Panera Bread Company’s Vision and Mission Statement During 1999, Panera Bread sold the Au Bon restaurants and began focusing solely on the growth of the Panera Bread restaurants. As the company attempted to expand their operations across North America, their vision and mission statement became an even larger part of the operations. However, the statement is vague and offers little guidance to the employees of the company. “A loaf of bread in every arm” is not only next to impossible to achieve, but it also lacks specifics as to how the employees are to accomplish the company’s goals. In an attempt to clarify the statement, the company issued its “bread leadership goal,” which states “With a single goal of making great bread broadly available to consumers across America, Panera Bread freshly bakes more bread each day than any bakery-café concept in the country.” Although this statement is more specific, it still lacks the details on how the company is going to achieve the stated goals. What is the company doing to fulfill the statement and ensure there is a loaf of bread in every arm? The mission of Panera Bread states that the “Panera Cares community cafes exist to feed each and every person who walks through our doors with dignity regardless of their means.” The services that are offered in these cafes are attempting to fulfill the goal of getting a loaf of bread into every arm. Not only is the company tackling the issues of hunger, but they are also trying to maintain the dignity of the customers that have fallen on hard times. This attempt could have a major impact on the lives of the customers. Although the statement is unclear and offers little guidance to the employees as to how they are to accomplish the company’s goals, Panera Bread is actively seeking ways to demonstrate the meaning behind the vision and mission statement.

Company Background
Panera Bread began in 1981 as Au Bon Pain Co., Inc. Founded by Louis Kane and Ron Shaich, the company prospered along the east coast of the United States and internationally throughout the 1980s and 1990s and became the dominant operator within the bakery-cafe category. In 1993, Saint Louis Bread Co. was purchased. A team of managers then spent a great deal of time traveling the country and studying the market for fast food and quick-service meals. Additionally, top management at Au Bon Pain instituted a comprehensive overhaul of the newly acquired Saint Louis Bread locations. They altered the menu and the dining experience. The vision was to create a specialty café anchored by an authentic, fresh dough, artisan bakery, and upscale, quick-service menu selections. In 1997, the Saint Louis Bread bakery-cafes were renamed Panera Bread in all markets outside St. Louis. By now, it was obvious that Panera Bread had the potential to become one of the leading brands in the nation. In order for Panera Bread to become the leading brand, it would require all of the company's financial and management resources. Ron Shaich convinced the Au Bon Pain board of directors that the best course of action was for the company to go exclusively with the Panera Bread concept. In 1998, the company announced the sale of Au Bon Pain bakery-café for $73 million to ABP Corp. With this sale, the company changed its name to Panera Bread Company. The restructured company had 180 Saint Louis and Panera Bread bakery-cafes and a debt free balance sheet. The company continued to grow and franchise. In 2007, Panera Bread purchased a 51 percent interest in Paradise Bakery & Café. By 2009, Panera purchased the remaining interest and expanded to Canada. In May 2010, William Moreton, Panera’s executive vice president and co-chief operating officer, was appointed president and CEO. Ron Shaich, who was Panera president and CEO since 1994, has to transition to the role of executive chairman of the board. However, on March 15, 2012, the company announced that Moreton and Shaich would become co-CEOs.

The Strategy of Panera Bread In 2012, Panera Bread’s strategy was geared toward expanding the operations and improving the quality of the dining experience for their customers. The company focused on expanding their operations through company-owned locations as well as franchising. The use of franchising operations helped the company obtain the desired growth and increased the profitability of the company. Franchise owners were not allowed to open a single store, but were required to open several locations within a given time period of six years. The franchise and royalty fees that are required from the franchise owners have helped contribute to the financial growth of the company. Panera Bread is pursuing a focused differentiation strategy that allows the company to concentrate on a market niche that desires a quick and high quality dining experience that Panera’s competitors cannot match. Through this strategy, Panera Bread provides an upscale fast food atmosphere where the customers feel welcome and they can dine at their convenience. The atmosphere of the restaurant is also designed to cater to customers who wish to sit and enjoy their meals with in their time constraints. The dining rooms allow for a large group of people who are looking for a place to have a quick meeting without having to commit the amount of time that a full service restaurant would require. This approach has allowed Panera Bread to gain the customer base of their competitors who are looking for something more than a fast food experience. Strategic plans must be constantly monitored and adjusted as the environment surrounding the company changes. The CEO, Ron Schaich, is fully aware of the environmental changes around the company. Because the current process of ordering and getting your meal can be hectic; the company has experienced a drop in the sales growth. Although the sales are still growing, they are growing a much slower pace. Schaich has begun implementing changes in the strategic plan that would combat this issue. The company is developing a new plan called “Panera 2.0” which allows customers to place their order using their mobile devices. Also, the company is preparing to install touch screens that allow the customers to customize their orders and not be bound to the items that are listed on the menu. The CEO has evaluated the changing atmosphere around the company, and has redesigned the strategic plan of Panera Bread to encompass these changes into the operations of the company. Because Schaich was capable of adapting to the changing environment, Panera Bread is likely to continue and increase in profitability. Organizational Structure Panera Bread operates with a functional organizational structure that allows the company to concentrate on the specific task within each department, and allows the managers to focus on only one part of the operation. For example, the Fresh Dough operations are able to specialize in the baking of bread which adds value to the menu items of Panera Bread. Because the managers of each department are in charge of the operations within that department, top management is able to continually evaluate the external environment of the company and adjust to changes quickly. The strategy of Panera Bread required the functional structure in order to maximize the goal of the company to offer high quality menu items.

Inbound Logistics
The case does not provide enough information to comment on the inbound logistics that Panera has with suppliers. However, each franchisee purchased dough directly from Panera Bread. Panera had an interest in each of the franchised stores succeeding because the company received 4%-5% royalties from sales continually. This meant Panera as the supplier had an interest to keep prices of dough as low as possible to maintain viable franchise operations
Operations
Panera provided and required comprehensive front and back of house training, market analysis, and bakery-café certification. This corporate level tactic impacted the company’s franchised and company owned stores by enabling Panera to develop systems used by all the cafés thus applying economies of scale to operations. Since each café-bakery did not have to develop its own operations structure this reduced costs for each store. In addition, the methods Panera introduced to each store had proven historically successful, thus increased the learning curve for a new café and lowered costs.
Panera had a policy to not finance new franchisees, area development payment agreements, or hold any equity in the new cafés. This operational model resulted in minimal long-term debt and low capital intensity to expand the Panera brand.
All the cafés offered an assortment of 20-plus varieties of bread baked daily and as of 2006 at least 22 types of sandwiches. Each of these breads and sandwiches were regularly reviewed to determine whether the products matched regular customer needs, new consumer trends, and seasonal relevance. 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 limited excess inventory.
Outbound logistics
Each franchisee purchased dough directly from Panera Bread. Each dough making facility was able to produce dough for six bakeries. The fresh dough was sold to both company-owned and franchised bakery-cafés at a delivered cost not to exceed 27% of the retail value of the product. These costs margins were achieved by producing the dough at central locations employing economies of scale.
Sales and Marketing
Panera used focus groups to determine customer food and drink preferences, and price points. This work was done by only a few individuals at the corporate level and scaled to the rest of the cafés. The existing company and franchise owned cafés would be able to take advantage of this market information and reduce costs associated with sales and marketing information.
The franchising model Panera used required the franchisee to pay 0.7% of total sales to a national advertising fund and 0.4 % of total sales as a marketing administration fee. Franchisees were also required to spend 2.0 % of total sales on advertising in local markets. Panera contributed similar amounts of capital from the company owned stores. Requiring the franchise owned cafés to pay a significant portion of marketing costs allowed Panera Bread to lower the company’s capital contribution.

Research and Development
New menu items were rolled out in limited cafés and developed in test kitchens prior to nationwide release. This process addressed two cost drivers. First, by employing economies of scale individual cafés will not have to spend resources and capital investing in the development of new menu items. Second, through the expertise of the advanced research and development department Panera ensured both quality of product and process. This resulted in less product waste and increased customer satisfaction and in turn lowered costs.
Integrated Value Chain Effect
Panera Bread utilized both structural and executional cost drivers to lower costs on the value chain particularly in inbound logistics, operations, outbound logistics, sales and marketing, and research and development. The cost reduction across the value chain gave Panera a strong capability.

Financial Analysis
The first step in a financial analysis is to analysis the industry by looking at how Panera Bread is doing compared to other competitors within their industry. The next step is to analyze the company through looking at the sales trend as well as the value of the company. The S.W.O.T analysis will be used to validate the information and recommendations will be giving based off of the financial analysis of the Panera Bread Company.

Industry Analysis
Competition in the food service industry is extremely intense. From a variety of perspectives, Panera’s list of rivals is quite a long one. Panera’s main rivals are those establishments that offer similar items and services. Panera experiences strong competition from its fellow “fast-casual” establishments, smaller bakeries, as well as full-service restaurants. Such competitors include: Starbucks, Chipotle, Bruegger’s, Einstein Bros. Bagels, and Corner Bakery. Starbucks’ 17,000 worldwide locations offer a relaxing and soothing environment similar to that of Panera and their 2011 estimated revenues of $11.7 billion signify the threat the company poses to others in the industry. Another rival can be found in another fast-casual establishment, Chipotle, a growing Mexican grill that offers quality food at an exceptional value. Corner Bakery, Einstein Bros. Direct Competitor Comparison | |
Bagels, and Bruegger’s all exist on a smaller scale than Panera, but easily rival Panera’s position as providing the highest quality fresh-baked goods. | PNRA | CMG | BAGL | SBUX | Industry | Market Cap: | 4.56B | 19.10B | 363.33M | 56.95B | 1.71B | Employees: | 17,400 | 45,340 | 6,824 | 182,000 | 17.40K | Qtrly Rev Growth (yoy): | 0.07 | 0.31 | 0.04 | 0.11 | 0.21 | Revenue (ttm): | 2.47B | 3.88B | 442.37M | 16.08B | 1.52B | Gross Margin (ttm): | 0.35 | 0.38 | 0.20 | 0.58 | 0.33 | EBITDA (ttm): | 408.15M | 764.03M | 45.03M | 3.34B | 145.49M | Operating Margin (ttm): | 0.12 | 0.17 | 0.06 | 0.16 | 0.05 | Net Income (ttm): | 188.60M | 403.76M | 13.48M | 248.30M | N/A | EPS (ttm): | 6.79 | 12.83 | 0.74 | 0.33 | 0.33 | P/E (ttm): | 24.91 | 47.99 | 27.40 | 233.26 | 41.62 | PEG (5 yr expected): | 1.78 | 1.81 | 1.51 | 1.58 | 1.67 | P/S (ttm): | 1.82 | 4.87 | 0.82 | 3.50 | 1.21 |

CMG = Chipotle Mexican Grill, Inc. | BAGL = Einstein Noah Restaurant Group, Inc. | SBUX = Starbucks Corporation | Industry = Specialty Eateries |

Based on the information, Panera Bread is performing very well compared to the industry and has a high perception from consumers. To further explain the position of Panera Bread compared to their competitors a bubble graph will be used. The bubble graph will show the position of each company based on price verses product line. The size of the bubble demonstrates their sales used from the data above. This graph shows that there is opportunity for growth. The opportunity is found in the “blue ocean” meaning the part of the graph that no other competitors are pursing. To get to that position, a recommendation would be to continue to pursue the growth of opening more restaurants and offer more products at a higher price and quality.

PESTEL Analysis Political Factors: * Government regulations regarding hygiene, health and food regulations, food standards * Policies on licensing, business inspections performed by health departments as well as fire and safety departments, and tax regulations Economic Conditions: * The potential for declining economic conditions is a threat to the level of consumer spending, with spending on eating out being one of the first cuts made by consumers Sociocultural Forces: * Cultural demographics and demands * Increase of a health conscious environment Technological Factors: * Online menus and ordering * Faster preparation * Better efficiency Environmental Forces: * Growing concerns of pollution and other environmental impacts * Risk of loss of or devastation of farmland that produces important ingredients Legal and Regulatory Factors: * FDA regulations * Health and sanitation rules and procedures * Minimum wage and labor laws Porter’s Five Forces Competition from rival sellers: extremely high There are a great number of companies in direct competition with Panera. Panera competes with specialty food, quick service, and casual dining establishments. Many companies such as Atlanta Bread Company, Applebee’s Neighborhood Grill and Bar, Au Bon Pain, Chipotle Mexican Grill, and Starbucks are the major firms competing against Panera Bread as direct competitors. The volume of competitors along with the aggressive tactics and high level of expectations of customers indicates a strong competitive force from the rivalry among competing sellers . Competition from potential new entrants: medium With low barriers to entry and the ease of creating copycat productions, the threat of potential new entrants is relatively strong. However, new entrants must be able to realize the capital required to compete as well as overcome existing brand loyalties in order to remain sustainable. Competition from producers of substitute products: high Substitute products span a wide range of options for consumers. While Panera does face competition from other fast-casual establishments, it also competes in indirect competition as well. Choice is a prevalent factor for consumers in the food industry; consumers can choose to dine at upscale establishments or fast-food restaurants, prepare their meals at home, and even buy a quick “meal” from vending machines.

Supplier bargaining power: low In this case, supplier bargaining power is relatively low. It would not only be relatively easy to switch suppliers at a low cost, but Panera bread has also participated in vertical integration and invested in a network of regional fresh dough facilities. Customer bargaining power: high If Panera were to begin raising prices or making significant changes to their menu or service quality, consumers could easily take their business elsewhere. Dining options are virtually endless and consumers do not suffer from switching costs, leaving customer satisfaction as a top priority for the company.

Company Analysis
It is important to determine whether a company is under or overvalued during a financial analysis. To determine this, one must look at the sales trend which explains the impact of the company. As well as the market cap which explains the perception of the company. If the market cap is greater than total sales the company is considered to be overvalued. If the market cap is less than total sales the company is considered to be undervalued. Below is the financial data used to determine the value of Panera Bread.

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| Financial Data Revenues | Net Income | Earnings Per Share (EPS) (1) | Market Cap | FY 2003: $363.7 million | 2003: $30.4 million | 2003: $0.94 | Dec. 27, 2003: $1,185.0 million | FY 2004: $479.1 million | 2004: $38.6 million | 2004: $1.15 | Dec. 25, 2004: $1,153.0 million | FY 2005: $640.3 million | 2005: $52.2 million | 2005: $1.52 | Dec. 27, 2005: $2,003.1 million | FY 2006: $829.0 million | 2006: $58.8 million | 2006: $1.88 | Dec. 26, 2006: $1,678.0 million | FY 2007: $1,066.7 million | 2007: $57.5 million | 2007: $1.79 | Dec. 25, 2007: $1,094.7 million | FY 2008: $1,298.9 million | 2008: $67.4 million | 2008: $2.22 | Dec. 30, 2008: $1,535.5 million | FY 2010: $1,542.5 million | 2010: $111.9 million | 2010: $3.62 | Dec. 28, 2010: $2,961.9 million | FY 2011: $1,822.0 million | 2011: $135.0 million | 2011: $4.65 | Dec. 27, 2011: $4,109.8 million | FY 2012: $2,130.1 million | 2012: $173.4 million | 2012: $5.89 | Dec 24, 2012: $4,629.9 million |

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As the graph clearly shows, the market cap is greater than total sales; identifying that Panera Bread is overvalued. Consumer’s perception of Panera Bread is more significant than their actual performance in sales. Let’s continue to evaluate the financial ratios of Panera Bread.

ROA (Return on Assets) Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 13.27 13.69 12.01 9.26 9.83 11.39 12.70 13.93 15.11 16.02

Return on assets measures the rate of return on the total assets. It measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. It is calculated by taking the total income divided by total sales. Return on assets can vary drastically across industries. Therefore, return on assets should not be used to compare companies in different industries. Panera Bread has had small fluctuation is ROA over the years, but they are stable and efficient in generating the rate of return.

ROE (Return on Equity)
Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13
17.73 18.69 16.47 13.62 14.33 15.76 18.76 21.74 23.49 25.78

Return on Equity measures the rate of return on the shareholder's equity of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity. Return on equity shows how well a company uses investment funds to generate earnings growth. Return on equity between 15 and 20 percent are considered desirable. From years 2011-2013, Panera Bread’s ROE has been higher than the desirable 20 percent, but this is to be expected because higher growth companies are expected to have a higher ROE.
Overall, judging from Panera Breads success in their past, their goals and drive to perform well in the future looks significant. Financial success will continue to improve for Panera Bread. They have high liquidity ratios and turn impressive profits every year, not to mention the ways that their stocks have performed which keeps investors satisfied. Even though their perception may be higher than their impact, they are still performing very well in the industry and profiting highly, which is always the bottom line.
S.W.O.T Analysis
The S.W.O.T analysis will further explain opportunities for the company as well as its strengths, weaknesses, and threats. An examination of the internal and external environment is an essential factor of a strategic planning process. A company’s strengths and weaknesses can be classified as internal factors and that external factors of the company are classified as opportunities and threats; when combined it is called a SWOT analysis.
Strengths

• High Ratings in Customer Satisfaction
• Attractive and Appealing Menu: high quality food at a reasonable, good price; offers options for those who are health and/or weight-conscious (exhibit 6)
• Distinctive Menu: seasonal menu modifications, demographical menu changes, organic menu choices
• Nationwide Leader in Bakery Division
• Bread Baking: bread is fresh and handmade; signature product is artesian bread
• Fresh Dough Operations and Sales of Fresh Dough to Franchised Stores is a Source of Revenue and Profit (exhibit 1)
• Attracted Good Franchises: sales at franchise stores run higher than those company-owned stores (exhibit 2)
• Financial Strength to Fund Company’s Growth and Expansion without Weighing Down the Company’s Balance Sheet with Debt (exhibit 1)
• Catering: extends company’s market reach
• Extensive Employee Training Programs
• Free WiFi: provides students, businessmen/women, etc. with a chance to relax, snack, and study/work
• Competitive Advantage from Centralized Currency Making Operations

Weaknesses
• Low Community Awareness: communities associated with bigger names such as Starbucks and Applebee’s
• Strict Franchising Procedures for New Entrepreneurs
• Lack of Foreign Progress: while Panera is popular in the U.S., other countries rarely identify with them
• Market Competition with “Specialty Foods,” has a Low Market Role: customers may find similar items at fast-food chains at a cheaper price
• Deficiency of “Customary,” Dinner Menu
Opportunities
• Lower Stringent Franchising Guidelines for New Entrepreneurs
• Produce Existence in Foreign Markets: presence is other countries is low
• Develop an Enhanced Dinner Menu: offer options that customers who are not weight-conscious will enjoy Offer a higher priced product line to explore the market in the “blue ocean”
Threats
• Lagging Economy
• McDonald’s: competition from the fast-food industry
• Subway : offers fresh sandwiches at a cheaper price
• Starbucks : direct threat
• COSI, strong similarity to Panera Bread
• Imitation from Rivals: rivals are beginning to offer similar offerings as well as environment; leaving Panera with the challenge of differentiating themselves
• New Arrivals: as the industry continues to grow, customer attention on Panera will decrease
Panera Bread’s SWOT analysis indicates that they have some formidable strengths and weaknesses; along with adequate opportunities and modest threats. Their overall situation is attractive and their future seems promising. With a good strategy, differentiating themselves seems to be successful. The opportunity to grow is presents itself in the upcoming years. Panera Bread’s SWOT analysis reveals that they have a few strengths from which it can create competitive advantages. For the most part, the food is of good quality for the industry. Panera has good profitability; this profitability has been steady over the past five years. In addition, there is good balance sheet strength, with strong liquidity and no long-term debt. Panera is strong in operations. The main weakness for Panera is that it lacks economies of scale relative to other competitors in the industry like Subway. Aside from that, there are no obvious weaknesses. For Panera, the key opportunity is to fill in the nation by increasing the number of stores and expanding into other countries. However, threats also exist for PBC. The quick service restaurant industry is characterized by intense competition. In addition, many firms in the industry struggle when the economy struggles as consumers have less time and income for eating out.
Panera Bread has core competencies in operations that allow it to be a consistently profitable competitor, and its marketing allows it to charge more than competitors without turning customers off. In 2010, its nonprofit Panera Bread Foundation, Panera Bread launched Panera Cares- a nonprofit café that offers food an safety to individuals in the community. PBC’s goal was to feed the part of community by inspiring those struggling with food insecurity. To Panera, just because one may not be able to afford a healthy meal, does not mean they do not deserve a high value, nutritious meal in a warm, welcoming atmosphere. They offer those who are unprivileged an experience that differs from a shelter and soup kitchen.

Recommendations Based on all the analyzed data of Panera Bread Company and its competitors, there are not any big threats concerning Panera Bread. There is no need for a new strategy or overhaul, but there are a few recommendations that need to be made. One of the most important things Panera Bread management needs to do is further solidify the company’s market standing and competitive position by continuing to open new stores at a rapid rate to stretch farther than Starbucks in geographic coverage. There is a first-mover advantage in securing prime retail locations in urban areas. The first restaurants to open in a new location have an advantage on attracting customers, cultivating a loyal customer base, and establishing their brand. It can sometimes be harder on the second and third newcomers to justify a big investment in a new facility because of having to compete directly against already existing establishments. Also, Panera Bread should attack eroding operating and net profit margins by controlling expenses and increasing menu prices slightly to further the move into the “blue ocean”. They can increase prices by working hard to develop new menu items that will boost up quality for dinner hour meals. Panera Bread should continue with the strategy of opening both company-owned and franchised stores. The recent mix of new company-owned store openings and new franchised store openings works out well, but opening more franchised stores is highly important to continue to open many stores annually. An increase in the percentages of company-owned stores would likely strain Panera Bread’s balance sheet due to the need to take on additional debt. More franchising contributes to the main recommendations of the “blue ocean.”

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