Assignment:

Week 3 Case Analysis Panera Bread

Panera Bread Company in 2015 –
What to Do to Rejuvenate the Company’s Growth?

Before beginning this exercise,
you will need to read the Panera Bread case. You will also need to review the
analytical tools and concepts in Chapter 4 and the five generic competitive
strategies in Chapter 5.

The following questions will be
covered in this exercise.

1.What are the key success factors
for a restaurant chain that operates in the fast-casual segment of the
restaurant industry?

2.What does a SWOT analysis reveal
about the attractiveness of Panera Bread’s situation and future prospects?

3.What are the primary components
of Panera Bread’s value chain?

4.What are the chief elements of
Panera Bread’s strategy?

5.Which one of the five generic
competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Panera Bread’s is employing?

6.What does the data in case
Exhibit 1 reveal about Panera Bread’s financial performance?

7.What does the data in case
Exhibit 2 reveal about Panera Bread’s operating performance?

8. What does the data in case
Exhibit 7 reveal about Panera Bread’s three business segments?

1.

What are the key success factors
for a restaurant chain that operates in the fast-casual segment of the
restaurant industry?

Select “true” for the key success
factors listed below that are accurate and choose “false” for those that are
not.

1. Pricing that customers deem to
be reasonable.

2. A limited number of menu
selections, all with low-cost ingredients.

3. Capabilities in creating
good-tasting recipes for menu selections that can be prepared cost-effectively
and with consistent quality by the kitchen staffs at multiple restaurant
locations.

4. Pricing that enables a customer
to dine for lunch for under $7.50 and to dine for dinner for under $10.

5. Strong capabilities in
restaurant operations and restaurant management.

6. Using fresh, all-natural and
organic ingredients in all menu dishes.

7. An appealing menu that is
somewhat distinctive from rival restaurant chains and that is periodically
refreshed with new selections.

8. Innovative and unique menu
selections that are not available at any rival restaurants.

9. Providing customers with a
satisfying (preferably enjoyable) dining experience.

10. A nationally known brand name.

11. A customer loyalty program.

12. Convenient and desirable
location.

2.

A. Which of the following
accurately characterizes Panera’s resource strengths and competitive
capabilities?

In order to assess Panera’s
strategic options, it will help to identify the organization’s internal
strengths and weaknesses, and external opportunities and threats. Review the
information on SWOT analysis in Chapter 4 to help you answer the parts of this question.

Select “yes” for those strengths
and capabilities below that are accurate and choose “no” for those that are
not.

1. An attractive and appealing
menu, with high quality food at a good price (the company delivers good value
for the money)

2. Menu offerings for the more
health/weight-conscious diner

3. Bread-baking expertise, with
artisan breads as a signature product

4. A more well-known brand name
than some rivals, such as Applebee’s and Starbucks.

5. The nationwide leader in the
bakery-café segment

6. High ratings in customer
satisfaction studies

7. A good brand name that
management is continuing to strengthen

8. The company’s capabilities to
profitably produce fresh-dough and other products for Panera’s bakery-cafés

9. Comparable bakery-café sales
percentage increases at both company-owned outlets and franchised outlets were
higher in 2013 vs. 2012

10. Regional facilities and fleet
of temperature controlled trucks that supply fresh bread and bagel dough (along
with tuna, cream cheese spreads, and certain fresh fruits and vegetables) to
company-owned and franchised stores

11. The company’s backward
vertical integration into dough-making and other products that are supplied to
Panera bakery cafés are a source of profit as well as a factor in helping
differentiate Panera’s menu offerings

12. Top management in February
2014 indicated that it was expecting 2014 stellar sales gains of 7 to 9 percent
at Panera bakery-cafés open at least one year, well above the percentage gains
in each of the past three years

13. Off-premise catering capabilities,
extending the company’s market reach

14. The financial strength to fund
the company’s growth and expansion without burdening the company’s balance
sheet unduly with debt, with essentially no long-term debt on its balance sheet

B. Which of the following
accurately characterizes Panera’s resource weaknesses?

Select “yes” for those resource
weaknesses below that are accurate and choose “no” for those that are not.

1. A less well-known brand name
than some rivals, such as Applebee’s and Starbucks

2. Low ratings in customer
satisfaction studies

3. Comparable bakery-café sales
percentage increases at both company-owned outlets and franchised outlets were
lower in 2013 vs. 2012

4. Lack of menu offerings for the
more health/weight-conscious diner

5. Lack of competitive dinner menu
offerings

6. Top management in February 2014
indicated that it was expecting 2014 sales gains of just 2 to 4 percent at
Panera bakery-cafés open at least one year, below the percentage gains in each
of the past three years

C. Which of the following are
attractive market opportunities for Panera?

Select “yes” for the listed
opportunities below that are accurate and choose “no” for those that are not.

1. Open more outlets, both
company-owned and franchised, in the U.S. and, to a lesser extent, Canada

2. Open growing numbers of Panera
Bread locations outside the U.S., as market opportunities in the U.S. begin to
dwindle

3. Vertically integrate backward
into dough-making

4. Begin offering off-premise
catering sales.

D. Which of the following
represent external threats to Panera’s future well-being and future business
prospects?

Select “yes” for the external
threats below that are accurate and choose “no” for those that are not.

1. The sluggish slow-growth
economic environment in the United States

2. Rivals begin to imitate some of
Panera’s menu offerings and/or dining ambience, thus stymieing to some extent
Panera’s ability to clearly differentiate itself from rival chains

3. The very low barriers to
entering the chain-concept fast-casual restaurant segment with nationwide
restaurant locations—it would be easy for a competitor to copy what Panera is
doing and quickly become successful at it.

4. New rival restaurant chains
grab the attention of consumers and draw some patrons away from Panera—in other
words, competition from other restaurant chains (either those in the
fast-casual segment or other restaurant categories) becomes more intense

5. Panera Bread begins to saturate
the market with outlets, such that it becomes harder to find attractive
locations for new stores and the company’s growth slows

E. Considering all four SWOT
lists, which of the following best characterizes the attractiveness of Panera’s
overall situation?

Select “yes” for the statements
below that are accurate and choose “no” for those that are not.

1. Panera has some formidable
resource strengths/competitive assets and few resource weaknesses/competitive
liabilities.

2. Panera seems to have adequate
market opportunities to continue expanding the number of locations in the U.S.
for some number of years.

3. Panera’s resource weaknesses
are more numerous than its resource strengths and disqualify it from building a
sustainable competitive advantage over rivals.

4. Panera’s external threats are,
on the whole, modest.

5. Panera’s overall situation is
attractive and its future prospects seem very promising—assuming that
management can successfully combat the smaller gains in sales revenues at both
company-owned and franchised bakery cafés.

6. Panera is running out of
attractive market opportunities, thus limiting its future growth in revenues
and profits.

7. Panera has plenty of growth
opportunities it can pursue for several years to come, and it seemingly has the
resource strengths and capabilities to pursue them.

8. Panera is confronted with
serious external threats that will very likely impair the company’s future
growth and profitability

3.

What are the primary components of
Panera Bread’s value chain?

Select “true” for the components
listed below that are primary components of Panera Bread’s value chain and
choose “false” for those that are not.

1. Finance and accounting
activities

2. Marketing and brand name
building

3. Designing, locating, and opening
new restaurants

4. Hiring and training new
employees for company-operated restaurants

5. Menu development, recipe
creation, and recipe testing

6. Franchise operations

7. Customer relations

8. Operation of company-owned
bakery-cafés, including catering activities

9. Outsourcing activities

10. Production and distribution of
fresh dough and other products to bakery-cafés and other supply chain
activities

11. Cost analysis and pricing
activities

4.

What are the chief elements of
Panera Bread’s strategy?

Select “true” for the possible
strategy elements below that actually are part of Panera Bread’s strategy and
choose “false” for those that are not.

1. Grow the business by opening
both company-owned and franchised outlets. Offer an appealing selection of
artisan breads, bagels, and pastry products that are handcrafted and baked
daily at each café location.

2. Serve high-quality food at
prices that represented a good value.

3. Provide full table-service to
all dine-in customers and train servers to be courteous, capable, and
efficient.

4. Provide courteous, capable, and
efficient customer service.

5. Design bakery cafés that are
aesthetically pleasing and inviting.

6. Offer patrons such a
sufficiently satisfying dining experience that they are induced to return again
and again.

7. Acquire other fast-casual
restaurant chains that have strategies and menus similar to Panera Bread’s and
rebrand them as Panera Bread restaurants.

8. Have a distinctive menu that
positioned Panera Bread to compete successfully in multiple segments of the
restaurant business by drawing customers from breakfast through the dinner
hours each day.

9. Regularly review and revise the
menu to sustain the interest of regular customers, satisfy changing consumer
preferences, and be responsive to various seasons of the year.

10. Include healthy, nutritious
items on the menu and use organic and natural ingredients in recipes and
unbleached flours in some bread selections to help attract the growing numbers
of health-conscious, nutrition-conscious consumers.

11. Add 5 to 10 light entrée
dishes to the menu that will draw in significantly more patrons for evening
dinner hours.

12. Promote and grow the MyPanera
Loyalty Program to reward frequent customers.

13. Create a signature café design
with inviting ambiance; make the experience of dining at Panera so attractive
that customers will be willing to pass by the outlets of other fast-casual
restaurant competitors to dine at a Panera Bread bakery-café.

14. Management wanted Panera
restaurants to be viewed by patrons as a warm and appealing neighborhood
gathering place.

15. Locate Panera Bread units in
suburban, strip mall, and regional mall locations.

16. Spend about 75 percent of the
company’s marketing budget on TV advertising as part of a long-term effort to
strengthen consumer awareness of the Panera Bread brand and the dishes served
at Panera’s restaurants.

17. Supply dough to all Panera
Bread stores, both company-owned and franchised, with dough-making operations
functioning as a profit center.

18. Grow Panera’s off-premise
catering sales and extend its market reach into the workplace, schools, and
parties and gatherings held in homes.

19. Open franchised (but not
company-owned) restaurants outside of North America in order to conserve the
company’s limited capital for use in increasing the rate at which more
company-owned Panera restaurants are opened in North America.

20. Build the Panera Bread brand
name and grow consumer awareness of Panera.

21. Open several non-profit
“Pay-what-you-want” bakery-café locations, with the intention of enhancing
Panera’s image as a socially responsible restaurant enterprise.

5.

Which one of the five generic
competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Panera Bread is employing?

6.

What does the data in case Exhibit
1 reveal about Panera Bread’s financial performance?

Select “true” or “false” for each
of the following statements concerning the data in case Exhibit 1. Use the key
financial ratios in Chapter 4 to assist you in performing calculations to
determine whether the statements are true or false.

In addition to the financial
ratios, you will also need to calculate compound average growth rates (CAGR)
for certain financial measures. The formula for calculating CAGR (in percentage
terms) is as follows:

CAGR % = [ending value ÷ beginning
value] 1/n – 1 × 100

(where n = the number of
year-to-year or period-to-period changes)

1. From 2009 through the end of
2014, Panera Bread’s bakery-café sales at company-owned restaurants rose at a
CAGR of 12.3% and total revenues rose at a CAGR of 11.2%. The CAGR in Panera’s
bakery café sales since 2009 has been a robust 19.2%, with total revenues
rising at a CAGR of 17.4%.

2. Franchise royalties and fees
are up from $78.4 million in 2009 to $123.7 million in 2014, a CAGR of 12.15%.

3. Fresh dough and other product
sales to franchisees have grown from $121.9 million (9.0% of total revenues) in
2009 to $175.1 million (6.9% of total revenues) in 2014, a CAGR of 9.5%.

4. Net income was up from $21.3
million in 2002 to $196.2 million in 2013, a CAGR of 29.4%.

5. EPS is up from $0.71 per
diluted share in 2002 to $6.81 per diluted share in 2013, a CAGR of 18.8%.

6. Net cash provided by operating
activities rose from $214.9 million in 2009 to $335.1 million in 2014, a CAGR
of 11.7%.

7. Panera’s current ratio declined
sharply from 1.7 in 2012 to 1.00 in 2013.

8. Total labor expenses were
higher in 2012 and 2013 compared to 2011 and 2009.

9. Panera had healthy gains in ROE
in 2014 (24.4%) and 2013 (28%) versus 2009 (14.4%).

7.

What does the data in case Exhibit
2 reveal about Panera Bread’s operating performance?

Select “true” or “false” for each
of the following statements concerning the data in case Exhibit 2. Use the key
financial ratios in Chapter 4 to assist you in performing calculations to
determine whether the statements are true or false.

In addition to the financial
ratios, you will also need to calculate compound average growth rates (CAGR)
for certain financial measures. The formula for calculating CAGR (in percentage
terms) is as follows:

CAGR % = [ending value ÷ beginning
value] 1/n– 1 × 100

(where n = the number of
year-to-year or period-to-period changes)

1. Revenues at company-operated
stores have risen from $212.6 million in 2009 to $2,108.9 million in 2013, a
CAGR of 19.2%.

2. Revenues at franchised stores
have risen from $1640.3 million in 2009 to $2282.0 billion in 2014, a
respectable CAGR of 6.8%.

3. System-wide store revenues have
risen from $755.2 million in 2009 to $4,284.1 million in 2013, equal to a 17.1%
CAGR.

4. Average annual revenues per
company-operated bakery café have risen from $1,764,000 in 2009 to $2,483,000
in 2013, a decent CAGR of 5.06%.

5. Average annual revenues per
franchised bakery café have risen from $2.109 million in 2009 to $2.455 million
in 2014, a CAGR of 3.12%.

6. Comparable bakery café sales
percentage increases (which refers to the rate at which sales at existing
bakery-cafés are growing once they have been open a year or more) at both
company-owned and franchised bakery-cafés rose strongly each year from 2011 to
2012 compared to 2009, however, the growth rate for both fell sharply in 2014.

8.

What does the data in case Exhibit
7 reveal about Panera Bread’s three business segments?

Select “true” or “false” for each
of the following statements concerning the data in case Exhibit 7.

1. In 2013, revenues from
franchise operations were $112.6 million and operating profits from this
business segment were $106.4 million—equal to a terrific 94.4% profit margin.

2. The operating profit margins
for the franchise operations segment in the two prior years were quite
impressive—93.4% in 2012 and 92.8% in 2011.

3. In 2014, revenues from
franchise operations had risen to 123.7 million with operating profits of 117.8
million—equal to a terrific 95.2% profit margin. Hence, continuing to open more
new franchised stores is quite important to the company’s bottom-line and
overall financial performance.

4. The lion’s share of Panera
Bread’s revenues and profits come from its franchise operations.

5. Fresh dough and other product
operations are a distant third among the three business segments in
contributing to companywide operating profits—$22.9 million in 2014, $21.3
million in 2013; $17.7 million in 2012, $20.0 million in 2011. But, the
business of supplying franchisees with fresh dough and other products is
definitely a profit-maker for Panera—signaling that its backward vertical
integration strategy is a profitable success.

6. Operating profit as a % of
revenues were highest for franchise operations (95.2% in 2014, 94.5% in 2013,
93.5% in 2012, 92.8% in 2011), second highest for company-owned bakery-café
operations (equal to 17.9% in 2014, 19.6% in 2013, 20.2% in 2012, and 19.3% in
2011), and third highest for fresh dough and other products operations (6.2% in
2014, 6.1% in 2013, 5.7% in 2012, and 7.3% in 2011).

7. Operating profits for the fresh
dough and other products business segment as a percent of assets invested in
the fresh dough and other products business segment has been unacceptably small
from 2009 to 2013—a clear indicator that Panera Bread management should
consider getting out of this business and obtaining its requirements for these
products from outside suppliers.

8. The company’s capital
expenditures totaled $192.0 million in 2013, of which $153.6 million (or 80.0%)
was for company bakery-café operations (presumably most of which was allocated
to investments in opening new company-operated cafés).

9. Capital expenditures increased
in 2014 to $224.2 million, with 75% for company bakery-café operations.