
Free Wi-Fi
G2 Cafe

Competing successfully in five submarkets

Considerable willingness of customers to try

dining at other parts of the day

Question 2
What does a SWOT analysis of Panera Bread

reveal about the overall attractiveness of its

situation? Does the company have any core
competencies or distinctive competencies?

Strengths
The location of Panera placing them in strip

malls and urban neighborhoods.

Successful in 5 submarkets such as breakfast,

lunch, day time, chill out, light evening fair

and take out.
The way that they have set up franchising

was a strength for them as a corporation.

Weaknesses
The prices on their menu during dinner. I don't

think they are competitive for their prices

during dinner.
Other competition may have better choices for

dinner and at better prices.

Another weakness I think is their fresh dough

facilities. They may be better off not only
baking the bread at each store but they should
also make the dough at each store. This I think
would save them money in the long run.

Opportunities
I think that Panera could earn more profit at

dinner if they lowered their prices and stayed

really competitive at this meal time.
Since they are the leader in 5 sub markets

they can take advantage of this and utilize to

their advantage. If they could keep the mark
up of their food the same all through out the
day and keep a steady flow of customers it
would be like having an Applebees or a Chili's
packed on a Friday night.

Threats
Their are many other restaurants in the sector

of dining. If they don't do something about

their prices for dinner there are other places
that will come in and move ahead of Panera.
They also might have to take a look at making

their fresh dough at the stores just like they

bake the bread at each store.

With gas prices going up this could make the

cost of operations go up as gas prices get
higher.

Question 3
What is your appraisal of Panera Breadss

financial performance based on the data in

case Exhibits 1, 2 and 8? How well is the
company doing financially? Use the financial
ratios in Table 4.1 of Chapter 4 as a guide in
doing the calculations needed to arrive at an
analysis-based answer to your assessment of
Paneras recent financial performance.

Year
Revenues:

Panera Bread
Financials

Bakery-caf sales
Franchise royalties & fees
Fresh dough sales to franchisees
Total Revenues
Bakery caf expenses:
Food & paper products
Labor
Occupancy
Other operating expenses
Total bakery-caf expenses

Fresh dough costs of sales to

franchisees

2006

2005

2004

2003

2002

$
666,141,000
$
61,531,000
$
101,299,000
$
828,971,000

$
197,182,000
$
204,956,000
$
48,602,000
$
92,176,000
$
542,916,000

$
499,422,000
$
54,309,000
$
86,544,000
$
640,275,000

$
142,675,000
$
151,524,000
$
37,389,000
$
70,003,000
$
401,591,000

$
362,121,000
$
44,449,000
$
72,569,000
$
479,139,000

$
101,832,000
$
110,790,000
$
26,730,000
$
51,044,000
$
290,396,000

$
265,933,000
$
36,245,000
$
61,524,000
$
363,702,000

$
73,885,000
$
81,152,000
$
18,981,000
$
36,804,000
$
210,822,000

$
212,645,000
$
27,892,000
$
41,688,000
$
282,225,000

$
63,370,000
$
63,172,000
$
15,408,000
$
27,971,000
$
169,921,000

$
75,036,000
$
33,011,000
$
46,301,000
$
3,241,000
$
559,180,000

$
65,627,000
$
25,298,000
$
33,338,000
$
2,642,000
$
417,301,000

$
54,967,000
$
18,304,000
$
28,140,000
$
1,531,000
$
313,764,000

$
38,432,000
$
13,794,000
$
24,986,000
$
1,051,000
$
248,184,000

$
85,618,000
$
Depreciation & amortization
44,166,000
$
General & administrative expenses 59,306,000
$
Pre-opening expenses
6,173,000
$
Total costs & expenses
738,179,000

Panera Bread Financials

2006
2005
2004
2003
2002

Financial Ratios
Year

2006

2005

2004

2003

2002

Gross Profit Margin

16%

18%

18%

19%

17%

Operating Profit Margin

11%

13%

13%

14%

12%

Net Profit Margin

7%

8%

8%

8%

8%

Earnings per share

$1.88

$1.69

$1.28

$1.02

$0.74

ROA

10.86%

11.93%

11.84%

11.96%

10.92%

ROE

14.80%

16.46%

15.92%

15.82%

14.06%

Current Ratio

1.16

Working Capital

1.18
$16
$18 million million

1.05
$2.5
million

1.58
$26
million

1.83
$27
million

Long-term debt-to-equity ratio

8.89%

10.67%

11.44%

0.74%

0.17%

Times-interest-earned ratio

987

1622

3435

1040

1064

Year

2006

2005

2004

2003

2002

2001

2000

Revenues at
company-operated
stores

$265,900,0 $212,600,0 $157,700,0 $125,500,0

$666,100,000 $499,400,000 $362,100,000
00
00
00
00

Revenues at
franchised stores

$1,245,500,00 $1,097,200,00
$711,000,0 $542,600,0 $371,700,0 $199,400,0
0
0 $879,100,000
00
00
00
00

System-wide store
revenues

$1,911,600,00 $1,596,600,00 $1,241,200,0 $976,900,0 $755,200,0 $529,400,0 $324,900,0

0
0
00
00
00
00
00

Avg. annual revenues:

company operated
bakery-caf

$1,967,000

$1,942,000

$1,852,000 $1,830,000 $1,764,000 $1,636,000 $1,473,000

Avg. annual revenues:

franchised bakerycaf

$2,074,000

$2,016,000

$1,881,000 $1,860,000 $1,872,000 $1,800,000 $1,707,000

Avg. weekly sales,

company owned cafes

$37,833

$37,348

$35,620

$35,198

$33,924

$31,460

$28,325

Avg. weekly sales:

franchised cafes

$39,894

$38,777

$36,171

$35,777

$35,997

$34,607

$32,832

Company-owned
bakery-cafes
open at year-end

391

311

226

173

132

110

90

Franchised bakerycafes
open at year-end

636

566

515

429

346

259

172

1027

877

741

602

478

369

262

Total bakery-cafes
open

Question 4
Based on the information in case Exhibit 9,

which rival restaurant chains appear to be

Paneras closest rivals?

Au
Bon
Pain

Chipolt
e

Applebee
s
Chilis

Panera
Bread

High

Price/Quality

Low

Strategic Map
Fast-Casual Dining

Few Locations

Geographic Coverage

Many Locations

Question 5
What strategic issues and problems does

Panera Bread management need to address?

Strategy
The previously discussed strategy is to do the

following:
1) Provide premium bakery and caf experience
2) Broaden their stores and locations in the

United States
3) PEGS Product, Environment, and Great

Service
4) Long Term is to make Panera a Generically

Nationwide known Brand Name.

Product Offering
Issues

Panera Management needs to make sure customer

and stockholders understand the freshness of their

ingredients are the best they can offer.

Specially train all the chefs they hire to achieve

the goal mentioned above. Need to have a well

trained staff to make sure they can success in the
corporate way.

Changing the Menu constantly to attract new

customer and continue keeping the old customers

happy.

Customer Feedback is the way to decide the

offerings they need to provide on the menu.

High Quality Low

Price Issue

The goal of Panera is to provide High Quality,

Low Cost food to its consumers.

As many business men know, this is nearly

impossible in almost all business units.

This gains new customers, and keeps old

customers.

Where is the balance between sacrificing cost

and sacrificing quality?

Marketing this strategy is key to gaining the

financial and consumer base.

Marketing Issues
In the past, small role in success. What

can be done to make this more prominent

and profitable?

Developing Brand Awareness by Customer

Experience

85% of people who know of a Panera in or

around their neighborhood have eaten

there at least once.

Using marketing strategies to express that

Panera is an all day food operation and

not specifically breakfast, lunch, or dinner.

Site Selection and Caf

Environment Issues
Developing a team to decide on the

demographics of new locations

Free standings units were found to be

previously profitable for bakery type

locations.
Continuing to develop Panera Warmth which

was the term they used to satisfy the

environment of its customers.

Question 6
What does Panera Bread need to do to

strengthen its competitive position and

business prospects vis--vis other restaurant
chain rivals?

Au
Bon
Pain

Chipolt
e

Applebee
s
Chilis

Panera
Bread

High

Price/Quality

Low

Strategic Map
Fast-Casual Dining

Few Locations

Geographic Coverage

Many Locations

Industry
Dining Industry saw $511 Billion in sales
47.5% of consumer spending on food is at Restaurants
5% Growth Annually
Despite 76% of meals at home
130 Million Customers daily=Daily sales around $1 Billion

Highly competitive, Labor Intensive, Very Risky

Adapting to the Market is Essential
Competing in a unique market Casual/Fast

Food/Specialty Dining

Tactics
Seasonal Offerings
Birthdays/Events/Sports

Trends in Eating Habits

Vegan, low-carb, Organic.

Tactics
Loyalty Programs
Customer Input/Involvement

Community Programs
Make Customers Identify

with the company

Eat Multiple meals
Encourage Chill out time

patronage
Willingness to try new

dishes

Tactics
Pay what you can Business model

experiment
Implemented in 3 Locations (3500

patrons/week)
No prices on menu
Cashier recommends price for meal
60% of people have paid recommended price
20% pay more
20% pay significantly less

Each store has covered its own expenses well

Encourages Consumption, Charity, & sense of

Community

Recommendations
Established Quality Fast Casual Dining
Ambience, Service, Quality Menu, Convenient.
Push Panera more to compete in every meal

period

Expand Coffee Offerings (seasonal)

Focus on expanding Dinner Menu/Service
Aim to compete with Applebees/Unos
(difficult due to lack of alcoholic beverages 12%

+ of each companys annual sales)

Promote the Family Environment

Value Chain
Support Activities
Infrastructure
Franchising Rigid Restrictions, Well Structured Market

Penetration
HRM
90% of our retail management associates are "highly satisfied"

with their careers (Panera Bread Retail Satisfaction Survey)

Tech
17 Fresh Dough baking and Transportation facilities
Temperature cooled trucks 300-500 mile radius.

Procurement
Couples with secondary companies to manage less essential

needs

Value Chain
Primary Activities

Outbound Logistics

Bakery Caf Supply Chain a

Average $10 million in profits capped at 27% of retail prices

Well Organized Shipment System

Leased fleet, 300 mile radius.

Contracts with secondary companies for periphery

needs

Operations
Successful, Comprehensive Franchising
Carefully chosen locations for added convenience
Meet consumers preferences

Value Chain
Primary Activities

Inbound Logistics

Bakery Supply Chain- Averages $10,000 Profits 30%

growth

Sales and Marketing

Relied heavily on word of mouth Discover Panera
85% of population aware of a nearby Panera had dined

there
Public Image
Food Quality

Service
Efficient, responsive, accommodating.

Porters Five Forces

Buyer Power: High
Many restaurant choices for customers
Forces restaurants to differentiate themselves in

order to win the customer

Supplier Power: Low

Obtained dough from a variety of suppliers
Numerous suppliers for each ingredient needed

and Panera Bread could easily obtain

ingredients from another supplier if necessary

Porters Five Forces

Threat of New Entrants: Low
Entry barriers are extremely high
Reputation

High costs to start a restaurant

Low profit margins

Threat of Substitute Products: High

Many restaurants to choose from depending on

your preferences

Porters Five Forces

Rivalry among existing competitors: High
Industry members pursue differentiation strategies to

set themselves apart from rivals

Most restaurants are quick to adapt their menu

offerings to changing consumer tastes and

preferences
Norm at many restaurants to rotate menu selections

seasonally and introduce new dishes

Common for a popular restaurant to lose flavor and

confront the realities of dwindling clientele, forcing it

to reconceive its menu and dining environment or go
out of business
Many restaurants have short lives

Porters Five Forces

Rivalry (cont.)
Panera Bread competed with specialty food,

casual dining, and quick-service restaurant

retailers
Closest competitors were fast-casual

restaurants
Atlanta Bread Company
Applebees
Chilis
Starbucks

Fast-casual restaurants provided quick-service

dining but were distinguished in several areas

Final Thoughts
Well positioned in a competitive industry
Caters to a unique niche of the market

Fresh Bakery Cafe

Seen Steady Growth since inception,

continues to today.
Community oriented approach has amplified

the Brands perception and built a

trustworthy relationship with customers.