Operational Strategy of Panera Bread - Research Paper Example

PANERA BREAD Table of Contents Introduction……………………………………………………….3 Mission ment…………………………………………………3 Objectives………………………………………………………….4 Operational Strategy……………………………………………..4 Board of Directors………………………………………………..5 Social Initiatives…………………………………………………..5 Chief Elements of Panera Bread’s Strategy……………………5 Differentiation Strategy of Panera Bread………………………8 Panera Bread and Vertical Integration………………………..9 Financial Analysis……………………………………………….9 SWOT Analysis…………………………………………………10 PESTEL (STEEP) Analysis…………………………………....15 Recommendations and Conclusion……………………………17 Introduction Founded by Ron Shaich and Louis Kane under the name of Au Bon Pain Co., the company Panera Bread began its journey in the year 1981 in Canada and US. Throughout the decade of eighties and nineties, the name of Panera Bread was popular among the all the nationally operated bakeries and cafes. By the year 1997, it became quite clear that Panera bread has the necessary resources in terms of equipment; workforce and monetary funds that would help it become one of the leading national brands. In the same year, the name of the café was changed to Panera Bread. The company has been quite fortunate to be mentioned by the Wall Street Journal as the one of the middle sized café which provides excellent service and superior quality food to its customers. The management structure went through changes during the year 2007 which assisted the company to focus more clearly on the designed goals. As of 2013, Panera Bread has been operating in Canada as well as in more than thirty states and successfully delivering its authentic bread in a warm and cozy ambience by ensuring efficient service. Mission of Panera Bread The mission of Panera Bread is based on the concept of ‘A loaf of bread in every arm’. Panera’s aim is to emphasize much on its strategy of Bread Leadership in which they strive to offer fresh bread to savor the taste buds of its customers across the US states and Canada. Objectives There three core objectives of Panera are: -Provide a good quality food which makes it stand out in competition -Provide an ambience which is soothing and warm -Offer high standards of service so that customer loyalty could be achieved The management staff at Panera is well aware of its goals and objectives and ensures that the best product, service and ambience is experienced by the customers at both company operated and franchises of Panera Bread. Freshly baked bread that is made available to all its cafes everyday serves as the differentiating feature for Panera bread and all the efforts are directed towards the achievement and maintenance of this key feature. Operational Strategy of Panera Bread The key strategy of Panera is to keep itself updated technologically and innovatively in such a way that it stands strongly in competition. The mission statement of Panera serves as the driving force for its strategy. Panera keeps revising and updating its menu so as to meet the organic and healthy food requirements of its customers. The price of food charged at Panera is a little higher than those of its rivals because Panera believes in delivery real quality to its customers in terms of product, ambience and service and it cannot risk this goal by offering cheap rates for customers’ attention. Strengthening the differentiation feature of freshly baked bread reaching the restaurants of Panera Bread everyday is also a key part of the operational strategies of Panera. You will find the core elements of Panera’s strategy later in the paper. Board of Directors In the year 2010, Shaich became the CEO of Panera Bread and Bill Moreton was chosen as the Chief Operating Officer and Executive Vice President. Later in the year 2012, the two names were given the sharing titles of CEO so as to reflect their partnership and commitment towards the company. But in 2013, Bill Moreton decided to take up the task of looking after the overseas operations of Panera Bread leaving the title of CEO and Chairman of Board to Shaich. Social Initiatives Panera Bread’s social initiatives are derivates of its mission statement. In order to make sure that the loaf of bread reaches every arm, Panera has laid down a pay what you can program where customers can put in their donations in a box without any set limit. Similarly, Panera Cares is an initiative where Panera ensures that its bread could reach the hands of those who are poor and in need of food. Chief Elements of Panera Bread’s Strategy a) Panera Bread strategy has focused on setting up franchising agreements in such a way that the franchisers set up a specific number of cafes within a defined time period. The franchise developer Panera Bread decides to choose are the one who have already established their credibility in the industry with a proven track record including operators of famous restaurants. A specific criterion has been set up for parties interested in entering the franchising agreement with Panera Bread. b) Panera Bread aims to create a menu which the customer grade as crave-able along with a great service and warm environment. Panera believes that success is dependent upon three factors of PEGS. PEGS is the abbreviation of product, environment and great service. c) Panera bread not only offers menu for breakfast, lunch and dinner but also offer distinctive items that are tempting for those who like to eat between breakfast and lunch or post lunch. Special items have been included for evening with tea and coffee. d) The menu undergoes revision at Panera Bread frequently and new dishes are added to the list so as to attract more customers with a sense of taste for fresh and healthy food towards it. It is also ensured that the items included in the list on menu are healthy and mostly organic. e) Panera Bread offers a very inviting ambience to its customers. They call it as ‘Panera Warmth’ where the customers can relax and feel very comfortable. The furniture and lighting is very soothing and as per the claim of Panera Bread, they offer an ambience which is way better than that of other ‘guys’ in the street. The warmth of the ambience makes the customers walk inside the doors of Panera even though other cafes and bakeries exist in the same streets. f) Panera Bread supply fresh dough to all its company owned and franchises-a distinguishing element that other bakeries and cafes do not follow. Panera bread has gained competitive advantage by giving authority to a very few of its cafes to supply fresh bread to the rest of its cafes so that the cost effectiveness could be achieved. Also the efficiency of Panera Bread’ operations would be enhanced so that the making of bread doesn’t start from the scratch every day. g) Panera Bread understands that catering programs are a great way to grow in the market. This way Panera will have the opportunity to grab more shares from customers by offering its menu at school functions, parties and family gatherings without investing in physical facilities. h) The aim of Panera Bread is to offer a very comfortable and inviting overall experience to all its customers without focusing on low pricing like its competitors. i) Doing a very extensive market research in order to determine the preferences of its customers has also been a key strength for Panera. Differentiation Strategy of Panera Bread Panera Bread has this aim of providing a special bakery experience to its customers including both sub-urban and urban dwellers. This approach finds a close linkage with the broad differentiation strategy because Panera wishes to attract a wide range of customers by offering products and ambience that distinguishes itself from its competitors (Thompson, 2012). Before the management decided to extend the operations of Panera Bread, they actually carried out a marketing survey and a thorough research and came to the conclusion that a premium dining experience will bring in more satisfied customers. The concept of Panera Bread lies somewhere between casual dining and fast food so by opting for broad differentiation strategy, it is actually trying to cater a broad range of customers by providing them unique menu and overall special experience that none of the rivals could afford to match. For instance, the major competitive advantages include the fresh bread that arrives at all the bakeries and cafes of Panera Bread every morning and the warm and inviting ambience that pushes the customers to relax and eat at the café. However, Panera is trying to achieve competitive advantage by integrating three components of PEGS that is product, environment and great service. PEGS is one of the chief elements of Panera Bread strategy. Panera Bread and Vertical Integration We can say that Panera Bread has chosen to be vertically integrated on a partial basis. This is because not every ingredient they would use in their menu would be made in the kitchen. Some items including meat, vegetables, coffee beans, cheese and the like have to be obtained from other suppliers in the market. Also glasses, napkins, cooking ware, plates etc have to be acquired by a multitude of suppliers. However, Panera is considered as partially integrated in its supply chain which could be explained from the fact that there are a few facilities where the bread is baked fresh everyday and for both the company owned cafes and franchises. Then a vehicle transports the bread or the dough to the store locations where the chef adds the magic of his skills to it. According to Harrigan, K (2003), companies that are fully vertically integrated are those which do not require any of the supplies from outside the company. Financial Analysis for Panera Bread Year 2007 2008 2009 2010 Net Income (Dollars) 57,456 67,436 $86,050 $111,866 Earnings Per Share(Dollars) 1.81 2.24 2.81 3.65 Growth in Income (%) -2 17 28 30 Return on Assets (%) 8.22 10.01 10.28 12.10 Return on Equity (%) 12.88 13.62 14.41 18.78 We can see from the given table that the net income for Panera Bread has been increasing over the years which mean that it is making revenues which are more than its expenses. Before 2006, the expenses of the company were more and the company had seen difficulty in cutting down its expenses. The increasing trend in earnings per share reveals that Panera is a profit making company and the figures seem to invite investors. The ROA values also indicate positive financial performance of Panera but these values are a bit lower than Starbucks and other competitors because of Panera’s concentration in a few regions only. THE ROE has been increasing as well which is quite satisfying for the shareholders. Although the company has not been in debts but it has been growing at a steady pace-sometimes it experiences trouble in meeting the overhead costs but broadly suggesting, the financial position of the company is attractive for shareholders and investors. SWOT Analysis for Panera Bread Strength A few of the strengths of Panera Bread are as follows An established name in the market segment where it operates. A strong and sound relationship with its franchisees Freshly baked bread which makes Panera stands out from the rest in competition Robust financial performance of Panera A very appealing menu Warm ambience Great Service Catering Business According to the annual report of 2008, Panera had almost twelve hundred bakery cafes operating in the region of Canada and USA only. The success of Panera is totally dependent upon the quality and healthy menu it offers. The list also includes high level of customer service provided at company operated and franchises of Panera as well as the warm ambience that compels the customers to relax and eat at Panera. As per a survey conducted by the Wall Street Journal, the customers of Panera have the highest level of loyalty in their market segment. The strong brand image and reputation also helped Panera achieve the excellence award in the year 2007. More than two fifth of the cafes of Panera Bread are franchises which are operating very successfully across the United States of American and Canada. The reason behind this success of Panera lies in having strong and healthy relationship with the franchises and respecting the franchise agreements. Panera has proved that a company can easily grow when its franchisees are delighted. As mentioned earlier, the bread offered at all Panera cafes is a distinguishing feature. This bread is prepared at a few company owned facilities which is then distributed to all the franchises. The bread is made with special attention which is quite healthy and tasty as compared to the competitors. This feature has helped the company gain a secure position in its niche segment. In order to increase its sales and growth margin, the company is making a strong image in catering business where it offers its menu and services outside the premises of its restaurants that is at school functions, family dinner and lunches or official parties. The financial performance of Panera Bread is really sound and robust. It has experienced an increase in revenues by 22 percent in the year 2008. The same year, the company has seen an increase in net profits by 17.4%. Weaknesses Some of the weaknesses of Panera Bread are Concentrated geographic operations Low sales volume Better services at the Panera franchises Panera Bread operates in concentrated geographic locations meaning that the company only serves customers in Canada and Northern part of American states. Due to this weakness on part of Panera Bread, the competitors benefit by operating in Europe, Asia and Central/Southern America. Panera Bread is not known in Asia and Europe because of its non presence in these markets. Although the company is making good profits but it can ensure growth and steady profits by exploiting regions other than North America. This step would bring in menus belonging to diverse world cultures. Because Panera bread is not a multinational name therefore, its sales volume is low when compared to its competitors such as McDonalds and Starbucks. If Panera bread expands its operations across the globe, it can surely enjoy benefits of strong financial position. It has been seen that the quality of food and service is much better at the Panera franchises as compared to company operated cafes. Probably the difference is because franchises want to maintain good relationship with the company as well as maintain its reputation in the market so it naturally makes more struggles to keep the customers satisfied. And the company operated units do not put in much effort to delight the customers which is regarded as negative. The company operated and owned bakeries or cafes must follow the strategies and culture of its franchises. Opportunities The significant opportunities of Panera Bread are Organic Products’ demand Expansion Control cost of operations As the lifestyle is changing, more and more people are shifting towards eating organic food. Although the specialty item of Panera that is its bread is made of natural and healthy ingredients but if it includes organic ingredients for majoreity of its recipes on the menu card, it can certainly gain advantage over its competitors. Panera operates only in Canada and North America which means it has restricted itself from making more profits from the customers living in Europe, Asia and Africa. If Panera bread switches to globalization, it can certainly strengthen its brand image and give tough competition to other players in the industry. In times of recession, people do not spend too much on luxury meals so Panera must maintain its focus on serving two meals a day. Although Panera found it a great opportunity to offer special items in the menu for those who eat between breakfast and lunch or post lunch but the idea could not gain much acceptance. So in order to reduce its cost structure and maintain strong relationships with the customers, Panera must focus on offering breakfast and lunch. Threats Some threats to Panera are as follows Intense competition Healthy menu items Uncertainty in transportation The restaurant industry in which Panera bread operates is way too competitive. Panera is somewhere in middle of fast food and casual dining which makes McDonalds, Starbucks, Yum! as its main competitors. Although Panera has been competing very well in the market but due to the global image of its competitors, Panera could lose its market share. Customers all over the world are aware of the risks of fatty and unhealthy foods and they prefer to eat organic and healthy choices at the restaurants. Panera bread must offer low fat and organic items on the menu otherwise it will not be able to stand competition from its rivals. The differentiating feature of Panera bread is its fresh dough and bread which reaches all the company operated cafes and franchises in temperature controlled van so as to retain the freshness and flavor. In harsh weather conditions, the transporation system is affected badly due to which the delivery schedule of bread to respective cafes and bakeries suffers. PESTEL (STEEP) Analysis A through scanning of the external factors that drive the company’s strategies and growth pattern could be done through PESTEL analysis or in other words STEEP analysis (Doke, L., Hatton, 2007).According to this analysis, the main factors that brings necessary changes within an industry could be technology. Technology is that factors that keeps on changing with time and if a company cannot keep itself updated according to the latest trends in technology, then it is likely to become obsolete. The better Panera Bread adapts to the latest technology, the better and enhanced level of services it can offer. For instance, the buzzer system installed at Panera saves the customers from waiting for their order by the counters; the waiter brings the order to the customers’ tables. In the current era, no one can expect to spend a minute without having access to Wi-Fi. So in order to keep up with the technological demands as well as compete against the rivals, Panera bread has installed free Wi-Fi for the sake of customers’ pleasure. Panera has detailed out all the items included in its menu along with their calories. This helps the health conscious people to keep a check on their calories when they eat at Panera Bread. The prices of food items at Panera are although affordable but they are a little higher than those of competitors. In these times of economic recession, most Americans are facing tough financial days so they would prefer to eat at competitors’ where the prices are low. Upper class and upper middle class would prefer dining out at luxury restaurants rather than at casual dine in options. Green is the buzz word these days which means environmental laws are stressing on the usage of recyclable materials for packing and disposing off restaurant wastes. Also Panera has to focus on including more and more organic items to its menu so as to meet the health standards. FDA has laid down certain regulations for the quality and hygiene of food which Panera has to follow in any case. If a company fails to meet the FDA standards, it could suffer financially as well as risk its general image. Rules and regulations regarding the labour wages and salaries are also to be followed by Panera in order to maintain its reputation in the region. Recommendations and Conclusion To conclude, we can say that the company has been doing well but if it overcomes its weak points, it can for sure give a hard time to its competitors. It could expand in other parts of the world but for that the taxes and other operations costs would increase which it could cover up by attracting the new market. Expansion could make the standardized supply of its specialty item, the bread difficult to all its outlets. Panera bread must try to balance its risks with the cost benefit structure if it wants to increase its sales volume as compared to the giant global competitors. References Doke, L., Hatton (2007). FCS Entrepreneurship L2. Cape Town: Pearson Education South Africa. p59-65. Harrigan, K (2003). Vertical Integration, Outsourcing, and Corporate Strategy. Washington: Beard Books. p1-9 Panera. (n.d.). Franchise Information. Available: https://www.panerabread.com/en-us/company/franchise-overview.html. Last accessed 5th Dec 2014. Panera. (n.d.). Our History. Available: https://www.panerabread.com/en-us/company/about-panera/our-history.html. Last accessed 7th Dec 2014. Thompson (2012). Crafting and Executing Strategy. New Delhi: Tata McGraw-Hill. p150-151. Read More