Story of St. Louis Bread Company - Case Study Example

Panera Bread case study Executive Summary Panera Bread Company is a bakery-café that has locations both in the United s and Canada. Some of the company’s bakeries are company-operated while the others are franchises. This paper presents a case study that looks into the company’s issues and goals, an internal and external analysis, financial analysis as the company’s marketing processes. According to Brizek (51) Panera Bread Company has over 1500 locations across the two countries. It’s headquarter is located at Missouri in the Unites States. The company originated from a different root company, which was known as Au Bon Pain. Au Bon Pain was initiated in the year 1976, but was purchased by Louis Kane, a venture capitalist, in the year 1978. The company initially struggled with huge amounts of increasing debts that went up to $3million by 1981. The turning point of the company happened when a Harvard graduate by the name Shaich joined the company and contributed greatly in raising the morning sales. In 1985, the company adopted a differentiation strategy. Due to customer preferences, the company decided to offer sandwiches, coffee from the same place, while customers would pay more. Au Ban Pain acquired another company, namely St. Louis Bread Company in the year 1993. It was then named Panera Bread Company. By the year 1994, the company had opened 200 stores that attained a sales figure of $183 million. The company also purchased Paradise Bakery and Café by the end of 2009. The main challenge is to determine how Panera Bread can continue to achieve high growth rates in the future. Panera Bread Company operates in a really high competitive restaurant industry/ market (Elliott 14). Some of Panera’s major competitors include Panera Bread’s biggest competitors are Chipotle Mexican Grill, Applebee’s Neighborhood Grill & Bar, and Chili’s Grill & Bar. Major franchises like MacDonald’s present a great challenge too. This levels of competitive forces the company to develop and to grow steadily so as to remain profitable (Blankson & Crawford, 2012). Introduction Panera bread Company has registered great success in the past years. However, the restaurant industry in the United States is one filled with stiff competition, ranging from giant players in the market to other smaller restaurants in the market. Panera Bread, in the midst of this great competition, is faced by the challenge of remaining profitable and successful as well as growing in the industry. Given its great strengths such as product differentiation and exclusive customer services, the company could decide to retain a steady growth. In addition, it can also explore other options such as expanding to international markets. Key Issues and Goals The company depends on its steady growth model with an aim of achieving high growth rates in future. The company’s mission statement is one that lets the company put “a loaf of bread in every arm”. This is one factor that pushes Panera’s commitment for growing (Stillman 56). There have been drastic changes in our economy such as the rise of unemployment rates, inflation, as well as reduced wages, which affect the buyer habits. With the worsening conditions of the economy, diners may have less amount cash for dining out. Technology on the other is an uprising challenges virtually all industries. Society has also changed. People become more aware of health issues. There are some who are quite consistent with healthier lifestyles. This has been a prominent factor that is introducing change in the restaurant industry (Lee, 56-57). Panera faces various strategic issues (Stanwick & Sarah 45). First of all, the industry life cycle is constantly in its growth phase. Given this, Panera Bread Company could be having or could be lacking the potential to make good use of its internal franchising capabilities so as to take advantage of the above mentioned fact. The company also has the capabilities of using its internal capabilities in advancing research and development in a bid to tap the growing number of buyers in the market. Products and Services Offered Panera is a food services company. According to Rowe (67) the company bakes fresh bread. It also makes Pastries & Sweets, Bagels & Spreads, breakfast, Soups and Mac & Cheese as well as Salads. The company has its own facilities that deliver fresh dough to bakery-cafés day in day out. Also available at Panera’s outlets is pasta, Sandwiches and Panini. Panera also offers drinks such as lemonade and smoothies (Moreo et al 34). Financial Analysis Panera Bread’s is mostly driven by same-store sales. Looking at its operating costs, labor costs the bakery Café most, though it doesn’t have to pay for the costs of labor in its franchise restaurants. Labor, as a percentage of sales, decreases over the years. Occupancy expenses, including property taxes and rent have declined over the entire period and labor as well. The company had a general and administrative cost of $123 million, which is equivalent to 5.2% of sales. As seen in the chart below, this cost went down as a percentage of sales. It is an indication that Panera Bread’s benefited from higher restaurant sales over the years. This includes incentives and compensation for the staff, excluding labor, which includes restaurant-level employees’ wages. Fresh Dough segment’s costs have also been going down due to higher leverage benefits (Jones). Figure 1: (Jones) Margin % Sales (MorningStar) Margins % of Sales 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM Revenue 100 100 100 100 100 100 100 100 COGS 79.39 78.3 76.69 76.96 76.52 77.05 78.38 78.74 Gross Margin 20.61 21.7 23.31 23.04 23.48 22.95 21.62 21.26 SG&A 6.76 6.33 6.58 6.21 5.54 5.17 5.8 5.81 R&D Other 5.18 4.96 4.73 4.75 4.67 4.79 4.91 5.35 Operating Margin 8.68 10.41 12 12.09 13.28 12.99 10.91 10.11 Net Int Inc & Other -0.31 -0.07 -0.32 -0.02 0.01 0.12 0.05 0.02 EBT Margin 8.37 10.34 11.68 12.07 13.29 13.11 10.96 10.13 Profitability (MorningStar) Profitability 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM Tax Rate % 37.97 37.93 38.06 38.18 38.71 37.27 35.34 35.24 Net Margin % 5.19 6.36 7.25 7.46 8.14 8.23 7.09 6.56 Asset Turnover (Average) 1.89 1.79 1.75 1.87 1.86 1.95 1.97 2.09 Return on Assets % 9.83 11.39 12.7 13.93 15.11 16.02 13.94 13.73 Financial Leverage (Average) 1.36 1.4 1.55 1.57 1.54 1.69 1.89 1.8 Return on Equity % 14.33 15.76 18.76 21.74 23.49 25.78 24.97 23.39 Return on Invested Capital % 13.47 15.84 18.83 21.82 23.58 25.87 22.06 20.68 Interest Coverage 68.69 200.89 267.91 268.52 262.55 297.98 153.03 155.47 The above two tables form a summary of ratios of profitability and margin percentage sales over an eight year period. Marketing and Operations The company has always marketed its brand name while associating it with the concept of fast casual dining. Fast casual dining is an alternative to traditional fast food. In the year 2013, Panera Company invested 2.3% of its total revenues in advertising and marketing campaigns. The Company expects each individual restaurant to give approximately 0.7% of its sales to the national advertising fund, as well as spend 2% of its sales on local advertising (Lee, 60). The company’s marketing strategies pay great emphasis on product merchandising, for instance the promotion of new menu item, rather than concentrating on product prices (Tillotson 23). In addition, the company is quite active in frequently sponsoring charitable events as a strong marketing tool. Most of the company’s restaurants donate their leftover breads as well as other foods to local charities at the close of each business day. Panera Bread Company has been quite keen in taking advantage of the technological changes that have occurred in order to allow speedier service. The use of computer chips in their baking equipment, the use of iPads at the tables for diners to make orders, and mobile phone applications that allow the customer to order and make payments ahead of arriving is just but a start in the advancements in technology. Panera Bread is also embracing the changes in the health awareness in future by cutting out all artificial ingredients as well as preservatives (Lee, 62). Panera Bread’s also has a platform known as “Live Consciously, Eat Deliciously”, which launched after nearly a year of research and testing. The marketing platform focuses on the concept’s philosophy (Gala, 160). Internal Company Concerns Panera Bread’s competes in five different submarkets i.e. breakfast, lunch, “Chill out”, light evening and take home bread. The company ensures differentiation by offering a wide variety of menu options as well as café ambience. The company also has a high customer or brand loyalty (InteliSpend). In addition, it has embodied strong relation with the existing franchises in the US. However, they rely heavily of franchise partners (Blankson & Crawford, 12). The company makes use of proprietary software in building and analyzing data on the attractiveness of sites where they could possibly locate new stores. This is important in their strategies. Competitors Panera Bread’s target market comprises of urban workers and suburban dwellers. Even though Panera has numerous competitors in the restaurant industry, it’s the exceptional product line that differentiates the business from all others. Basing on the five forces model, the company’s competition levels from rivalry sellers is quite intense. The number of competitors in the industry is quite high (Hoovers, 2014). In addition, rivals face high barriers in exiting the industry. Competition from potential new entrants is low as a huge investment is required so as to enter the industry. The product differentiation is also constantly changing. Substitutes are provided by convenience stores and coffee shops that are easily accessible. Other alternative places to eat that are less expensive are also available. Buyers have so many options for dining out, and with the economic conditions many people prefer to eat at home (Blankson & Crawford, 2012). Srinivasan (33) states that Panera Bread’s possess a great competence in their market niche. They offer premium specialty bakery. Their customer experience is exclusive, both to urban and suburban residents. The company focuses on offering their customers better services than any of their competitors. They make the dining experience quite attractive to their diners. Most of their customers will actually pass up their competitors easy casual restaurants to at least dine at the nearest Panera Bread café (Blankson & Crawford, 2012). Other External Concerns Panera Bread’s external environment is characterized by certain opportunities and threats. Looking at the economic side of it, the business of restaurants is quite competitive, presenting a great threat to Panera Bread. Looking at the positive side, sales at the food service industry in the United States normally trend upwards. Socially, consumers are always interested in trying new establishments, which is a great threat to the existing markets. On the other hand, consumers tend to remain loyal whenever they receive a great experience. The political situation in the US and Canada is favorable. Government regulations are rarely altered; hence as long as company adheres to the existing ones then it is safe. Conclusion and Recommendations Panera Bread Company’s steady growth model is a good one. The company has doing really good in the past years (Powers & Mary 32). In addition, the fast casual market has an abundant undeveloped potential for the future. The company should therefore strive to maintain high quality, excellent service and a steady growth model. However, the company has to be aware of major franchisers competitors who are willing and possess the power to compete with Panera Company for customers, profits and market share. This may eventually result in a recession of sales. Panera still lacks the financial strength of major franchisers such as McDonalds. The company can also exploit the opportunity of a global expansion. This would allow Panera Bread to become a forerunner in the world market. The European market so far lacks a similar existing business, and the idea of expanding to the European culture might be a great fit. Europeans generally care a lot about the quality of food that they eat, and with the ever growing industrialization they spent even much spent less time on cooking or even visiting full-service restaurants which are more expensive. On the other hand, an international level expansion might be quite a risky endeavor. Work Cited Blankson, Charles, and John C. Crawford. "Impact of positioning strategies on service firm performance." Journal of Business research 65.3 (2012): 311-316. Brizek, Michael G. "Putting a loaf of bread in every arm: Panera bread case study." Journal of culinary science & technology 5.1 (2006): 39-49. Elliott, Stuart. "Selling products by selling shared values." The New York Times (2013). Florin, Dave, et al. "Profiting from mega-trends." Journal of Product & Brand Management 16.4 (2007): 220-225. Gala, C. (2013 , May). Promotions. Retrieved June 2015, from QSR Magazine: http://www.qsrmagazine.com/promotions/focus-values Hoovers. (2014). Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&sqi=2&ved=0CCQQFjABahUKEwii_sTj5YfGAhVEs9sKHaybACA&url=http%3A%2F%2Fwww.hoovers.com%2Fcompany-information%2Fcs%2Fcompetition.Panera_Bread_Company.59b82960f75a0c07.html&ei=mZN5V InteliSpend. (n.d.). Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0CEIQFjAGahUKEwjon7q85YfGAhXGCNsKHSj2AKw&url=http%3A%2F%2Fwww.bhengagement.com%2Fmake-customer-loyalty-programs-more-lovable%2F&ei=R5N5VajgIcaR7Aao7IPgCg&usg=AFQjCNHKEn7sz9 Jones, A. (2014). Panera Bread. Retrieved June 2015, from Market Realist: http://marketrealist.com/2014/12/panera-bread-able-achieve-operating-leverage/ Lee, K., & Madanoglu, M. (2013). Who Shook Big Mac?: Panera Bread Co.Hospitality Review, 23(1), 4. Moreo, Andrew, Cihan Cobanoglu, and Frederick DeMicco. "A comparative analysis of restaurant websites and hospitality school restaurant websites." Journal of Hospitality & Tourism Education 19.3 (2007): 40-47. MorningStar. (2015). Financials. Retrieved June 2015, from http://financials.morningstar.com/ratios/r.html?t=PNRA Powers, Catharine H., and Mary Abbott Hess. "A message to the restaurant industry: It’s time to “step up to the plate”." Journal of the American Dietetic Association 103.9 (2003): 1136-1138. Rowe, Megan. "Bread Heads-Megan Rowe explores why America loves Panera Bread, our 2006 Chain of the Year." Restaurant Hospitality 90.8 (2006): 49-57. Srinivasan, Raji. "Dual distribution and intangible firm value: Franchising in restaurant chains." Journal of Marketing 70.3 (2006): 120-135. Stanwick, Peter, and Sarah D. Stanwick. Understanding business ethics. Sage, 2013. Stillman, Todd. "Introduction McDonalds in Question: The Limits of the Mass Market." American Behavioral Scientist 47.2 (2003): 107-118. Tillotson, James E. "Fast‐Casual Dining: Our Next Eating Passion?." Nutrition today 38.3 (2003): 91-94. Read More