1. Source Problem: The source problem I would like to state here is that the Panera Bread Company is facing a stiff potential competition in the future. This would make it difficult for them to create an optimization of brand even though they have created a successful stand in the market providing higher quality meals and unique dining environment. Panera has been focusing on the growth of its operations all over the world through their own business set ups and franchisees from which they try to reduce costs out of the value chain.
Optimization could lead to poor quality of products, low customer satisfaction and decline of profits in the business. 2. Secondary Problem: Short term: 1. Strategic Issues: These issues arise out of inappropriate strategies being implemented to the current market situation by which the company doesn’t meet its individual goals and deadlines and also brings down the profit margins. One of the most inappropriate strategies was to capitalize on the market potential by striving continuously on opening both franchisees based and company owned based stores simultaneously on a faster pace.
This led them to focus more on stores and less on the product quality and their customers. Growth strategy is an area of concern for Panera Bread Company by which they don’t focus to break into the existing market in which they operate and give importance to market development of their product. This would give an edge for the competitors to improvise their growth strategy not met by Panera Bread Company and attract the consumer market. 2.
Low product quality: Since Panera faces a tough competition in the fast food industry with capitalized competitors like Mc Donald’s and Starbucks it would be a tough task for them to build brand image and recognition in the international market. In the midst of creating a brand value for the company, Panera might focus more on how to tackle with the competition and could ignore the quality of the product produced. 3. Price: Panera Bread Company has a relatively higher pricing approach, through which it tries to inform their customers that it is worth paying for heir products by providing them with higher quality ingredients, artisan breads and anti-biotic free chicken. This pricing system of Panera Bread Company can create competition when the competitors introduce similar low quality product at a much cheaper rate in order to attract the target market. Long term: 1. Over expansion – Panera has been focusing on huge expansion plans of its units to distribute itself to a wider market. In April 2006, they have entered into a contract to open around 42 franchisee groups which would cover 54 markets in 34 states. These franchisees also have plans to expand to more bakery cafe’s to around 425 units.
Most of the revenues and income of Panera has been derived from the franchisees itself. This charges them to expand their units as much as they could to attain a higher market share and customer loyalty. But at the same time high competition is faced since over expansion can lead to concerns arising on the quality of the product due to changing locations and products. 2. Profit Decline in 2006: T1. | |2002 | 2006 | |Liquidity (Current Ratio) |1. 83 |1. 6 | |Operating Profit margin |12. 0 |11. 0 | |Net Profit margin |. 076 |. 071 | The liquidity of the company has been declined by a margin of . 67 between the year 2002 and 2006. This shows that the company might now face difficulties to cover up short term debts and also predicts that there is huge threat to the company’s going concern if the liquidity falls anymore In the future.
There is a decline in the operating profits i. e. the profits earned during the normal course of the business of 1% in 2006. The Net profit margin has also shown decline over the years between 2002 to 2006. 3. Analysis: Financial: | |CAGR |2002 |2003 |2004 |2005 |2006 | |Net Income |28. 9 |21300 |30669 |38430 |52183 |58849 | |EPS |26. 9 |. 71 |1. 00 |1. 25 |1. 65 |1. 4 | |Net cash by | | | | | | | |Operating Activities |22. 7 |46323 |73102 |84284 |110628 |104895 | |Total Revenue |30. 9 |212645 |265933 |362121 |640422 |828971 | From the above data with help of Compounded Average Growth Rate we can see that there is a strong growth for important financial trends in the form of total revenue, Net income and Earnings per share. |2002 | 2006 | |Liquidity (Current Ratio) |1. 83 |1. 16 | |Operating Profit margin |12. 0 |11. 0 | |Return on Equity (ROE) |14. 1 |14. 8 |
From the above table here we can see that there is a decline the liquidity and the operating profit margins have also shown some erosion which is bearable. There is a good sign on the return on investment that requires to be given more attention. From the financial Analysis here we can see that the Panera Bread Company has been showing a good performance and growth. But other factors like the liquidity, operating profit margin in the year 2006 are to be given direct attention in order to bring up the expected results. Swot Analysis of the Panera Bread Company: Strengths: a.
Experts in bread baking – Panera has got their own signature product known as Artisan breads b. Panera offered a very flexible and attractive menu: they provide high quality of food at a very reasonable price and they ensure healthy and nutritious food c. Effective branding of Panera has been able to capture a large market share; therefore they are strongly established and well known in the market. d. They have been able to invest themselves abroad in highly potential franchisees, that witnessed higher sales and profits than they could make at the company owned establishments. Weaknesses: a.
Brand name has not been able to reach up to rivals like Starbucks and Applebee’s. b. Sales and profits earned at the franchised outlets very comparatively higher and stronger than what Panera could make from their own establishments. c. Panera Bread Company couldn’t maintain a sustainable competitive advantage. d. Financial trends were not favorable to Panera Bread Company since it saw decline in profits from 2002 – 2006. Opportunities: a. Focus on worldwide distribution of outlets b. Focus on corporate social responsibility for health awareness campaigns c. Panera Bread Company can also start catering their products to ifferent locations in order to promote their brand at different location where they have no company setups of their own or franchisees. Threats: a. Close competition: Competition from other chain of restaurants who might bring a similar idea of bakery cafe as similar to Panera Bread Company. b. Imitation by rivalries: The close rivalries of Panera Bread Company will try and create a similar restaurant ambience as to Panera Bread Company who had named it as “Panera Warmth” and also try the same menu offerings of Panera Warmth to attract new customers from the market. 4. Criteria of Evaluation:
Goals & Objectives: The main goal of the company is to create an international brand image all throughout their business operations. The Panera Bread Company is counting on its quality products like the artisan breads which are the signature product, the unique ambience of serving the customers and the general knowledge to reach this goal of the company. They are trying to achieve a competitive advantage by providing unique bakery products that the rivals can’t even try to bring in the market. Performance Targets and Time Frame: a. Panera Bread Company has plans to open 170 – 180 cafe location in 2007 b.
To open nearly 2000 Panera Bread Cafes open by the end of 2010. c. Panera Bread Company emphasized on their growth strategy to grow in suburban markets by 17% annually through 2010 followed by achieving 25% of EPS growth. 5. Alternatives: Short Term: Emphasis on marketing of the brand: Here the Management in-charge needs to create a brand awareness campaign to the public by setting up stages or stalls or forums to the public in order to promote their brand. In order to reach this target with reduced expenses, the Panera Bread Company must invest into marketing and such costs must be distributed equally between Panera and their franchisees.
They should focus the marketing of the company associating it with the value, nutrition, warmth and the competitive advantage of the company. Competitive pricing to increase profits: Panera must try and invest into bringing up a best cost providing strategy in order to reduce any loss arising out of the course of business due to economic downturn. In order to overcome the high competition being tasted in the industry along with confused buyers, the management can bring up a strategy to provide best quality products to the customers.
Long Term: Expansion of Panera Bread Company to attain initial market attention: Panera Bread Company must focus on locations that would provide them less or no competition and has got a huge market concentration for bakery. This “First Mover Advantage” will provide them the satisfaction of securing the first retail location in town. . Revise Company strategy: The management should bring in a revised company strategy in order deal with company’s unique product i. e. the artisan breads in order to compete in the competitive industry.
Since the company brand name itself holds the word “bread” on its brand name and their unique product is artisan bread, therefore the company should promote them effectively. Increase long term Profits: The Panera Bread Company should create a method to control the overhauling expenses of the company. In order to deal with the declining profits trend of the company, the management should increase the bread production and eliminate those productions where they possess least margin of profits. This will also help to reduce the amount spend on dough manufacturing. 6. 0 Recommended Strategy: Short term: 6. 1 Competitive pricing:
Panera Bread Company has a relatively higher pricing approach, through which it tries to inform their customers that it is worth paying for their products by providing them with higher quality ingredients, artisan breads and anti-biotic free chicken. Panera must try and invest into bringing up a best cost providing strategy in order to reduce any loss arising out of the course of business due to economic downturn. In order to overcome the high competition being tasted in the industry along with confused buyers, the management can bring up a strategy to provide best quality products to the customers. Long Term: 6. Marketing of Panera brand: In order to create a high level branding of Panera Bread Company, the management of the company must take initiative to meet the branding deficiency of Panera. A great investment plan in the field of marketing and R&D will be optimum in order to meet the shortage of branding. The marketing of Panera must be in consistent with its quality features of the product like value, service etc. 6. 3 Expansion of Panera Bread in potential locations: Panera has been investing a large amount of money in its expanding operations in different location regardless of any geographic or demographic barriers.
They have been concentrating more on the Midwest region which was their location of origin. Panera should concentrate more on locations that has less or no competitors dominated in the region so that they also obtain the “the first mover advantage” achievement in that location. Concentration only in location can also create problems when the same is affected by economic crisis or any economic financial downturn. 7. 0 Justification of Recommendation: Competitive pricing is recommended because Panera Bread Company has got close rivals dominating the market like Starbucks, Applebee’s etc.
Such competitors are equally competitive to Panera while comparing them to Panera’s competitive features. Panera has to price its product competitively in order to sustain and survive in the market along with huge competitors. Branding of Panera Bread Company is a necessity since their brand has not been able to achieve the optimum level when compared to Starbucks, McDonalds, Applebee’s etc. Catering is a best possible option in the hands of Panera Bread Company so as to increase their brand awareness and create brand market concentration.
The need of Panera Bread Company to expand in “first mover advantaged” locations is to gain a large potential market that would taste the product of Panera for the first time with no rivals in the same location. This way Panera Bread Company will be able to reduce competition, distribute its products in the location wisely and create monopoly in bread products. 8. 0 Implementation control and follow up: In order to implement the adopted solutions to the problems, the management should first consider revising the strategy of the company in order to solve any existing problems of the company.
Given the industry’s competitiveness and the fickleness of its consumer’s management can strengthen its competitive position by providing a superior product at the best value to consumers. Moreover by introducing an effective cost provider strategy, the Panera Bread Company will be able to protect itself from any economic downturn. By eliminating secondary production for product like Dough and concentrating on primary production of artisan breads, it will help to reduce any risk arising due to increase in gas prices.