BUSN620 Week 3 Case Analysis Panera Bread

BUSN620 Week 3 Case Analysis Panera Bread
Assignment:

Week 3 Case Analysis Panera Bread

Panera Bread Company in 2015 – What to Do to Rejuvenate the Company’s Growth?

Before beginning this exercise, you will need to read the Panera Bread case. You will also need to review the analytical tools and concepts in Chapter 4 and the five generic competitive strategies in Chapter 5.

The following questions will be covered in this exercise.

1. What are the key success factors for a restaurant chain that operates in the fast-casual segment of the restaurant industry?

2. What does a SWOT analysis reveal about the attractiveness of Panera Bread’s situation and future prospects?

3. What are the primary components of Panera Bread’s value chain?

4. What are the chief elements of Panera Bread’s strategy?

5. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Panera Bread’s is employing?

6. What does the data in case Exhibit 1 reveal about Panera Bread’s financial performance?

7. What does the data in case Exhibit 2 reveal about Panera Bread’s operating performance?

8. What does the data in case Exhibit 7 reveal about Panera Bread’s three business segments?

1.

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What are the key success factors for a restaurant chain that operates in the fast-casual segment of the restaurant industry?

Select “true” for the key success factors listed below that are accurate and choose “false” for those that are not.

1. Pricing that customers deem to be reasonable.

2. A limited number of menu selections, all with low-cost ingredients.

3. Capabilities in creating good-tasting recipes for menu selections that can be prepared cost-effectively and with consistent quality by the kitchen staffs at multiple restaurant locations.

4. Pricing that enables a customer to dine for lunch for under $7.50 and to dine for dinner for under $10.

5. Strong capabilities in restaurant operations and restaurant management.

6. Using fresh, all-natural and organic ingredients in all menu dishes.

7. An appealing menu that is somewhat distinctive from rival restaurant chains and that is periodically refreshed with new selections.

8. Innovative and unique menu selections that are not available at any rival restaurants.

9. Providing customers with a satisfying (preferably enjoyable) dining experience.

10. A nationally known brand name.

11. A customer loyalty program.

12. Convenient and desirable location.

2.

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A. Which of the following accurately characterizes Panera’s resource strengths and competitive capabilities?

In order to assess Panera’s strategic options, it will help to identify the organization’s internal strengths and weaknesses, and external opportunities and threats. Review the information on SWOT analysis in Chapter 4 to help you answer the parts of this question.

Select “yes” for those strengths and capabilities below that are accurate and choose “no” for those that are not.

1. An attractive and appealing menu, with high quality food at a good price (the company delivers good value for the money)

2. Menu offerings for the more health/weight-conscious diner

3. Bread-baking expertise, with artisan breads as a signature product

4. A more well-known brand name than some rivals, such as Applebee’s and Starbucks.

5. The nationwide leader in the bakery-café segment

6. High ratings in customer satisfaction studies

7. A good brand name that management is continuing to strengthen

8. The company’s capabilities to profitably produce fresh-dough and other products for Panera’s bakery-cafés

9. Comparable bakery-café sales percentage increases at both company-owned outlets and franchised outlets were higher in 2013 vs. 2012

10. Regional facilities and fleet of temperature controlled trucks that supply fresh bread and bagel dough (along with tuna, cream cheese spreads, and certain fresh fruits and vegetables) to company-owned and franchised stores

11. The company’s backward vertical integration into dough-making and other products that are supplied to Panera bakery cafés are a source of profit as well as a factor in helping differentiate Panera’s menu offerings

12. Top management in February 2014 indicated that it was expecting 2014 stellar sales gains of 7 to 9 percent at Panera bakery-cafés open at least one year, well above the percentage gains in each of the past three years

13. Off-premise catering capabilities, extending the company’s market reach

14. The financial strength to fund the company’s growth and expansion without burdening the company’s balance sheet unduly with debt, with essentially no long-term debt on its balance sheet

B. Which of the following accurately characterizes Panera’s resource weaknesses?

Select “yes” for those resource weaknesses below that are accurate and choose “no” for those that are not.

1. A less well-known brand name than some rivals, such as Applebee’s and Starbucks

2. Low ratings in customer satisfaction studies

3. Comparable bakery-café sales percentage increases at both company-owned outlets and franchised outlets were lower in 2013 vs. 2012

4. Lack of menu offerings for the more health/weight-conscious diner

5. Lack of competitive dinner menu offerings

6. Top management in February 2014 indicated that it was expecting 2014 sales gains of just 2 to 4 percent at Panera bakery-cafés open at least one year, below the percentage gains in each of the past three years

C. Which of the following are attractive market opportunities for Panera?

Select “yes” for the listed opportunities below that are accurate and choose “no” for those that are not.

1. Open more outlets, both company-owned and franchised, in the U.S. and, to a lesser extent, Canada

2. Open growing numbers of Panera Bread locations outside the U.S., as market opportunities in the U.S. begin to dwindle

3. Vertically integrate backward into dough-making

4. Begin offering off-premise catering sales.

D. Which of the following represent external threats to Panera’s future well-being and future business prospects?

Select “yes” for the external threats below that are accurate and choose “no” for those that are not.

1. The sluggish slow-growth economic environment in the United States

2. Rivals begin to imitate some of Panera’s menu offerings and/or dining ambience, thus stymieing to some extent Panera’s ability to clearly differentiate itself from rival chains

3. The very low barriers to entering the chain-concept fast-casual restaurant segment with nationwide restaurant locations—it would be easy for a competitor to copy what Panera is doing and quickly become successful at it.

4. New rival restaurant chains grab the attention of consumers and draw some patrons away from Panera—in other words, competition from other restaurant chains (either those in the fast-casual segment or other restaurant categories) becomes more intense

5. Panera Bread begins to saturate the market with outlets, such that it becomes harder to find attractive locations for new stores and the company’s growth slows

E. Considering all four SWOT lists, which of the following best characterizes the attractiveness of Panera’s overall situation?

Select “yes” for the statements below that are accurate and choose “no” for those that are not.

1. Panera has some formidable resource strengths/competitive assets and few resource weaknesses/competitive liabilities.

2. Panera seems to have adequate market opportunities to continue expanding the number of locations in the U.S. for some number of years.

3. Panera’s resource weaknesses are more numerous than its resource strengths and disqualify it from building a sustainable competitive advantage over rivals.

4. Panera’s external threats are, on the whole, modest.

5. Panera’s overall situation is attractive and its future prospects seem very promising—assuming that management can successfully combat the smaller gains in sales revenues at both company-owned and franchised bakery cafés.

6. Panera is running out of attractive market opportunities, thus limiting its future growth in revenues and profits.

7. Panera has plenty of growth opportunities it can pursue for several years to come, and it seemingly has the resource strengths and capabilities to pursue them.

8. Panera is confronted with serious external threats that will very likely impair the company’s future growth and profitability

3.

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What are the primary components of Panera Bread’s value chain?

Select “true” for the components listed below that are primary components of Panera Bread’s value chain and choose “false” for those that are not.

1. Finance and accounting activities

2. Marketing and brand name building

3. Designing, locating, and opening new restaurants

4. Hiring and training new employees for company-operated restaurants

5. Menu development, recipe creation, and recipe testing

6. Franchise operations

7. Customer relations

8. Operation of company-owned bakery-cafés, including catering activities

9. Outsourcing activities

10. Production and distribution of fresh dough and other products to bakery-cafés and other supply chain activities

11. Cost analysis and pricing activities

4.

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What are the chief elements of Panera Bread’s strategy?

Select “true” for the possible strategy elements below that actually are part of Panera Bread’s strategy and choose “false” for those that are not.

1. Grow the business by opening both company-owned and franchised outlets. Offer an appealing selection of artisan breads, bagels, and pastry products that are handcrafted and baked daily at each café location.

2. Serve high-quality food at prices that represented a good value.

3. Provide full table-service to all dine-in customers and train servers to be courteous, capable, and efficient.

4. Provide courteous, capable, and efficient customer service.

5. Design bakery cafés that are aesthetically pleasing and inviting.

6. Offer patrons such a sufficiently satisfying dining experience that they are induced to return again and again.

7. Acquire other fast-casual restaurant chains that have strategies and menus similar to Panera Bread’s and rebrand them as Panera Bread restaurants.

8. Have a distinctive menu that positioned Panera Bread to compete successfully in multiple segments of the restaurant business by drawing customers from breakfast through the dinner hours each day.

9. Regularly review and revise the menu to sustain the interest of regular customers, satisfy changing consumer preferences, and be responsive to various seasons of the year.

10. Include healthy, nutritious items on the menu and use organic and natural ingredients in recipes and unbleached flours in some bread selections to help attract the growing numbers of health-conscious, nutrition-conscious consumers.

11. Add 5 to 10 light entrée dishes to the menu that will draw in significantly more patrons for evening dinner hours.

12. Promote and grow the MyPanera Loyalty Program to reward frequent customers.

13. Create a signature café design with inviting ambiance; make the experience of dining at Panera so attractive that customers will be willing to pass by the outlets of other fast-casual restaurant competitors to dine at a Panera Bread bakery-café.

14. Management wanted Panera restaurants to be viewed by patrons as a warm and appealing neighborhood gathering place.

15. Locate Panera Bread units in suburban, strip mall, and regional mall locations.

16. Spend about 75 percent of the company’s marketing budget on TV advertising as part of a long-term effort to strengthen consumer awareness of the Panera Bread brand and the dishes served at Panera’s restaurants.

17. Supply dough to all Panera Bread stores, both company-owned and franchised, with dough-making operations functioning as a profit center.

18. Grow Panera’s off-premise catering sales and extend its market reach into the workplace, schools, and parties and gatherings held in homes.

19. Open franchised (but not company-owned) restaurants outside of North America in order to conserve the company’s limited capital for use in increasing the rate at which more company-owned Panera restaurants are opened in North America.

20. Build the Panera Bread brand name and grow consumer awareness of Panera.

21. Open several non-profit “Pay-what-you-want” bakery-café locations, with the intention of enhancing Panera’s image as a socially responsible restaurant enterprise.

5.

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Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Panera Bread is employing?

A broad differentiation strategy

6.

Award: 6.94 out of 12.50 points

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What does the data in case Exhibit 1 reveal about Panera Bread’s financial performance?

Select “true” or “false” for each of the following statements concerning the data in case Exhibit 1. Use the key financial ratios in Chapter 4 to assist you in performing calculations to determine whether the statements are true or false.

In addition to the financial ratios, you will also need to calculate compound average growth rates (CAGR) for certain financial measures. The formula for calculating CAGR (in percentage terms) is as follows:

CAGR % = [ending value ÷ beginning value] 1/n – 1 × 100

(where n = the number of year-to-year or period-to-period changes)

1. From 2009 through the end of 2014, Panera Bread’s bakery-café sales at company-owned restaurants rose at a CAGR of 12.3% and total revenues rose at a CAGR of 11.2%. The CAGR in Panera’s bakery café sales since 2009 has been a robust 19.2%, with total revenues rising at a CAGR of 17.4%.

2. Franchise royalties and fees are up from $78.4 million in 2009 to $123.7 million in 2014, a CAGR of 12.15%.

3. Fresh dough and other product sales to franchisees have grown from $121.9 million (9.0% of total revenues) in 2009 to $175.1 million (6.9% of total revenues) in 2014, a CAGR of 9.5%.

4. Net income was up from $21.3 million in 2002 to $196.2 million in 2013, a CAGR of 29.4%.

5. EPS is up from $0.71 per diluted share in 2002 to $6.81 per diluted share in 2013, a CAGR of 18.8%.

6. Net cash provided by operating activities rose from $214.9 million in 2009 to $335.1 million in 2014, a CAGR of 11.7%.

7. Panera’s current ratio declined sharply from 1.7 in 2012 to 1.00 in 2013.

8. Total labor expenses were higher in 2012 and 2013 compared to 2011 and 2009.

9. Panera had healthy gains in ROE in 2014 (24.4%) and 2013 (28%) versus 2009 (14.4%).

7.

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What does the data in case Exhibit 2 reveal about Panera Bread’s operating performance?

Select “true” or “false” for each of the following statements concerning the data in case Exhibit 2. Use the key financial ratios in Chapter 4 to assist you in performing calculations to determine whether the statements are true or false.

In addition to the financial ratios, you will also need to calculate compound average growth rates (CAGR) for certain financial measures. The formula for calculating CAGR (in percentage terms) is as follows:

CAGR % = [ending value ÷ beginning value] 1/n – 1 × 100

(where n = the number of year-to-year or period-to-period changes)

1. Revenues at company-operated stores have risen from $212.6 million in 2009 to $2,108.9 million in 2013, a CAGR of 19.2%.

2. Revenues at franchised stores have risen from $1640.3 million in 2009 to $2282.0 billion in 2014, a respectable CAGR of 6.8%.

3. System-wide store revenues have risen from $755.2 million in 2009 to $4,284.1 million in 2013, equal to a 17.1% CAGR.

4. Average annual revenues per company-operated bakery café have risen from $1,764,000 in 2009 to $2,483,000 in 2013, a decent CAGR of 5.06%.

5. Average annual revenues per franchised bakery café have risen from $2.109 million in 2009 to $2.455 million in 2014, a CAGR of 3.12%.

6. Comparable bakery café sales percentage increases (which refers to the rate at which sales at existing bakery-cafés are growing once they have been open a year or more) at both company-owned and franchised bakery-cafés rose strongly each year from 2011 to 2012 compared to 2009, however, the growth rate for both fell sharply in 2014.

8.

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What does the data in case Exhibit 7 reveal about Panera Bread’s three business segments?

Select “true” or “false” for each of the following statements concerning the data in case Exhibit 7.

1. In 2013, revenues from franchise operations were $112.6 million and operating profits from this business segment were $106.4 million—equal to a terrific 94.4% profit margin.

2. The operating profit margins for the franchise operations segment in the two prior years were quite impressive—93.4% in 2012 and 92.8% in 2011.

3. In 2014, revenues from franchise operations had risen to 123.7 million with operating profits of 117.8 million—equal to a terrific 95.2% profit margin. Hence, continuing to open more new franchised stores is quite important to the company’s bottom-line and overall financial performance.

4. The lion’s share of Panera Bread’s revenues and profits come from its franchise operations.

5. Fresh dough and other product operations are a distant third among the three business segments in contributing to companywide operating profits—$22.9 million in 2014, $21.3 million in 2013; $17.7 million in 2012, $20.0 million in 2011. But, the business of supplying franchisees with fresh dough and other products is definitely a profit-maker for Panera—signaling that its backward vertical integration strategy is a profitable success.

6. Operating profit as a % of revenues were highest for franchise operations (95.2% in 2014, 94.5% in 2013, 93.5% in 2012, 92.8% in 2011), second highest for company-owned bakery-café operations (equal to 17.9% in 2014, 19.6% in 2013, 20.2% in 2012, and 19.3% in 2011), and third highest for fresh dough and other products operations (6.2% in 2014, 6.1% in 2013, 5.7% in 2012, and 7.3% in 2011).

7. Operating profits for the fresh dough and other products business segment as a percent of assets invested in the fresh dough and other products business segment has been unacceptably small from 2009 to 2013—a clear indicator that Panera Bread management should consider getting out of this business and obtaining its requirements for these products from outside suppliers.

8. The company’s capital expenditures totaled $192.0 million in 2013, of which $153.6 million (or 80.0%) was for company bakery-café operations (presumably most of which was allocated to investments in opening new company-operated cafés).

9. Capital expenditures increased in 2014 to $224.2 million, with 75% for company bakery-café operations.

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