Panera Bread Case Study
MSA 603 Week 2 Assignment Panera Bread 1. SWOT Analysis Strengths a. Minimal Long-Term Debt. Most expansion is financed by cash flow from operations. b. Quality control is maintained by making fresh dough daily at one of several fresh dough facilities. The dough is then transported daily from the facility to stores and baked fresh in the store. The average length of each trip is 300 miles. c. Strong brand recognition. d. Free Wi-Fi at most locations. However, to encourage frequent customer turnover, many locations limit Wi-Fi to 30-60 minutes or turn it off completely during peak business hours. . Growth through successful franchise operations. f. Growth through acquisition; Paradise Bakery & Cafe acquired 2009. Weaknesses a. Lack of a dinner menu with “substantial” entrees. b. Still lack a presence in Manhattan (but do have locations in Brooklyn, Bronx, & Jersey). Competitor Au Bon Pain has several Manhattan locations. Opportunities a. Improving economy equates to more people eating out. b. Panera Cares Community Cafe. A new concept in corporate giving. Ensures that everyone who needs a meal gets one.
People are encouraged to take what they need and donate their fair share. There are no prices or cash registers, only suggested donation levels and donation bins. The cafes also offer the option of volunteering an hour of time for a meal. Third location just opened in January 2011. Leads to positive brand image (panerabread. com, 2011). c. The company has very devoted customers and huge brand recognition. Might consider marketing their bread and bread products at retail grocery chains. They already have the regional dough centers established.
They could expand these to baking facilities and still deliver their fresh bread daily using their existing transportation network. d. Consider test marketing a full service casual dining restaurant to capture their same customer base for the evening meal with expanded menu choices. Threats a. Operate in a fiercely competitive business environment. b. As commercial real estate market improves, stores may experience difficulty negotiating favorable long-term leases. c. Their most vulnerable area is their transportation network.
If they experience a disruption of service at one dough facility, it could mean that several stores do not get their fresh dough for one to several days. Because the stores are not equipped to make the dough, this could be devastating to their bottom line. d. Additionally, because of the current outlook for oil prices, the company may have to absorb increased fuel expense without being able to pass that cost on to the consumer. 2. Application of 7 questions in chapter 4 to Panera Bread A. What are the industry’s dominant economic features?
Panera Bread is a part of the Fast Casual Restaurant Industry. Fast casual restaurants are defined as hybrids of quick service and casual dining that offers the consumer more freshly prepared and customized product than a fast food restaurant. The fast casual restaurant sector is both the newest and fastest growing sector of the food industry (franchisedirect. com, 2011). Defining features of a fast casual restaurant are debatable. One opinion states that a restaurant in this sector lacks drive-thru service… and full table service. Another opinion states this is a conceded view.
Some things agreed upon include, the typical cost of a meal ranges from $8-$12, has a five-to-eight minute order time, and made-to-order preparation. The restaurants have nice ambience and decor, and a food delivery system where customers make menu selections at a counter and the food is brought to customers’ tables (fastcasual. com, 2011). In 2009, the industry experienced a 10. 8% growth in sales year over year with close to $20 billion in total sales, up from $11 billion in 2006. Continued growth is expected as more consumers spend their disposable income in fast casual restaurants such as Chipotle and Panera Bread (franchisedirect. om, 2011). The scope of competitive rivalry and number of rivals is hard to determine because many restaurants that display fast casual attributes start as independent ventures and are very much localized to one or two markets. In addition, large national or multi-national fast-food chains have been upgrading some of their locations to the fast casual concept. Our text however lists several competitors in this sector and they run the gamut from regional, to national, to international with size of 39 locations (Nothing But Noodles) to over 500 locations (Chipotle Mexican Grill).
Product innovation and R&D are important to the industry because if you expect the consumer to pay up for your product vs. regular fast-food, your menu choices should be well tested. Some restaurants highlight seasonal menus based on the seasonal availability of certain ingredients. B. How strong are competitive forces? In both the smaller fast casual sector and larger restaurant industry as a whole, there exists fierce competition. Our text states that rivals seek to set themselves apart via pricing, food quality, menu theme and selection, dining ambience and atmosphere, service, convenience, and location.
The threat of new entrants into the restaurant industry is always present. The more serious threats come from regional or national chains that have corporate backing and marketing experience as opposed to the independent establishments. If you specifically focus on the fast casual sector of the restaurant industry, there is growing competition from large, national fast-food chains who are upgrading their locations to the fast casual concept. Captain D’s Seafood is just starting this transition in its home market of Nashville.
They are installing upscale interiors, adding Wi-Fi service, and expanding the menu with grilled items like Alaska salmon, tilapia, and farm-raised catfish. Another example is the DQ Grill & Chill concept that now accounts for 10% of the Dairy Queen chain. In addition, big name celebrity chefs are downgrading to the fast casual concept. Bobby Flay, Rick Bayless, and Wolfgang Puck are attracted to the blend of menu flexibility and economics of scale the segment can offer (qsrmagazine. com, 2011). Competitive pressures from suppliers in the form of increased costs have been passed onto the consumer by way of increased prices.
Panera enters into agreements with suppliers to purchase commodities at a fixed price over a one month to one year period. They have also entered into swap agreements to manage fluctuating butter prices. Competitive pressures from buyer bargaining power have been minimal. Instead of discounting their product to lure customers back, they focused on offering guests an even better “total experience” through new menu items, new china, and maintaining their present labor force so the customer did not have to wait longer, or the employees did not become frazzled from overwork. C.
What forces are driving industry changes and what impacts will they have? The industry growth rate for fast casual continues to increase and it does so at the expense of fast-food and casual restaurants. In 2010, when fast casual sales were up 5%, fast-food was down 1% and casual dining was down 2%. Fast casual is also forecast to lead the restaurant industry in growth over the next 10 years (fastcasual. com, 2011). There are also changes in who is buying the fast casual product. The main group will still be Generation Z (10 to 30 year olds) but the fifty-five plus crowd will make up a larger percentage in the future.
Product innovation is also a leading factor. When it comes to product taste and quality, fast casual consistently wins over fast-food, and in some instances, casual dining. Finally, changing societal concerns, attitudes, and lifestyles is a driving force in the fast casual industry. Restaurants are more likely to promote free range or organic food and when possible, the product is made from local produce. D. What market positions do rivals occupy – who is strongly positioned and who is not? Panera Bread is now located in 40 states and Canada.
When comparing size by number of stores, some close competitors include Applebee’s Neighborhood Grill and Bar, and Chili’s Grill and Bar. However, the concept of both of these competitors is quite different from Panera. Both Applebee’s and Chili’s offers full table service and bigger menus and alcoholic beverages. When comparing with other fast casual restaurants, close competitors include Chipotle Mexican Grill, Au Bon Pain, McAlister’s Deli, and Fuddruckers. All of these competitors belong to the same strategic group based on degree of service offered (limited), product line breadth (narrow), and geographic coverage (national, or global).
Financial reports reveal that Chipotle, Panera, and Au Bon Pain are strongly positioned. However, because McAlister’s and Fuddruckers are privately owned, it is difficult to assess their financial stability. E. What strategic moves are rivals likely to make next? Panera puts a lot of effort into strategic placement of their restaurants. Not only careful consideration, but also speed of transaction could play a major role. This is most important when entering a new market where competition already exists. The competition may already have the prime real estate locations.
Having the financial resources at hand to compete for prime locations is necessary for survival. Restaurants that promote freshness must locate in areas that get enough traffic to sell items quickly to ensure they remain fresh. Other competitive moves might include pricing or discounting for the same product line, or the evolution of existing product lines. F. What are the key factors for future competitive success? The fast casual sector was carved out of the space that existed between the fast-food and casual dining markets. Its success relates to giving the customer a more pleasurable dining experience without having to pay too much.
Comparing a $20 meal for two at a fast casual restaurant versus a $30 meal for two at a casual dining restaurant, the fast casual diner can save an additional $4. 50 by eliminating a 15% tip to the server in a casual restaurant. Using this example, price is and always will be a key factor for the sector. Another key factor is time savings. If you want a quick meal but don’t want fast-food, then a fast casual restaurant is the obvious choice. Just waiting to be seated at a casual restaurant during peak times can take as long as the entire dining experience at a fast casual location.
I personally dislike having to wait for a table at an Applebee’s or Outback. I will usually leave if I know the wait is going to be greater than 45 minutes. Listening to the customer and being able to anticipate their wants and needs is also a key factor for the industry. Offering more organic or free range food, promoting local, sustainably-grown produce, and featuring a wider range of ethnic fare have been some of the things the industry has adopted to satisfy their customer base. G. Does the outlook for the industry offer the organization a good opportunity to earn attractive profits?
As noted above, the fast casual industry continues to steal market share from both the fast-food sector and the casual dining sector. 2010 figures show an increase in sales of 5% while both the fast-food and casual dining sectors declined. The improving economy and improving unemployment means more disposable income for families and thus more dollars to spend on dining out. Because of this, the sector will continue to grow. However, the industry has to consider what costs it can pass on to the consumer. Customers at Panera are already paying up for the improved ambience and fresher ingredients.
They may not be willing to pay increased costs so the company can recoup their increased transportation costs. Panera Bread has been profitable for the last several years. 2010 saw a 30% increase in net income over 2009 and 2009 saw a 27. 6% increase in net income over 2008. Since the bottom of the market in 2008, their stock price has quadrupled from around $30 to around $120. They have been very successful in the fast casual sector and have plans to continue expanding their growth using their proven record of accomplishment as their guiding light. 3. What strategic adjustments does Panera Bread need to make?
Panera Bread has been hugely successful in executing their strategy. It is difficult to find any weaknesses that the company displays. As mentioned above, the company has yet to penetrate the Manhattan market. However, the cost of entry into this market may be prohibitive, especially since one of their main competitors; Au Bon Pain is already entrenched in that market. Sometimes, doing nothing is the best option. Panera has rewarded its shareholders handsomely. They do not pay a dividend now and have no plans on paying a dividend for the foreseeable future, preferring instead to use their cash flow to continue expansion.
This is likely the best use for their cash because of their proven model of successful store openings. It was noted above; they should consider test marketing a full service casual dining concept. Because of their loyal customer base and strong brand image, they would likely be successful navigating the full service casual dining sector. However, due to their success with the fast casual concept and their proven track record of mastering this concept, they will likely not consider this move until they have reached maximum market penetration and their sales begin to plateau.
It was also suggested above that daily delivery of their fresh baked products to retail groceries would expand their product line to consumers who have not tried their product. Their current regional dough facilities and transportation network would likely be able to support this change with minimal modification. References Anonymous. (2011). Fast casual restaurant franchise industry report. Retrieved from http://www. franchisedirect. com/foodfranchises/fastfoodfranchises/ fastcasualrestaurantfranchisestudy/76/260 Bilsky, C. (2007).
Feasting on fast-casual. CIRE Magazine. Retrieved from http://www. ccim. com/cire-magazine/articles/feasting-fast-casual Central Michigan University. (2010). Strategic planning for the administrator (2nd ed. ). Boston, MA: McGraw-Hill. Davis, L. (2010). Confounded by fast-casual. QSR Magazine. Retrieved from http://www2. qsrmagazine. com/articles/features/115/fast-casual-1. phtml Killifer, V. (2011). Fast casual segment outperforms industry. Retrieved from http://www. fastcasual. com/article/179973/Fast-casual-segment-outperforms-industry
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