Panera Bread is one of the great American success stories of breaking trends, and shaking up the market with complete innovation. Not only were they successful, but they were able to achieve this success while doing things their own way. Product and Service differentiation were the keys to this bakery-café’s success. Before Panera Bread’s creation in ___, never had a business combined the relaxing environment of a café with the fresh aroma of an artisan’s bakery. This proved to be a gold mine for its owner and stakeholders, and the analysis of this period from 2001 to 2003 shows exactly why.
In this analysis, we will examine the success factors of Panera Bread and explain why they were able to achieve some of the goals they had accomplished thus far. We will also explain some alternatives and opportunities that Panera Bread may look forward to taking advantage of in the future.
Panera Bread’s mission was to create the bakery-café; a place the combined the welcoming atmosphere of coffee shops, the food of sandwich shops, and the quick service of fast food restaurants.
They named this type of service “fast-casual” dining and the term fits because of the atmosphere and quality of service they were able to provide. Panera Bread targeted 5 key consumer dining needs which include the following:
The company’s revenues rose from 350.8 million to 977.1 million between 2000 and 2003 as a result of new unit expansion, with 419 stores opening between 1999 and 2003. In 2000 system wide comparison sales and annualized unit volumes increased 9.
1% and 12%. The growth of these two metrics decreased in the years following with system wide comparable sales and AUVs increasing only .2% and .5%.
The fast-casual dining market consists of those companies that seek to fill the gap between fast-food chains and full-service restaurants. These companies offer speed, efficiency, inexpensiveness, hospitality, quality and ambiance. These restaurants fall under fast casual when they offer self-service, a check between 6 and 9 dollars, slightly more expensive than fast food but cheaper than full service restaurants. Other requirements include that the food be made to order and the décor being upscale. This market of restaurants experienced significant growth between 1999 and 2003. Continued growth was expected with sales projected to reach 50 billion in the following decade. This growth was expected to come at the expense of fast food chains.
The industry’s growth started with high profitability and diverse dining avenues, with concepts such as Mexican, Chinese, and bakeries. Opening costs for these establishments in relation to annual sales was minimal, allowing more new players to get into the market with fresh concepts and menu items. Also the maturing of baby boomers and their children contributed largely to the growth of the fast casual market. This demographic expressed insufficient time for cooking while growing tired of fast food and desiring a high-quality, fresh, healthy dining experience, without the time consumption of a full dining restaurant. This market has effectively emerged itself into a legitimate trend in the restaurant industry.
Modern day customers seek establishments that combine qualities such as a casual atmosphere, quality, and quick service. Panera Bread focuses on these aspects of their bakeries by offering breakfast, lunch, daytime “chill-out, lunch in the evening and take home meals; in alignment with consumer dining needs. The company’s customer base included seniors, matinee-goers, shoppers, business professionals, and students. The company focuses on delivering high quality foods, targeting suburban dwellers and workers as a premium specialty bakery and café.
Panera Bread was a pioneer in the café-bakery segment with unique concepts and operation strengths, which has led the company to its current position in the fast casual dining market. The company designed its concept in meeting the consumer’s needs of efficiency and the desire for high quality dining, which aren’t met by traditional fast food chains. The company strived to establish Panera Bread as a leading national brand, with its operation quality, real estate strategies, and design being integral to their success
Each company-operated bakery had computerized cash registers to collect point of sale transaction data, used in generating marketing information. Product prices were programmed into the system from the corporate office. The company’s in-store information system was designed to assist in labor scheduling and food cost management, to provide corporate and retail operation management fast access to data, and to reduce administrative time. These systems supplied data to the company’s accounting department daily, enabling them to use the data to generate weekly reports on sales and other important elements. The company also monitored the average check, customer count, product mix, and other sales trends. Also, facilities had systems that allowed the dough facilities to accept electronic orders from the bakery and deliver orders to the bakeries.
Employees consisted of full time associates in administrative or general positions, commissary operators, bakers, and associates at the bakeries. As of December 2003 the company had 3,924 full time associates, of whom 344 were employed in general or administrative roles principally at or from the company’s support centers. The company also had 4,078 part-time hourly associates at the bakeries. The company’s priority was staffing its bakeries, fresh dough facilities, and support centers with skilled associates, investing in training programs to ensure quality. The company offered incentive programs and bonuses to salaried employees, with the addition of product discounts and employee stock options. Panera Bread believed that providing bakery-café operators the opportunity to participate in the success of the company would enable the company to attract and retain highly motivated and experienced personnel, resulting in a better customer experience.
The company targets mostly those individuals in urban areas, focusing on white collar workers who seek a fast and healthier alternative from fast food burgers and other common establishments of fast service. With a large focus on individuals seeking a fast, quality bakery product, the company seeks to give its target customers a stylish ambiance to dine in. Panera Bread’s competition derived from sources within its trade areas. The stores competed based on consumers need for breakfast, lunch, daytime, lunch in the evening, and take home bread sales with the competitive factors being location, environment, customer service, price, and quality of products. The company also competed for leased space in desirable locations where certain competitors had capital resources that exceeded those available to Panera Bread. Those primary competitors included specialty food and casual dining restaurant retailers, including national, regional, and locally owned concepts.
Panera Bread had a fresh dough facility system that supplied fresh dough to the company owned and franchise operated bakeries daily. The company had 16 commissaries that prepare the fresh dough. These commissaries assured product quality and consistency, headed by the company’s master artisan baker, Mile Marino, who has been with the company since 1987. The company also entered into five year contract with a company named Bunge for its supply of frozen dough.
The company also signed an agreement with Dawn Food Products to prep and deliver the frozen dough; structured as a cost-plus agreement. Franchised bakery’s operated under individual contracts with either the company distributor or other regional distributors, with three companies serving as the primary distributors for Panera Bread. The company has had increasing stock holder’s equity between 1999 and 2003, with its most recent total stockholder’s equity equaling 195,937 in December of 2003. Total incurred liabilities of the company equaled $46,235 in December of 2003 which made for a total liabilities and stockholder’s equity of $245,943 for the year.
The company strategy centered around a conceptual focus on the specialty bakery category with a focus on artisan attention bread made with all-natural ingredients. The strategies implemented by the company focus on meeting the important consumer trends met by fast food chains, while striving for a more upscale environment. In an effort to make Panera Bread emerge into a nationally dominant name, the company framed its menu, operating systems, prototype, and strategies around effective competition within sub-level business targets. This helped to company to increase profits between 2002 and 2003. The unique character of Panera Bread’s quality in its café’s, menu options, distinguished bakery design, along with the valuable locations of its stores contributed to its success. The company planned to combine company and franchise efforts in order to achieve its growth. Franchising proved to be a key factor in the company’s success, allowing the company to expand more rapidly due to increased resources to outfit the strategies and concepts produced by Panera.
At the closing of the 2003 fiscal year, the company had 429 bakeries in operation and documented intention of opening an addition 409 bakeries. The company has 8 key executive officers with extensive experience, both with Panera Bread and also with other major corporations and organizations including Starbucks, Fidelity Investments, and other companies. All of these officers obtained their position with Panera between 1999 and 2003. The company derives its culture from the pre-existing chains of fast food and full service dine-ins. In an effort to supply consumers with a third option that combined the attributes of both of these markets, the company, through many stages of conception, effectively identified a niche within urban consumers. The company pioneered a new market segment of food service trends and through constant growth and innovation has built a successful company. The company is structured with top management and board executives establishing and updating views goals and visions for the growth and target of the restaurant chain. The company has both corporate and franchise operated bakery’s that adhere to the vision and direction of company management and consumer trends.
Panera Bread has maintained its business strategy over its lifespan and they continue to employ a product/service differentiation strategy to sustain their competitive advantage as a fast-casual dining experience. This strategy has enabled them to grow very swiftly over the past 15-20 years and has given them a substantial hold on the market for fast-casual dining. Panera Bread’s decision to employ this differentiation strategy correctly, gives them the best opportunity to succeed for their target market. They are in a market where there are many ways to differentiate the products and services they provide. Buyers often perceive these differences as the product/service having value. Fortunately, few rival firms are following this distinct differentiation approach. Ron Schaich and his team were correct when concluding that this differentiation strategy would attract patrons which gave Panera Bread every reason to employ this strategy.
To differentiate themselves from the likes of McDonald’s, Burger King, or Pizza Hut; they focused on an extremely high quality of food products. This played into their game plan of becoming a specialty cafe and they continued to choose the best and most natural ingredients for their products. Every loaf of bread is baked with the four ingredients, water, natural yeast, flour and salt, no chemicals or preservatives are ever used. Another practice they employ to provide first class products is within their supply chain. To provide fresh dough to their locations every day, they have many regional fresh dough facilities.
These facilities would go through a 48 hour process to prepare bread and bagel dough for shipment, which provides consistent quality and efficiency to all the locations. Panera Bread also found that many customers were more health conscious which prompted them to introduce a full line of whole grain breads. Other improvements that they instituted included new artisan sweet goods, egg soufflés and natural anti-biotic free chicken all to meet the customer’s ever changing preferences. These are the practices upon which Panera Bread has continued to provide an exceptional distinct product line to its customers in hopes of sustaining a competitive advantage.
Panera has also implemented change in other areas to provide their customers with a differentiated service experience. They have employed a cafe design which created one of the most comfortable and warm environments to dine in. This has been very successful for their strategy of distinguishing themselves and their offerings to customers. Like Starbucks, they wanted to create an environment in which consumers would identify Panera Bread as a neighborhood meeting place. As a result, patrons would continuously use a Panera Bread location for all sorts of gatherings whether they are for business or pleasure. One of the greatest benefits that Panera Bread provides to its customers is free wireless high-speed internet and since they were one of the first to do so, this created a competitive advantage for them.
The fast-casual dining industry is generally a new concept. At this point, Panera needs to sustain its leadership and competitive advantage in this industry to continue to grow and fend off competitors. One of the best defensive strategies that they can employ is the leverage gained by economies of scale. With these economies they can continue to offer their products on their terms, which give them an advantage over the competition. This in turn gives them more control over the market and the suppliers in this industry. Here they can block avenues for current competitors as well as new entrants. If they can continue to stay on the top of the industry they can continue to employ this defensive strategy.
One of the main reasons that Panera Bread is relevant is because of its size. At this point they are one of the largest fast-casual dining businesses and they use this size to stimulate further growth. Continuing to grow gives them the opportunity to generate more revenue if executed well with the right buyers. Revenue is always a great reason for expansion and Panera Bread knows this. They are one of the best in the restaurant industry at recognizing shifts in consumer preferences and being able to make the proper adjustments to satisfy their customers. This is crucial especially in today’s world where change is continuous and rapid. As Panera Bread consistently strives to be a leader in product and environmental offerings, it’s crucial that they continue to be aware of and progress along with the changing world. Even though they can employ some of these strategies in the future, they can’t lose track of their business model for fast-casual dining restaurants in the process.
Though Panera Bread has been very successful during this period, there are some strategies which they can enact to stimulate a growth in profits. Unfortunately, with each benefit from an alternative there is always a cost that Panera Bread may or may not be willing to incur. Firstly, Panera Bread could try to vertically integrate their products. This would call for them to pre-pack some of their bread and sandwich products and sell them in local grocery chains across the United States. This strategy would make their products more accessible to the general public even where there are no Panera Bread café-bakeries nearby. One of the key risks with strategy would be the possibility that product quality would diminish because the products are not being made fresh within the actual bakeries.
The second strategic alternative would be the use of mini cafes within retail stores. This strategy has already been implemented by Starbucks with their mini cafes inside of Target retail stores. This would also make the products more accessible to the general public, thus giving Panera Bread more exposure. This strategy would require Panera Bread to train managers within the retail store to be able to handle the proper preparation of their products. Lastly, the third alternative would be acquiring local cafes and transforming them into new café-bakery locations. This strategy would essentially eliminate competition and create new areas where these products can be accessed. On the other hand, if Panera Bread is unable to conduct full takeovers, there is a risk that they could lose some of the authenticity of their products/services.