Panera Breads Strategy, Financial Analysis of Companys Condition - Case Study Example

Panera Bread (Case Analysis) Panera Bread is one of the companies listed on the NASDAQ as a small cap stock company under the symbol PNRA. As the name suggests, the company operations are in the service sector of the restaurant industry whereby it operates in the segment that deals with retail bakery-cafe. Under the leadership of Ronald M. Shaich and William W. Moreton as co-CEOs and chairman and president respectively, the company operates under the banners of St. Louis Bread Company, Paradise Bakery & Cafe, and Panera Bread Company. During the humble beginnings of the company, it operated in the East Coast region although it has established its operations in most of the states in America. Specifically, the company has established 1,625 locations in 44 states and Canada (Panera Bread, “Company Overview”). The company started in 1981 as Au Bon Pain Company and proceeded to purchase St. Louis Bread Company in 1993, which was operating 20 bakeries in the St. Louis area, Missouri. Thereafter, different events contributed to Au Bon Pain Company selling all its business units although it retained Panera with the company renaming it Panera Bread Company in 1999 (Panera Bread, “Our History”). In effect, this company operates under the three banners mentioned earlier in this expose. The purpose of this analysis is to inform the reader about the situation at Panera Bread. To achieve this, this analysis will identify the strengths, weaknesses, opportunities, and threats in Panera Bread. Finally, the analysis will include the current financial situation in the company. Industry Analysis Before carrying out a SWOT analysis of Panera Bread, it is important to conduct an industrial analysis of the company. In line with this, it is crucial to point out that Panera Bread’s operations are in the competitive restaurant industry. Nonetheless, Panera Bread prides itself as a producer of higher quality products than its competitors in the industry. In this case, despite the company operating as a fast food chain, Panera Bread Company ensures that its products are of high quality in order to meet the needs of the health conscious customers. In an industry dominated by large food companies such as McDonald’s, Wendy’s, Burger King and cafes such as New World Restaurant and Starbucks, Panera Bread ensures that its products are of higher quality than those of all these competitors. In this case, the health conscious nature of the world’s population has made it a necessity for companies to engage in production of healthy products. To underline the strategy of Panera Bread Company’s focus on healthy products, a study conducted this year identified Panera Bread as the fast food of choice for customers who were health conscious. The study by Scarborough revealed, “Health-conscious consumers who have had fast food in the past 30 days are more than twice as likely to dine at Panera Bread for lunch” (“Health-Conscious”). In effect, this implies that the company was on the right track towards capturing this important and ever-growing segment of the population that was health conscious. On the other hand, Panera Bread is a company smaller than McDonald’s, Wendy’s, and Burger King, which puts the company at a strategic position since the market leaders’ expansion strategy aims at international markets. Hence, Panera Bread can work on differentiating its products in order to achieve market edge over its competitors. Panera Bread’s Strategy Panera Bread’s strategy involves a number of different approaches in business. Importantly, the company’s menu tries to implement the company’s strategy of providing a diverse menu with an ambience that invites customers. In this case, the company’s deli menu contains a variety of products that range from soup to freshly-ground coffee, sandwiches, and freshly baked bread. In effect, the menu intends to fit the needs of people who did not have time to eat in conventional restaurants with the foundation and core product of the company being freshly baked bread. In this case, customers are aware that the bread at the company’s chain is fresh and not stale (Panera Bread, “Menu and Nutrition”). Panera targets customers in urban areas and other areas where customers gather to socialize, such as suburbs. In effect, the company aims at creating a cool ambience that enhances comfort amongst customers and provides value added services to their customers. These services do not have a relationship with the products the company offered, but the services ensure the strategy of making the company’s cafes comfortable. Such services include free Wi-Fi to customers, which enables customers to proceed with their work while taking their meals in the restaurants (Panera Bread, “Our Bakery-Cafes”). The Wi-Fi also attracts the customers to stay longer than in other restaurants, which is assisted by the cool ambience created by the cool atmosphere for work and eating. In fact, Zumpano identified the company as the largest provider of free Wi-Fi in the United States in 2006 and 2007. In comparison, the competitors did not offer free Wi-Fi for the whole duration that a customer was taking their meals in the restaurants. In effect, such differentiated services are among those that led the company to join the “Hot Growth Companies” list in 2005 (“Giving Fast Food”). In order to ensure efficiency in production, any company should procure that the supply system for its products is effective. In line with this, the supply chain of the company consists of a network of facilities that produce fresh dough for each bakery cafe. In this regard, the company ensures that the facilities are in strategic locations that procure the timely delivery of the products that are essential in the company’s franchises. In effect, the company ensures that providing fresh-made dough creates a competitive advantage over its competitors, which is essential in ensuring the company follows a consistent route towards producing quality products (“Panera Bread Co.”). SWOT Analysis The major strength in Panera Bread lies in the company’s ability to tailor its menu to fit into the needs of the customers. In line with this, the company continues to introduce new products to its menu in order to supply their customers with a variety. On the other hand, the company ensures that the menu changes seasonally although it retains the same quality that cannot allow any company to replicate its products. On the other hand, Panera Bread seeks to maintain the pressures caused by suppliers at a minimum. To achieve this, the company ensures that it carries out the activity of supplying its franchises with the essentials such as dough, while other suppliers deliver products that are non-essential and do not play a significant role in the company’s products (“Panera Bread Co.”). In addition, the company relies on the creation of a strong brand as strength, which it continually exploits and works hard to maintain in the competitive service sector. In effect, the company creates a pleasing atmosphere that ensures that customers use their cafes continually. Panera Bread’s prices might be high, which locks out an important segment of the population. In effect, the products that the company makes only target high-end customers whose marginal propensity to consume is high. The failure to ensure that the prices of their products are attractive to potential customers despite their levels of income may have an impact on the company’s profitability, which is a result of market segmentation. In this case, a revaluation of the pricing strategy and production of products for individuals with low-end incomes is crucial for the company. On the other hand, the company places stringent conditions on new franchises, which limits its expansion into new territories (Long). In this regard, the failure to ensure that the conditions for operating a franchise are not stringent provides that the company remains relatively unknown in comparison to competitors who have established a strong foothold in the industry. There are numerous opportunities that the company can exploit in order to enhance its competitiveness. In line with this, Panera Bread company's opportunities to expand remain the most significant. Nonetheless, the company should address the issues that act as a hindrance to expansion with the main one being the stringent conditions that the company set for franchises that wished to operate under the company. On the other hand, the company’s ability to produce its own bread that is fresh is an opportunity that the company should exploit in order to enhance its growth. In addition, the company’s ability to introduce new products enhances its competitiveness. In effect, this provides the company with an opportunity to expand its product line. The fast food industry is easy to penetrate. In this case, the barriers for penetration of new customers are low, which threatens Panera Bread’s existing and potential customer base. On the other hand, the economic factors remain a threat to the company’s profits and expansion. Following the recession, it is common knowledge that most families stopped eating out due to the reduction of their incomes. In addition, various restaurants offer diverse menus that are different and offer more choices than Panera Bread’s menu does. In line with this, such restaurants pose a threat to the company’s continued growth and the company should respond by offering its products at low prices. Financial Analysis Panera Bread’s financial condition looks healthy with the company indicating growth in profitability each year. In addition, the company has experienced growth of the return on assets with the figures progressively improving to 13.93% return on assets last year. In effect, this is indicative of a company which growth is on the rise, which makes it an important company for investors. On the other hand, the company’s return on invested capital and equity has also been on the rise without showing any signs of reduction, which is despite the recent recession experienced in America in recent times (see Table 1). Table 1 Panera Bread’s Profitability Profitability 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 TTM Tax Rate % 36.50 35.36 37.97 37.93 38.06 38.18 38.32 Net Margin % 7.10 5.39 5.19 6.36 7.25 7.46 7.81 Asset Turnover (Average) 1.69 1.72 1.89 1.79 1.75 1.87 1.91 Return on Assets % 12.01 9.26 9.83 11.39 12.70 13.93 14.91 Financial Leverage (Average) 1.36 1.57 1.36 1.40 1.55 1.57 1.53 Return on Equity % 16.47 13.62 14.33 15.76 18.76 21.74 22.93 Return on Invested Capital % 16.47 11.56 13.27 15.76 18.76 21.74 22.93 Source: “Panera Bread Company, Inc. Class A PNRA,” Morning Star. 2012. Web. 5 Feb. 2012. . On the other hand, the company’s revenues have grown over time. In this case, the company has experienced growth in its revenues with the only one-digit growth in revenue experienced in 2010, which was due to the recession (see Table 2). Nonetheless, the company’s growth in revenue has been in double digits with operating incomes only declining in 2008, which was a result of the recession that affected America (see Table 2). In the same year, the company experienced a reduction in its net income. Table 2: Panera Bread’s Revenues, Operating Income, and Net Income 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 Latest Qtr Revenues Year over Year 33.63 29.47 28.68 21.76 4.21 13.96 18.12 16.83 3-Year Average 32.10 32.56 30.57 26.59 17.75 13.08 11.94 — 5-Year Average 33.43 32.75 30.88 29.55 23.08 19.23 17.06 — 10-Year Average 10.95 13.34 15.57 17.93 22.96 26.13 24.66 — Operating Incomes % Year over Year 31.14 11.96 -1.67 26.24 25.01 31.35 19.01 26.03 3-Year Average 32.61 22.08 13.02 11.60 15.78 27.51 25.02 — 5-Year Average 48.37 33.12 20.75 17.70 17.90 17.94 19.39 — 10-Year Average 24.05 34.46 27.94 30.28 31.28 32.28 26.07 — Net Income % Year over Year 35.26 12.77 -2.37 17.37 27.60 30.00 21.53 — 3-Year Average 33.84 24.62 14.20 8.92 13.50 24.87 26.33 — 5-Year Average 50.08 34.94 21.43 17.27 17.40 16.48 18.23 — 10-Year Average — — 41.39 — — 32.22 26.31 — Source: “Panera Bread Company, Inc. Class A PNRA,” Morning Star. 2012. Web. 5 Feb. 2012. . Based on the expose, it is evident that the company’s strategy has been a delight to the stakeholders and customers. By offering products different from its competitors, the company has been able to obtain a competitive edge in the industry, making it one of the most successful companies in the fast chain segment of the industry. Although the company needs to take advantage of the opportunities and address the challenges that it faces, the company has shown that its strengths makes it stable as the strengths ensure that the company make plans for the future. In effect, the country’s planning ensured that it maintains profitability despite the recession with the recession only affecting growth in revenue, which rose by a single-digit percentage. In addition, the net income and operating income declined in 2008 although they did not affect profitability. Works Cited “Giving Fast food a Run for Its Money.” Bloomberg Businessweek. 16 Apr. 2006. Web. 5 Dec. 2012. . “Health-Conscious Give in to Fast Food Temptations.” QSR. N.d. Web. 5 Feb. 2012. < http://www.qsrmagazine.com/news/health-conscious-give-fast-food-temptations>. Long, Nicole. “Organizational Structure of Panera Bread.” Chron. N.d. Web. 5 Feb. 2012. . Panera Bread. “Company Overview.” 2012. Web. 5 Dec. 2012. . ---. “Menu and Nutrition.” 2012. Web. 5 Dec. 2012. < . ---. “Our Bakery-Cafes.” 2012. Web. 5 Dec. 2012. . “Panera Bread Co (PNRA.O).” Reuters. N.d. Web. 5 Dec. 2012. . “Panera Bread Company, Inc. Class A PNRA.” Morning Star. 2012. Web. 5 Feb. 2012. . Zumpano, Anthony. “Panera Bread: Flour Power.” Brandchannel. 23 Oct. 2006. Web. 5 Dec. 2012. . Read More