Case Study- Panera Bread
In the restaurant business, there’s a new segment gaining popularity, the fast-casual segment. The fast-casual segment is combinations of fast food with higher quality dine in restaurant style food. It represents about 2 percent of the restaurant market and continues to grow. One restaurant doing exceptionally well is Panera Bread. In order to continue this above average performance, an analysis of their performance should be done.
In a Business Level Strategy, Panera Bread is enjoying success because they are integrating overall low cost and differentiating them from the competition. Using the primary Value-Chain analysis, you can see some of the techniques they are using to keep their competitive advantage. With their inbound logistics, they have seventeen regional fresh dough facilities that provide daily to their bakery-cafes. Though the distribution system requires a major amount of capital, it provides cost efficiencies and assures the consistent quality and delivery of dough to the bakery-cafes (Dess, 2007 ). In the operations, Panera Breads operates 169 bakery-cafes, and 429 are franchise operated. The franchises are operated as area development agreements instead of individual franchises. A franchise fee is $35,000 with start-up investment of $564,000 to $910,725 (Dess, 2007). They also have management information systems such as a point of sale system at the cash resister that tracks transactions and helps managers with marketing information, average check amounts, product mix, scheduling, food costs, sales, and bank deposits. This information is then forwarded on to the company’s accounting department daily. This helps them lower costs, monitor their staffing, and by having only the amount of staff on hand that is needed, helping control payroll. Knowing daily food costs will also control costs by reducing the cost of wasted food. Outbound logistics in the value chain for Panera Bread has to do with the dough distribution on the fleet of temperature controlled leased trucks. They have an optimal delivery distribution of 200 miles and route that is limited to six bakery-cafes. Having fresh dough delivered daily to the bakery-cafes helps differentiate Panera Bread from the competition. Having the delivery route limited to six stores and 200 miles means that the stores are getting fresh dough and the deliveries are not being pushed in a timeline that would compromise the product. In the marketing and sales category, according to Chairman Ron Shaich the company must ”Ensure the concept remains special. Deliver spectacular execution every day. Effectively execute a growth strategy through committed franchisees/area development partners, company operators, and joint venture partners” (Dess, 2007). For Panera Bread to keep its market share, they have to keep their differentiation. They have to remain “special”. If they become the same as everyone else, they will lose their competitive advantage, therefore, they will lose their customers and profits. They are going to have to continue to grow and change and give their customers what they want. As for service, Panera Bread provides their customers with fine premium bread served on fine china dishes, in cafes that have French décor. They also have bread they is available to take home. As a free service to customers, they have wi-fi internet service available. The bakery-cafes also operate successfully several different times during the day.
Using the Business Level Strategy is one of the ways Panera Bread is getting a competitive advantage, but there are other ways they are finding to stay ahead of their competition in the fast-casual restaurant segment. While it is still to be determined if the low carb diet is a fad or a lasting trend in the American lifestyle, restaurants have to conform to stay completive. 32 million Americans report they are on a high protein, low carb diet (Dess, 2007). Their customers are always looking for new items to be added to the menu, so they need to find innovative items to be added that conform to the low carb lifestyle, but appeal to their customers. Panera Bread has already added low carb breads, bagels, and breadsticks to the menu. Another option they have is to add more soups and salads to their menu. They could also look into adding tortilla wraps. A bigger expansion of low carb sandwiches is also another option. Since Panera Bread is a restaurant that specializes in fresh breads, their best option is most likely expanding a sandwich line since it would probably use their pre-existing low carb breads. The low carb diet has taken America by storm and is forcing restaurants to take notice. If restaurants want to remain competitive in the industry, they have to provide products that service consumers that practice this lifestyle.
In order to compete against new restaurants opening in the segment, Panera Bread needs to keep their stores up to date, they cannot allow them to become decrypted. People will take their business elsewhere. Panera Bread has a loyal customer base and a menu that allows it to operate throughout the day. About half of the sales that Panera Bread makes are done from people eating in store. They also have location on their side; they are in mainly in malls, so they have lots of foot traffic going by. Panera Bread can also open new locations. If another restaurant is going to open in a particular location, the best way to compete is to fill the space with your own restaurant.
The fast-casual restaurant industry is growing about 15-20 percent each year. The market is about a six billion dollar industry in the 2003 year and is expected to double in the next five years and grow up to thirty billion dollars by the year 2010 (Dess, 2007). Technomic analysts suggests that the restaurant is somewhat insulated from economic swings. Panera Bread has been successful and has shown phenomenal growth rates. The company does expect price increases on major ingredients, and plans to pass part of that cost on to the customer, and part to be absorbed into the profit margins.
People are tired of fast food. People have been eating the same thing for years and want a change. Half of 18-34 year-olds are 37 percent of fast food customers, also eat at fast-casual restaurants (Dess, 2007). Baby boomers’ children are leaving home and weary of cooking. Young professionals do not want to cook every night. It takes too much time and effort. Sometimes it takes as much money to cook a meal as it does to eat out. Americans are concerned about eating healthy. People do care about what they eat. They want to eat something that is better for them. The movie “Super Size Me” had an effect on how some people viewed fast food, and wants to make healthier decisions when dining out. Panera Bread is appealing to these customers by offering items that health conscious and better for your health. They also offer an evolving, changing menu so that customers will not get tired of the same menu choices.
In conclusion, Panera Bread is on the right track. Using the Overall Cost Leadership and Differentiation strategies, Panera Bread has enjoyed continued growth and expansion. Panera Bread keeps up with the trends of modern, professionals who are the company’s customers. The threat of new entrants into the market will always be looming, but they have a good competitive advantage with their overall cost leadership and differentiation. They are also able to adjust well to the changes in demographics and customer taste and demands. Panera Bread seems posed for a successful future.
- Dess, Gregory, J, Lumpkin, G.T, Eisner, Alan B. 2007. Case 14: Panera Bread Company. Strategic Management: Text and Cases.