Overview

Panera Bread Company

z History
z Industry Analysis
– Porter’s 5-Forces
– Key Success Factors
Your name here z Company Analysis
Another name here – Financial
– SWOT Analysis
3rd team member here z Identify Issues
z Alternatives
z Recommendations
z Action Plan
z Results

History - Panera Bread Company Porter's five forces model

z “Time for Bread” Substitute products:

-Readily available substitutes
-End users have low switching cost
z Au Bon Pain and St. Louis Bread Company - Substitutes are competitively priced
STRONG
z Business Model
Suppliers:
Buyers:
– Company-operated bakery cafes -Low bargaining power of
Rivalry:
-Strong rivalry because low switching cost -Switching cost is low
suppliers
– Dough making facilities - Good alternative to actual
suppliers are easy to execute
- Active competitors that do consistently
attractive changes
-Demand is increasing
- Some buyers are a threat
to integrate backwards
– Franchising operations -Many suppliers available -- The demand is constantly growing
STRONG STRONG
LOW
z Strategy
New entrants:
-Low entry barriers in restaurant industry
- Dominant leaders are looking for expansion into
new regions
STRONG
Industry Key Success Factors: Industry Analysis - overall

z Diverse menu offerings z Customers are becoming increasingly

z Respected brand name “green” and health conscious
z Access to attractive locations z Competitors in both fast food and casual
– High traffic dining have begun to adapt
– Competitors have noticed the success of fast-
z Attractive dining experience
casual restaurants
z Competitive prices
z Quality products

Other Financial information here

(Examples) – IOW do not just have the
Financial Analysis - DuPont Model DuPont formula

Fiscal Year Net Profit Asset Return on Assets/Equity Return on z Same store sales increase – year to year
Margin Utilization Assets Equity
2006 7.09% 1.53 10.84% 1.36 14.80% z Demand for new franchises
z Franchisee sales versus company sales
2005 8.15% 1.46 11.92% 1.38 16.66%
z Stock price over time
2004 8.02% 1.48 11.84% 1.35 15.92%
z Other margin measures
2003 8.43% 1.42 11.94% 1.33 15.82% z Other activity measures
2002 7.55% 1.44 10.90% 1.29 14.06%
z Competitor information for comparison
 Issue (A): How to boost new customers and
SWOT - Panera Bread Company visits during dinner hours?

Strengths Opportunities
•Recognized leader and strong brand name •Franchisee growth z Strong ability of Panera to convert first-time
•Attractive dining experience •International markets
•Strong emphasis on quality and healthy food •Untapped U.S. markets guests into repeat customers
•Via Panera catering operations
•Dough facilities
•Attractive and diversified menu
z Customers are open-minded about trying
•Bread making expertise
Panera at different times
Weaknesses Threats z Per-guest revenues at dinner would be
•Slow dinner traffic •Competition from rivals with similar menu
•Hard point of entry in the system for a franchisee offerings higher than at other times of day
•Profitability differences between company and •Changing customer preferences
franchise owned cafes •Rising food costs

Issue (C- most important): How to increase

Issue (B): The declining profitability of company revenues from franchising
company-operated cafes. operations?

z Trends in performance z Franchising operations are Panera’s most profitable business

segment
Company-owned cafes
2006 2005 2004 2003 2002
Operating Profit Company Bakery- Franchise Fresh Dough
Revenues (in millions) $666.1 $499.4 $362.1 $265.9 $212.6 Margins Cafe Operations Operations
Bakery-café expenses 2006 9.9% 88.0% 18.5%
(as a percentage of café revenues)
2005 9.0% 87.7% 19.6%
Food and paper products 29.6% 28.6% 28.1% 27.8% 29.8%

Labor 30.8% 30.3% 30.6% 30.5% 29.7% z Panera has many unsaturated and untapped markets
Other operating expenses 13.8% 14.0% 14.1% 13.8% 13.2% – Population per location in many large markets is high
Total bakery cafe expenses
– Many large markets, including international markets, are untapped by Panera
81.5% 80.4% 80.2% 79.2% 79.9%

Operating Profit Margin from café

18.5% 19.6% 19.8% 20.7% 20.1%
operations
Alternative # 1: Acquisition of Alternative # 2: Increase franchise
competitors royalties and fees

z Purchase of competitors in same industry z Incrementally increase franchise fees from

that offer opportunities for franchise revenue an average of 4.94% (in 2006) of revenues to
and area expansion 5.15%
– Au Bon Pain Return on equity, (2006) assuming different % of franchise
revenues, with all other factors constant
– Jason’s Deli 4.94% 5.00% 5.05% 5.10% 5.15%

– Bruegger’s Return on 14.80% 14.98% 15.14% 15.30% 15.46%

equity

z Costs of negotiations

Alternative # 3: Aggressively pursue Recommendation: Aggressively

expansion into new markets pursue expansion into new markets

z Current commitments of franchisees – 423 stores z Pros:

– Pressure on franchisees to open additional stores – Costs of expansion through franchising
z Seek additional franchisees in untapped markets agreements is much lower than direct investment
– Advertising – Future franchising revenues will restore Panera’s
z International franchises profit margins
– Canada – Distribution of Panera’s brand name
z Develop company-owned stores in existing company – Diversification of revenues
territories
Recommendation: Aggressively
pursue expansion into new markets Action Plan

z Cons: z Q1-2007
– Strict franchising requirements – Market to potential franchisees in untapped markets
z U.S. locations
– Saturation of markets could hurt profitability z Canada
– Risks of international expansion z Overseas
z Dough facilities – Renegotiate contracts with current successful franchisees
for further expansion
– Costs of expansion
– Benchmark international operations of competitors
z Franchisees
z Markets
z Markets
z Menu offerings
– Potential deterioration of quality standards z Q3-2007
– Develop new dough facilities in future markets

Action Plan Results

z 2007 -2010 z Improved Profitability
– Expand the number of stores at
17% rate
z Potential company-owned markets z Potential franchise markets Fiscal Year Net Profit Asset Return on Assets/Equity Return on
– Houston – Memphis Margin Utilization Assets Equity
– Dallas/Fort Worth – Phoenix 2008 7.84% 1.55 12.16% 1.36 16.58%
– Northern California – San Antonio

– Seattle – Toronto/Vancouver 2007 7.89% 1.55 12.23% 1.36 16.67%

– Miami – Little Rock
2006 7.09% 1.53 10.84% 1.36 14.80%
2006 2007 2008 2009 2010

Total Stores 910 1,065 1,246 1,457 1,705 z Projected earnings per share
(Company and Franchised)
New company-owned stores 80 80 90 100 115
– 2007: $2.54
– 2008: $3.03
New franchised-owned stores 70 75 91 111 133
Results Questions

z Improved long-term growth opportunities

– New franchisees
– Market exposure
z Improved cash position
– Future acquisitions
– International expansion