“Over the last half century, eating out has gradually become a way of life for many Americans” (Basham & Menza, 2007a, para.1). For this reason, the restaurant industry is a fast-growing, diverse and prosperous industry, with many interesting facets. The restaurant industry includes a wide range of food and beverage establishments within the United States. There are three main industry segments: fast-food, full service and specialty. Since the restaurant industry is extremely broad, this paper will specifically focus on the fast-food segment of the industry.
The fast-food segment is comprised of restaurants dedicated to serving meals or snacks for a casual eat in experience or quick to-go service. Typical types of food served at fast-food chains are sandwiches, pizza, and chicken, with sandwiches being the most popular. Sandwich chains tend to offer hamburgers, cold or hot wraps or sandwiches, tacos, and in most cases salad. Some popular sandwich fast-food businesses are McDonalds, Burger King, Wendy’s, Subway and Taco Bell. The second most popular chain in the segment of fast-food restaurants is pizza. Pizza chains generally offer pizza, breadsticks, salads and calzones. A few of the more recognizable pizza chains are Pizza Hut, Domino’s, Papa Johns and Little Caesar’s. A smaller segment of the fast-food chain market is that related to the sale of chicken products. Examples of these chains are KFC Corp, Chick-Fil-A Inc., Popeye’s Chicken & Biscuits and Church’s Chicken (Basham & Menza, 2007b).
Although it is not the industry leader yet, Panera Bread, Co. is an up and coming company that has much potential for growth and development. Panera was the sixth fastest growing restaurant in America as of December, 2006 with 20.3% increase in revenues from December, 2005 (Basham & Menza, 2007b). Due to growing health food concerns worldwide and the increase in busy lifestyles in America, restaurants such as Panera, that offer quick service, relatively healthy menu items, and a clean, warm and homey atmosphere are up and coming. Despite the vast opportunities for Panera’s growth due to these economic conditions, many other companies want in on the profit and have begun to saturate the market with very similar products and services. Direct competitors include, Cosi, Einstein Noah Restaurant Group, Starbucks, Corner Bakery Café, and Au Bon Pain while company’s like McDonald’s, Subway, Yum Brands and Starbucks also have the potential to pose threats.
This analysis will highlight the economic, social, and legal environment as well as provide a Porter’s Five Forces analysis of the fast-food restaurant industry. This paper will then present a SWOT analysis of Panera Bread, Co., and discuss the company’s marketing mix. Panera’s business strategies will be compared and contrasted to that of another popular fast-food restaurant; McDonald’s. As a concluding note, strategic problems and alternatives will be mentioned, followed by recommendations for Panera in the future.
Within the fast-food restaurant industry, small businesses have the opportunity to dominate because of the low entry barriers and possibility of high returns. Unfortunately, it is difficult for these smaller operators to survive because of the large chains and franchises that serve as major competition. Some pros to becoming a franchise are higher returns, strength in brand name and less day-to-day responsibility for the franchisor. Despite these positive aspects, if one individual restaurant in the franchise is poorly managed or operated, it may give a bad reputation to the entire franchise. Many restaurants that do franchise have the option of re-franchising, which means that the franchisor will buy and sell restaurants that are not performing up to standards. In other words, the franchisor is able to free up capital by selling off underperforming restaurants to create funds for research and development of new ventures (Basham & Menza, 2007a).
Due to poor economic conditions, such as rising gasoline prices and an uncertain real estate market, many Americans have had to cut costs in 2007, including the cost of dining out. The poor economy coupled with the fact that labor and food costs are increasing is putting a damper on profitability within the restaurant industry. Competition is tough for many establishments that have little to no competitive advantage. Unfortunately, the common trend for 2007 seems to be the merging and disposition of many restaurant chains. Despite these trends, Americans are still eating out, but as inexpensively as possible. As a result, fast-food chains have exhibited the most growth during the past years and the restaurant industry has become the largest private sector employer in the United States (Basham & Menza, 2007c).
Two social environmental issues are present within the restaurant industry. First off, people are becoming more concerned with health related issues. As more consumers become educated about the risks of eating fattening foods, restaurant companies are focusing on the trend toward healthier eating by offering low calorie and low fat menu items to appeal to the health food craze in America. The health craze in part resulted from the many lawsuits filed against fast-food chains for child obesity and other health problems related to obesity. McDonald’s and Wendy’s have both tried to introduce fruit, vegetables and milk into their value meals for children rather than fries and soda. Applebees, Chili’s and Ruby Tuesday are three restaurants that offer smarter menu options for dieters. Burger King and Wendy’s are both experimenting with healthier oils used for frying that will reduce amounts of trans fat in their fries (Basham & Menza, 2007b).
Second, due to the increase in Hispanics within the US, restaurant companies have been focusing on appealing to many different target markets through either diversifying the menu at a restaurant or by acquiring different types of chains that will appeal to different people. For example, Yum! Brands Inc. (which is the parent company of A&W Restaurants, Inc., KFC Corporation, Long John Silver’s, Inc., Pizza Hut, Inc., WingStreet and Taco Bell Corporation) and Jack in the Box both have tried to appeal to the Hispanic population, by offering Hispanic foods and hiring more Hispanic employees (Basham & Menza, 2007b).
Lastly, most families in America have two incomes, meaning there is not much time to cook, and there is more spending money available. Because of these factors, restaurants are a perfect option to the busy family (Basham & Menza, 2007a). Most restaurant chains have offered to-go and drive-thru service in the past, but the new trend is for the buffet restaurant chains to offer this service (Basham & Menza, 2007b).
There are several state and local government regulations that may put a damper on the fast-food restaurant industry. First, many states have now banned smoking in public areas, which includes all restaurants and bars. This rule may cause smokers to opt to eat at home or even forego an after dinner coffee, drink or dessert so they can enjoy their cigarettes after a meal.
dSecond, there have been many laws concerning employment compensation. For example, San Francisco now requires employers to compensate employees with higher wages than the federal or state minimum mandates. Health insurance is now a mandatory benefit for even part time employees in several states (Massachusetts being one of them), which significantly contributes to compensation expenses. In 2007, the federal minimum wage was increased from $5.15 per hour to $5.85 per hour and will continue to rise by $0.70 each year until 2009 (yielding a federal minimum wage of $7.25 per hour). Many states already enforce an additional state minimum wage, which may cushion the blow that the restaurant industry will face in 2009. Most new legislation and regulation has the potential to add to the cost of owning and operating a restaurant in the United States, which may decrease profitability within the industry (Basham & Menza, 2007b).
“According to the CDC and USDA, food poisoning sickens 76 million people a year in the United States, sends 325,000 to hospital, and kills 5,000” (Reuters Health E-Line, 2006, para.9). As a result, the government sends official in to inspect individual restaurants all over the country to ensure that each restaurant maintains a sanitary and healthy environment for cooking and serving food. Restaurants that do not meet the governmental standards are slapped with high fines or in some cases closed down (Jones et al., 2004). Interestingly, according to former restaurant inspector and current vice president of health and safety regulatory affairs for the National Restaurant Association, Steven Grover, the restaurant industry as a whole is getting better each year as far as reducing the number of Americans infected with food-borne illness. Although numerous restaurants are still not up to governmental standards, dining out today is “safer” now than it has ever been (Garber, 2003).
Porter’s 5 Forces Analysis of the Fast-Food Restaurant Industry
Panera Bread is not the typical fast-food restaurant in that it offers a more upscale product for a few dollars more than an ordinary fast-food restaurant. Although Panera does have this competitive advantage, there are many industry wide threats that it faces. The following paragraphs will discuss five primary industry threats and whether or not each is applicable to the fast-food restaurant industry.
The threat of new entrants is high within the fast-food industry. There are low barriers to enter this market and there is great opportunity to become very profitable. The only large up front capital cost to a potential new entrant would be that of building and equipment. Labor and commodity items are typically low cost items in the fast food industry (Basham & Menza, 2007a). Panera itself is a relatively new entrant along with two of its direct competitors; Corner Bakery Café, and Cosi. Corner Bakery Café offers pastries, salads and café sandwiches with table service while Cosi offers flatbread pizza, sandwiches, pastries, salads and entire entrees. Both offer catering and both have a little over 100 locations throughout the US.
Panera, Corner Bakery Café and Cosi all originated throughout the 1990s (Feed the Day Corner Bakery Café, 2008; Panera Bread, 2008; Cosi Simply Good Taste, 2008). It seems that the new up and coming fast food restaurants are all catering to the ever-changing demands of society. It’s like society is over the cheeseburger and french-fries, slice of pizza, drive through phase and moved on to a more sophisticated, healthier taste. The restaurant industry is unique in that consumers are always on the look-out for new entrants into this market. Since people get sick of eating the same foods over and over again, many consumers are eager to try new restaurant ideas (Basham & Menza, 2007a).
The threat of rivals in the fast food industry is also high. With hundreds of choices and in most cases very little differentiation, it is difficult to stay afloat in this industry. Below, in Figure 1, is a depiction of the market share of top fast-food companies in 2007, including Panera. It is interesting to see that the most internationally and nationally well known and largest fast-food companies, including McDonald’s, Subway, Starbucks and Yum Brands, make up only 37% of the market. Other restaurants make up more than half of the market which is one of the reasons why rivalry is such a large threat within this industry (Panera Bread Company (PNRA), n.d.).
There are two ways to look at Panera and its competition within the industry. If a customer is just looking for any quick service restaurant to grab a bite to eat then Panera is competing with McDonald’s, Yum Brands and Subway. If a customer is specifically looking for an upscale café and bakery, then Panera is competing with Cosi, Corner Bakery Café and Au Bon Pain.
When looking at Panera as a player in the fast-food industry as a whole, as far as revenues and profits go, Panera is at the bottom of the chart compared to most other companies. Part of the reason is because Panera is a newer company and it does offer a premium product, which may not appeal to lower income level people. Some top fast-food chains are McDonald’s, Burger King, Wendy’s, Subway (Doctor’s Associates), Yum Brands and Starbucks. Figure 2 below is a graphical depiction of Panera’s revenues as of the end of 2007 compared to some top fast-food restaurants (Panera Bread Company (PNRA), n.d.).
Figure 2: 2007 Revenue in Billions of Dollars of Key Fast-Food Players
Although Panera is in the bottom region of this chart, it is definitely producing more revenues than Cosi, who is one of its direct competitors, which will be discussed next.
In many cases, people know what they want to eat and compare Panera to other upscale bakery and café’s such as Au Bon Pain, Cosi, Corner Bakery Café and The Einstein Noah Restaurant Group. Because Panera is a company that has differentiated itself from others based upon its product and price, competitors such as McDonald’s and Yum Brands and even Subway do pose a threat but are not direct competition to Panera. When looking at Panera in this sense, the threat of rivalry is still high due to the fact that there are many other similar companies out there offering similar products, but not as high as it is within the entire fast-food restaurant industry. Aside from Au Bon Pain, Panera is the most well known between the bakery and café competitors mainly due to its presence in 40 of the 50 states. Many of these direct competitors have yet to expand out of 10-20 states and none, with the exception of Au Bon Pain have ventured outside the US yet (Feed the Day Corner Bakery Café, 2008; Panera Bread, 2008; Cosi Simply Good Taste, 2008).
Although there are many substitute products for a fast-food meal, the threat of substitute products within the fast-food industry is moderate. Two substitutes are eating at home or eating at a full service restaurant. Of course it widely depends on the economy as to whether or not people have the money to eat out, but most people eat fast food for convenience sake. In other words, people eat fast-food when they are either unable to cook or do not want to cook. In the event that prices among fast-food restaurants drastically increased or disposable income drastically decreased, the threat of substitutes would become more severe. On the same token, if disposable income drastically increases people most likely would opt to eat at full service restaurants for better quality food. Again, there really is no threatening substitution for the convenience of fast-food (Vanden Boogard, 2006).
Since most of the supplies within the fast-food restaurant industry are commodity items, the threat of suppliers is low. Despite this low threat, one common trend within the industry is the rising prices of commodities. First off the cost of labor is increasing due to the continual increase in federal and state minimum wage and new laws enforcing employers to offer benefits to all employees. Second, chicken prices rose by 17.7% while dairy product prices increased by 29.8% throughout 2007. Reasons for these price increases trace back to an increase in the price of corn which is used as chicken feed in most farms. Corn is now being used as a bio-fuel ethanol product which is driving it price up. Corn syrup prices have also increased because of this, which will lead to increases in pricing for beverages, as corn syrup is used as a sweetener in most soft drinks. Unfortunately, these supplier price increases are eating away at profits within the industry as many companies cannot afford to increase their own prices. On the other hand, many companies have increased menu prices, meaning the consumer is absorbing the increase in commodity costs. The National Restaurant Associations reported that menu prices on average increased by 3.1% in 2006 (Basham & Menza, 2007c).
The threat of buyers within the fast-food industry is high. As previously discussed, because there is such a large range of competition and always the option to move on to the next restaurant the cost for a buyer to switch restaurants is low. In many cases, there are several fast-food restaurants within a small radius, so if buyers have a negative connotation with a restaurant (such as experienced a food-borne illness, or poor service or quality of food), very little will prevent that buyer from driving or even walking the extra tenth of a mile to reach another fast-food restaurant.
For this reason, it is extremely important for companies to focus on customer demands and keeping the customer happy. It is also important for companies to keep the appearance of each restaurant up to standards and provide a clean and welcoming atmosphere.
Now that the industry is defined, discussion will ensue to the target company: Panera Bread. It will be interesting to look at where Panera falls within this industry, what it is doing correct and incorrect, and what it should be doing better.
Target Company Analysis: Panera Bread
Panera Bread is a bakery and café that offers bagels, pastries, sandwiches, pizzas and specialty drinks. There are 1,230 individual Panera’s across the US and most are franchised (698 to be exact). Last year Panera Bread, Co. acquired 51% of Paradise Bakery & Café which is a similar entity that operates in the Southwest region of the US. Panera has yet to venture into the international market but does plan to expand into Canada in the near future (Rozhon, 2006).
Ironically, Panera Bread, Co. has roots with its one of its direct competitors, Au Bon Pain. In the late 1970s and early 1980s Au Bon Pain, Inc. originated in Boston. As the company began to grow as a bakery and café, it acquired a similar company and competitor, St. Louis Bread Co. During the mid 1990s Au Bon Pain, Inc. began franchising its St. Louis Bread units out as Panera Bread. Although Panera began to do well with revenues and growth, Au Bon Pain’s sales were suffering and by the late 1990s corporate decided to sell off the Au Bon Pain units entirely and become Panera Bread, Co. The current CEO and Chairman, Ron Shaich, was actually one of the co-founders of Au Bon Pain, Inc. in the early 1980s. He has been the CEO and Chairman of Panera Bread since 2001 when his fellow co-founder of Au Bon Pain decided to pursue other business ventures (Panera Bread Company, 2008).
The culture at Panera is quite different from most restaurants. Whereas most companies have high turnover rates amongst management, Panera Bread has had the same leader since its beginnings back in the mid 1990s. Ron Shaich is not the only Panera “lifer”. Several other members of Au Bon Pain management came with Shaich in the late 1990s when Au Bon Pain was sold off and have stuck with Panera since then. Shaich is an intelligent leader who is dedicated to hard work, and committed to his customers. Panera is successful due to the fact that Shaich conducted ample research that determined what the people wanted. That explains why each Panera is decorated with original artwork, always has a fire burning in its fireplace and offers sofas and arm chairs along with typical table seating. He is the type of manager who despite his high ranking position will still be seen serving customers behind the counters of one of his Panera restaurants. Loyal employees who truly care about the business are most valuable in Shaich’s eyes (Stewart, 2007). It is also interesting to note that Shaich owns 14% of Panera’s voting rights, meaning he has enough faith in the company to invest a portion of his own funds. Not only that but he has an additional motivation to continue to grow the company (Vanden Boogard, 2006).
SWOT Analysis: Panera Bread
Panera has many strengths as a company but for the purposes of this paper its top four will be discussed. First, one of Panera’s greatest strengths is its leadership and management structure. As mentioned previously, Shaich has been with the company for many years and has much experience in running a successful restaurant (Especially since he was lucky enough to have Au Bon Pain as his trial run). Panera also has a bit of a unique franchise policy in place that adds to its strong management feature. In order for an individual to open a franchised Panera, he or she must purchase a market area in which he or she is to open approximately fifteen Panera restaurants within six years. This strategy prevents people without the appropriate amount of capital and without the will to put their heart and soul into the company from becoming part of the Panera team (Panera Bread, 2008). The company has realized that if it wants to franchise to expand, it needs reliable managers who will work hard at keeping up the good reputation of Panera. If someone is forced to take on fifteen restaurants, he or she must be a good manager and maintain each individual entity so as to continue to grow.
Secondly, Panera has great product. For the price, its food is a great value. According to its website, Panera has won numerous awards all over the country, including Best Bakery, Best Bread, Best Dessert, Best Lunch, Best Summer Beverage, Best of the Best, Best Fast-Food and the list goes on from there. Not only does it offer healthy menu items but service is quick and the atmosphere is comfortable and homey (and includes free Wi-fi). The company continues to be creative and add new menu items, such as the Crispani flatbread pizza, mini breakfast quiches and a wide variety of soups and salads (Vanden Boogard, 2006).
Third, Panera’s finances are just another strength. For the past five year the company has had positive and growing net incomes. This is mainly attributable to the fact that in 2007 revenues had nearly tripled from 2003. In 2003 net income was approximately $30.43 million while in 2007 it reached approximately $57.46 million. Although the company did experience some negative cash flows back in 2004 and 2005, in both 2006 and 2007 cash on hand increased by $27.65 million in 2006 and $16.15 million in 2007 (United States Securities and Exchanges Commission Form 10-K, 2008).
Lastly the brand name and image associated with Panera is a strength. The company has 1,230 stores throughout the US, meaning that most likely a great deal of consumers have heard of Panera. Panera is considered an upscale fast-food establishment and is known for its fresh breads and pastries, comfortable and clean atmosphere and healthy menu options (Panera Bread, 2008).
There are a few weaknesses associated with Panera Bread that come to mind. First, Panera has yet to expand internationally. Although the company said that they expected to enter Canada in 2007, that is yet to happen (Rozhon, 2006; Panera Bread, 2008). If Panera wants to play with the big boys (for example McDonald’s, Starbucks, Yum Brands and even its top competitor Au Bon Pain) it will have to make a plan to go international and follow through with it.
Another company weakness is its dependency on franchising. Although Panera has a good strategy to pick up strong franchisors, the majority of its units are franchised. Industry leader, McDonald’s Corporation, also franchises the majority of its units and does just fine, but less revenue comes from franchising and there is always the possibility that the franchisors could destroy the company reputation if they do not adhere to company policy (Panera Bread, 2008).
Next, Panera uses all fresh ingredients and in some cases rare ingredients (such as anti-biotic free chicken) in preparing its menu items, meaning supplies are delivered three times per week at a minimum to each Panera restaurant. Panera receives 98% of its ingredients from only three suppliers. Unfortunately this high dependence on such a small number of suppliers may disrupt regular business operations. If bad weather occurs, vehicle problems are encountered, or even if one supplier experiences business problems and shortages Panera will not have enough ingredients to operate, which may upset customers and result in a loss of revenue (United States Securities and Exchanges Commission Form 10-K, 2008).
Lastly, there are still many people who would prefer to eat at Subway or McDonalds as they are not convinced that it is worth the extra couple of dollars to eat at Panera. Panera needs to bulk up its marketing and advertising to ensure that it convinces as many customers as it can that they are worth the additional price (United States Securities and Exchanges Commission Form 10-K, 2008).
Along with the aforementioned weaknesses, there are a few threats that Panera faces. The economy poses a large threat to Panera. Panera’s product is not a necessity and it may be considered a luxury product. This means if people do not have the money to spend due to a poor economy including rising gasoline prices and high unemployment rates, they will either opt for a substitute such as eating at home, or head to McDonald’s or Subway for a much cheaper meal (Vanden Boogard, 2006).
Competition is another large threat to Panera. In the fast-food restaurant industry, there are hundreds, maybe even thousands of companies, both small and large for consumers to choose from. Within most suburban areas throughout the country consumers only have to drive a few miles for at least five or ten different fast-food restaurant options. Although Panera offers a premium product it is still just fast-food and must constantly stay on its toes to meet the consumer’s ever-changing demands, especially since there is no cost to the consumer to switch from one restaurant to the next (United States Securities and Exchanges Commission Form 10-K, 2008).
Currently, 8% of Panera’s locations are in Florida and 6% in California (Panera Bread Company, 2008). This geographic concentration in two natural disaster prone states poses a threat to Panera. If a hurricane or earthquake reeks havoc over either state Panera will suffer a large loss (Vanden Boogard, 2006).
Yet another threat is that of management. A great deal of Panera’s success can be attributed to Ron Shaich. Part of this success stems from the fact that Panera’s roots really started with Shaich’s own little bakery in Boston which he eventually built up to a national restaurant chain. Shaich has been in the business for 25 years and is passionate about Panera because it is his own creation. Although he is not really that old, he will retire someday. The threat here is finding another leader with as much passion to succeed and as much personal baggage invested in the company as Shaich (United States Securities and Exchanges Commission Form 10-K, 2008).
Lastly, the following is a threat that all restaurants face. That is the threat of food-borne illness. If one individual restaurant has a bout with salmonella or e-coli or even the avian flu (which is unlikely but it is mentioned in Panera’s 10K), the entire brand name will be defamed and most likely sales will drastically decrease (United States Securities and Exchanges Commission Form 10-K, 2008).
As is the case with many young companies, Panera has various opportunities in its upcoming future. Three primary opportunities come to mind. The first is that of growth and development through expansion. Panera is currently located in 40 of the 50 states, but in most states there are only a few individual locations. On the same token, Panera has yet to go international. The company should test the waters by choosing a specific market, performing research and then dive in. International growth will take the company to the next level by continuing to increase its sales and earn world-wide recognition (Panera Bread, 2008).
Another opportunity that Panera is facing is to capitalize on the health-food craze in America. Society has become obsessed in some ways with eating healthy, which could pose large threats to the typical cheeseburger and french-fry fast-food chains. Panera is in a great position because they already offer a healthy-themed menu. Although bread is high in carbs, which most dieters try to stay away from, Panera’s soups, salads, and new Crispani flatbread pizzas are all healthy options. If Panera continues to introduce healthy menu items such as by offering low fat wraps rather than bread or expanding on their salad selection, they have the opportunity to capture a larger market share.
Lastly, Panera has the opportunity to diversify its menu. For example, by adding alcoholic beverages to its menu after 5pm it may attract a larger dinner crowd. Panera could offer alcoholic coffee drinks with pastry for dessert and wine and beer with sandwiches and salads for dinner. Since it already has most of the ingredients, Panera could introduce calzones and thick crust pizzas. It could even introduce grilled chicken entrée’s with side salads without altering its supply chain too much.
Panera Bread’s Marketing Mix
Although Panera does have an opportunity to diversify its product line, its current products are not doing all that bad. Panera offers a bakery menu and a café menu. Items on its bakery menu include bagels, pastries, muffins, freshly baked breads, breakfast sandwiches and soufflés. Items on its café menu include salads, soups, sandwiches, Crispani pizza, hot and cold beverages and a kids menu. With each season, Panera features new products that are seasonally themed. For example, this summer its café menu features a strawberry poppy-seed salad, which includes an assortment of fresh fruit on a bed of lettuce with signature poppy-seed salad dressing. Summer features also include a frozen lemonade beverage and an egg and cheese breakfast sandwich on fresh bread. Panera is also known for its unique soups, which also tend to change with the season and in some cases the day. Each day a different variety of soups are offered on the menu, which are listed on its website. There are special seasonal soups as well, such as the summer corn chowder (Panera Bread, 2008).
Another product that Panera offers is called Via Panera. This is the company’s catering service. Via Panera offers boxed lunches or breakfasts that are delivered to parties of five or more. Along with the food, the customer receives a catering coordinator who is in charge of delivery if applicable and helps the customer make menu selections for large groups such as office meetings or even parties and other functions (Panera Bread, 2008).
Aside from the physical product that Panera offers, they offer a psychological product as well. As previously mentioned, each individual Panera is decorated to feel comfortable and homey. Panera is a place where people can gather and relax and enjoy the atmosphere. Although the food is slightly more expensive than McDonald’s, Panera offers couches, fireplaces and even free Wi-Fi for its customers to enjoy (Panera Bread, 2008).
Panera’s pricing is by far much higher than the typical fast-food restaurant. Although it charges much higher prices, it offers a higher quality product and atmosphere than the typical fast-food restaurant.
As of November 2007, Panera was experiencing a drop in margins mainly due to the increase in commodity supplies and had to determine a strategy to deal with this problem. Shaich decided to raise menu prices by about 2.5% in the café and 5% in the bakery section. Shaich also determined a new promotion strategy to deal with this problem, which will be discussed next (Walkup, 2007).
Panera has many cost efficient successful ways of promoting its products, including newspaper and magazine ads, billboards and most importantly, word of mouth (Panera Bread: Some History and Commentary, 2004). The company posts its menu and soup flavors of the day on its website and has different seasonal menu items featured each season. Some well known menu promotions include the You Pick Two menu item, which allows consumers to pick any two items featured on the salad, sandwich and soup menus and receive one half of each item for about $7. Panera is also known for offering a bakers dozen of bagels rather than they usual dozen. Similar to other bakery chains, Panera also offers a box of coffee to accommodate large groups or tubs of cream cheese to go along with the bakers dozen of bagels (Panera Bread, 2008). Panera has relied upon the fact that its customers will enjoy their experience so much that they will come back and bring friends. This is just another reason for Panera’s concern with its customer demands (Panera Bread: Some History and Commentary, 2004).
As mentioned previously, in late 2007 Panera had been experiencing declining margins and came up with a promotional strategy to combat the problem. Rather than dropping products that yielded low margins, Shaich revamped the menu boards at each Panera to list the products that had the highest margin first. The hope here was that people would see the most profitable menu items first and out of partially convenience sake and partially intrigue order these items. Panera had decided to increase costs meaning each menu board had to be updated, so why not move the items around to put the spotlight on the most profitable items (Walkup, 2007).
Panera also offers a wide price range of products to accommodate consumers from a wider budget span. Shaich believes that many of Panera’s competitors have already implemented this strategy so it was necessary for Panera to follow suit (Walkup, 2007).
Panera is located throughout the US mainly in suburban communities where the cost of living is above average. As Shaich discussed in a recent interview, “From the beginning, we focused on one group of customers, those who appreciated an inviting environment and were willing to pay for “real” food based on homemade artisan bread…We only open in community-oriented spots and try to create a place where shoppers, residents, and daytime workers can gather” (Stewart, 2007, p. 2). Panera is creeping into the larger cities as well as hopefully expanding to international locations soon (Stewart, 2007).
Competitor Analysis: McDonald’s
Panera is a great company that is currently doing very well. The future for Panera is only to expand and hopefully become a worldwide sensation similar to McDonald’s. Although McDonald’s is not one of Panera’s direct competitors or worst threats, it will be interesting to look at the two companies side by side, since Panera is reaching to grow and gain a larger presence, while McDonald’s is the perfect example of a company who has achieved vast growth and worldwide presence. Perhaps Panera can learn a thing or two from McDonald’s.
McDonald’s restaurant is a fast-food chain well known for its Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin. The restaurant appeals to people of all genders, races and ages due to its speedy service of value-priced food, which may be one of the reasons for its success. Currently, McDonald’s Corporation is traded publicly on both the New York and Chicago Stock Exchanges under the ticker symbol “MCD”. As of the end of the fiscal year in 2007, McDonald’s had about 1165.3 million shares of common stock outstanding and was worth about $58 per share (Value Line
Industry Report, 2007)
The concept for McDonald’s originated in 1955 by Ray Kroc, a milkshake machine salesman. Ray had sold eight of his milkshake machines to the McDonald brother’s hamburger restaurant in California. Desperate to sell more machines, Ray suggested to the brother’s that they open up more McDonald’s hamburger restaurants across the country. The brother’s liked the idea but had no one to run their restaurants, so they appointed Ray to take on the challenge. Ray Kroc opened his very first McDonald’s in Des Plaines, Illinois (which is no longer in operation today as it is a museum containing historical articles from the companies past). In 1965 McDonald’s went public with only 100 shares of stock, valued at $2,250 (equivalent to $3.3 million today). During the 1970s and 1980, McDonald’s grew at a rapid rate. Besides significant domestic growth, where McDonald’s restaurants popped up anywhere from gas stations to shopping malls, the company also founded a charity for sick children and their families, and established a global presence. Today, McDonald’s Corporation is arguably the largest restaurant company in the world. It has rights to more than 30,000 McDonald’s restaurants worldwide, most independently owned and operated. (Note: McDonalds also owned Boston Market and Chipotle Mexican Grill but recently sold these chains) (McDonald’s, 2005-2006).
The following points are just a few reasons why McDonald’s owns 19% of the fast food market while Panera has just about 1%.
• McDonald’s has been around for 50 more years than Panera. It has had more time to grow, develop and penetrate the fast-food market.
• McDonald’s offers a good valued product for a cheap price. Although most people do not associate McDonald’s with being healthy, most people do recognize the fact that its food tastes good and will not burn a hole in your pocket.
• McDonald’s has better locations. While Panera has been concerned with remaining in well-to-do communities and suburban areas, McDonald’s is everywhere.
• McDonald’s targets a larger market. Due to Panera’s cost and upscale atmosphere, McDonald’s is more conducive to families than Panera. McDonald’s also offers play-places and toys with kids meals. Not only is McDonald’s kid friendly, but it is much more affordable for the average family.
• McDonald’s has become an industry leader in charitable giving. One of Panera’s key focuses is community, but due to the fact that McDonald’s has more money, and prides itself on charitable giving, community charities are more likely to receive money from a McDonald’s rather than Panera.
• Although Panera has begun to implement drive thru’s at some locations, all McDonald’s have drive-thru’s.
• Because of its age, McDonald’s has better distribution and supply chains.
Unfortunately for Panera, the list could continue on and on. On a better note, Panera should not be discouraged because of this for two reasons.
First off, McDonald’s has much more experience and has been around for many more years. And secondly, Panera most likely is not losing tons of customers to McDonald’s. Panera does have great product differentiation and caters to a slightly different market than McDonald’s. The way I see it is McDonald’s is the old and Panera is the new. Panera caters to what our society is becoming while McDonald’s may eventually lose market share if it does not keep up with societies demands.
Problems and Strategic Alternatives
One important problem with Panera is its lack of international growth. In order to gain market share and increase revenues, the company must expand outside of the US. There was talk of Panera opening in Canada in 2007 but it is yet to occur. Although it is important for a company to do its homework and only expand when ready into markets that it becomes familiar with through research and experimentation, Panera is ready.
Secondly, Panera needs to develop relations with local suppliers. Since it prides itself with always having the freshest ingredients but only does business with three suppliers, severe problems have the potential of occurring as a result of one little snafu with one of the three suppliers. Although this would create cost and possibly menu pricing differences depending upon the region of the country, if Panera builds relationships with many local suppliers the risk of losing large amounts of revenue over one problem with one supplier will dissipate.
Lastly, Shaich is Panera’s reason for success. He needs to be on the lookout for his replacement soon and begin training his protégé as soon as possible. By leaving Panera’s future in the hands of a leader who does not have the same passion for success and work ethic as Shaich there is no guarantee that the company will continue to grow, or even survive.
After learning a great deal about one of my favorite fast-food restaurants, I have a few recommendations for the company. First off in order to grow, Panera should research other markets and cautiously make an entrance. The company has had little advertising expense within the US but it may have to resort to commercials or billboards in its new markets. Panera will also have to cater to international tastes through diversifying its menu in its new markets. Perhaps adding pancetta to its sandwiches in Italy or flan and churros y chocolate to its dessert menu in Spain will help to attract customers in these new markets.
I also think that Panera will attract a larger customer base by offering alcoholic beverages during its dinner time hours. Since it already has a homey atmosphere perhaps the sale of alcohol will attract an older crowd to gather in the evenings and enjoy a pastry with an adult coffee beverage or one of Panera’s gourmet salads with a glass of wine.
Overall I think Panera is a good company that has a good foundation laid and is in an opportune position to grow. It has strong management, a good product and is strategically located. As long as the company continues to listen to and meet society’s demands, it will continue to grow.
Basham, M. & Menza, J. (2007a). How the Industry Operates. Standard & Poor’s
Industry Survey: Restaurants. Retrieved March 2, 2008, from Standard & Poor’s
Basham, M. & Menza, J. (2007b). Industry Profile. Standard & Poor’s Industry
Survey: Restaurants. Retrieved March 2, 2008, from Standard & Poor’s
Basham, M. & Menza, J. (2007c). Current Environment. Standard & Poor’s Industry
Survey: Restaurants. Retrieved March 2, 2008, from Standard & Poor’s
“Cosi Simply Good Taste.” (2008). Cosi. 27 July 08 .
“Feed the Day Corner Bakery Cafe.” (2008). Corner Bakery Cafe. 27 July 2008
Garber, A. “NBC health inspection expose sparks fast-food furor.” Nation’s Restaurant News.
Dec 1, 2003. FindArticles.com. 01 Aug. 2008.
Jones, Timothy, Boris Pavlin, Bonnie LaFleur, L. Ingram, and William Schaffner. (Apr, 2004).
“Restaurant Inspection Sources and Foodborne Disease.” CDC. 27 July 2008
“McDonald’s.” (2005-2006). About McDonald’s. 27 July 2008
“Panera Bread.” (2008). Panera Bread. 27 July 08 .
“Panera Bread Company.” Hoover’s Company Records. 1 August 2008. Hoover’s
Company Records. ProQuest. University of West Florida Online Database, Pensacola,
FL. 2 Aug. 2008
“Panera Bread Company (PNRA).” (n.d.). Wikinvest investing, simplified. 27 July 2008
“Panera Bread: Some History and Commentary.” (23 Dec. 2004). Truck and Barter. 27 July 2008
Reuters Health E-Line. (2006). Taco Bell says told E. coli outbreak over. Reuters.
Retrieved February 29, 2008, from Factiva.
Rozhon, Tracie. (23 Sept. 2006). “Inspiration: Seeing Meat Put on Bread.” 27 July 2008
Stewart, Brandi. (7 Dec. 2007). “Pastry parlay: From Au Bon Pain to Panera.” 27 July 2008
United States Securities and Exchanges Commission Form 10-K. 22 February 2008. EDGAR
Online. 27 July 2008.
Value Line Industry Report. 2007. Value Line. 24 July 2008.
Vanden Boogard, Rich. (22 Mar. 2006). “Why I Still Like Panera Bread (PNRA).” Seeking
Alpha. 27 July 2008 .
Walkup, Carolyn. (12 November 2007). Panera readies price hike, menu revamp to combat soft
sales. Nations Restaurant News. Retrieved July 27, 2008 from Factiva.