Panera Strategic Audit

Prepared to:
Dr. Sania AlGlaly

Prepared by:
Enjy Ishak
Moataz Samy
Abd-Allah Farahat
Mohamed Saleh
Eslsca – Heliopolis - GP. 48 E

12/12/2015
Table of Contents

1. Current Situation .................................................................................................................................... 2

1.1. Corporate Overview :........................................................................................................................................... 2
1.1.1. Strategic Posture .........................................................................................................................................................2
1.1.2. Board of directors & executives The Board of Directors: .........................................................................................2
1.2. About Panera Bread Company............................................................................................................................. 5
1.3. Our History .......................................................................................................................................................... 5
1.4. Financial analysis: ................................................................................................................................................ 7

2. Environmental Analysis: ....................................................................................................................... 13

2.1. External Environment Analysis : .........................................................................................................................13
2.1.1. Natural Environment ............................................................................................................................................... 13
2.1.2. PEST Analysis........................................................................................................................................................... 13
2.1.3. Task Environment Analysis:.................................................................................................................................... 13
2.1.4. Porter forces .............................................................................................................................................................. 14
2.2. Internal Environment (IFAS): ..............................................................................................................................20
2.2.1. Strengths and Weaknesses (SWOT) ........................................................................................................................ 20
Corporate Structure ............................................................................................................................................................... 20
1. Marketing................................................................................................................................................................21
Wall St. Recommendations PNRAMore... ...................................................................................................................25
Internal Factor Analysis: Strengths and Weaknesses .....................................................................................................28
2.2.2 IFAS matrix .............................................................................................................................................................. 30
2.3. Overall environment analysis: ............................................................................................................................31
2.3.1. SFAS Strategic Alternatives Matrix ......................................................................................................................... 31

3. Conclusion & recommendation ............................................................................................................ 32

3.1. TWOS analysis ....................................................................................................................................................32
3.2 Strategic alternatives ..........................................................................................................................................35
3.3 Recommended Strategies ........................................................................................................................................36
- Corporate Strategy ....................................................................................................................................................... 36
- Business Strategy .......................................................................................................................................................... 36
- Functional Strategy....................................................................................................................................................... 36

4. Implementation .................................................................................................................................... 39
4.1 Strategy Implementation ....................................................................................................................................39
4.2.1 Short term/Immediate strategy Implementation – 1st year ......................................................................................... 39
4.2.2 Long Term strategy Implementation – 2nd to 4th year ..................................................................................39
4.2 Evaluation and Control .............................................................................................................................................41
5. Appendix & references

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 1. Current Situation
1.1. Corporate Overview :
1.1.1. Strategic Posture

Mission/ Vision:

Panera Bread’s mission, vision: “A loaf of bread in every arm.” They also put a lot of emphasis on what they call Bread
Leadership. Bread Leadership is Panera’s desire to make fresh quality bread for people to enjoy. Their website states:
“With the single goal of making great bread broadly available to consumers across America, Panera Bread freshly bakes
more bread each day than any bakery-cafe concept in the country. Every day, at every location, trained bakers' craft and
bake each loaf from scratch, using the best ingredients to ensure the highest quality breads. Panera Bread is widely
recognized for driving the nationwide trend for specialty breads. As reported by The Wall Street Journal, Panera Bread
scored the highest level of customer loyalty among quick-casual restaurants, according to research conducted by TNS
Intersearch. It ranked #2 among Excellent Large Fast-Food Chains (500 or more units) and #1 Attractive/Inviting
Restaurant in that category in the Sandelman & Associates 2012 Quick-Track® Study.” Panera mission to their customers
is to provide quality bread because that makes a quality meal. (Panera Bread Co, 2013)

Objectives/ Strategies:

As you can see from the objectives,strategies and goals listed above for Panera Bread, they are incredibly focused on
creating the best product they can for their customers. Their focus of making quality breads and ensuring that every
person in America-Canda can experience Panera Bread’s top quality meals is what drives them to success. They won’t
just settle for making quick and easy food, but rather they want to “Showcase the art and craft of bread making,” making
“the highest quality bread”. I think that this focus and vision has proven to be very successful in the past will continue to
drive them and keep them at the top of their industry. Customers go to Panera bread for the fresh, quality food, as well as
the casual dining atmosphere. As long as the company focuses on continuing to develop the best product possible, and
developing new ideas that fall in line with their vision and mission, there’s a bright and successful future for Panera
Bread.

To accomplish our goal, we will drive our business into the future through the following strategic priorities:

- Targeting new markets in euro

- Opening new branches in airports
- Focus on catering outside the stores
- Focus on delivery
- Focus on consumer products

1.1.2. Board of directors & executives The Board of Directors:

The Board's prime objective is the sustainable enhancement of business performance and shareholder value.
It is responsible for determining all major policies, ensuring that effective strategies and management are in
place, assessing performance of Signet and its senior management, reviewing the systems of internal
control and setting policy including that relating to social, ethical and environmental matters. The Board
delegates the day-to-day management of the Company to the Chief Executive Officer and other senior
executives of the Company, and provides oversight of management. The Board also seeks to present to
shareholders, potential investors and other interested parties a balanced and coherent assessment of the
Company's strategy, financial position and prospects. Board members are expected to attend Board
meetings and review materials relating to those meetings in advance.

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 A. Board members:
Our Board currently consists of seven directors. Class I consists of Fred K. Foulkes, D.B.A. and Ronald M.Shaich, each
with a term ending at the 2017 Annual Meeting of Stockholders. Class II consists of Domenic Colasacco and Thomas E.
Lynch, each with a term ending at the 2015 Annual Meeting of Stockholders. Class III consists of Larry J. Franklin, Diane
Hessan and William W. Moreton, each with a term ending at the 2016 Annual Meeting of Stockholders.

At each annual meeting of stockholders, directors are elected for a full term of three years to continue or succeed those
directors whose terms are expiring. Upon the recommendation of our Committee on Nominations and Corporation
Governance, our Board has nominated Mr. Colasacco and Mr. Lynch for re-election at the Annual Meeting as Class II
directors, each to serve until the 2018 Annual Meeting of Stockholders, or until hissuccessor has been duly elected and
qualified.

Board of Directors

1. Fred K. Foulkes, D.B.A.. Audit Committee Compensation and ManagementDevelopment Committee (Chair)
Dr. Foulkes has served as a member of our Board sinceJune 2003. Dr. Foulkes is a professor of organizationbehavior at the Boston
University School ofManagement, a position he has held since 1980, and hefounded its Human Resources Policy Institute in 1981.Dr.
Foulkes served on the Board of Directors and waschairman of the Compensation Committee of BrightHorizons Family Solutions, a
provider ofemployersponsoredchild care and work/life consulting services,from July 1998 until its acquisition in May 2008 Dr.
Foulkes has authored numerous publications onhuman resources management, including executivecompensation. Dr. Foulkes brings
to our Boardsignificant experience in business strategy and humanresources management and substantial knowledge ofthe restaurant
industry, which knowledge has in partbeen attained as a result of Dr. Foulkes’s tenure onour Board and through his consulting
experience.
1. Ronald M. Shaich . . . . Chairman and Chief ExecutiveOfficer
Mr. Shaich is the founder of our company and hasserved as a member of our Board since 1981. Mr.Shaich has led our Board since
1988, serving asChairman since May 1999 and Co-Chairman from1988 until 1999. Mr. Shaich has served as our ChiefExecutive
Officer or Co-Chief Executive Officer sinceMarch 2012 and previously, from January 1988 untilMay 2010. Mr. Shaich brings to our
Board over 35years of leadership experience in the restaurant industry and has provided the strategic vision for
ourcompany since its founding.

Executives
1. Domenic Colasacco Lead Independent Director Audit Committee (Chair)
Mr. Colasacco has served as a member of our Boardsince March 2000 and as our Lead Independent
Director since January 2008. Since 1992, he has servedas President and Chief Executive Officer of BostonTrust &
Investment Management, a banking and trustcompany which invests in excess of $8 billion in clientassets. He also serves
as Chairman of its Board ofDirectors. Mr. Colasacco joined Boston Trust in 1974after beginning his career in the research
division ofMerrill Lynch & Co. Mr. Colasacco brings to ourBoard over 40 years of business and executiveexperience and
extensive knowledge of moneymanagement and our business and industry.

2. Thomas E. Lynch . .Committee on Nominations and Corporate Governance (Chair)

Compensation and ManagementDevelopment Committee
Mr. Lynch has served as a member of our Board sinceMarch 2010, and he previously served as a member ofour Board from June 2003 until
December 2006. SinceJanuary 2005, Mr. Lynch has served as the Senior Managing Director of Mill Road Capital, a private equity firm that he
founded in January 2005. Prior to Mill Road Capital, Mr. Lynch served as a SeniorManaging Director and founder of the financial advisoryfirm Mill
Road Associates and prior to that as aManaging Director and founder of the private equityfirm Lazard Capital Partners. Mr. Lynch has also
beenemployed as a Managing Director at the BlackstoneGroup, an investment and advisory firm, and as a seniorconsultant at the Monitor Company,
a strategicconsulting firm. Mr. Lynch’s extensive experience as adirector includes serving as chairman of the board ofdirectors of Rubio’s
Restaurants Inc., a privately heldrestaurant company of which Mill Road Capital is acontrolling shareholder, since August 2010 and as adirector of
Physicians Formula Holdings, Inc., a publiccosmetics company, from April 2010 to December2013. Mr. Lynch brings to our Board more than 25
yearsof experience as an investor in and manager of publiclytraded companies in the retail and restaurant industries.

3. Larry J. Franklin . . . . . .Audit Committee Compensation and Management

Development CommitteeCommittee on Nominations andCorporate Governance
Mr. Franklin has served as a member of our Boardsince June 2001. He has served as the President andChief Executive Officer of Franklin Sports,
Inc., abranded sporting goods manufacturer and marketer,since 1986. Mr. Franklin joined Franklin Sports, Inc. in1970 and served as its Executive
Vice President from1981 until 1986. Mr. Franklin currently serves on theBoard of Directors of Bradford Soap International,Inc., a private
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manufacturer of private label soaps. Healso has served as Chairman of the Board of the Sportsand Fitness Industry Association, a global
tradeassociation in the sports product industry since fromOctober 2009 to 2012, and as a member of itsExecutive Committee since 2000. Mr.
Franklin’sleadership experience, particularly as a chief executiveofficer for 27 years, and broad functional skill set givehim a valuable perspective on
the business practicesthat are critical to the success of a large, growingcompany such as ours. During his 13-year tenure onour Board, Mr. Franklin
has developed significantcompany and industry-specific experience.

4- Diane Hessan . . . . .Committee on Nominations andCorporate Governance

Ms. Hessan has served as a member of our Board sinceNovember 2012. Ms. Hessan has served as ChiefExecutive Officer of the Startup Institute
since October2014. From December 1999 until February 2014, Ms.Hessan served as President and Chief Executive Officerof Communispace
Corporation, a marketing technologycompany that she founded. Since March 2014, Ms.Hessan has served as Chairman of Communispace Ms.
Hessan has also served on the boards of numerous
organizations, including the Advertising ResearchFoundation, The Business Innovation Factory,Horizons for Homeless Children, The
BostonPhilharmonic, Stand for Children, and the TuftsUniversity Board of Trustees. Through her work as asenior executive and service on numerous
boards, Ms.Hessan brings market research, marketing, executiveleadership and oversight experience to our Board.

5.William W. Moreton Executive Vice Chairman

Mr. Moreton has served as our Executive ViceChairman since August 2013 and as a member of ourBoard since May 2010. Mr. Moreton previously
servedas our Chief Financial Officer (Interim) from August2014 to April 2015, our President and Co-ChiefExecutive Officer from March 2012 until
August 2013,our President and Chief Executive Officer from May2010 until March 2012, our Executive Vice President& Co-Chief Operating
Officer from November 2008until May 2010 and our Executive Vice President andChief Financial Officer from October 1998 until March2003. Prior
to rejoining us in 2008, Mr. Moretonserved as President and Chief Financial Officer ofPotbelly Sandwich Works LLC, a restaurant chain,from April
2005 until January 2007. From January2004 until April 2005, Mr. Moreton served as ChiefExecutive Officer of Baja Fresh, a subsidiary ofWendy’s
International, Inc. Prior to Baja Fresh, Mr.Moreton served as Executive Vice President,Subsidiary Brand Management for Wendy’s, andExecutive
Vice President and Chief Financial Officerof Quality Dining, Inc., a leading national franchiseerestaurant company. Mr. Moreton brings to our
Boardmore than 30 years of leadership and managementexperience, including more than 20 years in the restaurant industry.

A. Committee Composition

Audit Committee Compensation Nomination and

Committee Corporate Governance
Committee
Fred K. Foulkes Member Chairperson member
William W. Moreton member
Domenic Colasacco Chairperson member
Thomas E. Lynch member Chairperson
Larry J. Franklin Member Member Member
Diane Hessan member

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 1.2. About Panera Bread Company

30 years ago, at a time when quick service meant low quality, Panera set out to challenge this expectation. We
believed that food that was good and that you could feel good about, served in a warm and welcoming
environment by people who cared, could bring out the best in all of us. To us, that is food as it should be and
that is why we exist.

So we began with a simple commitment: to bake fresh bread from fresh dough in every bakery-cafe, every
day. No artificial preservatives or short cuts, just bakers with simple ingredients and hot ovens. Each night,
any unsold bread and baked goods were shared with neighbors in need.

These traditions carry on today, as we have continued to find ways to be an ally to our guests. That means
crafting a menu of soups, salads and sandwiches that we are proud to feed our families. Like poultry and pork
rose without antibiotics on our salads and sandwiches. A commitment to transparency and options that
empower our guests to eat the way they want. Seasonal flavors and whole grains. A commitment to removing
artificial additives (flavors, colors, sweeteners and preservatives) from the food in our bakery-cafes. Why?
Because we think that simpler is better and we believe in serving food as it should be. Because when you
don’t have to compromise to eat well, all that is left is the joy of eating.

We’re also focused on improving quality and convenience. With investments in technology and operations, we
now offer new ways to enjoy your Panera favorites - like mobile ordering and Rapid Pick-Up for to-go orders -
all designed to make things easier for our guests. As of September 29, 2015, there were 1,946 bakery-cafes in
46 states and in Ontario, Canada operating under the Panera Bread®, Saint Louis Bread Co.® or Paradise
Bakery & Cafe® names.

1.3. Our History

The Panera Bread® legacy 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, Au Bon Pain Co., Inc. purchased Saint Louis Bread Company®, a chain of 20 bakery-cafes located in the
St. Louis area.
The company then managed a comprehensive re-staging of Saint Louis Bread Co. Between 1993 and 1997
average unit volumes increased by 75%. Ultimately the concept's name was changed to Panera Bread.

By 1997, it was clear that Panera Bread had the potential to become one of the leading brands in the nation.
In order for Panera Bread to reach its potential, it would require all of the company's financial and
management resources.

In May 1999, all of Au Bon Pain Co., Inc.'s business units were sold, with the exception of Panera Bread, and
the company was renamed Panera Bread. Since those transactions were completed, the company's stock has
grown exponentially, and today it has a market capitalization of $4.5 billion. Panera Bread was recognized as
one of Business Week's "100 Hot Growth Companies." As reported by The Wall Street Journal's Shareholder
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Scorecard in 2006, Panera Bread was named as the top performer in the restaurant category for one-, five-
and ten-year returns to shareholders.

In 2007, Panera Bread purchased a majority stake in Paradise Bakery & Café®, a Phoenix-based concept with
over 70 locations in 10 states (predominantly in the west and southwest). The Company purchased the
balance of Paradise in June 2009.
In May 2010, Ron Shaich transitioned to the role of Executive Chairman of the Board and Bill Moreton, who
had previously served as the company's Executive Vice President and Co-Chief Operating Officer, was named
Chief Executive Officer and President and to the Board of Directors. In March 2012, to signify their partnership
and shared commitment to Panera, the company announced that Ron Shaich and Bill Moreton would share
the title of CEO. Shaich served as Chairman of the Board and co-CEO and Moreton as President and co-CEO
until July 2013. In August 2013, Moreton was named Executive Vice Chairman to help oversee Panera’s
business operations; he serves as a member of the Board of Directors. Shaich continues to serve as Chairman
of the Board and CEO.
As of September 29, 2015, there are 1,946 bakery-cafes in 46 states, the District of Columbia, and in Ontario
Canada operating under the Panera Bread®, Saint Louis Bread Co.® and Paradise Bakery & Café® names,
delivering fresh, authentic artisan bread served in a warm environment by engaging associates.

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 1.4. Financial analysis:

Ron Shaich, Chairman and CEO, noted, "Our strategic plan to generate increased shareholder value by
making Panera a better competitive alternative with runways for expanded growth is working. Leading sales
indicators are showing just that. Company comp-store sales growth continues to accelerate, rising 3.8% in
Q3 and 3.4% for the first 27 days of Q4."

Shaich continued, "We are particularly pleased with these results in light of the slowing sales reported across
the industry in October. Q3 represented our best performance in nine quarters. Panera’s Q3 comps
outperformed the industry by 229 bps when measured against the Black Box all-industry composite, the largest
differential we’ve seen in 2 years."

Shaich concluded, "Our initiatives to expand into several $1 billion-plus adjacent businesses, including
catering, delivery and consumer-packaged goods, are also gaining traction. Despite the high level of
pressure on our near-term earnings related to the startup and transition costs associated with our
strategic initiatives, the progress we see gives us increased confidence in our strategic plan and its
ability to drive expanded earnings growth well into the future."

Fiscal Q3 2015 Results and Business Review

Comparable Net Bakery-Cafe Sales Growth

In fiscal Q3 2015, Company-owned comparable net bakery-cafe sales increased 3.8%, franchise-operated
comparable net bakery-cafe sales increased 1.8%, and system-wide comparable net bakery-cafe sales
increased 2.8% compared to the same period in fiscal 2014. Two-year Company-owned comparable net
bakery-cafe sales increased 5.9%, two-year franchise-operated comparable net bakery-cafe sales increased
2.5%, and two-year system-wide comparable net bakery-cafe sales increased 4.2%.

The Company-owned comparable net bakery-cafe sales increase of 3.8% in fiscal Q3 2015 was comprised of
year-over-year transaction growth of 1.0% and average check growth of 2.8%. A schedule of comparable net
bakery-cafe sales information is attached to this release as Schedule III.

Operating Margin

Operating margin for fiscal Q3 2015 declined approximately 120 basis points versus fiscal Q3 2014, excluding
charges related to the Company's refranchising initiative, as outlined in Schedule IV. This decline was
primarily the result of structural wage increases and costs related to the startup and transition expenses
associated with our strategic initiatives. As reported, operating margin for fiscal Q3 2015 declined
approximately 150 basis points versus fiscal Q3 2014.

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New Bakery-Cafe Development and AWS

During fiscal Q3 2015, the Company opened 10 new bakery-cafes and its franchisees opened 14 new bakery-
cafes. As a result, there were 1,946 bakery-cafes open system-wide as of September 29, 2015.

Average weekly sales (“AWS”) for Company-owned “Class of 2015” bakery-cafes through fiscal Q3 2015 were
$45,248. AWS for franchise-operated "Class of 2015" bakery-cafes through fiscal Q3 2015 was $47,394.

A schedule of fiscal Q3 2015 AWS, including AWS information for bakery-cafes based on their designation as
either a traditional or non-traditional bakery-cafe, is attached to this release as Schedule II. Non-traditional
bakery-cafes refers to a range of alternate formats that the Company believes will allow it to more deeply
penetrate existing and new territories with a range of different formats.

Update on Key Value Enhancing Initiatives

Use of Capital

During fiscal Q3 2015, the Company repurchased 682,888 shares at an average price of $183.02 per share for
an aggregate purchase price of approximately $125.0 million. The Company had approximately $408.4 million
available under the $750 million repurchase authorization as of Q3 2015.

Refranchising

The Company continues to make significant progress on its plan to refranchise 50 to 150 bakery-cafes. On
October 7, 2015, the Company completed the sale of 45 bakery-cafes to a new franchisee, bringing the year-
to-date number of refranchised bakery-cafes to 75.

Panera 2.0 Conversions

As of fiscal Q3 2015, the Company had completed the conversion of 291 bakery-cafes to Panera 2.0, with 108
conversions completed during Q3 and 185 conversions completed year-to-date.

Full Year Fiscal 2015 Outlook

Comparable Net Bakery-Cafe Sales Growth

The Company today is reiterating its Company-owned comparable net bakery-cafe sales growth target for
fiscal 2015 at 2.0% to 3.5%.

Panera 2.0 Conversions

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The Company continues to target the conversion of approximately 300 Company-owned bakery-cafes to
Panera 2.0 during fiscal 2015, two-thirds of which are occurring in the second half of the fiscal year.

Operating Margin

For fiscal 2015, the Company continues to target operating margin will be down 100 to 175 basis points when
compared to fiscal 2014, excluding the impact of charges related to the Company's refranchising initiative.

New Bakery-Cafe Development

The Company continues to target 105 to 115 system-wide new bakery-cafe openings in fiscal 2015. The
average weekly net sales performance for new Company-owned bakery-cafes is now expected to be at the
high-end of the previously provided targeted range of $43,000 to $45,000 for fiscal 2015.

Diluted EPS

The Company today is reiterating its full year fiscal 2015 diluted earnings per share growth target of flat to
down mid- to high-single digits when compared to full year fiscal 2014, excluding charges in fiscal 2015 for the
Company's refranchising initiative and certain items for full year fiscal 2014, as disclosed in our fiscal Q4 2014
earnings release.

Fiscal Q4 2015 Outlook

Comparable Net Bakery-Cafe Sales Growth

The Company is today setting a target for fiscal Q4 2015 Company-owned comparable net bakery-cafe sales
growth towards the midpoint of the full-year range of 2.0% to 3.5%. The Company announced today that
Company-owned comparable net bakery-cafe sales in the first 27 days of fiscal Q4 2015 were up 3.4% and
were up 6.7% on a two-year basis.

Panera 2.0 Conversions

The Company expects the conversion of approximately 100 Company-owned bakery-cafes to Panera 2.0
during fiscal Q4 2015, on top of the 108 conversions completed during fiscal Q3 2015.

Diluted EPS

The Company is today setting a target for fiscal Q4 2015 diluted earnings per share growth of down mid-single
digits when compared to fiscal Q4 2014, excluding charges in fiscal Q4 2015 for the Company's refranchising
initiative and certain items for fiscal Q4 2014, as disclosed in our fiscal Q4 2014 earnings release.

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Concluding Comment on Fiscal 2015 Outlook

Mike Bufano, Senior Vice President and CFO, noted, “Given the transformational nature of our strategy and
the volatility associated with the startup and transition costs that come with our strategic initiatives, we are
pleased with our third quarter earnings performance and our ability to deliver on our full year financial targets.”

Bufano continued, “Our leading sales indicators are gaining momentum and we continue to expect
relatively improved earnings in the fourth quarter when compared to the first half of the year. We expect
this improvement while accelerating the rate of investment in the second half of the year, as we
anticipate converting over 200 Panera 2.0 bakery-cafes in the third and fourth quarters combined.
Indeed, we are converting almost 25% of our Company-owned bakery-cafes in six months, at a rate of
more than one per day.”

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 3

2.5
Debt to equity ratio

1.5

0.5

0
2011 2012 2013 2014 TTM

D/E Fin. Lev. QR CR

28

26

24

22

20

18

16

14

12

10
2011 2012 2013 2014 TTM

ROA ROE ROIC

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 27
return on equity in USD millions 14
26

Operating profite margine USD

12
25
10
24
8
23

milions
6
22
4
21
2
20
19 0
2011 2012 2013 2014 TTM 2011 2012 2013 2014 YTD
2015
ROE OPM

7
2
6.8
earning per share in USD

6.6 1.5

6.4 Current ratio 1

6.2
0.5
6
5.8 0
5.6 2011 2012 2013 2014 YTD
2015
5.4
2012 2013 2014 YTD 2015 CR

3 24
Total revenue in USD K millions

Gross profite margin in USD

2.5 23

2 22
million

1.5 21

1 20

0.5 19

0 18
2011 2012 2013 2014 TTM 2011 2012 2013 2014 TTM

Total revenue GPM

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 2. Environmental Analysis:
2.1. External Environment Analysis :

2.1.1. Natural Environment

• Climate, crops such as wheat, grain, sugar cane, fruits and vegetables are affected by adverse weather
conditions such as droughts, hurricanes, tornadoes, and excessive rain resulting in increased ingredient
costs driving up product costs negatively affecting company profits

• Energy costs, rising gas prices will affect transportation and shipping costs while increasing electrical
charges will also negatively affect company prof0its.

2.1.2. PEST Analysis

Economic
• Recessions may cause decrease in fast casual restaurants
• Sales at food service locations in US trend upward
• Real estate is expensive
Technological
• Emerging technology free Wi-Fi
• Real time inventory management to reduce waste
Political-Legal
• Adhere to local government regulations, and taxes (t)
• Monitor all products for health and safety issues (t)
• Political environment was relatively stable. Because there was a stable regulatory and political
environment, business owners were able to operate at a more functional level. Companies were not
worried about significant changes to regulations which hinder business growth. Therefore, this stable
environment was an opportunity for the industry.
Sociocultural
• New health trend

2.1.3. Task Environment Analysis:

Panera Bread Company operates in the very competitive restaurant industry. Panera is known as a casual fast
food restaurant, which means that they are a fast food provider but produce a higher quality product and
offers a unique dining environment. The fast food restaurant industry is extremely competitive. Panera Bread
competes against all the large fast food companies such as McDonald’s, Burger King, and Wendy’s as well as
cafes such as Starbucks and New World Restaurant Group Inc. Panera Bread Company is one of the younger
companies in the industry, which means that room for growth is still abundant. McDonald’s has now moved
into global markets and is focusing much of its marketing in those markets. Panera Bread differentiates itself
from the normal fast food chain by offering a bakery and deli style sandwiches. Panera has found a distinctive
niche in the restaurant industry enabling it to market to a growing costumer pool that wants better quality
food.

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EFAS Analysis:
EFAS Analysis
External Factors Weight Rating Weighted Score Comments
Opportunities
Rapid growth with fast casual 0.25 5 1.25 For this industry
Healthy food trend 0.3 3 0.9 They began to introduce themselves in a new model
Potential market in Europe 0.05 4 0.2 Opened average 83 new stores each year
Recent technology In-store info system 0.05 2 0.1 Accurate inventory tracker
Threats
Real Estate high costs 0.1 4 0.4 Long term leases selective locations
Competition with other specialty foods & casual dining restaurants 0.15 4 0.6 Hitting the mark with consumers
Litigation for product defects 0.05 3 0.15 Quality product no negative outcomes at this time
Food costs / Raw Material increase 0.05 3 0.15 Questionable variable factor
Total Score 1 3.75

2.1.4. Porter forces

Porter’s Five Forces gives a comprehensive analysis of an industry as a whole. It evaluates sources of
horizontal competition from substitutes, entrants and established rivals as well as vertical competition
through suppliers and buyers. Some forces impact certain industries more than others, but evaluating the
industries’ strengths and weaknesses is necessary to understanding what drives competition. The food
services industry will be evaluated from its weakest to its strongest force. This starts with threat of entrants
and concludes with threat of substitutes.

Threat of entrants in food services is a relatively : Medium force in the industry. This is mainly due to there
being many companies already in the industry, therefore the addition of others does not have a large impact
overall. Entry into the industry involves little capital. Part of this is because preexisting buildings can be used
for the establishment. Workers also require little training and, depending on the restaurant, require low
wages. Since the industry is well-established, the start-up foundation has also already been put in place so
many companies can easily enter the market. The issue for these new companies arises because they are
trying to steal market share from recognized firms. To accommodate for this, new companies have an
advantage of low customer loyalty being an industry characteristic. It would be rare for a consumer to only
dine at a single establishment - consumers are willing and intrigued to try to places. A deterring factor for new
businesses would be government regulations. The Food and Drug Administration (FDA) for the United States
and the Food Standards Agency for the United Kingdom uphold strict rules to ensure people’s safety.
Restaurants need to be registered and approved through the FDA and shipments of exported good need to be
confirmed through the department as well (U.S. Food and Drug Administration, 2012). Qualified staff
members who are informed of the standard that are expected and up-to-date equipment can help adhere to
these restrictions. The industry is also susceptible to the economy which then plays a role on its appeal to
entrants. Decline in profitability in the market will discourage potential new entrants.

Buyer power could be characterized as a: High force for the industry. Most revenue is generated by individual
consumers rather than other businesses and corporations. The want of an individual can change daily;
therefore the choices made by consumers in this market are more unpredictable in comparison to other
industries. The customer has a wide range of options to 8 choose from within certain price range and location
parameters. This strengthens buyer power and consequently increases competition in the industry
(Datamonitor, 2010). But, this is not to say that repeat customers are not important to the business. Creating
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rewards systems and loyalty programs that make people want to return is a key factor to a profitable
company. The average person spends about 7-30 dollars eating out depending on the restaurant (Clifford,
2011). This amount is relatively low and new customers filter in and out of the companies so often that
revenues are able to even out over the course of the year. The issues for companies arise when they are
structured to be low-volume venues with a high cost per person (Datamonitor, 2010). When this is the case,
customer loyalty becomes a large part of their business model. This affects only a small number of companies
in the industry.

Supplier power is: Low force since the food services industry is labor intensive. When looking at a company’s
operating cost, wages account for 25-30 percent of that overall budget. Minimum wage laws require
employees to be paid a set amount per hour. On top on this minimum, certain employees with more
responsibilities, such as supervisors and managers, will require higher pay. The average annual pay per worker
in the restaurant industry is about $50,000 (Hoovers, 2012). Tip policies can also impact employees’ wages,
but that is more characteristic for companies in the United States rather than other countries. When dealing
with direct suppliers, trust is the most important factor for a company. Companies want to find a supplier that
they can form a relationship with due to the importance their supply plays for their business. They rely on
their suppliers for food quality and delivery timeliness so they are able to serve their customers. The overall
goal would be to find a supplier that provides good quality food at low prices, but the relationship is the more
important factor. Companies will be loyal to their suppliers even if others are offering lower prices because
the risk factor of switching is not worth the savings. This gives the suppliers negotiating power because they
are normally supplying many businesses so they can set their prices to suit their needs (Datamonitor, 2010).
But, any shortcut the supplier takes is a risk because it can catch up to them and harm their reputation in the
long-run. Once a supplier has a positive reputation and has proven themselves to be dependable, they gain
the upper hand in the relationship.

Industry rivalry is another strong factor for Food Services: High There are many companies in this industry,
most of which are small to medium in size. In the United States alone there are 980,000 restaurant locations
(National Restaurant Association, 2013). Each of these companies is offering food products, which makes them
comparable to one another despite the actual food on the menu most likely being different. This similarity in
structure and services causes an intense rivalry among the firms in the industry. The economy further impacts
this rivalry because when the economy is low people will spend less money which increases the competition
for the money they do spend. There is also no fee for a customer to switch between who they dine with
(Datamonitor, 2010). This puts the pressure on the companies to attract people to their establishment over
others.

The largest force in the food services industry is the threats of substitutes: High There are many substitutes
that could take the place of a restaurant because a restaurant can serve multiple purposes. As strictly a dining
facility, other restaurants are a threat since people have the option to eat where they would like. Restaurants
can serve the purpose of socialization as well, but there are also many other places for people to come
together that could be a substitute, such as movie theaters. The largest threat to the industry though is that
dining services are not a necessity for consumers. People are able to cook for themselves which is normally a
cheaper, and therefore a more attractive alternative to going out to eat. This allows price in the industry to be
subject to

`15
current demand (Datamonitor, 2010). It also means that a company needs to be able to sell an experience
rather than just a product. Quality of the food served is important, but companies need to differentiate
themselves and give the customer more than what they expect.

Key Success Factors:

Purchasing-related factors: Must have a network of suppliers who maintain required quality of supplies.
Quality control of raw materials is important. Bulk purchasing can reduce cost of some materials such as flour
etc.

Marketing-related factors:

Product Quality: Food must have freshness, purity, taste, and good presentation. Product must be distinct
and unique. Quality must be consistent from store to store - consistency is the key for chain restaurants.

Place: Pleasing & inviting atmosphere over all our branches in USA & Canada .Free Wi-Fi ,Community Rooms

Price : Moderate – approximately $10 per person per visit (including both café and bakery purchases)

Promotions : Loyalty programs “My Panera” 19 M member, WOM,

Product & Services:

• A semi-elegant, food and/or dining experience through hot/cold sandwiches, soups and salads, along
with pastries, and breads.

• The recent services added are catering , consumer products & home delivery.

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Operating Revenue % of Profit Relative Industry Growth
segemnt Revenue Market Rate
Share
Bakery café 2,108,908 88.42% 413,474 3.19% 3.93%
operation
Franchise 112,641 4.72% 106,395 <1% 1.70%
operation
Fresh dough 347,922 14.59% 21,293 <1% 1.10%
&other
product operation
Intercompany -184,469 -7.73% 0 0%
sales
eliminations
Total 2,385,002 100.00% 541,162

Quardant II Quardant I

Panera Bread
Quardant III Quardant IV
Cash Cow Dogs

`17
Competitors & Strategy

 Competitors
The Full-Service Restaurant Industry is highly fragmented with all types of direct competing sellers; in
fact, because there are so many different firms with products that directly compete with Panera, it is
difficult to define which specific restaurants are main direct competitors. According to the case, “the
restaurant business was labor-intensive, extremely competitive, and risky” implying that the strength
of the competitive force from competing sellers was extremely high (although having a fragmented
market allows for actions to be absorbed by multiple companies) (Thompson C-97). To reemphasize
the inconsistency with the industry, “the profitability of a restaurant location ranged from exceptional
to good to average to marginal to money-losing;” in short, all over the board (Thompson C-97). Rivalary
among competing sellers forced firms to continue “seeking to set themselves apart from rivals via
pricing, food quality, menu theme, signature menu selections, dining ambience and atmosphere,
service, convenience, and location” (Thompson C-97). With a wide range of profitability ranges and
opportunities for success, “Panera Bread competed with specialty food, casual dining, and quick-
service restaurant retailers – including national, regional, and locally owned restaurants” with many of
“its closest competitors [consisting of] restaurants in the so-called fast-casual restaurant category;”
moreover, this latter group “provided quick-service dining (much like fast-food enterprises) but were
distinguished by enticing menus, higher food quality and more inviting dining environments”
(Thompson C-99). According to Exhibit 9 in the case, many of the firms such as Atlanta Bread Company,
Applebee’s Neighborhood Grill and Bar, Au Bon Pain, Chipotle Mexican Grill, and Starbucks among
many others are the major firms competing against Panera Bread as direct competitors. The sheer
volume of direct competitors in this segment alone coupled with the aggressive tactics and high level
of expectations of customers who pay moderately premium prices indicates a strong competitive force
from the rivalry among competing sellers.

Chipotle is a quick service, Mexican-inspired restaurant chain, primarily known for its large burritos, tacos and
burrito bowls. The company markets a simplified menu that serves only quality ingredients. To facilitate an
efficient operation, food items are assembled in front of the customer much like an assembly line. As of the
end of 2014, Chipotle operates 1,700+ restaurants, at which the average sale per restaurant per year is
approximately $2.5 million. The restaurant chain was founded in 1993 and is headquartered in Denver,

`18
Colorado Panera Bread sells hand-crafted bread, sandwiches and salad in bakery-inspired cafes. Many
restaurants are located in suburban strip malls and regional malls, where the general vibe tends to be one of
warmth and welcome. Like the others, Panera attracts customers with higher quality ingredients. Catering also
plays a huge part (about 8%) of Panera's total sales. As of August 2015, Panera operates almost 1,900
restaurants. This restaurant chain was founded in 1981 and is headquartered in St. Louis, Missouri.

McDonald’s is the largest fast food chain in the world. They have been very successful in expanding into
international markets. McDonald’s CEO, Charlie Bell, recently stepped down due to health concerns, which
resulted in a price fall in their stock. However, since the naming of Jim Skinner as CEO, analysts have
reaffirmed a positive outlook on McDonald’s. The success of Panera Bread and other such places has forced
McDonald’s to reassess their menu and add healthier items. McDonald’s also markets to a different market
than Panera Bread in that McDonald’s is a low cost provider. Panera Bread stays in suburban areas while
McDonald’s has a suburban presence but also floods the cities. So although McDonald’s and Panera Bread do
not operate too similarly, they do compete in the same industry and it is important to look at McDonald’s as a
main competitor when analyzing the restaurant industry.

Starbucks Corporation has a very similar niche to that of Panera Bread Company. However, Starbucks
concentrates only on the beverage side of the café. Panera Bread also sells coffees and cappuccinos as
Starbucks does, but Panera has a wider variety of products to sell. Starbucks and Panera are considered to be
competitors because they both have a café environment. Starbucks has been extremely profitable in years
past. Both companies take advantage of the unique environment that a café provides.

New World Group Inc. owns and operates several different companies entitled Einstein Bros., Noah's,
Manhattan, Chesapeake, and New World Coffee. New World Group sells café beverages, bagels, soups,
salads, and deserts among other products. New World Group’s cafes may be the most direct competition to
Panera Bread. New World Group is a much smaller organization than Panera Bread but both produce similar
products and target a similar customer.

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 2.2. Internal Environment (IFAS):
2.2.1. Strengths and Weaknesses (SWOT)
Corporate Structure

Organizational Forms and Structure

The figure above shows the organization structure Ronald M. Shaich is the Founder, Chairman & CEO of
Panera Bread. William W. Moreton is Executive Vice Chairman and a board member.it is more flat
functional organization.

In organizational design there are five tools that could be useful in regards to Panera: managers and workers
empowered to act on their own judgment, work process redesign, self-directed work teams, rapid incarnations
of internet technology applications and networking with outsiders to improve existing organization capabilities
and create new ones.

In Panera Bread, only the highest quality employees are hired to represent the company, it is in these
employees that Panera see's and re-instills in them the ability to use their own judgment in all situations they
are in and have the right to act how they feel is right if they disagree with a situation. Work process redesign is
important because Panera has the opportunity to experience more streamlining. Panera is doing a great job in
regards to self-directed work teams because each bakery-cafe is presented with a number of small but
important decisions that the lower level managers and employees must decide on.

Internet technology applications are an essential part of every companies business. Everything is going digital
so it is important for Panera to continue to keeping up with the internet and their website. Now-a-days most

`20
 consumers look online to see what a company is about and what they have to offer them, that is why essential
that website displays Panera how they would like to be perceived. Lastly, Panera networks in a way through
their consumers to other consumers and through community service opportunities that each bakery partakes
in. The consumers tell their friends and family about their experience through word of mouth and Panera
reaps the benefits

A. Corporate Culture

The cornerstone of Panera’s local presence is its strong community outreach program to ensure that each
location builds goodwill through giving.

For example, through its Community Breadbox, Panera bakeries take donations from customers to support
local nonprofit organizations. Through Fundraising Night, Panera Bread restaurants work with local nonprofits
to promote their causes and raise money by using local Panera franchises to raise awareness (which generates
foot traffic for Panera and revenue for a participating nonprofit). And since 2010, Panera has operated select
Panera Cares outlets, where customers pay only what they can afford to pay (they can volunteer their time,
too), thus creating a haven for the needy in cities such as Boston and Chicago. Other programs include:

• End-Day Dough-Nation through which Panera Bread bakeries donate unsold bread and baked goods to
charities and hunger relief agencies. According to the Panera Bread website, Panera stores donated $100
million worth of unsold food in 2012.

• An internship program, piloted in Missouri, that gives at-risk youth job training through Panera Bread
locations.

Giving to the community means supporting individuals in addition to institutions. For example, Panera Bread
turns its restaurants into classrooms by offering teaching tips for children aged 5-12. Instruction includes the
art of baking French baguettes (“one to bring home and one to donate to people in need in your community“).

Giving back to communities does not occur by accident. The local programs reflect Panera’s national
commitment to solving hunger — a mission that has expanded to supporting many other charities and causes.
By delivering on a national mission, local Panera bakeries become more integrated into their communities and
seem less like faceless chains.

B. Corporate Resources
1. Marketing
Panera also makes its locations destinations, not just places to grab something to eat and drink. Certainly,
chains ranging from McDonalds to Starbucks make their stores more appealing by offering amenities such as
free WiFi. Panera Bread goes a step further by actively encouraging its customers to make Panera restaurants
part of their daily routines. Many Panera Bread bakeries provide Community Rooms, which residents can book
for meetings by calling the restaurant or booking online. If your weekly coffee klatch needs a place to hang out
regularly, you can take the guesswork out of the process by reserving a place and time (which probably means
more revenue for Panera).

Here again, Panera creates an interplay between its national brand and local presence. The Panera bakeries
make themselves destinations for patrons. The Panera blog shares examples from the front lines in order to

`21
maximize the value of the local activity for the benefit of the national Panera brand. The message is clear: we
not only welcome you to spend time with our stores, we celebrate your spending time with our stores.

Panera’s local marketing efforts don’t matter a whole lot if customers struggle to find Panera when they are
searching for something to eat, especially when they use their mobile devices. According to a SIM Partners
audit, Panera could stand to improve its local search visibility.

On the one hand, Panera enjoys good, if imperfect, visibility for branded search. When customers search for a
“Panera bread near me,” they can generally find one fairly easily. (But in St. Louis, where Panera Bread was
founded as Saint Louis Bread Company, the company name appears with inconsistent naming conventions.)

When people do non-branded searches (e.g., “fresh bread Chicago”), Panera does not appear in Google Snack
Pack results — a missed opportunity to be present when people are looking for options in Panera’s category
and have not specified Panera by name.

Panera also lacks local store pages, which could boost visibility and drive local traffic. Panera has claimed
Google My Business pages but needs to optimize them with more descriptive content and more appealing
visual imagery.

Panera is getting many things right with local marketing. But the enterprise has some work to do in order to
make search a stronger element of its local marketing. As Google reported in 2015, “near me searches” have
increased 34 times since 2011, especially on mobile devices. The opportunity for Panera to capitalize on local
searches is huge.

2. Finance
Unfortunately, Panera's guidance for 2015 raised new concerns about just how closer look problematic the
current environment has been for the chain and how long it might take for its growth initiatives to start paying
off with better financial performance. Let's take a at how Panera Bread closed out 2014 and what's next this
year for the company.

Why Panera Bread just won't rise

Looking at key revenue and earnings numbers, Panera Bread put in mixed performance in investors' eyes.
Revenue of $672.5 million was up just 2% from the year-ago quarter, and it fell short of the roughly $676
million in sales that those following the stock expected to see. Moreover, although earnings beat consensus
estimates by a penny, it was nevertheless hard for investors to get excited about an 11% drop in net income
that worked out to $1.82 in earnings per share. Full-year results were similarly troubling, with a 6% rise in
sales still leaving net income down 9% for the year and leaving earnings per share 2% lower than they were in
2013, even after accounting for an aggressive reduction in share count.

Panera did have a bit of good news, as comparable store sales rose 3% overall after adjusting for an extra
week in last year's fiscal fourth quarter. Company-owned stores saw a 3.3% increase in comps, with average
check amounts growing 2% and traffic rising by 1.3%.

`22
Still, rising expenses continued to weigh on Panera's profitability. Total expenses from its bakery-cafes rose at
a 3.5% pace during the quarter, with labor cost increases of more than 5% having a particularly dramatic
impact. Food and paper-product costs also climbed almost 4% from the year-ago quarter, contributing to the
drop in operating profits.

Interestingly, Panera hasn't seen the success that one would expect from its newest stores. Looking at average
weekly sales, figures are consistently higher for those stores opened in 2012 or earlier compared to more
recently opened locations. In particular, Panera stores from 2013 posted average sales that were 13% lower
than the system wide average, and 2014's cohort of new stores also underperformed, albeit less dramatically.
That suggests that Panera's expansion efforts aren't isolating the best prospects for untapped markets

Specifically, Panera Bread gave guidance for 2015 that forced investors once again to put off their hopes for an
earnings-led recovery. Panera expects comparable-store growth of between 2% and 3.5% for the full year,
which would be consistent with its recent results but not provide any substantial upward momentum. Even
worse, Panera believes that its earnings per share will come in at best flat and at worst down by mid-single
digit to high-single digit percentages. That's a slap in the face for investors who had hoped to see earnings per
share climb by roughly 1.5% this year.

Shareholders fled the stock in response to the company's poor guidance, with Panera shares trading down
more than 8% in the first half-hour of after-hours trading following the announcement. If the decline holds, it
will essentially wipe out all the progress that the stock had made in since its poor earnings report in the third
quarter. For a stock trading at 26 times trailing earnings, news of declining earnings growth for a full year
doesn't inspire much confidence. Yet long-term investors should root for even lower share prices ahead, as
long as they believe that Panera 2.0 and the company's other investments in its future will pay off in the long
run.

For more financial statements and financial ratios please review appendix .01

`23
 Quarterly
Annual

2014-12 2013-12 2012-12 2015-09 2014-09

Income Statement

Revenue 2,529 2,385 2,130 665 620

Operating Income 276 310 283 52 58

Net Income 179 196 173 32 39

Earnings Per Share 6.64 6.81 5.89 1.27 1.46

Diluted Average Shares 27 29 29 26 27

Balance Sheet

Current Assets 406 303 479 508 308

Non-Current Assets 985 878 789 976 946

Total Assets 1,391 1,181 1,268 1,483 1,254

Current Liabilities 353 303 278 354 282

Total Liabilities 655 481 446 910 544

Stockholders' Equity 736 700 822 573 710

Cash Flow

Cash From Operations 335 348 289 7 48

Capital Expenditures -224 -192 -152 -48 -65

Free Cash Flow 111 156 137 -42 -16

`24
 Stock Ind Avg Relative to Industry

Price/Earnings TTM 29.2 31.0

Price/Book 7.6 9.1

Price/Sales TTM 1.7 2.5

Rev Growth (3 Yr Avg) 11.6 8.3

Net Income Growth (3 Yr Avg) 9.7 1.7

Operating Margin % TTM 9.3 14.1

Net Margin % TTM 5.8 7.8

ROA TTM 11.3 7.9

ROE TTM 24.1 27.8

Debt/Equity 0.7 1.6

Wall St. Recommendations PNRAMore...

Current 3.7

Total Analysts : 7

5.0 3.0 1.0

Buy Hold Sell

`25
`26
 3. Research and Development

Panera relies on the power of its national brand and infrastructure to make sure that each locations
ingratiates itself by being useful. Case in point: in 2014, Panera launched a mobile app through which
customers may do everything from place food orders to pay for their purchases.

What makes the app special is its pre-order functionality. Using the Panera Bread app, you can use your
smartphone to place an order for a meal before you arrive at the nearest location and either pick it up to go or
eat it in-store. Or you can use the app to place a meal order from your table if you want to wait until you have
arrived and secured a table before you think about food. If you prefer to place an order with a person, you can
use the app to pay for your purchase just like you do at Starbucks, so long as your phone is enabled with Apple
Pay.

As it turns out, Panera is a trendsetter: Starbucks recently launched its own Mobile Order and Pay
functionality nationwide, available in 7,400 stores. But you don’t need a smartphone to use mobile technology
at Panera. The company has also incorporated iPads in its locations, through which customers may place
orders inside locations and either dine at their tables or take their food with them.

Going mobile is part of a $42 million investment, “Panera 2.0,” which is designed to make Panera dining an
easier experience. As The Wall Street Journal reported in 2014,

The technology upgrade is geared at disrupting Panera’s current customer experience which typically involves
ordering food at one station, picking up beverages at another and waiting in the “mosh pit” — the grim
nickname Panera has for the area where customers pick up their food. “All of the friction that we introduce . . .
is atrocious,” said Blaine Hurst, Panera’s executive vice president of technology.

Making it easier for customers to place to-go orders is important, too: in 2014, Panera reported that 45
percent of its orders are to go.

By making it possible to use mobile to place orders from tables or to go, Panera enjoys the best of both
worlds: satisfying diners who want to hang out at Panera and those who simply want to get their food and
leave quickly.

4. Operations

The Company operates three business segments. The Company Bakery-Cafe Operations segment is comprised
of the operating activities of the bakery-cafes owned by the Company. The Company-owned bakery-cafes
conduct business under the Panera Bread®, Saint Louis Bread Co.® or Paradise Bakery & Café® names. These
bakery-cafes offer some or all of the following: fresh baked goods, made-to-order sandwiches on freshly
baked breads, soups, salads, pasta dishes, custom roasted coffees, and other complementary products
through on-premise sales, as well as catering.

The Franchise Operations segment is comprised of the operating activities of the franchise business unit,
which licenses qualified operators to conduct business under the Panera Bread or Paradise Bakery & Cafe
names and also monitors the operations of these bakery-cafes. Under the terms of most of the agreements,
the licensed operators pay royalties and fees to the Company in return or the use of the Panera Bread or
Paradise Bakery & Cafe names.

`27
The Fresh Dough and Other Product Operations segment supplies fresh dough, produce, tuna, and cream
cheese, and indirectly supplies proprietary sweet goods items through a contract manufacturing arrangement,
to Company-owned and franchise-operated

bakery-cafes. The fresh dough is sold to a number of both Company-owned and franchise-operated bakery-
cafes at a delivered cost generally not to exceed 27 percent of the retail value of the end product. The sales
and related costs to the franchise-operated bakery-cafes are separately stated line items in the Consolidated
Statements of Income. The sales, costs, and operating profit related to the sales to Company-owned bakery-
cafes are eliminated in consolidation in the Consolidated Statements of Income.

Internal Factor Analysis: Strengths and Weaknesses

Strengthens
- Culture quality: Panera have a strong culture. They care about each other and enjoy working together.
They acre about the customer and offer a worm place for him. They care about the community by
donations and internship programs to train new comers
- Experience top management: Shaich serves as President of the Panera Bread Foundation and
spearheaded the Panera Cares initiative, the chairman and CEO was awarded the 2011 MUFSO Pioneer
Award for being one of the most significant contributors to the history of the foodservice industry
- Strong brand equity: Brand and product advertisement can be key factors in becoming a strong brand
name used in households and bringing customers in the doors. . Panera has a positive and strong brand
image partly because they have grown so much and have many locations. They offer fresh food and good
quality to those looking for a healthy option. Panera has a catering business that they are using to
increase their revenue and it is doing well.
- Operations diversity: The Company generates revenues through three business segments: company
bakery-café operations, franchise operations and fresh dough operations. The company’s bakery-café
operations segment is comprised of the operating activities of the bakery-cafes, owned directly and
indirectly by Panera. Their franchise operations segment is comprised of the operating activities of its
franchise business unit, which licenses qualified operators to conduct business under the Panera Bread
and Paradise Bakery & Café names while the fresh dough operations segment supplies fresh dough items
and indirectly supplies proprietary sweet goods items through a contract manufacturing arrangement to
both company-owned and franchise-operated bakery-cafes
- wide geological coverage: Panera have a wide coverage in US and Canada
- Quality ingredients: Our success depends in large part on our customers' continued belief that food made
with high-quality ingredients, including selected proteins raised without antibiotics, and our artisan
breads, is worth the prices charged at our bakery-cafes relative to the lower prices offered by some of our
competitors, particularly those in the quick-service segment. Our inability to successfully educate
customers about the quality of our food or our customers’ rejection of our pricing approach could result
in decreased demand for our products or require us to change our pricing, marketing, or promotional
strategies, which could materially and adversely affect our consolidated financial results or the brand
identity that we have created.
- Online ordering service: We are continuing to rollout and further iterate our Panera 2.0 initiative. More
than 100 Panera 2.0 cafes were operating by the end of 2014 and we plan to convert approximately 300
company cafes in 2015. It is clear Panera 2.0 is making a difference. Sales have increased and guest
friction has decreased at cafes where Panera 2.0 is implemented. Further, we have a better understanding
of the startup and operating costs for Panera 2.0, so that capital costs are coming down and margins are
strengthening with each iteration. In addition, we are rolling out discrete elements of Panera 2.0 across

`28
 the system. One example is Rapid Pick Up, which allows guests to purchase their meals ahead of time
online and bypass cafe lines during pickup.
- Financial position: it have a strong financial position but it won't rise
- Delivery service: We are building out our large- and small-order delivery businesses. At the end of 2014,
we had 21 catering hubs
and plan to build 11 more by the end of 2015. By yearend, one-third of our catering sales are expected to be
hubbed, which centralizes the production of large orders and takes production out of individual bakery-cafes,
improving efficiencies both for our bakery- cafes and our catering orders. We have also put in place a
professional sales force and sales disciplines to grow this business. Our small-order delivery model continues
to be refined and recent tests of cafe-based delivery services are promising. We plan to expand our café-based
delivery tests to additional markets in 2015.

- Innovations: The success in 2014 of our line of flatbreads and the debut in January of Broth Bowls—a healthful
extension of our soup offerings directed at the adventurous eater—are examples of how our positioning
comes to life in our foods. Later this year, we plan to introduce improved salads and sandwiches that
underscore our commitment to clean food, or food free of artificial additives, flavorings, colors and
preservatives, as promised in the Clean Food Policy we unveiled in 2014. A new advertising campaign
highlighting our positioning and giving Panera a unified voice across all marketing channels is expected to
debut in June. We also plan to continue to develop our My Panera loyalty program. With 19 million members,
My Panera is a powerful platform for one-on-one marketing. Nearly half of all company transactions are linked
to My Panera. And a more contemporary store design is being incorporated into new cafes while maintaining
Panera’s warmth. Meanwhile, a remodel program for older cafes that incorporates elements of the new
design is being tested and readied for usage.
- Loyalty programs: Our bakery-cafes are designed to visually reinforce the distinctive difference between our
bakery cafes and other bakery-cafes and restaurants. In addition, we believe that our MyPanera® loyalty
program allows us to build deeper relationships with our customers and entice them to return to our bakery-
cafes.
We believe the program’s multi-year approach improves operator quality and management retention, and
creates team stability, which generally results in a higher level of consistency and customer service for a
particular bakery-cafe. It also leads to stronger associate engagement and customer loyalty

Weakness

- High prices than average: Panera offers slightly higher prices than most fast food services but the
customers are willing to pay the price for the quality. The company has proven itself to have excellent
customer service and customer satisfaction willing the trust and loyalty of many buyers. (Gustavo, 2010)
(Thompson, Peteraf, Gamble, Strickland, 2010.) The prices of the higher quality food can be hard to
overcome because of the recession. Fast casual restaurants take a hit financially when the economy is
not doing well. Middle and upper class citizens really like the social status that these restaurants give.
- Narrow menu: Differentiation is a determining factor of success in this industry because there are so
many competitors. The Fast-food industry can be difficult to differentiate on a single product.
Differentiation in this industry can be focused more on the atmosphere and unique menu items
- Investing in technology burden: Our capital requirements, including development costs related to the
opening or acquisition of additional Company-owned bakery cafes and fresh dough facilities,
maintenance and remodel expenditures, and investments in technology infrastructure to support
ongoing strategic initiatives have been and will continue to be significant.
`29
 2.2.2 IFAS matrix

Internal Factors Weight Rating Weighted scores

Strengths
S1 Culture quality 0.04 3 0.12
S2 Experienced top management 0.04 5 0.2
S3 Strong brand equity 0.07 5 0.35
S4 Operations diversity 0.07 4 0.28
S5 Outstanding customer service 0.04 4 0.16
S6 Wide geographic coverage 0.07 4 0.28
S7 Quality ingredients 0.07 5 0.35
S8 online ordering services 0.06 3 0.18
S9 Financial strength and flexibility 0.05 4 0.2
S10 Delivery services 0.05 3 0.15
S11 Innovation ,and R&D 0.05 3 0.15
S12 Loyalty program (My panera) 0.07 4 0.28
Weaknesses
W1 High prices than average 0.07 4 0.28
W2 Narrow menu 0.05 3 0.15
W3 Not enough experience leaders 0.03 3 0.09
W4 Investing in technology burden 0.04 3 0.12
W5 High expenses 0.06 3 0.18
W6 Weak Marketing & advertising 0.07 3 0.21
1 3.73

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 2.3. Overall environment analysis:
2.3.1. SFAS Strategic Alternatives Matrix

Internal Factors Weight Rating Weighted scores

Strengths

S1 Strong brand equity 0.06 5 0.3

S2 Operations diversity 0.04 3 0.12

S3 Financial position 0.08 4 0.32

S4 Quality ingredients 0.06 5 0.3

S5 online ordering services 0.03 3 0.09

S6 Loyalty program (My panera) 0.04 4 0.16

Weaknesses 0

W1 High prices than average 0.04 3 0.12

W2 Not enough experience leaders 0.02 2 0.04

W3 Investing in technology burden 0.05 3 0.15

W4 High expenses 0.04 3 0.12

W5 Weak Marketing & advertising plans 0.05 3 0.15

Opportunities 0

O1 Rapid growth with fast casual 0.08 5 0.4

O2 Healthy food trend 0.05 4 0.2

O3 potential market in Europe 0.08 4 0.32

O4 Recent technology In-store info system 0.05 5 0.25

Threats 0

T1 Real Estate costs 0.06 4 0.24

Competition with other specialty foods and casual

0.05 4
T2 dining restaurants 0.2

T3 litigation for product defects 0.05 2 0.1

T4 Food costs / Raw Material increase 0.07 3 0.21

Total Score 1 3.79

`31
 3. Conclusion & recommendation
3.1. TWOS analysis

Strength Weaknesses

1 Strong brand equity 1 High prices than average

2 Operations diversity 2 Not enough experience leaders

TOWS Analysis 3 Financial position 3 Investing in technology burden

4 Quality ingredients 4 High expenses

5 online ordering services 5 Weak Marketing & advertising plans

6 Loyalty program (My panera)

Opportunities SO - Strength/Opportunities WO - Weaknesses/opportunities

(S1/S4 & O1) - Utilize menu availability

for breakfast, lunch and dinner to
engage in market development and
(W4 & O4) - Strengthen inventory
Rapid growth begin opening Panera locations in
1 management process; eliminate
with fast casual airports.
excessive baked goods inventory waste.
(S1/S2 & O1) - Focusing on delivery
activities and Catering outside Panera's
stores,

(S4 & O2) - Maintaining food with

integrity mission proves a proactive
Healthy food movement. (W1 & O2) - Leverage on health food
2
trend (S2 & O2) - New market penetration to trend and introduce new Combos.
Introduce healthy consumer products
(Tuna, Ice-cream,…etc)

Potential (S3 & O3) - Opening multiple Panera (W2 & O3) - Hire qualified franchise
3 market in locations in airports outside USA & from target countries to overcome
Europe Canada. experienced leaders gap.

Recent (W5 & O2) - Utilize marketing and

technology In- advertising efforts to demonstrate
4 (S3 & O4) - Improve in-store designs.
store info Panera's extensive healthy menu
system options.
`32
Threats ST - Stength/Threats WT - Weaknesses/Threats

(W4 & T2) - Engage in product/service

(S3 & T1) – Leverage on Panera's
Real Estate development to increase brand loyalty
1 strong financial position to purchase
costs and make customers want choose
branches in premium locations.
Panera over local bakeries.

Competition
(S4 & T2) - Enforce Panera's
with other (W3 & T4) - Enhance tools for inventory
commitment to customer health and
specialty foods control in efforts to better forecast
2 lifestyle to differentiate from
and casual need an reduce excessive purchasing of
competitors to introduce healthier
dining high price ingredients.
options.
restaurants

(S5 & T2) - Run strong campaigns with

litigation for
3 special discounts on online ordering
product defects
(Panera 2.0).

Food costs /
4 Raw Material
increase

`33
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 6. Horizontal integration
6. Liquidation 7. Related diverse
Quadrant III Quadrant IV
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation

Financial Strength (+) Grade (1 : 6) Evironmental Stability (-) Grade (-1 : -6)
Liquidity 2.5 Demographic Shifts -4.5
Leverage 3 Sociocultural Trends -4.5
Activity 4 Economic Factors -2.8
Profitability 5 Political/ Legal Changes -4
Growth 3.5 Technological Changes -3
Equity 5 Global Issues -4
Cash Flow 2.5 Risk Involved in Business -2
Sum 25.5 Sum -24.8
Average 3.64 Average -3.54
Industry Strength (+) Grade (1 : 6) Competitive Advantage (-) Grade (-1 : -6)
Competitors 4 Customer Service -2.5
Consumers 3 Produt Quality -1.8
Supliers 4 Inventory Mgmt -4.2
Distributors 4 Price Competitiveness -3.5
Sudstitutes 4.5 Customer Loyalty -3
Growth Potential of Industry 4 Product Lifecycle -2.5
Profit Potential of Industry 5 Technological Know-how -2.3
Technological Know-how 4.5 Brand Image -1.9
Resource Utilization 4.5
Sum 37.5 Sum -21.7
Average 4.17 Average -2.71

FP 6

CP IP
-6 6

SP -6 `34
 3.2 Strategic alternatives

Option 1: International Expansion

Panera has a very limited international presence. They reside mostly in USA and Canda with only a few stores
in European countries. International expansion may help the company continue to grow.

Pros:

1. More stores globally will create higher revenues

2. The possibility of breaking into a brand new market in some countries

3. An increase in brand recognition

Cons:

1. May be difficult to do without qualified franchising

2. High costs and governmental regulations from country to country

3. It is difficult to predict success in foreign countries

Option 2: internal expansion

Panera should focus on the expansion of catering activates outside stores. Also they have to focus on delivery
as it presents 44% of the market. They have to distribute there consumer products.

Pros:

1. Catering activates is considered a blue ocean strategy

2. The possibility of market penetration

3. An increase in brand recognition

Cons:

1. Consumer products need strong marketing plans

2. Need to hire experience middle level managers

3. It is difficult to predict success

`35
3.3 Recommended Strategies

- Corporate Strategy
The recommended strategy is a mix of all the above strategies. One can argue the sum of them is
a (proceed with caution) strategy.

Establish R&D Business unit

• New Products and services

• New Pricing list.
• New operational procedures (Cost oriented)

Turn around

• HRM revamping (incentives system) and hiring experienced leaders.

- Business Strategy
Differentiation - Products and services

Lower Cost – manufacturing and logistics

Cooperation – Alliances - distribution ship

- Functional Strategy
1. Marketing and Sales
• Changing pricing strategies to penetrate new markets of services – Adopting pull
strategy to increases their services and support revenue .
• Introduce healthy consumer products (Tuna, Ice-cream,…etc) market with customized
marketing campaigns .
• launching marketing campaigns online, enhancing the E-sales sector .

Action Plan List

• Healthy products with competitive prices to be launched within the first quarter of
2015 according to the campaign geographical distribution plan and schedule.
• Utilize menu availability for breakfast, lunch and dinner to engage in market
development and begin opening Panera locations in airports.
• Online awareness, guiding and support campaigns to be launched targeting the main
social networks, related websites and personal mails by end of February as due date.

`36
2. Information systems and Technology
Stability of the Platforms – Integration and Unification of tools and Systems – together with
a cost differentiation strategy to support the company in their overall strategy
Work on providing the company with a competitive edge over the other companies
operating in the same business and covering the same segment.
Action plan list
• Finalizing the contracts for outsourcing the IT department through a reputable
professional company by end of December 2014 as due date.
• Recruitment, training and development programmes to be established and launched
by the end of march as due date targeting the establishment of a new IT department
capable of succeeding the outsourcing company by 2015

3. Financial Strategy
Support cost saving oriented procedures.

Action Plan list

• A comprehensive cost saving program for each department to be finalized by the end
of December 2014 as due date.
• Establishing a new department for the cost saving plan implementation and audit by
the end of December 2014 as due date.

4. R & D Engineering
Utilizing the Platforms and the resources in the company to efficiently innovate on the
current product base and the market brand new technologies also enhance the R&D to
further reduce costs of operations.

Action plan list

• launching a market research program for the determination of the new markets to be
penetrated and the best pricing strategies for such penetration .
• A continuous market research program to be performed through the whole year for
engineering and design departments support and guidance.
• Launching a research program for operating cost saving guidance and enhancement
to be completed by the end of March 2015

`37
3.4. Recommendation :

We recommended strategy is a mix of all the above strategies in the following two:

1- Growth and diversifications

- Targeting new markets in euro
- Opening new branches in airports
- Focus on catering outside the stores/ on delivery / on consumer products

2- Enhance operations

- Hire experienced middle managers

- Invest in new technologies (enhance store design, Panera2.0, Inventory
control)

`38
4. Implementation
4.1 Strategy Implementation

4.2.1 Short term/Immediate strategy Implementation – 1st year

The implementation of the strategy over the short term – mainly for executing the complementary and
the cooperation strategy through the following approaches:

1- New Business Unit – a new R&D business unit designed to connect consumers to marketers and
merchants is mandatory.
2- Strategic Alliances with Market leaders as a distributer.
3- Acquisition of related logistics companies to increase the competitive advantage

4.2.2 Long Term strategy Implementation – 2nd to 4th year

1- Innovation We suggest that Panera should attempt to boom the market (reshape it by re-innovating
the meaning of the healthy food and its usage purposes. Example (apple iPhone app the importance
for non-artificial food )

2- Diversification Market research and further segmentation of markets helps to identify new groups of
customers.

3- Market expansion – This strategy entails finding new markets for existing products or sharing
competitors markets through offering distribution shops.

`39
 Short term implementation Long term

Delivery service To cover all Panera branches in US whereby To cover all Panera branches in
applicable. US and Canada whereby
applicable.

Catering Focus on markets with high population.

Promotions and advertising in events.

Enhance middle - Hire IT team to support and develop on line Develop internal capabilities to
management level ordering. be the future leaders.

- Hire middle managers to enhance

operations and inventory management
system.

Consumer products Advertising campaigns & ensure availability Strategic alliances with large.
over all Panera branches & Kiosks. distributers and chain Hyper
retails.

Euro expansion Selling franchises in UK Expansion over Europe.

Define potential markets in other Europe

countries.

Invest in technology Enhance online ordering Panera 2.0 to cover Redesign stores (smart stores)
500 branch by 2016 &support diff. operating to cover all Panera Branches by
systems. 2019

`40
4.2 Evaluation and Control

Output Controls:
• Number of stores conversion into Panera 2.0 per quarter
• New products to be added to the portfolio per semester
• Sales growth per quarter
• New countries penetration per year
• Number of allied competitors (product lines)
• Standardized product invention system (number of new lines and products quarterly)

Input Controls
• Value based management,

Behavior Controls
• Keeping the company culture and values as started from beginning,
• Quality and differentiation perception for the users,

Risk Management
• Problems to attach European countries market.
• Create budget to research and development and invest in the Human capital.
• Management and employee turnover.

`41
Appendix
Income statement

Cash Flow Ratios

Cash Flow Ratios TTM 2014-12 2013-12 2012-12 2011-12

Operating Cash Flow Growth %

— -3.83 20.37 22.19 -0.31
YOY

Free Cash Flow Growth % YOY — -29.12 14.06 6.34 -17.02

Cap Ex as a % of Sales 8.35 8.87 8.05 7.15 5.92

Free Cash Flow/Sales % 3.56 4.38 6.56 6.44 7.08

Free Cash Flow/Net Income 0.61 0.62 0.8 0.79 0.95

`42
Balance sheet

Cash flow

`43
Profitability Ratios
Margins % of Sales TTM 2014-12 2013-12 2012-12 2011-12

Revenue 100 100 100 100 100

COGS 79.6 78.38 77.05 76.52 76.96

Gross Margin 20.4 21.62 22.95 23.48 23.04

SG&A 5.57 5.8 5.17 5.54 6.21

R&D — — — — —

Other 5.5 4.91 4.79 4.67 4.75

Operating Margin 9.34 10.91 12.99 13.28 12.09

Net Int Inc & Other -0.24 0.05 0.12 0.01 -0.02

EBT Margin 9.1 10.96 13.11 13.29 12.07

Profitability TTM 2014-12 2013-12 2012-12 2011-12

Tax Rate % 36.17 35.34 37.27 38.71 38.18

Net Margin % 5.81 7.09 8.23 8.14 7.46

Asset Turnover (Average) 1.95 1.97 1.95 1.86 1.87

Return on Assets % 11.3 13.94 16.02 15.11 13.93

Financial Leverage (Average) 2.59 1.89 1.69 1.54 1.57

Return on Equity % 24.11 24.97 25.78 23.49 21.74

Return on Invested Capital % 17.24 22.06 25.87 23.58 21.82

Interest Coverage 90.62 153.03 297.98 262.55 268.52

`44
Financial health

Balance Sheet Items (in %) Latest Qtr 2014-12 2013-12 2012-12 2011-12

Cash & Short-Term Investments 18.55 14.13 10.61 23.43 21.67

Accounts Receivable 5.09 7.67 7.16 6.8 5.33

Inventory 1.39 1.64 1.86 1.55 1.66

Other Current Assets 9.18 5.77 6.01 5.97 5.72

Total Current Assets 34.22 29.2 25.64 37.76 34.37

Net PP&E 52.73 56.6 56.69 45.09 47.89

Intangibles 12.36 13.78 17.17 16.56 17.07

Other Long-Term Assets 0.69 0.41 0.5 0.6 0.67

Total Assets 100 100 100 100 100

Accounts Payable 1.57 1.4 1.48 0.74 1.55

Short-Term Debt 1.33 — — — —

Taxes Payable 1.49 1.51 1.49 — 1.8

Accrued Liabilities 18.64 22.06 22.47 21.15 19.63

Other Short-Term Liabilities 0.82 0.38 0.24 — 0.22

Total Current Liabilities 23.85 25.36 25.69 21.89 23.2

Long-Term Debt 26.4 7.19 — — —

Other Long-Term Liabilities 11.11 14.52 15.04 13.3 13.04

Total Liabilities 61.36 47.07 40.73 35.19 36.23

Total Stockholders' Equity 38.64 52.93 59.27 64.81 63.77

Total Liabilities & Equity 100 100 100 100 100

Liquidity/Financial Health Latest Qtr 2014-12 2013-12 2012-12 2011-12

Current Ratio 1.43 1.15 1 1.73 1.48

Quick Ratio 0.99 0.86 0.69 1.38 1.16

Financial Leverage 2.59 1.89 1.69 1.54 1.57

Debt/Equity 0.68 0.14 — — —

`45
 2015 Franchise-Operated AWS By Year Opened
2013 Opens & 2015
2015 Opens [b] 2014 Opens Total
Prior Acquisitions [b]
Bakery-Cafes 40 49 896 30 1,015
Q1 15 $ 53,665 $ 44,930 $ 46,641 $ 62,979 $ 46,614
Q2 15 $ 48,194 $ 46,122 $ 47,737 $ 62,017 $ 47,680
Q3 15 $ 45,395 $ 45,146 $ 46,775 $ 49,995 $ 46,734
2015 YTD $ 47,394 $ 45,399 $ 47,051 $ 50,592 $ 47,008

PANERA BREAD COMPANY

Supplemental Sales and Bakery-Cafe Information

System-Wide Average Weekly Sales ("AWS")

2015[a] 2014 2013 2012 2011
AWS $ 47,639 $ 47,655 $ 47,403 $ 46,676 $ 44,313

[a] Represents year-to-date system-wide AWS at the end of fiscal Q3 2015.

2015 Company-Owned AWS By Year Opened

2013 Opens &
2015 Opens 2014 Opens Total
Prior
Bakery-Cafes 39 65 827 931
Q1 15 $ 47,210 $ 41,788 $ 47,918 $ 47,478
Q2 15 $ 44,125 $ 42,549 $ 49,651 $ 49,054
Q3 15 $ 45,448 $ 42,469 $ 48,943 $ 48,364
2015 YTD $ 45,248 $ 42,269 $ 48,836 $ 48,301

[b] 2015 franchise-operated AWS excludes 30 refranchised bakery-cafes.

Traditional and Non-Traditional AWS [c]

Company-Owned Franchise-Operated System-Wide

2015 Opens 2014 Opens 2015 Opens 2014 Opens 2015 Opens 2014 Opens
Traditional Bakery-Cafes 28 35 36 34 64 69
Non-Traditional Bakery-Cafes 11 4 4 1 15 5
Traditional AWS $ 49,317 $ 47,082 $ 48,182 $ 50,315 $ 48,648 $ 48,632
Non-Traditional AWS $ 35,321 $ 32,779 $ 36,363 $ 53,100 $ 35,529 $ 37,527
Total $ 45,248 $ 45,184 $ 47,394 $ 50,622 $ 46,366 $ 47,661

`46
References:

https://www.panerabread.com/en-us/home.html

https://www.panerabread.com/en-us/panera-at-home/panera-at-home-landing/panera-at-home-
products.html

https://www.panerabread.com/en-us/our-beliefs/who-we-are.html

https://www.panerabread.com/panerabread/documents/press/2015/third-quarter-2015-earnings-release.pdf

https://www.panerabread.com/panerabread/documents/press/2015/clean-beverage-press-release-8-18-
15.pdf

http://search.morningstar.com/sitesearch/search.aspx?s=o&q=panera&ulang=zh-
CN&sort=date:D:L:d1&entqrm=0&wc=200&wc_mc=1&p=Analyst%20Report

`47