Question 1 Panera Bread Company is a fast service, casual bakery-café that offers fresh-baked, quality breads and baked products as well as breakfast items, pastries, smoothies, made-to-order sandwiches, pasta, soups, salads, and café beverages. They pursue a broad differentiation strategy which seeks to differentiate the company’s product offering from rivals with superior attributes that will appeal to a broad spectrum of buyers. We believe Panera Bread Company approaches differentiation from the angels of unique taste and quality ingredients along with an aesthetically pleasing and inviting dinning environment. It was believed that the success of Panera Bread Company meant “being better than the guys across the street.” By developing a menu with diverse offerings, it enables Panera Bread Company to draw in customers from breakfast through the dinner hours each day. Because Panera Bread Company uses higher quality, fresh ingredients in their uniquely crafted menu items, they are able to command a higher price for its products than some of their rival competitors.
Question 2 Internal strengths for Panera Bread Company:
• Store design and ambiance.
• Working with franchisees to open new locations; Superior product quality- artisan signature breads, made from four ingredients, as well as bagels, muffins, cookies, and other pastries, were baked fresh throughout the day at each café location.
• Panera’s many honors and rewards.
• My Panera Rewards that builds relationships with loyal customers, which in return improves sales by assisting management in learning what items their customers prefer. Panera Bread Company’s internal weaknesses included:
• Marketing and advertising is still a work in progress resulting in a weak brand image and reputation.
• Non-Profit Pay-What-You-Want Bakery Cafes are work in progress, although there was a high percentage of people that paid at the suggested amount or more, there still were about 20 percent that paid less.
• Not enough locations with drive-thru windows and those locations with drive-thru windows offer a 20 percent on average return.
• Pricing Power- for management to improve margins Panera must grow its pricing power in supplier negotiations.
• Thin menu which consist of mainly sandwiches, soups, and salads. There were a few external opportunities we found for Panera Bread Company. They compete with a wide assortment of specialty foods, casual dining, and quick-service establishments. On a two-year basis, Panera has grown its catering business 50% each quarter. In addition, Panera is expanding into new geographical market as fast as possible. The growth potential is easily there for Panera in a number of cities and markets. Furthermore, Panera’s menu is designed around bakery expertise and consumer’s taste. In the last few years Panera had responded to growing consumer interest in healthier, more nutritional menu offerings. An 8% unemployment rate; the Great Recession of 2008-2009; and dining establishments, such as Chipotle Mexican Grill, Applebee’s, Fuddruckers, Starbucks and Ruby Tuesday, just to name a few, are external threats for Panera Bread Company.
Question 3 The supply chain management, operations, distribution, sales and marketing, research and development, and service are primary components of Panera Bread Company’s value chain. The supply chain management consists of each franchisee purchasing dough directly from Panera Bread, and Panera as the supplier has an interest to keep prices of dough as little as possible to maintain feasible franchise operations, since they receive 5% royalties from sales continually. Under operations, Panera provided and required comprehensive front and back of house training, market analysis, and bakery-café certification. Also, the complexity of the product line enabled Panera to match menu items with a variety of customer needs. This process ensured that weak selling items would be removed limiting excess inventory. As for distribution, each franchisee purchased dough directly from Panera Bread and each facility producing dough was able to produce for six bakeries. Costs margins were achieved by producing the dough at central locations employing economies of scale. Panera’s sales and marketing strategy was to use focus groups to determine customer food and drink preferences, and price points. In research and development, new menu items were rolled out in limited cafés and developed in test kitchens prior to nationwide release. Finally, serving high-quality food at prices that represented a good value along with providing courteous, capable, and efficient customer service was vital to Panera’s value chain.

Question 4 From these results we can conclude that the company has operated rather consistent over the years and seems to be growing. Working capital has significantly risen between 2007 and 2009. Also, return on equity has constantly increased from year to year. They also seem to have improved and cut back on their General and Administrative expenses by about 2% since 2002.
Question 5 Based on the data from Exhibit 2, the compound annual growth rate (CAGR) for revenues at company-operated stores from 2002 to 2011 was 25.08%. Here is the calculation: ((($1,593/$212.6)^(1/9))-1)*100 = 25.08%. The CAGR represents the smoothed annualized gain for Panera Bread’s revenues, at company-operated stores, earned over the revenue’s time horizon from 2002 to 2011. This is the rate at which the revenues would have grown if it grew at a steady rate. The compound annual growth rate (CAGR) for the revenues at franchised stores from 2002 to 2011 was solved as ((($1,828.2/$542.6)^(1/9))-1)*100 = 14.45%. The franchised stores’ CAGR of 14.45% is lower than that of the company-operated stores’ CAGR of 25.08% suggesting that the company-operated stores are growing at a more favorable rate. The compound annual growth rate (CAGR) for the systemwide store revenues from 2002 to 2011was calculated as ((($3,421.2/$755.2)^(1/9))-1)*100 = 18.27%. The CAGR for the 9-years of revenue represents the smoothed annualized gain for Panera Bread’s revenues, for the systemwide stores, earned over the revenue’s time horizon from 2002 to 2011. This is the rate at which the revenues of both the company-operated and franchised stores were summed together. The CAGR for the average annualized revenues per company-operated bakery-café from 2002 to 2011is equal to 2.95%. This was computed as ((($2.292/$1.764)^(1/9))-1)*100 = 2.95%. The compound annual growth rate (CAGR) for the average annualized revenues per franchised bakery-café from 2002 to 2011 was ((($2.315/$1.872)^(1/9))-1)*100 = 2.39%. The CAGR for the average annualized revenues per franchised bakery-café is lower than the company-operated bakery-café. The comparable bakery-café sales percentage increases for company-owned outlets were lower than the franchised outlets’ percentage increase by 2% in 2002. Then in 2007-2009, the sales percentage increased a small portion for both outlets due to the recession. In the year following the recession in 2010, franchised outlets had a 0.7% higher sales percentage increase than that of the company-owned outlets but the following year company-owned outlets would outpace franchised outlets by 1.5% more in sales.
Question 6 Company bakery-café operations for years:
2009: $193,669,000 / $1,153,255,000 = 16.79% Operating Profit Margin
2010: $249,177,000 / $1,321,162,000 = 18.86% Operating Profit Margin
2011: $307,012,000 / $1,592,951,000 = 19.27% Operating Profit Margin
Even though there was a weak economy from 2007-2009, the company had achieved growth in the bakery-café operations, each year being better than the last. Franchise operations for years:
2009: $72,381,000 / $78,367,000 = 92.36% Operating Profit Margin
2010: $80,397,000 / $86,195,000 = 93.27% Operating Profit Margin
2011: $86,148,000 / $92,793,000 = 92.84% Operating Profit Margin
Panera Beard’s Franchise locations seem to have a steady operating profit margin. This is very impressive in a weak economy. Fresh dough and other product operations for years:
2009: $21,643,000 / -$94,244,000 = -23.46% Operating Profit Margin
2010: $24,146,000 / -$116,913,000 = -20.65% Operating Profit Margin
2011: $20,021,000 / -$138,808,000 = -14.42% Operating Profit Margin
Because of the company’s growth, it has needed to use more fresh dough and other products in order to meet demand. Since there is a lot of waste using only fresh dough daily, this will almost always be at a negative operating profit margin. However, over the years the operating profit margin has lowered due to operations in the company.
Question 7 The rival chains listed in Exhibit 3, which appears to be Panera Bread Company’s closest rivals are: Atlanta Bread Company, Au Bon Pain, Bruegger’s, Corner Bakery Café, Jason’s Deli, McAlister’s Deli, and Einstein Bros. Bagels. Many of these competitors offer fresh-baked breads and baked products, salads, sandwiches, soups, deserts, and coffee beverages as Panera. Although, some of these rival chains are not geographically dispersed, such as Atlanta Bread Company, with roughly 100 locations concentrated mainly in the southeastern United States.
Question 8 The major issues that Panera Bread management needs to address are what actions to take to boost sales at company-owned bakery cafes (earning more than franchised cafes)? Also, how to boost Panera’s traffic counts at its stores during dinner hours?
Question 9 The recommendations we would make to Panera Bread to strengthen its competitive position and business prospects vis-à-vis other restaurant chain rivals are to use first-mover advantage and secure prime retail locations in urban areas where Panera Bread has little or no market penetration. In addition Panera Bread Company should continue to drive up traffic counts, particularly during the evening meal hours when traffic is somewhat light. Besides these recommendations Panera is doing great and has almost no issues with its competitive position.