Introduction
Panera Bread Company is an American bakery-café chain in Canada and America. The main headquarters are in Sunset Hills, Missouri, and it operates mainly as Saint Louis Bread Company in the St. Louis area. Major offerings from Panera Bread Company include salads, soup, pasta, sandwiches, bakery items, and specialty drinks. At the beginning of the business in 1981, Panera was founded as Au Bon Pain Co. and had three bakery-cafés and one cookie store. In the Saint Louis area, it acquired the St. Louis Bread Company in the 1990s. The combined effort and analysis of consumers revealed demand for “special” food with quality and speed in serving it. This is termed “Fast Casual.” Panera’s unique strategies and positioning made it acquire a distinct place in the minds of customers and also an extra edge in their choice preferences by serving well in a cozy environment. It also added a mealtime called “chill-out” that attracts many consumers. Thus, the company expanded in many regions by franchising and positioning.
Chief Elements of Panera Brand Strategy
Business Strategies
The franchising strategy of Panera Bread was to enter into franchising agreements with different franchisors to open up at least 15 franchises in different locations in six years. The franchisee candidate must be well-capitalized and should have better know-how about the bakery industry. One can say that it’s Panera’s growth strategy. Essence is one of the concepts used by Panera management to attract and retain customers. To attract and retain customers, Panera offers products that are baked and handcrafted in a bakery on a regular basis. It serves high-quality products at reasonable prices. The customer service provided by Panera is so courteous that customers do not prefer going somewhere else to have the same bakery items that Panera offers. Another thing that Panera uses is the design of the café, which appeals to the crowd and makes them curious about what’s happening over there (Thompson, 2008).
The strategic intent of Panera was to become the dominant player in the bakery industry and to make Panera’s bread recognized at the national level. For this, it had to make products that were more efficient in quality than the products that the guy across the street was making. In 2010, Panera was focused on opening up a café in an area that had a minimum of 160,000 people residing there. Panera faced threats from low-cost and differentiated products as it was operating in an extremely competitive environment. Panera employed the best-cost provider strategy to cater to this situation so that customers who want the best quality at a reasonable price can be retained.
Functional Strategies
Three distinct initiatives were contained in Panera’s marketing strategy. First, it focused on raising awareness about the products Panera was offering. The second was to increase trials at different places for Panera products; this was mainly to increase awareness among the people. The third and last initiative was to attract more and more people to the café. In the entire marketing strategy, Panera did not focus on hard selling but rather on direct advertising. The financial performance of the company was good, which shows that the marketing strategy implemented was good.
Production and Distribution Strategy
Panera’s product and distribution strategy revolves around economies of scale. Operations are centralized in the making process. This control of the process led Panera to ensure an efficient dough-making process. “Better than the guy across the street” is the slogan for the product and distribution strategy; Panera does not want to lose its customers and let them walk away to the guy across the street who provides the same products at low cost.
SWOT Analysis
SWOT comprises strengths, weaknesses, opportunities, and threats.
Strengths
- The strong and attainable growth strategy is one of the key strengths of the company.
- The ability to build loyal clients by offering them quality, efficient products.
- Opening up new franchises along with its site selection.
- Product innovation, along with continuous research and development.
- Strong financial position in terms of lack of debt.
Weakness
- The ineffective promotional strategy used for the items.
- The company’s main customers come only at one mealtime a day.
- One of the main weaknesses of the company is that it is only located in regional areas.
- Other competitors may have different choices for dining at the best places.
Opportunities
- The lack of bargaining power of buyers and the high number of small buyers in the industry are key opportunities the company has.
- Buyers always want to try new things that are coming into the market.
- Low-cost substitutes are viewed as low-quality products.
- Since it is a leader in five sub-regions, it can utilize this as an advantage.
- By lowering prices according to the market, it can capture more of the market and pose a greater threat to competitors.
Threats
- The product is a discretionary purchase.
- The wide breadth of competitive rivalry.
- Steep learning curve.
- Low switching cost.
Source of competitive advantage
- The position of the company in the restaurant industry is one of its sources of competitive advantage.
- The brand strength of the company for many years.
- The unique and distinctive nature of the bakery products.
Financial Performance Analysis
Financial performance shows the operations run by the company, how much cost has been incurred, and how much profit the company made during a year. It shows how well the company is performing in the industry or market (Hunjra & Bashir, 2014). By looking at the financials provided in the case study, the following are some of the points that explain the company’s performance. Capital expenditure increased in 2014 to $224.2 million, with 75% allocated to company bakery-café operations; in 2013, capital expenditure was $192 million, with 80% allocated to company bakery-café operations. Revenue from franchise operations was $123.7 million, with an operating profit of $117.8 million, which is equal to a terrific 95.2% operating profit margin. Hence, continuing to open more franchises is important for increasing the company’s overall financial performance. The change in operating profit margin can be used to forecast the change in return on assets one year ahead (Fairfield & Yohn, 2001). Operating profit as a percentage of revenues was highest for franchise operations (95.2% in 2014, 94.5% in 2013, 93.5% in 2012, and 92.8% in 2011). The second-highest figure for a company-owned bakery café was 17.9% in 2014, 19.6% in 2013, 20.2% in 2012, and 19.3% in 2011. The third-highest figure for a company-owned bakery café was 6.2% in 2014, 6.1% in 2013, 5.7% in 2012, and 7.3% in 2011. In order to calculate the operating profit margin, divide the operating profit by the revenue and multiply it by 100; one would get the answer as I did. In order to get the percentage of operating profit to revenues in different franchise operations, apply the same scenario again and get the percentages as I did. From all of the above, we can say that the company is making an astonishing performance in the market.
Strategic Problems associated with Panera Bread Management and Recommendations
Some of the strategic issues or problems faced by Panera Bread Company are explained in common terms. The first strategic issue was Panera’s potential to use its internal franchising capabilities so that it could take advantage of the fact that the industry life cycle remained in its growth phase. Another strategic issue Panera faced was that customers always wanted to try new things coming into the market, but due to the current promotional strategy, the company was not able to cater to this demand. The third strategic issue that Panera faced was related to low switching costs and low customer loyalty toward bakery products. A final problem that Panera faced was how to use its internal research and development capabilities to cater to the presence of large buyers in the industry. The first and foremost recommendation for altering the promotional strategy is to use effective promotion related to bakery items to cater to the problem. The strategy should be such that customers would come and try the product. It may not be successful in the market as Panera is already an established company in the market. The recommendation for catering to issues related to internal franchising capabilities is to find a franchisee who has in-depth knowledge about the industry and bakery items so that it will not impact the prestige of the company.
References
Thompson, A. A. (2008). Panera Bread Company. AA ThompsonStricklandA. J. IIIGambleJ. E. (Eds.), Crafting and executing strategy: The quest for competitive advantage. New York, NY: McGraw-Hill.
Fairfield, P. M., & Yohn, T. L. (2001). Using asset turnover and profit margin to forecast changes in profitability. Review of Accounting Studies, 6(4), 371-385.
Hunjra, A. I., & Bashir, A. (2014). Comparative Financial Performance Analysis of Conventional and Islamic Banks in Pakistan. Bulletin of Business and Economics (BBE), 3(4), 196-206.
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