1) Panera Bread has experienced strong revenue and net income growth over the past several years, with revenues increasing by over 100% and net income doubling from 2002 to 2006. 2) Profit margins have remained relatively steady at around 10-15%, indicating good cost control as the company has grown. 3) Financial ratios such as return on assets, return on equity, and times interest earned all indicate good performance and no significant financial risks. In summary, Panera Bread's financial performance over this period has been very good, with consistent revenue and profit growth while maintaining healthy profit margins and financial ratios. This

1. Group 5: Matt Liberty, Joe Piscitelli,
Jeff Frechette, Jonathan Nadeau, Nick Kania

3. Context
 Au Bon Pain Company
 Founded by: Louis Kane, Ron Saich 1981
 Malls, shopping centers, etc.
 1993: Purchased St. Louis Bread Co.
 20 additional locations
 94-95: Market Research concluded a need for:
 Quick, Quality dining. Fresh and Fast!

4. Context
 By 1997
 Sales volume had increased by 75%
 Renamed 100+ Stores Panera Bread
 1998- Ron Saich
 Sold Au Bon Pain Brand for $73 Million
 (still in operation today)
 Went all in on Panera Model
 180 Locations, Debt Free.

5. Question 1
 What is Panera Bread’s strategy? Which of the five
generic competitive strategies in Chapter 5 most
closely fit the competitive approach that Panera
Bread is taking? What types of competitive
advantages is Panera Bread trying to achieve?

6. Panera Bread’s Strategy
 To provide a premium specialty bakery and
café experience to urban workers and
suburban dwellers (their target market)
 Strategic Intent: To make great bread
broadly available to consumers across the
United States
 155 new stores in 2006
 170-180 new stores in 2006
 Goal was to have nearly 2,000 stores by the end of
2010

7. Panera Bread’s Strategy
 Strategic vision was to create a specialty café
anchored by an authentic, fresh-dough artisan
bakery and upscale quick-service menu selections
 PEGS – “Product, Environment, and Great Service
that we count on to deliver success.”
 Management’s long-term objective and strategic
intent:
 Make Panera Bread a nationally recognized brand
name
 To be the dominant restaurant operator in the specialty
bakery-café segment
 “Being better than the guys across the street”

8. Panera Bread’s Growth
Strategy
 Expand the number of PB locations by 17%
annually through 2010 and to achieve EPS
growth of 25% annually
 Capitalize on market potential by opening
both company-owned and franchised owned
Panera Bread locations
 Market Penetration

9. Panera Bread’s Franchise
Strategy
 Franchise agreements required the
franchise developer to open a number of
stores, usually 15 bakery-café’s in six years
 Franchise candidates had to be well
capitalized, have a proven track record as
excellent multi-unit restaurant operators,
and agree to meet an aggressive
development schedule
 Applicants had to meet eight criteria to gain
consideration

10. Panera Bread’s Franchise
Strategy
 Panera helped out franchises in numerous ways
 Market analysis
 Site selection assistance
 Lease review
 Design services and new store opening assistance
 A comprehensive 10-week initial training program
 A training program for hourly employees, managers,
and baker certification
 Continuing education classes

11. Panera Bread’s Marketing
Strategy
 To compete on the basis of providing an
entire dining experience rather than by
attracting customers on the basis of price
only
 High quality foods at reasonable prices
 Used focus groups to determine customer
food and drink preferences as well as price
points
 Grow sales at existing Panera Bread
locations
 High proportion of trial customers to repeat

12. Panera Bread’s Marketing
Strategy
 “Food you crave, food you can trust”
 To raise awareness and boost trial of dining
at Panera Bread at multiple meal times
 Let customers “discover” Panera Bread and
then convert them into loyal customers
 To increase perception of Panera Bread as a
viable evening meal option

13. Panera Bread’s Menu
Strategy
 Designed to provide target customers with
products built on the company’s bakery
expertise
 Regularly reviewed and revised
 “Celebrations”
 Adapting to customer wants
 Catering program
 Catering was generating an additional $80 million in sales
by the end of 2005

14. Which Competitive
Strategy?
 Broad Differentiation
 To compete on the basis of providing an entire
dining experience
 “Panera Warmth”
 Distinctive and engaging environments
 G2 cafe design
 Alluring and hospitable atmosphere
 Free Wi-Fi
 Real China and stainless silverware
 Regular changes in menu offerings
 Adapting to consumer wants

15. Competitive Advantage
 Reputation
 Panera Bread was widely recognized as the nationwide
leader in the specialty bread segment
 TNS Intersearch survey
 J.D. power and Associates
 Sandleman & Associates
 Awards
 Management had concluded the Panera
Bread format had broad market appeal and
could be rolled out nationwide

16. Competitive Advantage
 Fresh dough-making capability
 Consistent quality and efficiency
 More economical to concentrate the dough-making
operations in a few facilities dedicated to that function
 Dining atmosphere
 Free Wi-Fi
 G2 Cafe
 Competing successfully in five submarkets
 Considerable willingness of customers to try
dining at other parts of the day

17. Question 2
 What does a SWOT analysis of Panera Bread
reveal about the overall attractiveness of its
situation? Does the company have any core
competencies or distinctive competencies?

18. Strengths
 The location of Panera placing them in strip malls
and urban neighborhoods.
 Successful in 5 submarkets such as breakfast,
lunch, day time, chill out, light evening fair and take
out.
 The way that they have set up franchising was a
strength for them as a corporation.

19. Weaknesses
 The prices on their menu during dinner. I don't think
they are competitive for their prices during dinner.
 Other competition may have better choices for
dinner and at better prices.
 Another weakness I think is their fresh dough
facilities. They may be better off not only baking the
bread at each store but they should also make the
dough at each store. This I think would save them
money in the long run.

20. Opportunities
 I think that Panera could earn more profit at dinner if
they lowered their prices and stayed really
competitive at this meal time.
 Since they are the leader in 5 sub markets they can
take advantage of this and utilize to their
advantage. If they could keep the mark up of their
food the same all through out the day and keep a
steady flow of customers it would be like having an
Applebees or a Chili's packed on a Friday night.

21. Threats
 Their are many other restaurants in the sector of
dining. If they don't do something about their prices
for dinner there are other places that will come in
and move ahead of Panera.
 They also might have to take a look at making their
fresh dough at the stores just like they bake the
bread at each store.
 With gas prices going up this could make the cost
of operations go up as gas prices get higher.

22. Question 3
 What is your appraisal of Panera Bread’s’s financial
performance based on the data in case Exhibits 1, 2
and 8? How well is the company doing financially?
Use the financial ratios in Table 4.1 of Chapter 4 as
a guide in doing the calculations needed to arrive at
an analysis-based answer to your assessment of
Panera’s recent financial performance.

23. Panera Bread Financials Year 2006 2005 2004 2003 2002
Revenues:
Bakery-café sales $ 666,141,000 $ 499,422,000 $ 362,121,000 $ 265,933,000 $ 212,645,000
Franchise royalties & fees $ 61,531,000 $ 54,309,000 $ 44,449,000 $ 36,245,000 $ 27,892,000
Fresh dough sales to franchisees $ 101,299,000 $ 86,544,000 $ 72,569,000 $ 61,524,000 $ 41,688,000
Total Revenues $ 828,971,000 $ 640,275,000 $ 479,139,000 $ 363,702,000 $ 282,225,000
Bakery café expenses:
Food & paper products $ 197,182,000 $ 142,675,000 $ 101,832,000 $ 73,885,000 $ 63,370,000
Labor $ 204,956,000 $ 151,524,000 $ 110,790,000 $ 81,152,000 $ 63,172,000
Occupancy $ 48,602,000 $ 37,389,000 $ 26,730,000 $ 18,981,000 $ 15,408,000
Other operating expenses $ 92,176,000 $ 70,003,000 $ 51,044,000 $ 36,804,000 $ 27,971,000
Total bakery-café expenses $ 542,916,000 $ 401,591,000 $ 290,396,000 $ 210,822,000 $ 169,921,000
Fresh dough costs of sales to franchisees $ 85,618,000 $ 75,036,000 $ 65,627,000 $ 54,967,000 $ 38,432,000
Depreciation & amortization $ 44,166,000 $ 33,011,000 $ 25,298,000 $ 18,304,000 $ 13,794,000
General & administrative expenses $ 59,306,000 $ 46,301,000 $ 33,338,000 $ 28,140,000 $ 24,986,000
Pre-opening expenses $ 6,173,000 $ 3,241,000 $ 2,642,000 $ 1,531,000 $ 1,051,000
Total costs & expenses $ 738,179,000 $ 559,180,000 $ 417,301,000 $ 313,764,000 $ 248,184,000
Operating Profit $ 90,792,000 $ 81,095,000 $ 61,838,000 $ 49,938,000 $ 34,041,000
Interest expense $ 92,000 $ 50,000 $ 18,000 $ 48,000 $ 32,000
Other (Income) expense, net $ 1,976,000 $ 1,133,000 $ (1,065,000) $ (1,592,000) $ (467,000)
Provision for income taxes $ 33,827,000 $ 29,995,000 $ 22,175,000 $ 17,629,000 $ 12,242,000
Net income $ 58,849,000 $ 52,183,000 $ 38,430,000 $ 30,669,000 $ 21,300,000

24. Panera Bread Financials
$900,000,000
$800,000,000
$700,000,000
$600,000,000
$500,000,000
2006
2005
2004
$400,000,000
2003
2002
$300,000,000
$200,000,000
$100,000,000
$-
Bakery-café sales Total Revenues Total bakery-café Total costs & Operating Profit Net income
expenses expenses

25. Financial Ratios
Year 2006 2005 2004 2003 2002
Gross Profit Margin 16% 18% 18% 19% 17%
Operating Profit Margin 11% 13% 13% 14% 12%
Net Profit Margin 7% 8% 8% 8% 8%
Earnings per share $1.88 $1.69 $1.28 $1.02 $0.74
ROA 10.86% 11.93% 11.84% 11.96% 10.92%
ROE 14.80% 16.46% 15.92% 15.82% 14.06%
Current Ratio 1.16 1.18 1.05 1.58 1.83
Working Capital $18 million $16 million $2.5 million $26 million $27 million
Long-term debt-to-equity ratio 8.89% 10.67% 11.44% 0.74% 0.17%
Times-interest-earned ratio 987 1622 3435 1040 1064

26. Year 2006 2005 2004 2003 2002 2001 2000
Revenues at
company-operated
stores $666,100,000 $499,400,000 $362,100,000 $265,900,000 $212,600,000 $157,700,000 $125,500,000
Revenues at
franchised stores $1,245,500,000 $1,097,200,000 $879,100,000 $711,000,000 $542,600,000 $371,700,000 $199,400,000
System-wide store
revenues $1,911,600,000 $1,596,600,000 $1,241,200,000 $976,900,000 $755,200,000 $529,400,000 $324,900,000
Avg. annual revenues:
company operated
bakery-café $1,967,000 $1,942,000 $1,852,000 $1,830,000 $1,764,000 $1,636,000 $1,473,000
Avg. annual revenues:
franchised bakery-café $2,074,000 $2,016,000 $1,881,000 $1,860,000 $1,872,000 $1,800,000 $1,707,000
Avg. weekly sales,
company owned cafes $37,833 $37,348 $35,620 $35,198 $33,924 $31,460 $28,325
Avg. weekly sales:
franchised cafes $39,894 $38,777 $36,171 $35,777 $35,997 $34,607 $32,832
Company-owned
bakery-cafes
open at year-end 391 311 226 173 132 110 90
Franchised bakery-cafes
open at year-end 636 566 515 429 346 259 172
Total bakery-cafes open 1027 877 741 602 478 369 262

27. Question 4
 Based on the information in case Exhibit 9, which
rival restaurant chains appear to be Panera’s
closest rivals?

28. Strategic Map
Fast-Casual Dining
Low
Price/Quality
Au Applebee’
Bon
Pain
s
Chili’s
Chipolte
Panera
Bread
High
Few Locations Many Locations
Geographic Coverage

29. Question 5
 What strategic issues and problems does Panera
Bread management need to address?

30. Strategy
 The previously discussed strategy is to do the
following:
 1) Provide premium bakery and café experience
 2) Broaden their stores and locations in the
United States
 3) “PEGS” – Product, Environment, and Great
Service
 4) Long Term is to make Panera a Generically
Nationwide known Brand Name.

31. Product Offering Issues
 Panera Management needs to make sure customer
and stockholders understand the freshness of their
ingredients are the best they can offer.
 Specially train all the chef’s they hire to achieve the
goal mentioned above. Need to have a well trained
staff to make sure they can success in the corporate
way.
 Changing the Menu constantly to attract new
customer and continue keeping the old customers
happy.
 Customer Feedback is the way to decide the
offerings they need to provide on the menu.

32. High Quality Low Price
Issue High Quality,
 The goal of Panera is to provide
Low Cost food to its consumers.
 As many business men know, this is nearly
impossible in almost all business units.
 This gains new customers, and keeps old
customers.
 Where is the balance between sacrificing cost
and sacrificing quality?
 Marketing this strategy is key to gaining the
financial and consumer base.

33. Marketing Issues
 In the past, small role in success. What can
be done to make this more prominent and
profitable?
 Developing Brand Awareness by Customer
Experience
 85% of people who know of a Panera in or
around their neighborhood have eaten there
at least once.
 Using marketing strategies to express that
Panera is an “all day food operation” and not
specifically breakfast, lunch, or dinner.

34. Site Selection and Café
Environment Issues
 Developing a team to decide on the demographics
of new locations
 Free standings units were found to be previously
profitable for bakery type locations.
 Continuing to develop “Panera Warmth” which was
the term they used to satisfy the environment of its
customers.

35. Question 6
 What does Panera Bread need to do to strengthen
its competitive position and business prospects vis-
à-vis other restaurant chain rivals?

36. Strategic Map
Fast-Casual Dining
Low
Price/Quality
Au Applebee’
Bon
Pain
s
Chili’s
Chipolte
Panera
Bread
High
Few Locations Many Locations
Geographic Coverage

37. Industry
 Dining Industry saw $511 Billion in sales
 47.5% of consumer spending on food is at Restaurants
 5% Growth Annually
 Despite 76% of meals at home
 130 Million Customers daily=Daily sales around $1 Billion
 Highly competitive, Labor Intensive, Very Risky
 Adapting to the Market is Essential
 Competing in a unique market Casual/Fast
Food/Specialty Dining

38. Tactics
 Seasonal Offerings  Trends in Eating Habits
 Vegan, low-carb,
 Birthdays/Events/Sports
Organic.

39. Tactics
 Loyalty Programs
 Customer Input/Involvement
 Community Programs
 Make Customers Identify with
the company
 Eat Multiple meals
 Encourage “Chill out time”
patronage
 Willingness to try new
dishes

40. Tactics
 “Pay what you can” Business model experiment
 Implemented in 3 Locations (3500 patrons/week)
 No prices on menu
 Cashier recommends price for meal
 60% of people have paid recommended price
 20% pay more
 20% pay significantly less
 Each store has covered it’s own expenses well
 Encourages Consumption, Charity, & sense of
Community

41. Recommendations
 Established Quality Fast Casual Dining
 Ambience, Service, Quality Menu, Convenient.
 Push Panera more to compete in every meal period
 Expand Coffee Offerings (seasonal)
 Focus on expanding Dinner Menu/Service
 Aim to compete with Applebee’s/Uno’s
 (difficult due to lack of alcoholic beverages 12%+ of
each company’s annual sales)
 Promote the Family Environment

42. Value Chain
Support Activities
 Infrastructure
 Franchising Rigid Restrictions, Well Structured Market
Penetration
 HRM
 90% of our retail management associates are "highly
satisfied" with their careers (Panera Bread Retail Satisfaction
Survey)
 Tech
 17 Fresh Dough baking and Transportation facilities
 Temperature cooled trucks 300-500 mile radius.
 Procurement
 Couples with secondary companies to manage less essential
needs

43. Value Chain

Primary Activities
Outbound Logistics
 Bakery Café Supply Chain a
 Average $10 million in profits capped at 27% of retail
prices
 Well Organized Shipment System
 Leased fleet, 300 mile radius.
 Contracts with secondary companies for periphery
needs
 Operation’s
 Successful, Comprehensive Franchising
 Carefully chosen locations for added convenience
 Meet consumer’s preferences

44. Value Chain
Primary Activities
 Inbound Logistics
 Bakery Supply Chain- Averages $10,000 Profits 30%
growth
 Sales and Marketing
 Relied heavily on word of mouth “Discover Panera”
 85% of population aware of a nearby Panera had dined
there
 Public Image
 Food Quality
 Service
 Efficient, responsive, accommodating.

45. Porter’s Five Forces
 Buyer Power: High
 Many restaurant choices for customers
 Forces restaurants to differentiate themselves in order
to win the customer
 Supplier Power: Low
 Obtained dough from a variety of suppliers
 Numerous suppliers for each ingredient needed and
Panera Bread could easily obtain ingredients from
another supplier if necessary

46. Porter’s Five Forces
 Threat of New Entrants: Low
 Entry barriers are extremely high
 Reputation
 High costs to start a restaurant
 Low profit margins
 Threat of Substitute Products: High
 Many restaurants to choose from depending on your
preferences

47. Porter’s Five Forces
 Rivalry among existing competitors: High
 Industry members pursue differentiation strategies to
set themselves apart from rivals
 Most restaurants are quick to adapt their menu
offerings to changing consumer tastes and preferences
 Norm at many restaurants to rotate menu selections
seasonally and introduce new dishes
 Common for a popular restaurant to lose flavor and
confront the realities of dwindling clientele, forcing it to
reconceive its menu and dining environment or go out
of business
 Many restaurants have short lives

48. Porter’s Five Forces
 Rivalry (cont.)
 Panera Bread competed with specialty food, casual
dining, and quick-service restaurant retailers
 Closest competitors were “fast-casual” restaurants
 Atlanta Bread Company
 Applebee’s
 Chili’s
 Starbucks
 Fast-casual restaurants provided quick-service dining
but were distinguished in several areas

49. Final Thoughts
 Well positioned in a competitive industry
 Caters to a unique niche of the market
 Fresh Bakery Cafe
 Seen Steady Growth since inception, continues to
today.
 Community oriented approach has amplified the
Brand’s perception and built a trustworthy
relationship with customers.