Case Study Three: Panera Bread
Brian M Ginardi
Case Study Four: Panera Bread
The Panera Bread Company began in 1981 as Au Bon Pain Co., Inc. Founded by Ron Shaich and Louis Kane, the company thrived along the east coast of the United States and internationally throughout the 1980’s and 1990’s and became the dominant operator within the bakery-café category. In the early 1990’s, Saint Louis Bread company, a chain of 20 bakery-cafes were acquired by the Au Bon Pain Co. Following this purchase, the company redesigned the newly acquired company and increased unit volumes by 75%. This new concept was named Panera Bread. Top management chose to sell their previous bakery-café known as Au Bon Pain Co. due to the financial and managerial needs of Panera. For Panera to become one of the leading “fast-casual” restaurant chains in the nation (Thompson, 2018).
Between 1999 and 2006, around 850 additional Panera Bread bakery-cafés were opened. In 2007, Panera purchased a 51 percent interest in Arizona-based Paradise Bakery ; Café, which operated 70 company-owned and franchised units in 10 states, they purchased the remaining 49 percent in 2009. In 2008, Panera expanded into Canada. The next several sections will discuss if Panera’s current strategy is working.
Panera Bread’s strategy is “to provide a premium specialty bakery and café experience to urban workers and suburban dwellers. This strategy is most closely aligned with a broad differentiation strategy or being unique in ways that a broad range of consumers find appealing. Prior to taking the concept nationwide, they performed market research and concluded that consumers could get excited about a quick, high quality dining experience. The concept is a mix between fast food and casual dining. By choosing this strategy, Panera is attempting to achieve competitive advantage in the unique offerings it provides, offerings that rivals do not have and can not afford to match. In this case, delicious handcrafted bread arriving fresh daily, served in an inviting atmosphere is Panera Bread’s competitive advantage and core competency.
Competitive Analysis Five Forces Model
Rivalry among competing sellers
The competition among competing sellers is high because there are 1.1 million food-service locations throughout the United States. According to The National Restaurant Association reported “sales at the food service locations in the United States were forecast to be about $783 billion in 2016 (up from $587 in 2010)” (Thompson, 2018).According to the case, “the restaurant business was labor-intensive, extremely competitive, and risky” indicating that the strength of the competitive force from competing sellers is extremely high (Thompson, 2018). The inconsistency of profitability in the restaurant industry, “the profitability of a restaurant location ranged from exceptional too good to average to marginal to money-losing;” in short, all over the board (Thompson, 2018). Rivalry among competing sellers are forcing restaurants to continue “seeking to set themselves apart from rivals via pricing, food quality, menu theme, signature menu selections, dining ambience and atmosphere, service, convenience, and location” (Thompson, 2018).
The strongest competitors of Panera Bread were dining establishments called fast-casual restaurant category. A fast-casual restaurant provides quick-service dining (much like fast-food enterprises) but are distinguished by enticing menus, higher food quality, and more inviting dining environments” (Thompson, 2018).
Potential New Entrants
The threat of new entrants is high because barriers to entry are low and the pool of entry candidates is large (Thompson, 2018). Consumers are always looking for different places to eat because of this, new restaurants open often. In “addition many restaurants do not stay in business for very long due to bad menus food quality and service (Thompson, 2018). Barriers to entry are low because there are little regulations from the government there are usually no patent or legal protection needed and there are little high-tech problems that other industries experience (Thompson, 2018). Anybody could open a restaurant, as long as they have the financial resources because there are very limited restrictions.
There are three main determinants applied by sellers of substitute products they are: whether substitutes are readily available and attractively priced, whether buyers
view the substitutes as being comparable or better in terms of quality, performance, and
other relevant attributes, and whether the costs that buyers incur in switching to the
substitutes are high or low (Thompson, 2018). The fast-casual restaurant chains are Panera Bread’s competitors, therefore any other type of restaurant, would be considered a substitute because they offer different food types, service quality, and atmospheres.
As a rule, the lower the price of readily available substitutes, the higher their quality and performance, and the lower the user’s switching costs, the more intense the competitive pressures posed by the sellers of substitute products. Other market indicators of the competitive strength of substitute products include (1) whether the sales of substitutes are growing faster than the sales of the industry being analyzed (a sign that the sellers of substitutes may be drawing customers away from the industry in question); (2) whether the producers of substitutes are investing in added capacity and market coverage; and (3) whether the producers of substitutes are earning progressively higher profits (Thompson, 2018). The threat of substitute products or service is high if it offers a value proposition that is different from the current offerings in the industry.
Suppliers Bargaining Power
“Whether the suppliers of industry members represent a strong, moderate, or weak competitive force depends on how much bargaining power suppliers have to influence the terms and conditions of supply in their favor. Powerful or influential suppliers can be a source of competitive pressure because of their ability to charge industry members higher prices and/or make it difficult or costly for industry members to switch to other suppliers”. (Thompson, 2018). The suppliers of Panera Bread do not have much bargaining power over them because “Panera operates a network of 24 facilities (22 company-owned and 2 franchise-operated) to supply fresh dough for breads and bagels daily to almost all of its company-owned and franchised bakery-cafés” (Thompson, 2018). The high costs to switch suppliers has little or no effect on them because “Panera could get ingredients from another supplier if needed” (Thompson, 2018). Based on the above factors, Panera can switch suppliers of ingredients any time without any consequences; so, the competitive force from suppliers is weak.
Buyers Bargaining Power
Because the market is highly fragmented and saturated, the competitive force
used by buyers is extremely strong. If Panera prices are too high, then buyers will
chose another restaurant or may substitute for a different product. If Panera doesn’t offer quality food, the same results may occur. Because the number of choices buyers have dining and eating switching is easy for consumers. Panera and their competitors must continue to satisfy customers based on the criteria that they want to bargain with or else they may end up out of business.
The Panera Bread Company is currently in a stable financial position. They have been able to expand the company without taking on long term debt and have maintained a stable debt to equity ratio. Its growing owner’s equity indicates increasing value of the company. The company has been able to increase sales and net income every year and have proven that they can make money in the industry. The company’s low debt to equity could be an indication they are missing out on higher profits they need to take on more financial leverage. Another area that causes worry is the decreasing profit margins. Panera may need to pull in their expenditures and better manage their costs to turn more of their revenues into net income.
As one of the leading organizations in its industry, Panera Bread has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Weakness are the areas where Panera Bread can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning. Opportunities are taking your weaknesses and build on them by making them your opportunity. Threats are external factors that could jeopardize the entity’s success.
The primary components of Panera Breads value chain include receiving basic ingredients and materials, creating or making their products, delivering products to the customer, and advertising and marketing to strengthen their brand. The initial process of receiving ingredients involves ordering all products they require from an outside vender. The second process, creating products, is any step they take to transform the initial ingredients into what the customer receives. The process of delivering products to the customer is the steps involved from the time the customer orders until they leave the restaurant. The final component is comprised of any effort to reach the customer and encourage them to try the brand or keep coming back.
Panera Bread’s strategy is “to provide a premium specialty bakery and café experience to urban workers and suburban dwellers.” This strategy is closely aligned with abroad differentiation strategy because they are unique in ways that a broad range of consumers find appealing. Prior to taking the Panera concept nationwide, the owners performed cross-country market research and concluded that consumers did get excited about a quick, high quality dining experience. The concept is a mix between fast food and casual dining, or fast casual. By choosing this strategy, Panera is attempting to achieve competitive advantage in the unique offerings it provides, offerings that rivals don’t have and can’t afford to match. In this case, delicious handcrafted bread arriving fresh daily, served in an inviting atmosphere is the company’s competitive advantage and core competency
Panera Bread’s target market consists of urban workers and suburban dwellers. Although Panera has many competitors in the restaurant industry, it’s the unique product line that differentiates the company from all others. Panera Bread has proven they have a solid vision, strong strategic plan, a great mission statement and a top management team. This company values their customers and you can see this when you visit one of their locations.
Thompson A. (2018) Strategy Core Concepts and Analytical Approach. Burr Ridge, IL. McGraw