Panera Bread Company’s Strategic Analysis

Panera Bread Company operates in a relatively competitive market of fast food restaurants. However, apart from providing fast and cheap meals, the company is also devoted to providing a specialty experience to its guests by offering healthy and attractive food alternatives. The company’s menu is its unique selling point, as it distinguishes it from the rest of the market. The cafe-bakeries operated by Panera Bread Company are cozy, and the service is friendly, providing customers with a unique fast food experience. Despite the fact that the company’s USP and its strategy allowed it to remain profitable through the years, the fast food market remains highly challenging. Strategic analysis of Panera Bread can help to understand the fundamental forces affecting the company and offer some recommendations on how to improve operations or strategy to achieve better performance and a higher market share.

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Five Forces Analysis

Porter’s Five Forces Analysis offers a useful overview of the external factors affecting the company and its key markets (Dyer et al., 2016). Similarly to a SWOT analysis, it allows determining potential challenges and threats that arise outside the company and are not influenced by its strategy or operations.

Threat of New Entrants

The fast food market is highly competitive, which makes it difficult for new companies to enter the market. It is populated mostly by well-established companies, such as Panera Bread and its key competitors. The threat of new entrants is minimized not only by the high competition but also by limited opportunities for growth. For example, if a new fast food company opens restaurants in a certain area of the U.S. or Canada, it will be aiming to attract and convert customers from other fast food chains; the degree of potential conversion, in this case, is limited because many people have their preferred fast food restaurants already. Thus, there is a relatively low threat of new entrants into the fast food market. Therefore, as long as Panera Bread retains its USP and maintains a high quality of food and service, it is not threatened by new competitors.

Bargaining Power of Suppliers

Fast food companies rely heavily on their supply chains. In order to provide regular, uninterrupted service to customers, they need to ensure a continuous supply of products with consistently high quality. Therefore, it is crucial for Panera Bread to ensure that it has a stable supply chain. Such dependence on suppliers increases their bargaining power. An increase in the cost of supplies will directly affect the profitability of the business by prompting it to increase costs or seek other suppliers. Thus, the bargaining power of suppliers is among the critical threats to Panera Bread Company.

Bargaining Power of Buyers

The key goal of every fast food restaurant is to attract as many customers as possible to remain profitable and achieve a more significant market share. Customers who eat at fast food restaurants, in turn, are motivated by three key factors: taste, availability, and price. If the business fails to achieve customer satisfaction in any of these aspects, customers will turn to other fast food restaurant chains, as there are plenty of options. Therefore, the bargaining power of buyers in the fast food industry is quite high. Not only does the company have to ensure that it fulfills all of the customers’ expectations; it also needs to develop new ways of promoting its products, such as seasonal offers, opening events, and more.

Threat of Substitute Products or Services

As noted in the previous paragraphs, the threat of substitute products or services in the fast food industry is high. Although the menu offered by Panera Bread Company is rather unique, similar products can be found in other fast food chains, such as Subway or Au Bon Pain. The main option for dealing with the threat of substitutes is by offering more than just products, and Panera Bread does this by providing a specialty experience. The experiences that customers receive when visiting a Panera Bread cafe-bakery distinguishes it from possible alternatives and allows it to maintain a stable customer base.

Rivalry Among the Existing Competitors

The competitive landscape in the fast food industry is intense due to a large number of companies operating in the market. However, Panera Bread is managing competition effectively. For instance, it has recently announced the acquisition of Au Bon Pain, which is one of its key competitors (Johnson, 2017). Acquisition of competitors is among the most efficient strategies that can be used by companies to enhance their competitive capacity and market share. Although the acquisition requires significant financial and operational resources, it helps the company to improve its profitability and attract more customers.

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7S Analysis

Although the 7S Analysis is a tool that is usually applied internally for company evaluation, the framework can still be used to analyze the current state of the company. The key elements of the framework are strategy, structure, systems, shared values, style, staff, and skills.

Strategy

The primary strategy of Panera Bread company is to use its USP and special atmosphere to attract customers and develop its position in the market. The company provides seasonal menu offers and discount schemes; moreover, it also holds events, such as opening nights and fundraisers, to promote its new locations and products. In addition, Panera Bread manages the intense competition in the market by acquisitions and effective marketing. On the whole, this strategy is effective in attracting customers and enhancing performance.

Structure

Panera Bread is a franchise company, which means that the majority of its cafes and bakeries are operated by individual franchisees who have a direct impact on the company’s performance. Each franchisee is provided with necessary tools and support to improve the productivity of his or her franchise. This is a popular scheme in the fast food industry due to the necessity of operating a large number of cafes in different states and countries to achieve a significant market share. This scheme is effective as it allows the company to grow and open hundreds of new spots each year while at the same time ensuring efficiency of operations.

Systems

There are three key systems involved in the daily work of the company. First, the central management is the key part of the business that makes important strategic decisions. Secondly, the supply and distribution chain ensures that each franchise receives the materials and products needed on a daily basis. Lastly, each franchise works as a separate unit responsible for final preparation and delivery of products to customers.

Shared Values

The company has a strong ethics and aims to provide customers with high-quality, natural foods while ensuring the cozy atmosphere in its cafes. Having a strong corporate culture and mission that is transferred to the customers and employees allows promoting shared values within the company. The key shared values of Panera Bread Company are health, high quality, and service.

Style

Due to the fact that Panera Bread Company is a franchise, different restaurant management might use different leadership styles. However, it is possible that the company provides training to facilitate the development of positive leadership styles. This can help individual franchisees to be more effective in managing their employees while at the same time ensuring that they have the necessary freedom to make decisions for their unit.

Staff and Skills

As in most other fast food restaurants, the majority of Panera Bread restaurants’ employees work part-time and on a shift basis. There are no specific degree or skills requirements for working in Panera Bread, which allows restaurants to recruit students and people with no work experience. Although such approach results in a high turnover, it is beneficial for the business as long as continuous training is provided to new and existing employees.

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Financial Performance Analysis

The company’s financial performance is quite stable. In 2015, Panera Bread’s net income was 149,325 thousand USD, whereas the sales were at 2,358,794 thousand USD (Panera Bread Company, 2016). Therefore, the net profit margin of the company was 6%. In the first quarter of 2017, the company achieved sales of 727,633 thousand USD and net income of 42,494 thousand USD, thus showing a similar net profit margin of 5.8%. Such net profit margin is considered to be good for the businesses operating in the fast food industry (Locsin, n.d.). Although the financial performance of the company in 2017 might be impacted by the acquisition of Au Bon Pain, it will likely yield more profit in future years.

Conclusion

Overall, Panera Bread Company is an effective business that fits well into the chosen market. The company’s USP and the high quality of its products allow it to attract customers and develop its market share. On the whole, the only threats that the company faces are the high competition and the power of suppliers. However, the company tends to respond to external challenges appropriately, making strategic decisions that will most likely benefit it in the future.

References

Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic management: Concepts and tools for creating real world strategy. Hoboken, NJ: John Wiley & Sons.

Johnson, H. (2017). Panera just acquired one of its biggest competitors — Here’s why it won the comfort-food battle. Business Insider. Web.

Locsin, A. (n.d.). The average profit margin for a restaurant. Chron Small Business. Web.

Panera Bread Company. (2016). 2015 annual report to stockholders. Web.

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