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University of LavernePanera Bread Industry AnalysisA Paper Submitted in Full FulfillmentOf the Requirements forBUS 695: Seminar in Strategic ManagementSteven BernardMagdalena EvangelistaJoshua HewettBeatris OrdazCollege of Business and Public ManagementDepartment of Organizational Management and LeadershipNovember 6, 2016TABLE OF CONTENTSINTRODUCTION..…………….…………….…...................................................................... 4STRATEGIC POSTURE ………………………..................................................................... 5Strategic History ….………………….…………………….………………………… 5Mission of Target........................................................................................................... 7Business Level Strategy ………………………………………….…………..….…… 7EXTERNAL/ENVIRONMENTAL ANALYSIS ................................................................... 9Strategic History - Industry ……………..................................................................... 9Five Forces Analysis ................................................................................................... 13Industry Life Cycle Analysis ....................................................................................... 22External Analysis Conclusion ……………………………………………………….. 24INTERNAL ANALYSIS ......................................................................................................... 26Value Chain Analysis ......................................................................... ........................ 26Primary Activities …………………………………………..………….……. 26Support Activities ............................................................................ ................ 31FINANCIAL ANALYSIS........................................................................................................ 41Financial Analysis Conclusion ..................................................................................... 68CORE CAPABILITIES, DISTINCTIVE COMPETENCIES, AND VRIO. .................... 69STRUCTURE AND CULTURE............................................................................................. 77SWOT ANALYSIS................................................................................................................... 80TOWS ANALYSIS................................................................................................................... 88STRATEGIC DIRECTION.................................................................................................... 89Key Strategic Issue #1.................................................................................................. 89Key Strategic Issue #2.................................................................................................. 91Key Strategic Issue #3................................................................................................... 93Key Strategic Issue #4................................................................................................... 95ONE YEAR OPERATIONAL PLANS .................................................................................. 98SUMMARY CONCLUSION……………………………………………………………… 101APPENDIX ............................................................................................................................... 104INTERVIEW TRANSCRIPT...................................................................................... 104REFERENCES ....................................................................................................................... 106INTRODUCTIONPanera Bread Company is a quick dining restaurant/café that operates in the quick service restaurant industry. (Hoovers, Panera Bread) Panera Bread Company’s direct competitors are Starbucks, Einstein Noah, La Madeleine, and Chipotle. These firms have some form of baked goods or are offering healthier options on their menus. Panera Bread operates in 46 states within the United States as well as Canada. Their operations are split up into three business segments which consist of bakery-café operations, franchise operations, and fresh dough operations. They ship fresh dough out to all their restaurants daily so that consumers can enjoy fresh baked bread whenever they want. (Hoovers, Panera Bread) Over the last two years Panera Bread has taken on a large initiative to become the restaurant that offers the healthiest menu options and allows you the convenience of ordering your food from anywhere. Panera Bread calls this initiative Panera 2.0 and it has made very large commitments to improve on the quality of food it serves its consumers and to improve how they are impacting their food sources. (Panera Bread, Food Policy)This analysis of Panera Bread Company will investigate its internal and external environments and will determine a list of strengths, weaknesses, opportunities, and threats that the firm has. After the analysis is performed an action plan will be developed so that Panera Bread Company can use this information to continue to hold a strategic advantage over their competitors.STRATEGIC POSTUREStrategic history of Panera BreadPanera Bread Company began as an acquisition where Au Bon Pain purchased Saint Louis Bread in 1993. Au Bon Pain was a restaurant that was opened in 1976 that was designed to help sell commercial ovens designed by Pavailler. It was later purchased by Louis Kane in 1978 who began to further expand the restaurant in Boston. (Hoovers, Panera Bread History)In 1981 Ron Shaich teamed up with Kane and they both formed Au Bon Pain Co., Inc. They continued to further expand the restaurant in the eastern United States. The business saw rapid growth through the early nineties and the firm went public in 1991. (Hoovers, Panera Bread History)While all this was happening Ken Rosenthal opened Saint Louis Bread in 1987 in Kirkwood, Missouri. The design of Saint Louis Bread was based on the sourdough bakeries in San Francisco. By 1993 Saint Louis Bread had 20 stores operating and was named as one of the fastest growing companies by Inc. Magazine. (Hoovers, Panera Bread History)At the end of 1993 Au Bon Pain Co. Purchased Saint Louis Bread and rebranded the Saint Louis Bread name outside of the St. Louis area. All bakeries outside of St. Louis were now named Panera Bread. In 1999 because of declining sales from the Au Bon Pain brand the company sold this chain to an investment firm and renamed itself Panera Bread. Ron Shaich became chairman and CEO of the newly renamed firm. (Hoovers, Panera Bread History)Between 2004 and 2005 Panera Bread Company became committed to healthier options on their menu by offering chicken that was raised without antibiotics in one of their salads and by removing food from their menu that contained artificial trans-fats. (Panera Bread, Who we are) In 2007 Panera Bread looked to strengthen their position in the southwest region and purchased a controlling stake of Paradise Bakery & Café. They would later acquire the rest of the firm two years later. (Hoovers, Panera Bread History)By 2010 Panera Bread was the first national restaurant to display caloric value information of their food on their menus. This continued to strengthen their position of offering healthier options on their menu and began the development of their transparent menus. Panera Bread began to see a decline in its sales by 2013 and in 2014 they looked to revamp the firm. They took out a loan for $100 million that was to be used to roll out the new Panera 2.0 initiative that was designed to make the dining experience for the consumers more enjoyable. The main part of the initiative was to improve the ordering system by offering ways to place orders through mobile devices, online, and self-order kiosks. (Panera term loan, 2014) They also developed a food policy that stated they were committed to removing artificial additives to their food by 2016, that they would develop a transparent menu that allowed consumers to choose how to eat healthy, and that they were committed to having a positive impact on their food system (Panera, Food Policy)In 2015 Panera Bread developed a no-no list that was designed to show its consumers what additives they were committed to removing from their food. By the end of 2016 Panera Bread should have removed every additive on this list from their menu. (Panera Bread, No-No List)Organizational mission and strategic vision of Panera BreadThe mission statement for Panera Bread Company is, “A loaf of bread in every arm.” (Panera Bread, 2016) The firm wants to be known for their quality Artisan Breads as well as being a restaurant that cares about the ingredients in their food and how their food is treated. (Panera Press kit, 2013) Current business-level strategy of Panera BreadPanera Bread bakery-cafes showcase the art and craft of bread making, helping customers truly appreciate a great loaf of bread, focusing on the concept that great bread makes great meals. (Panera, 2016)There are three different types of strategy that a business can use in their industry; they are overall cost leadership, differentiation, and focus. (DME, p. 148) Focus can further be broken down into differentiation focus and cost leadership focus. (DME, p. 159) Panera Bread is utilizing a focus differentiation strategy as they are offering food that they say only has “clean ingredients” and is targeting the segment of the U.S. fast food and quick service restaurant industry that wants to eat better and is willing to pay a higher price for better quality. (Panera Food Policy, 2014) The U.S. quick service restaurant industry is very large and contains firms that vary in size from large corporations to small mom and pop restaurants. Panera Bread has taken an approach that allows them to not have to directly compete with these many firms and still have success, the firms that Panera Bread Company are directly competing with would be Chipotle, Starbucks, La Madeleine, and Einstein Noah. They compete with the latter three because of their fresh baked breads that they offer and they compete with Chipotle because of their stance on offering food with little to no additives and utilizing sustainable sources of food. Panera Bread has been successful in their approach by utilizing three key commitments. The first commitment is to only offer food with “clean ingredients” to their customers. What this means is that they are focused on removing all artificial additives from their food by the end of 2016. (Panera Food Policy, 2014) This commitment to food that is purely natural helps Panera Bread appeal to the segment of the market that does not have time to cook a healthy meal at home but does not want to eat at other quick services restaurants that offer unhealthy optionsThe second commitment that Panera Bread has made is to have a transparent menu. What this means is that they are fully disclosing information about their menu to the consumers. They are offering allergen information on all of their menu items, caloric information, and disclosing their food policy to all of its consumers. (Panera Food Policy, 2014) This helps Panera Bread in their focus differentiation strategy because more consumers are becoming health conscious and concerned about certain types of additives they are consuming. By offering this information for all of its consumers, the company is able to communicate their intentions and what type of food consumers can expect when they eat at Panera Bread. The third commitment that Panera Bread has made is to make sure they are having a positive impact on their food systems by making sure that their food sources are sustainable and responsibly handled. (Panera Food Policy, 2014) This shows that Panera Bread does not just think about their bottom line and that they are concerned about the environment and quality of their food source. Consumers are also becoming more concerned with the health of their environment and quality of life for animals. This helps them appeal to those consumers.Panera Bread also achieves its focus strategy by offering fresh baked bread every day at all of its locations. (Hoovers Panera Bread, 2016) This further allows them to differentiate themselves from the large number of firms in the industry as there are only a few competitors that offer this type of product. Panera Bread is succeeding in their focus differentiating strategy because they are clearly trying to appeal to a small group of consumers within their market and have been able to clearly inform that group of their intentions by being transparent with their menu and food policy. They are clearly differentiating themselves as well and have found an area within the industry that was not properly served before.ENVIRONMENTAL ANALYSISStrategic history of the industryThe industry that Panera Bread Co. operates in is the quick service restaurant industry in the United States. The competitive landscape for this industry includes many well-known franchises and independently-owned- operated restaurants such as mom-and-pop restaurants. For Panera Bread, their key competitors are Starbucks, Chipotle, La Madeleine, and Einstein Noah. (Hoovers, Panera Bread) For the purpose of this paper we will analyze the fast food and quick service industry to better understand the landscape that Panera Bread Co. operates in. The service restaurant industry is an expansion of the fast food industry. We will provide an overview of how the fast food industry developed in the United States and then primarily focus on the quick service restaurant industry in the United States. The fast food industry, in the United States, began in California in the early 1900’s where many hot dog stands/carts that were selling hot dogs and other hand held food at the price of 10 cents each. (Schlosser, p. 15) These carts allowed for people who were working to grab a quick meal to go while on their lunch. More and more people began to frequent these stands/carts as more people entered the manufacturing workforce during World War II. (Schlosser, p.15) We will now look at key moments in history that has shaped the fast food industry from starting out small hot dog stands to multi-billion dollar companies.The Affordable CarIn the early 1940’s cars were just starting to become affordable for the average family. The car allowed families to feel like they had more freedom to go where they wanted and not have to always stick to train or trolley schedules. (Schlosser, p. 16) The boom of the car was also aided by the fact that car companies were not responsible for building and maintaining roads and highways. This was pushed off onto government which allowed the car to be more affordable to the everyday person. (Schlosser, p. 16) The freedom that cars gave and the faster pace lifestyle of Californians seemed to match well and the car became the dominant mode of transportation in California with over 1 million cars being sold in California by 1940. (Schlosser, p. 16)With more freedom to go where you wanted to go people began to spend less time at home and didn’t rely on always making their meals at home. People became more accustomed to eat at restaurants and quick eating places. Entrepreneurs did not miss their chance and many began to build restaurants that allowed their customers to get their food without even needing to leave their car. (Schlosser, p. 17) This convenience is where the people of the United States began to tie cars and food together and we would never look back.McDonald’s is BornIn the mid 1940’s the McDonald brothers opened a drive-in restaurant in San Bernardino that sold hamburgers and fries that were inexpensive. As the years went on the brothers grew tired of having to always find and train quality employees to work in their restaurant as many of them would move to better paying jobs. (Schlosser, p.19) The brothers decided to change how they were doing business in the late 1940’s and changed their restaurant to be self-service. The brothers also adopted an assembly line type of workforce where each person had one job and then would pass the food onto the next. (Schlosser, p. 20) This new way of operating allowed the McDonald brothers to not having to spend a lot of time and money on hiring and training workers as they made the tasks for each job easier. They also decreased the amount of time it took to get food out to the customers. Both of these allowed McDonald’s to continue to offer low priced food offerings that everyone would enjoy.As McDonald’s continued to prosper they became the benchmark that everyone wanted to set their restaurant to. Many people began to notice how successful they were and wanted to get into the industry by copying what McDonalds was doing.More than Just BurgersIn the 1950’s many new quick service restaurants were opening up and trying to mimic McDonald’s success.(Schlosser p. 22) Most of the businesses were burger restaurants like McDonalds but some were different and offered a wide array of food such as pizza, tacos, and fried chicken. This showed that the model that McDonald’s came up with was adaptable to many different types of food restaurants. We start to see differentiation between fast food restaurants which gives the consumer more choices when they want to eat out. Moving GlobalIn the 1980’s the large companies in the industry began to move overseas to capitalize on newer markets. (Schlosser p. 229) The fierce competition in the industry caused these firms to look elsewhere to grow. These fast food chains adopt menus to the specific countries tastes and usher in American culture into these countries. This has resulted in fast food brands becoming the most well-known brands across the world. (Schlosser p. 229) This trend will continue as the competition in the United States has become so strong it will force many of the firms within the industry to try and find space globally for them to continue to grow.Fast Food is Bad for YouIn the early 2000’s many were bringing up the issue of obesity and fast food. Many argued that it was fast food that was the cause of the United States issues with obesity. The book “Fast Food Nation: the Dark Side of the All-American Meal” argues this point and many others trying to express concern over the United States dependency on eating fast food. (Schlosser, 2001) This movement to push against the fast food industry has brought many new offerings that are supposed to be healthier to the industry.Healthier OptionsAfter many brought up problems with obesity and fast food many of the current chains began to offer healthier choices on their menu along with their staple choices. Many new quick service restaurants have become popular because of the nation’s push to eat healthier items with less chemicals in them. This has given rise consumers being willing to spend a little bit more for healthier food at quick service restaurants. (Giglardi, 2015)Other SourcesAlthough Schlosser is utilized primarily in the presentation of the strategic history of this industry, multiple sources were researched to support our use of his presentation. AccuPos provides an article in POSitive Magazine that is titled, The History of Fast Food in America, which was compared. (AccuPos, 2016) Libcom provides an article online titled, The Fast Food Industry and How It Was Built, which references Schlosser’s bestselling book, Fast Food Nation. (Libcom, 2013). Five Forces Analysis of the IndustryThis section evaluates the U.S. quick service restaurant industry which Panera primarily competes in. Panera Bread’s key competitors include Starbucks, Chipotle, La Madeleine, and Einstein Noah. We used Michael E. Porter’s five forces model to examine the competitive environment for this industry. Threat of New EntrantsThe threat of new entrants into the U.S. quick-service restaurant industry is low and barriers to entry are high. Entry barriers such as consumer switching cost, economies of scale, product differentiation, and required capital investments make it difficult for new businesses to enter the market. (DME, 2016, p. 53) However, when more than one entry barriers are low, it can influence new competitors to enter the industry making threat of entry to change from low to moderate to high. Due to low switching costs, consumers can easily move from one restaurant to towards new restaurants that offer similar menus. Economies of scale pose a high entry barrier for new entrants into the industry. Larger more established restaurants can have better negotiating power with suppliers and can demand better pricing. New entrants will find much more difficulty to demand better pricing which will cause their supply costs to be much higher.Differentiation in this particular market is a strong entry barrier as well. For instance, quick-service restaurants that offer higher quality food have increasingly become popular amongst consumers. Additionally, in an effective strategy to separate themselves from other fast-food concepts, some chains have begun to heavily promote their use of organic ingredients and consumers have responded by rewarding them with customer loyalty. Although new firms can pose a threat to Panera, considering how popular Panera Bread has become, it would likely be expensive to build a brand that could potentially compete with Panera's brand enough to affect the firm.Another barrier to entry in the industry is in the capital requirements. (DME, 2016, p. 54) According to Hoovers, the food services industry is subject to fluctuations in numerous disparate operating costs. Major cost areas include labor and insurance; opening, closing, relocating, and remodeling restaurants; advertising, marketing, and promotion; and ingredients, equipment, and utilities. Food prices can fluctuate as a result of supply changes, which may be linked to severe weather such as droughts, heavy rains, and late freezes. If a business raises its prices in response to increased costs, it could negatively impact sales. (Hoovers, 2016) Recent increases in the minimum wage enacted by federal, state and/or local authorities has begun to have a major impact on costs and profitability of restaurants making a high barrier of entry for new entrants. Similarly, other government regulations that mandate employee benefits such as healthcare and sick pay as those we’ve recently seen in California can impact the bottom line not only for established firms but those looking to enter the market as well.Additionally, firms in the quick-service restaurant industry rely on new menu items and new product launches in order to not only attract new customers but differentiate themselves from their competitors. Therefore, companies will need to invest heavily in product development efforts and marketing to ensure the launch of their new menu product is successful. Such heavy investment will create a barrier to entry for those without the financial capital required. Threat of New EntrantsHigh / StrongLow / WeakEconomies of scaleX Product differentiationX Capital requirementsX Consumer switching costs XControl of distribution channelsXAccess to raw materials XAccess to government subsidies XBargaining Power of BuyersThe bargaining power of buyer, U.S. customers who are interested in eating healthy food that is quick and without many preservatives is strong. This industry faces intense competition especially when it comes to prices and menu selections. Consumers have a growing number of options to get quality food served quickly at reasonable prices, which places great demands on quick service restaurant operators to offer the highest levels of service and food quality. (Hoovers, 2016) This industry encompasses quick-service eateries which tend to compete with other fast-food restaurants in the area, there’s also grocery stores that offer deli style foods and other prepared food options which ultimately gives large power to the buyer by playing competitors against each other. Further, buyers face very low switching costs giving the buyer high bargaining power. This particular industry is highly sensitive to any reports of food contamination that might result in sickness or other adverse health effects. Because loss of business is likely when restaurants receive bad publicity due to contaminants such as E. coli or salmonella, most chains go to great lengths to ensure employees and suppliers follow safe food handling regulations. (Hoover, 2016) However, whenever any situation arise that compromises food safety, buyers have no qualm in switching to a competitor because the cost of doing so is virtually non-existent. Power of BuyersHigh / StrongLow / WeakConcentration of buyers XSwitching costs XProduct differentiationX Threat of backward integration XExtent of buyer's profits XImportance of supplier's input to quality of products XBargaining Power of SuppliersThe U.S. quick service restaurant relies on suppliers from many different industry sectors to meet their needs. Review of Hoovers list of industry sectors, we noted several industry sectors that could supply to quick service restaurants. Some of the industry sectors that supply to the quick service restaurants are the Manufacturing sector—companies in this industry manufactures a wide variety of goods such food and beverages, machinery, computers and electronics; Professional Service sector—firms in this sector provide advertising and marketing; and the Retail / Wholesale sectors—companies in this industry sell a wide range of products to consumers and business such paper and plastic goods, packaging materials, cleaning supplies, small wares, decorations, to name a few. (Hoovers Online, 2016) Other suppliers include distributors, independent growers, and farmers. Because there are so many industries and suppliers available, entry barrier for new suppliers is high and the threat of entry is low. (DME, p 53) The bargaining power of supplier is strong when selling to fragmented industries because “supplier groups can exert power by threatening to raise its prices or lower the quality of purchased goods.” (DME, 2016) In fragmented industries, supplier groups are able to influence the prices, quality, and terms they give to their customers. However, this is not the case for the fast food and quick service restaurant industry. Even though the fast food industry is fragmented, the industry is large and sales from restaurants affect profitability for the suppliers. The bargaining power of supplier groups for the fast food and quick service restaurant is low. Suppliers consider the industry important because the sales they generate from the fast food and quick service restaurant industry is significant. (DME, p. 55) When availability of products and product substitutes is strong, the bargaining power of supplier groups is weak. (DME, p. 55) Suppliers are obligated to be competitive and sell their products low which cuts into their profit. However, the opposite occurs in situations where the industry requires differentiated products, when there are no substitute products available, and only a limited number of suppliers offer or sell the products. In these situations, the bargaining power of supplier groups is strong. (DME, p. 55) Switching cost and threat of forward integration by the supplier is weak when the industry has a large pool of suppliers to purchase from. (DME, pg. 55) Large companies, national and regional franchise, can take advantage of economies of scale and leverage high volume purchases to command better pricing, priority shipping, and/or better terms such as longer time to make payments. Small companies can also take advantage of better pricing by competing purchases among the many suppliers available. The U.S. quick service restaurants typically buy supplies from local or regional food distributors. (Hoover Online, 2016) Some restaurants that want to differentiate their menu by offering fresh and healthy options buy directly from local farms or farmers markets. Others rely on imports from different countries such as Mexico for produce and seafood from Canada, Chile, and many Asian countries. Although there are plenty of suppliers available, sourcing ingredients and ensuring the quality of food can present a major challenge for the industry in some developing markets. In order to meet industry demands, suppliers may resort to illegal activities. Thus, it is very important for the industry to be selective with suppliers they buy from and to also build good business relationship with them. This will ensure the suppliers the industry contracts with are reputable to reduce the risk of potential scandals. For instance, when a major supplier was accused of selling expired meat to fast-food chain throughout China and Japan, the high profile scandal caused McDonald’s and Yum Brands to suffer significant sales losses. (Hoovers Online, 2016) Power of SuppliersHigh / StrongLow / WeakConcentration relative to buyer industryX Availability of substitute productsX Importance of customer to the supplierX Differentiation of the supplier’s product and services X Switching cost of the buyerX Threat of forward integrationX Threat of Substitute Products and ServicesUnderstanding threat of substitute is important because it limits the profit potential of the industry. Threat of substitute occurs when all firms within an industry compete with industries producing substitute products and services. (DME, 2016) In U.S. quick service restaurant industry, demand is driven by consumer taste and personal income. (Hoovers, 2016) Considering there are numerous quick service restaurants in the United States, competition in this industry is fierce which makes threat of substitute products and services for the industry to be very high. (Hoover, 2016) Differentiation of substitute products is high considering most quick service restaurants specialize in a particular type of cuisine. Since the industry is driven by consumer taste, the threat of substitutes is high. Customers can easily find restaurants that offer a wide array of food options. In fact, hamburger restaurants account for about 40% of sales among US limited-service establishments, while sandwich, pizza, chicken, and Mexican food restaurants each account for about 10%. (Hoovers) Industry leaders need to consider that substitutes may also come from businesses that are totally unrelated to their current industry market. (DME, p. 56) For instance, instead of eating at a fast food restaurant, buyers may purchase food from grocery stores such as Ralphs, Vons, or WholeFoods. Buyers may opt for something quick and stop at convenient stores like 7-11 or gas stations to grab pre-packaged sandwiches. There are also vending machines strategically placed in malls, in front of grocery stores that entice customers to buy. The latest craze in the industry right now is mobile food trucks. The threat of substitute product is high when the rate of improvement in price-performance relationship of substitute product or service is high. (DME, p. 56) The quick service restaurants consistently try to improve on their menu selections by offering food that appeal to the customers. For instance, customers are willing to spend more money for better quality food. Restaurants can set themselves apart from their competitors by focusing on healthy cooking techniques and using clean ingredients. Restaurants that offer higher quality food will attract new customers and increase their sales. Threat of Substitute Products or ServicesHigh / StrongLow / WeakDifferentiation of substitute productsX Rate of improvement in price - performanceX Intensity of Rivalry Among Competitors in an IndustryThere are many firms in this industry, some small and some mavericks. This makes the force in rivalry among competitors in this industry strong. The larger firms in the industry have the luxury of offering much lower costs than their competitors. For instance, leading fast-food chains are marketing low-cost combo meals in a bid to compete for value-seeking consumers. McDonald's, Wendy's, Burger King, and several other operators have introduced special discount deals that allow customers to select two to four menu items for only $4 or $5 dollars. (Hoovers, 2016)The industry growth rate for the quick-service industry is low, which causes a competitive rivalry. The reduction in growth has to do with changes in consumer attitudes and tastes such as shifting attitudes about health and diet. Rivalry among competitors arises when firms invest in research and menu development efforts, introduce new products, and gain momentum at the expense of competitors’ troubles. For instance, Chipotle pioneered the fast casual model where customers pay more for higher-quality ingredients. Other competitors followed the same model and improved on it, by getting rid of artificial ingredients and offering clean eating. However, due to Chipotle’s recent food safety scandal, the firm took a big hit and Panera was able to gain a large market share due to this dilemma. The cost of fixed costs is high in the U.S. quick-service industry. Most locations have a food preparation area, dining area, and parking lot, and many have a drive-thru as well as children’s play areas. The size can vary with some restaurants seating 40-80 customers and averaging 2,000 and 3,500 square feet, while others have no seating area and can be about 1,500 square feet. Additionally, there are some locations that are operated via kiosks with no seating area in high traffic locations. (Hoovers, 2016) This can cause rivalry among competitors by having some competitors function inefficiently especially if they increase their square footage which will increase their fixed costs. An increase in fixed costs can lead to change in prices.Intensity of Competitive RivalryHigh / StrongLow / WeakNumber of competitorsX Industry growth rate XFixed costsX Storage costsX Product differentiationX Switching costsX Exit barriersX Strategic stakesX Industry Life Cycle AnalysisPanera Bread Company operates in the U.S. quick service restaurants industry. This industry has a variety of many kinds of firms. However, Panera Bread Company seems to operate within a strategic group that is focused on offering healthier food items and fresh baked breads. Their direct competitors in this industry will be Chipotle, Starbucks, La Madeline, and Noah Einstein. After analyzing the industry, we feel that the life cycle is in the mature stage. The mature stage of an industry life cycle is when competition in the industry becomes strong and fierce. (DME, p. 170) Companies will start to cut prices on their products in an attempt to bring in more customers and steal more market share from their competitors. Companies can no longer rely on increases in sales like it did in the growth stage so they will resort to finding ways to reduce costs. Companies will look to make their processes and operations efficient so that they can focus all of their time on only what is needed and reduce the extra time that was being spent in the less efficient processes. (DME, p. 170) When we look at the industry analysis done by Hoovers we can see many telling signs that Panera’s industry is operating in a mature stage. The first sign is that many of the companies are looking to implement energy efficient items such as solar panels and energy efficient appliances in their stores and facilities so that they can help reduce their costs. (Hoovers, Fast Food and Casual Quick Restaurants) To us, the firms are trying to look at ways to reduce operation costs. This will also benefit them greatly as they will be seen as being proactive in the effort to support a sustainable environment.Most firms in the industry are utilizing a Point of Sale (POS) system that allows them to have efficient daily operations which improves communication between the front of the house and the back. (Hoovers, Fast Food and Casual Quick Restaurants) Along with the use of POS, firms are also implementing customer face-technology and mobile apps which makes the customer’s order their own food and allows the firms to have less employees on staff at one time. (Hoovers) Again, all of these factors point to the fact that these firms are trying to find ways to increase profits and since they are no longer able to see large amounts of growth in the sales, they are trying to reduce their expenses to see the increase they desire. Another indicator that this industry is in the mature stage is that firms are always offering competitive deals on food to attract consumers to their restaurant. Ads are sent out weekly/daily offering deals to consumers that may include free drinks, half price meals, or a percentage discount on certain days to attract more consumers to their restaurant. This shows the industry is in a mature life cycle stage because firms are resorting to lower prices to gain more market share. The response from all the other firms in the industry can be very strong which can result in a price war. This helps to verify our decision because all the firms are trying their hardest to gain more market share. In this type of situation firms want to make sure that they are not lowering their prices to the detriment of profits. Hoovers mentions that many of these firms are performing a balancing act between gaining more market share and bringing in more profits. (Hoovers) All of this information has led us to determine that the U.S. quick service restaurant industry is in the mature stage of its life cycle and it looks like firms will have to resort to cost cutting measures as well as strong responses to their competitor’s actions to stay competitive in this industry. Entry into this industry by new firms will be difficult because of the already established companies with strong brands already developed. Firms in this industry can gain more market share by innovation and differentiation of their products from their competitors’ products. Firms use marketing in this industry to help differentiate their products and are beginning to invest into mobile marketing because they feel it is the best way to reach the younger customers. (Hoovers, Fast Food and Casual Quick Restaurants) This industry is fiercely competitive and a firm will need to continue to make improvements to its operations while finding ways to differentiate itself from its competitors to continue to be profitable. External Analysis ConclusionAn understanding of the U.S. quick service restaurant industry that Panera Bread Co. operates in allows management to take advantage of opportunities and hopefully avoid threats. Michael Porter’s five forces model suggests that each of the five forces affect the firm’s ability to compete in their given market. While reviewing the five forces as they pertain to Panera Bread but more importantly the industry as a whole, it would appear this industry faces more threats than opportunity. The bargaining power of the buyers is strong resulting in the increase of cost of goods is major threat. In most cases, our industry is associated with lower cost meal options so as the costs increase and items become more expensive the customer may choose an alternative option of restaurant style service because they are getting more for their money. The cost of labor is another industry threat that has a similar affect. Especially, in markets where unemployment has increased and employee hourly wage rate will increase to above $10/hour. Where these jobs historically were reserved for first time employment and younger individuals, they are now transitioning to a greater mix of individuals living in high cost areas. The threat is an increase to the operating expense and smaller margins of profitability.Given the amount of competition in this industry and risk of substitutes, bad publicity can affect profits as we have seen in the case with Chipotle. Firms will need to make sure that they avoid having food contamination issues so that they do not end up losing ground in this competitive industry. In an industry currently positioned in the mature phase of the business life cycle, with this much competition, the high-level threat is entering the decline phase. The opportunity for Panera Bread Co. and its closest comparable businesses in the industry is that they focus on healthier alternatives. They try to provide an atmosphere that appeal to the consumer that wants something quick and those that would rather stay and dine at the restaurant. The opportunity for larger companies with great market share is expanding globally and even domestically through acquisition and mergers. If we continue to focus on the larger companies in the industry, the opportunity to control supply costs and product price in theory allow for greater profitability and returns for shareholders. Although the focus of this report is on the analysis of the industry as a whole, the future outlook for Panera Bread Co. based on some of these factors appears optimistic. INTERNAL ANALYSISValue-Chain AnalysisIn this section we will be analyzing Panera Bread’s value-creating activities and how the firm best achieves value through these activities. An effectively and efficiently managed value chain is a major key to competitive success (Presutti, 2013). Thus, customers will always be willing to pay more for the value they receive than it might cost the company to deliver value which results in profitability. The value chain should be able to deliver sustainable competitive advantage leading to sustained profitability (Presutti, 2013). Michael Porter describes two different categories of activities in the value chain. The Primary activities which refers to the physical creation of product or service, its sale and transfer to the buyer, and its service after sale. These include inbound logistics, operations, outbound logistics, marketing and sales, and service. Secondary activities of the value chain either add value by themselves or add value through important relationships with primary activities or other secondary activities. They include general administration, human resource management, technology development, and procurement (DME, 2016).Primary ActivitiesInbound Logistics. Panera Bread has a very interesting supply chain function. They have a fresh dough facility (FDF) system that distributes the fresh dough to its bakery-cafes daily. Most inbound deliveries to the FDF’s are for unbleached flour and fresh produce. Virtually all other food products and supplies for the bakery cafes, including paper goods, coffee, and small-wares are contracted by Panera Bread and delivered by vendors to an independent distributor for delivery to the bakery-cafes. Additionally, Panera Bread set up external contracts for the manufacturing of any remaining baked goods that are sold in the bakery-cafes, referred to as sweet goods. The firm uses independent distributors to distribute their proprietary sweet goods products and other materials directly to bakery-cafes. The firm maintains a list of approved suppliers and distributors from which they and the franchisees must select (Panera Bread, 10k, 2015). Panera Bread is committed to having a “positive impact on the food system” and they have contracted with vendors who source responsibly raised livestock and poultry as well as provide only high-quality ingredients without artificial additives (Panera Bread 10k, 2015). The firm rolled out a “No-No List” which is a commitment to removing artificial preservatives, sweeteners, and flavors along with colors from artificial sources from the food in their bakery cafes by the end of 2016 (Panera, 2016). This commitment to clean food can provide the firm with a significant competitive advantage and potential for increased profit. Panera Bread managed to move in this direction by creating a dialog between the firm and its suppliers to better understand exactly what was going into the food they were supplying (Jones, 2015). By doing this, Panera created a special relationship between themselves and the vendors that outlines what the firms expectations are from their suppliers. Panera found that their supply partners stepped up and started to take the initiative to clean up their own products (Jones, 2015). This type of relationship is critical between a firm and its supplier in order to make an idea successful.Operations: Panera Bread has 1,972 Company-owned and franchise-operated bakery-cafe locations in 46 states, the District of Columbia, and Ontario, Canada. The firm has grown from serving approximately 60 customers per day at their first bakery-cafe to currently serving nearly 8.3 million customers per week system-wide (Panera Bread, 10k, 2015). The firm’s locations operate under the banners Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Café. They offer made-to-order sandwiches using a variety of artisan breads, soups, salads, and gourmet coffees. In addition, Panera sells its bread, bagels, and pastries to go. About 900 of its locations are company-operated and roughly 1,100 locations are run by franchisees (Hoovers, 2016). Panera’s regional fresh dough facilities (FDF) supply dough to the bakery cafe’s for their fresh bread on a daily basis, along with tuna, cream cheese, and certain produce to all of their Company-owned and franchise-operated bakery-cafes. As previously mentioned, as of December 29, 2015, the firm had 24 fresh dough facilities, 22 of which were Company-owned (Panera Bread, 10k, 2015). The firm believes that fresh dough is the key to their high-quality, artisan bread, and fresh produce is essential to their high-quality salads and sandwiches. The fresh dough and produce is delivered by a fleet of temperature controlled trucks operated by Panera associates. The fresh bread is baked through the night by professionally trained Panera bakers at each of the bakery-cafes. The bakers also complete the sweet goods products by finishing with fresh toppings and other required ingredients once the sweet goods are delivered by vendors. Moreover, to ensure that there is a continuous, fresh supply of fresh bread, the bakers bake high volume products throughout the day. Panera Bread incorporated technology into their operations. As part of the fast-casual cafe chain’s reinvention process, Panera built an ordering kiosk center to replace cashiers (Johnson, 2015). Panera refers to this initiative as Panera 2.0. Panera offers other ways to order - including mobile ordering, Rapid Pick-Up for to-go orders, delivery and consumer packaged goods available at various grocers throughout the country - all designed to make things easier for guests. Panera Bread also made changes behind the scenes in the kitchen, using new systems to both increase production and accuracy. This process goes beyond technology, implementing a system in which every order is double checked by an employee. Once deemed accurate, the order is delivered directly to the guest's table (Shaw, 2014).The bakery-cafes are staffed by skilled and engaging associates. Additionally, the firm provides detailed operations manuals and hands-on training to each of our associates and train associates both in small group and individual settings. Each Panera bakery-café has specific layout to provide a special experience for its guests. They create a distinctive environment using fixtures and materials which are complementary to the neighborhoods in which they are located (Panera Bread, 10k, 2015). Together, the environment and customer service help foster customer’s perception of Panera as a “gathering place” or “oasis.”Panera Bread prides itself in using quality produce, and antibiotic free livestock and poultry. Therefore, they are actively involved at the field level to ensure the highest quality taste and freshness from seed-to-plate. Panera Bread believes in supporting North American farmers whenever possible. Today, all of their Romaine lettuce comes from California and Arizona, all of their eggs come from the Midwest and California, and all of their spring wheat comes from Canada and the Northern Tier states (Dakotas, Montana, Minnesota and Idaho). (Panera Bread, 10k, 2015). Together, these operational initiatives provide Panera Bread with a better competitive alternative and enable expanded growth through not only Panera 2.0 but also through innovation in operations, food, and marketing, utilization of delivery hubs, expanded small-order delivery and with investments in technology all help to create the capabilities needed to support these initiatives. The upgrades designed to provide an overall exceptional customer service experience to its guests, is a way for the firm to anchor a competitive advantage.Outbound Logistics: Since Panera Bread bakes its own fresh bread every day from fresh dough made by the firm in Fresh Dough Facilities, they have their own network of trucks that delivers dough to the bakery cafes. As of December 29, 2015, they leased 254 trucks. The optimal maximum distribution range is approximately 300 miles; however, when necessary, the distribution ranges may be up to 500 miles (Panera Bread, 10k, 2015). The firm has optimized their fresh dough delivery system to also deliver fresh produce faster and better quality than would be available through conventional food distribution. For example, because they deliver tomatoes directly to their bakery-cafes, Panera is able to keep tomatoes in the fields longer which eliminate the need for gassing or additional treatments to artificially ripen them.Marketing and Sales: Panera Bread relies not only on building brand recognition and awareness as others have done, but they also look to build deeper relationships with its customers with the hope that they in turn will advocate for the brand. To reach target customer groups, Panera advertises through a mix of mediums, including radio, billboards, social networking, and the Internet. In addition, they market through a national cable television campaign as a way to reach a broader audience (Panera Bread, 10k, 2015). Panera hopes that with placing a greater focus on national and digital advertising will help the firm improve and increase recognition of the brand, ultimately providing competitive differentiation. More recently, in the second quarter of fiscal 2015, Panera unveiled a new campaign: Food as it should be. The campaign is a commitment to customers that the food they eat is not only good for them but will make them feel good about their wellness as well. Since consumers are now more health conscious this is a strategy for Panera to align themselves with their customers and their values. The initiative was first introduced in May [2015] with a "No no list" of artificial ingredients Panera will stop using by 2016. That was followed by CEO Ron Shaich's letter in the Times, highlighting his commitment to healthier ingredients. Panera sees the positioning as a point of difference with rivals. The initial campaign, which will run from now until the end of summer [2016], will be backed with more than $25 million of the chain's estimated $90 million annual media budget (Kell, 2016).Additionally, Panera Bread offers a customer loyalty program called MyPanera® which allows customers to earn rewards based on registration in the program and purchases from bakery-cafes. Panera believes MyPanera has allowed the firm build deeper relationships with customers by enhancing their experience through their receipt of rewards and enticing them to return. Further, MyPanera allows the firm to get valuable insight into customer preferences to help further refine their marketing message and menu design. MyPanera is the largest customer loyalty program in the industry, with approximately 22 million customers enrolled in MyPanera at the end of fiscal 2015. During fiscal 2015, approximately 50 percent of transactions in the bakery-cafes were attached to a MyPanera loyalty program card. (Panera Bread, 10k, 2015)Service: Panera Bread developed a customer service survey called ‘You Speak, We Listen’ where customers can provide feedback not only on a bad experience but on ways that Panera can make positive changes. These can be changes from improving the way things work at the local bakery-cafe, to bringing new and exciting flavors to the menu. (Panera Bread, 2016) Support Activities General Administration: Panera Bread’s corporate office is located in St. Louis, Missouri. The company moved to St. Louis in November 9, 2010 consolidating two separate offices from Richmond Heights and Brentwood relocating 365 corporate employees. The leased facility has 90,000 square feet of office space. According to the CEO Bill Moreton and Chairman Ron Schich, the extra space will allow the company to grow and add at least 100 more employees over the next couple years. (Volkmann, 2010) Panera spent $1.8 million on tenant improvements and, prior to the move, the St. Louis County officials approved a 50 percent tax abatement for Panera that will total about $130,000 over 10 years. (Volkmann, 2010)Panera Bread’s executive leaderships contribute significantly to the organization’s success. They play a vital role in creating and enhancing value that a company can provide its customers which in turn increase revenues and profits. (DME, 2016, p. 84) For example, Ron Schaic’s has been aggressively involved in dealing with farmers and other suppliers to achieve Panera Bread’s goal of only using clean ingredients by the end of this year (2016). For the past couple of years, leadership has implemented a series of structural enhancements to improve the company’s competitive position and expand growth opportunities. (Bufano, 2015) In just one year after the launch of Panera 2.0, the company has already converted more than 130 units. Panera has also been focused on driving continued traditional café expansion and enhanced capabilities to generate growth in several large adjacent businesses to include large order delivery (catering), small order delivery, and consumer packaged goods. To reduce core G&A expenses in 2015, Panera closely monitored their non-strategic costs in order for the company to reallocate resources to growth initiatives. Panera also engaged with a global management consulting and services firm to review the company’s technology plans, processes, procedures, and costs.Interrelationship among value chain activities within and across organizations is crucial to Panera’s success. Thus, leadership and the Board regularly enlist shareholder’s input with the shared goal of delivering value. (Bufano, 2015) Christian Leone, CEO and Founder of Luxor Capital fully supports Panera’s goal. "We have long admired the Panera brand and appreciate the constructive dialogue we have had with the Company. We are confident in the Panera team's ability to grow the business and continue to build shareholder value." (Bufano, 2015)Panera Bread has control mechanisms in place to ensure shareholders and the board of directors fulfills its overriding purpose of increasing long-term shareholder value. Panera Bread’s Corporate Governance provides a set of flexible guidelines for the effective functioning of the Board. The Board is responsible to conduct its business deemed most effective and efficient, consistent with its duties of good faith, due care, and loyalty. In order to continue serving the best interest of its stockholders, the governance principles are regularly re-evaluated by the Committee on Nominations and Corporate Governance and the Board. This is very important because the success of corporations is dependent on being able to align managerial motives with the interests of its shareholders and their elected representatives. (DME, 2016, p. 292) Human Resource (HR) Management: Human resource management is critical to the success of Panera Bread. Panera Bread has an effective recruitment, development, and retention program for employees which are very important in today’s knowledge economy. Panera Bread’s organizational culture provides the right environment which attracts people from different backgrounds, with different values and beliefs, to join the Panera Bread family. (PaneraPeople) Thus, it is standard human resource practice at Panera Bread to recruit diverse team members. The human resource management team at the corporate level utilizes Talent Acquisition Managers that reports directly to the HR Director of each division. The Talent Acquisition Manager is responsible for managing and executing the entire recruitment life cycle process from requisition to on-boarding. (PaneraPeople, n.d.) The human resource management at the store level is responsible for in-store recruitment efforts. Panera Bread uses a web based hiring system to recruit applicants. All job opportunities are posted directly on Panera Bread website under the career page; in addition to job announcements on other websites such as LinkedIn. Panera Bread also uses other recruitment methods such as placing advertisements in local newspapers, third party online job boards, and recruiting events. Panera Bread offers competitive pay in addition to a very competitive benefits package that include 401(k) plan, discounted stock purchase plan, and health related benefits. Panera Bread has also developed a variety of programs that are flexible and fit individual needs. This is critical to attracting young workers such as the Millennial and individuals that have diverse needs. In today’s job market, employers have to provide incentives to attract and retain workers. (DME, 2016, p. 115) As of 2015, Panera Bread employs over 47,200 employees across the U.S. and Canada and we can see from the figure below that their number of employees has grown significantly over the last four years. (Hoovers)To develop and retain new and existing employees, Panera Bread provides comprehensive training programs for employee development. In addition to career development, career advancement opportunities are available within the four career categories—hourly bakery café, bakery café management, support center, and fresh dough manufacturing. Panera Bread has clearly defined career paths for each type of employee and the company provides the training and incentives to advance employees along those paths. Through its human resource management practices, Panera Bread has created a competitive advantage by being able to attract top talent and leverage that talent to produce products and services that is valued in the marketplace. (DME, 2016, p. 81) Panera Employees. Source: Hoovers.comTechnology Development: Panera Bread has leveraged technology development to create the ultimate experience for its customers. In 2014, the company introduced Panera 2.0 initiative. The purpose of Panera 2.0 is to differentiate itself from its competitors by focusing on meeting the diverse needs of customers. (Sozzi, 2015) Panera 2.0 is a series of integrated technologies designed to enhance guest experience with Panera Bread. Panera 2.0 creates separate enhanced experience for "to go" and dine-in guests by providing a better way for customers to place orders, make payments, and receive food. Panera 2.0 ordering option called Rapid Pick-Up enables “to go” customers to order their food, up to five days in advance, via online or use of mobile app. To complement the Rapid Pick-up feature, many Panera Bread locations have equipped its bakery-café with special “to go” pick up areas which is a different area from its dine-in customers. The “to go” pick-up area have dedicated seating, real-time order status monitoring system, and a designated counter to facilitate easy pick up without waiting in line. This has made Panera Bread a more appealing lunch and dinner option for people who are in a hurry. (Sozzi, 2015) Panera 2.0’s in-cafe enhancements enable customers planning to dine-in to also digitally pre-order and pay for their food before they arrive at the bakery-café. There is little to no wait time before customer meals are delivered directly to their table. Panera Bread also provides free wi-fi access so guest may stay have internet access as they enjoy their meal. Panera Bread is committed to continuously use technology development to differentiate itself and sustain competitive advantage through value that it creates for its customers. For instance, since Panera 2.0’s launch, its success has necessitated a new production processes to deal with the volume generated by new ordering pathways. To maintain operational excellence and Panera Bread’s commitment to order accuracy, Panera invested in new production equipment and systems, such as upgraded Kitchen Display System (KDS), auto-load balancing, and a new centralized phone system. In addition, Panera Bread developed a comprehensive training program to help associates adopt and master the new processes and systems. (Sozzi, 2015) Procurement: As Panera Bread continues to differentiate itself, the company is constantly looking for ways to improve on purchasing inputs used in the firm’s value chain. In 2010, Panera Bread leveraged its procurement of romaine lettuce when they partnered directly with shippers from California and Arizona. The newly developed produce sourcing model has eliminated purchasing produce from wholesalers and foodservice distributors. (Bentley, 2011) The system has cut delivery by one week, thereby the lettuce delivered at the bakery-cafes are fresher. Its success has changed Panera Bread’s procurement strategy. Since then, Panera Bread continues to look for partners that use specialty farming in order to provide clean ingredients. (Bentley, 2011)Panera contracts with vendors and independent distributors to provide all other food products and supplies for the bakery-cafes to include paper goods, coffee, and small wares. In addition, Panera Bread maintains a list of approved suppliers and distributors that the company, independent stores, and franchisees must purchase from. (Panera Bread, 10k, 2015) Panera also sells its products directly to customers and also acts as its own distributor by supplying most of its company-owned and franchised locations with fresh product.Summary of Value Chain AnalysisInbound Logistics - Strengths●Panera Bread has a collaborative framework of specially selected suppliers that are committed to the firm’s clean eating and contract with vendors who source responsibly raised livestock and poultry as well as provide only high-quality ingredients without artificial additives.Inbound Logistics - Weaknesses●Panera Bread is extremely reliant on its suppliers to honor their commitment to clean eating and only provide ingredients without artificial additives.●Panera Bread requires that their suppliers commit to the firm’s clean eating agenda, therefore this narrows the pool of suppliers that meets the firm’s standards.●Panera Bread has an approved list of suppliers they must utilize which can be problematic when supplies run low. Operations - Strengths●Panera Bread has multiple highly recognized brands: Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Café.●Panera Bread has the advantage of having their own fresh dough facilities (FDF) which supply dough to the bakery cafes for their fresh bread on a daily basis removing the need to wait or count on an outside supplier. ●Panera Bread has their own bakers at their cafe locations which ensure that there is a continuous, fresh supply of fresh bread.●Panera Bread uses only quality produce, and antibiotic free livestock and poultry. ●To expedite ordering for customers, Panera Bread has incorporated mobile ordering, Rapid Pick-Up for to-go orders, and delivery as well as offer consumer packaged goods available at various grocers throughout the country.Operations - Weaknesses●Panera Bread’s cafe operation relies heavily on technology. Therefore, when technology fails this has a devastating effect on its customer service.Outbound Logistics - Strengths●Optimized fresh dough delivery system which delivers fresh produce and dough faster and of better quality than would be available through conventional food distribution.●Panera Bread has their own network of leased trucks that delivers dough to the bakery cafes so they don’t rely on any outside suppliers for deliveries. Outbound Logistics - Weaknesses●Leased trucks used in the delivery system.Marketing and Sales - Strengths●Panera bread effectively advertises through a mix of mediums, including radio, billboards, social networking, and the Internet. In addition, they market through a national cable television.●Panera Bread has a strong outreach of advertising to a specific customer segment that values clean eating and well-being.●Panera Bread has a large loyalty program which keeps customers returning.Marketing and Sales - Weaknesses●Panera Bread relies heavily on customer satisfaction and loyalty.General Administration - Strengths●Corporate office has 90,000 square feet of office space which will allow for additional hires as the firm continues to grow.●Panera Bread has a strong executive leadership that contributes significantly to the firm’s vision and have played a major role in the implementation of the firm’s goal of clean ingredients by end of 2016.●Leadership has implemented a series of structural enhancements to improve the company’s competitive position and expand growth opportunitiesGeneral Administration - Weaknesses●Hired an expensive global management consulting and services firm to review the company’s technology plans, processes, procedures, and costs which adds to the overall spending of the firm.Human Resources Management- Strengths●Maintains an effective recruitment, development, and retention program for employees.●Panera Bread recruits diverse team members.●Panera Bread recruits applicants through an easy to use web based hiring system via their own Panera Bread website.●Comprehensive training programs for employee development.●Panera Bread developed a variety of programs that are flexible and fit individual needs which help with attracting talent.Technology - Strengths●Development of Panera 2.0, a series of integrated technologies designed to enhance guest experience with Panera Bread. Technology - Weaknesses●The new technology has led to a dramatic increase in the volume of sales and Panera Bread was not prepared for the volume generated.Procurement - Strengths●Developed produce sourcing model which has eliminated purchasing produce from wholesalers and foodservice distributors. This system has cut delivery by one week. ●Panera Bread is its own distributor and supplies most of its company-owned and franchised locations with fresh product.Procurement - Weaknesses●Panera Bread counts on only a small group of firms where they obtain products that meet Panera’s expectations.FINANCIAL ANALYSISFor the fast food and quick service restaurants in the United States, we analyzed Panera’s financial information for the last three years to get an understanding on the financial performance of the company and to identify any trends that may trigger potential problems or risks that the CEO and its shareholders should be aware of. Additionally, measuring Panera’s financial performance will show whether the company’s strategy, implementation, and execution contributed to the bottom-line improvement or not. (DME, 2016, p. 101) The financial information of Panera’s major competitors to include Starbucks, La Madeleine, Einstein Noah, and Chipotle were reviewed and used for comparison purposes. This comparison gave us valuable insights on how Panera has financially performed relative to its key competitors. Unfortunately, we did not find any financial information on La Madeleine and Einstein Noah. La Madeleine and Einstein Noah are privately held companies so they are not required to report their financials. (Hoffelder, 2012) Since we could not find any financial information on La Madeleine and Einstein Noah, these two companies were not included in our financial analysis but they were included in the industry analysis. Our analysis also took into consideration that it would be difficult to compare Panera’s financial statements directly with its competitors. Direct comparison of the financial statements is difficult because the size of each company is different and the timing when each company reported its financial statements may not be in the same timeframe. (DME, 2016, p. 441) To avoid problems due to company size and/or timing, our analysis will use financial ratios.Liquidity RatiosLiquidity ratios are financial ratios that are used to determine how easily a company can pay off its bills in the short term. (DME, p. 444) Current Ratio201520142013Panera Bread Co.1.261.150.998Chipotle2.913.573.34Starbucks1.191.371.02Industry1.792.031.79Source: Hoovers, Yahoo! FinanceWe will first take a look at the current ratio for Panera Bread Co. The current ratio compares the firms current assets to their current liabilities to report how liquid a firm would be in the short term. A value of 1 or above for the current ratio would suggest the firm is healthy and operating well. If the current ratio is too large it may suggest that the firm is using cash and other short term assets inefficiently. (DME, p. 445) From the table we can see that Panera Bread Co. has improved their current ratio over the last three years and have been trending up from 2013 to 2015. This is good for Panera Bread as they were slightly below the value of 1 in 2013 which shows that they had too much short term debt and would not be able to pay it off quickly. We can see that in 2013 and 2014 Panera Bread Co. was beginning to struggle and see a decline in their sales. They then took out a large loan in 2014 so that they could bring their Panera 2.0 initiative out which was to improve the customers experience. (Panera term loan, 2014) When we compare these values to the rest of the industry, Panera Bread Co. is definitely less liquid then the average firm in the industry. This shows that Panera Bread Co. had much more short term debt a few years ago and have been trying to play catch up with the rest of the industry as it has paid it off over the last few years. When we compare Panera Bread Co. current ratio to two of its closest competitors we see that Chipotle has a really high current ratio above 3 and Starbucks has a ratio that is very similar to Panera. This could mean that Chipotle is not utilizing its cash and short-term assets efficiently when we compare them to Panera and the rest of the industry. (DME p. 445) Quick Ratio201520142013Panera Bread Co.1.201.090.926Chipotle2.963.513.28Starbucks0.8341.010.811Industry1.661.871.67Source: Hoovers, Yahoo! FinanceThe quick ratio will also help to analyze a firm’s liquidity but it varies from the current ratio by removing inventories from the equation. Inventory is classified as one of the least liquid current assets because the quality of the inventory is unknown. Some inventory may be broken or obsolete rendering them useless when you want to sell it quickly to pay off your debt. (DME, p. 445) In this industry inventory is perishable food which would not hold a long shelf life and must be turned over rather quickly. It will also have cups, plates and other eating utensils that would account for inventory. Because of this the quick ratio gives a good picture of how well a firm would be able to pay off its short term debt with its most liquid assets. Looking at the numbers in table 1 we can see the same trend we saw with the current ratio for the last three years. A gradual increase form being below a value of 1 and moving into a good liquid position. We can see that when we compare Panera Bread Co. to the rest of the industry, they are performing better than the average firm. Comparing Starbucks and Chipotle we still see that Chipotle has a very high quick ratio but it does not deviate much from their current ratio showing that they are not holding onto a lot of inventory. Starbucks has a quick ratio that deviates drastically from the current ratio and goes below 1 two out of the three years. This shows that Starbucks is holding onto a lot of inventory. Starbucks inventory may be slightly different than the rest of the firms as coffee beans may be able to be stored longer than breads, meats and produce. Also since they mainly sell coffee drinks that have to be put in cups they may also have a very large amount of cups in their inventory.Further looking at these two ratios we see that the firms in the industry are holding onto much more inventory than Panera Bread Co. We come to this conclusion because when we compare the industries value for current ratio and quick ratio there is a significant difference with the current ratio being significantly larger. Cash Ratio201520142013Panera Bread Co.0.6060.5570.413Chipotle0.8861.711.62Starbucks0.4190.5620.479Industry0.6370.9500.837Source: Hoovers, Yahoo! FinanceThe cash ratio will look at the most liquid of assets. Namely cash and cash equivalents. (DME p. 445) This gives us an idea of how much of a firm’s ability to pay off short term debt is from their cash holdings. In Panera Bread Co. case we see the trend over the three years of an increasing ability to pay off its short term debt with cash. We can clearly see from all three of the liquidity ratios that Panera Bread Co. has improved its short term liquidity situation over the last three years. When looking at the industry averages we see that they have gradually brought their cash holdings up to industry average. Comparing the competitors to Panera we see that Chipotle has a lot more cash on hand then the other two. Chipotle would have been able to pay off all of its short term liabilities just using cash from 2013 to 2014 and it still could almost pay off all its short term liabilities in 2015. Starbucks is the weakest of the three businesses when comparing this ratio because they would only be able to pay off about 40% of their short term liabilities in 2015. The data for Chipotle form the cash ratio points back to the fact that they may not be utilizing cash efficiently because they are holding onto so much of it.Profit RatiosProfit ratios are used to measure how profitable the firm is. By looking at these ratios we can see how efficiently the firm manages its operations and utilizes its assets to return a profit. (DME, p. 448)Pre-tax Profit Margin201520142013Panera Bread Co.8.82%10.97%13.11%Chipotle17.10%17.39%16.63%Starbucks19.09%17.60%-3.23%Industry15.00%15.32%8.83%Source: Hoovers, Yahoo! FinanceThe first ratio we will take a look at is the pre-tax profit margin. When we look at Panera Bread Co. profit margin across the last three years we see a significant decrease in it from 2013 to 2015. This shows that for some reason Panera Bread Co. profit is significantly taking a hit over the past couple of years. If we dig deeper analyzing this information we can see that sales and gross profit have both seen increases over the last three years so they are not hurting in their ability to make sales or generate profits. (Yahoo, 2016) This must mean that something else is effecting Panera Bread Co. profit margin. Looking at the financial reports we can see that Panera Breads operating expenses have been increasing significantly over the three year period. The largest increase came between 2013 and 2014 and this is where we see the largest drop. We can also conclude that the drop in profit margin from 2014 to 2015 may be an outlier because they incurred a significant non-recurring operating expense. (Yahoo, 2016) From this ratio we can see that Panera Bread Co. possibly has an issue with the efficiency of its operations. When we compare Panera Bread Co. to the two competitors we see that their profit margins are much lower than the competitors. Chipotle is bringing in roughly around 17% over the last three years while Starbucks was able to bring in over 19% in 2015. However, we do see that Starbucks lost money in 2013. Panera Bread Co. Profit margins are half of what their competitors are which definitely does not look good for Panera.Pre-tax ROA201520142013Panera Bread Co.16.03%19.94%26.48%Chipotle28.25%28.05%26.60%Starbucks29.35%26.89%-4.18%Industry24.54%24.96%16.30%Source: Hoovers, Yahoo! FinanceThe ROA ratio explains how well a company is able to generate profits from its assets. We can see that compared to the industry Panera Bread Co. has a significantly larger ROA. This shows that Panera Bread Co. is better at getting returns on their assets then the rest of the industry. However, when we look at how well the firm has performed over the last three years we see a significant drop in its ROA values. When we compare its values to the rest of the industry we see that it used to perform better than the industry and now is significantly lower than the industry averages. Comparing the ROA of the competitors we see again just like the profit margins they are almost able to bring in double the returns on their assets that Panera does.Pre-tax ROE201520142013Panera Bread Co.47.57%37.67%44.68%Chipotle36.18%35.50%34.74%Starbucks62.79%54.84%-10.74%Industry48.85%42.67%22.89%Source: Hoovers, Yahoo! FinanceROE shows us how well a company is able to generate profit per each dollar of shareholders equity. (DME, p. 449) In this case we see that Panera Bread Co. is generating about 40 cents of profit for each dollar of equity. This looks great to shareholders and this number is significantly larger than the industry average. However, the very large gap between ROA and ROE is alarming and investors should take note of this large gap.The large gap between ROA and ROE suggest that Panera Bread Co. is highly leveraged. Assets are much larger than equity because Panera Bread Co. is holding onto a large amount of debt which makes their liabilities high. When we look at the trend we can see that the gap between ROA and ROE has grown significantly from 2014 to 2015 suggesting that they took on a large amount of debt in that time span. In fact in 2014 we see that they took a large loan in the amount of $100 million for growth initiatives and the rollout of Panera 2.0. (Panera term loan, 2014) The fact the Panera Bread Co. is highly leveraged is concerning and could result in them having a hard time taking on more debt as creditors may see them as being too risky of an investment. Chipotle does not have this leverage problem because their gap between ROA and ROE is much smaller than Panera. Starbucks on the other hand has a huge gap between the two ratios, much larger than Panera’s. We can see that over the last three years Starbucks has been taking on massive amounts of debt.Leverage RatiosLong-term solvency ratios are intended to address the firm’s long-run ability to meet its obligations, or, more generally, its financial leverage (DME, 2016, pg.445). They are sometimes referred to as financial leverage ratios. Panera Bread and its industry competitors rely on a mixture of owners’ equity and debt to finance its operations. The following leverage ratios are used as financial measurements that look at how much capital comes in the form of debt such as loans and/or to assess whether or not a company has the ability to meet financial obligations.Total Debt Ratio201520142013Panera Bread Co.0.660.47.041Chipotle0.22.0200.23Starbucks0.530.510.61Industry0.470.390.51Source: Hoovers, Yahoo! FinanceThe total debt ratio takes into account all debts of all maturities to all creditors (DME, 2016, pg. 446). It is defined as the ratio of total long-term and short-term debt to total assets. It is expressed as a percentage or decimal. It is interpreted as the proportion of a company’s assets that are financed by debt. In 2015, Panera used 66 percent debt which is considerably higher than in 2013 and 2014 and much higher than the industry average. Debt-Equity Ratio201520142013Panera Bread Co.1.940.890.69Chipotle0.280.250.30Starbucks1.131.041.56Industry1.120.731.64Source: Hoovers, Yahoo! FinanceThe debt to equity ratio is also debt ratio used to measure a company’s financial leverage, it is a variation of the total debt ratio. It is calculated by dividing a company’s total liabilities (debt) by its stockholders’ equity. This ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity. In this case, the ratio informs us that Panera Bread has $.66 in debt for every $1.00 in assets. Therefore, there is $ .34 in equity ($1-$ .66) for every $.66 in debt. Another useful variation on the total debt ratio is the equity multiplier shown below. Equity Multiplier201520142013Panera Bread Co.2.941.891.69Chipotle1.281.251.30Starbucks2.132.042.56Industry2.121.732.64Source: Hoovers, Yahoo! FinanceAdditionally, the times interest earned ratio is another common measure of long-term solvency (DME, 2016, pg. 446). This ratio measures the proportionate amount of income that can be used to cover interest expenses in the future. Basically, it will tell if the firm can make the interest and debt payments that it has. In the table below we can see that Panera Bread can cover its interest over six times over. We also see a downward trend in this particular area for Panera. For instance, in 2013 and 2014 the times interest earned ratios are 29.80 and 15.30 respectively. Panera’s ability to cover their interest and therefore their debt is much less than the industry average.Times Interest Earned201520142013Panera Bread Co.6.2815.3029.80Chipotle000Starbucks56.3650.29-7.18Industry20.8821.877.54Source: Hoovers, Yahoo! FinancePerhaps an even better way to determine the amount of cash available to pay for interest expense is the cash coverage ratio. The times interest earned ratio is based on earnings before interest and taxes (EBIT), which is not really a measure of cash available to pay interest (DME, 2016, pg. 446). The times interest earned ratio deducts depreciation which is a noncash expense and since interest is a cash outflow, a much better ratio is cash coverage. According to the table below, in 2015 Panera Bread had cash to cover its interest 9.81 times. However, this is a downward trend for Panera. In 2014 their cash coverage ratio was 22.11, down from 39.91 in 2013. This can affect Panera negatively with creditors as it can be viewed as though they are at risk in defaulting on their loan payments. Although, the ratio clearly shows that they are able to cover their loans at this time.Cash Coverage201520142013Panera Bread Co.9.8122.1139.91Chipotle000Starbucks64.0461.3614.93Industry24.6227.8218.28Source: Hoovers, Yahoo! FinanceActivity RatiosThese ratios help determine the efficiency with which firms use their assets and are measures of turnover. The ratios that will be discussed are intended to describe how efficiently, or intensively, a firm uses its assets to generate sales (DME, 2016, pg. 446). The more successful Panera is at managing its assets, the more efficient it will become at reducing operational expenses and improving its potential for growth and revenue. The following ratios will be discussed: inventory turnover, days’ sales in inventory, receivables turnover, and days’ sales in receivables. Inventory turnover indicates how much inventory was sold off or turned over the firm’s inventory. The table indicates that in 2015, Panera Bread turned over the inventory 87.85 times and the trend has progressively increased as the ratios indicate. Panera compared to one of its main competitors, Chipotle is more effective at turning over its inventory. Additionally, Starbucks inventory ratio is much lower than its competitors but the firm deals in product that is not as quickly staled such as fresh produce. Consequently, the higher this ratio is, the more efficiently a firm manages inventory.Since we know that Panera Bread turned its inventory in 2015, 87.85 times, then we can determine that it took on average 4.15 days before the inventory is sold. This is a downward trend for Panera Bread, it took the firm 4.72 days in 2013 to turn the inventory over. Panera has more efficiently managed its inventory, lessening the days that it holds inventory. By doing so, Panera has decreased the chance of incurring profit losses due to inventory losses.Inventory Turnover201520142013Panera Bread Co.87.8580.2377.35Chipotle221.21195.08180.97Starbucks5.966.295.74Industry105.0093.8788.02Source: Hoovers, Yahoo! FinanceDays’ Sales in Inventory201520142013Panera Bread Co.4.154.554.72Chipotle1.651.872.02Starbucks61.2458.0363.59Industry22.3521.4823.44Source: Hoovers, Yahoo! FinanceThe receivables turnover ratio measures how many times a business can turn its accounts receivable into cash during a period. For example, the table below indicates that Panera Bread in 2015, 2014, and 2013 collected their outstanding debt 23.16, 23.71, and 28.19 times respectively during the year. This is a negative trend because the amount of time the firm is taking to collect its accounts receivable is increasing and indicates that Panera Bread does not collect its receivables as efficiently as its competitors. However, it can also indicate that Panera Bread operates on a cash basis, although I don’t think that the latter is the case. Panera’s competitors on average had less day’s sales in receivables indicating they are more avid at collecting its receivables. For instance, Chipotle collected its receivables in 2015 and average of 3.10 days.Receivables Turnover201520142013Panera Bread Co.23.1623.7128.19Chipotle117.59117.92133.83Starbucks26.6526.0726.53Industry55.8055.9062.85Source: Hoovers, Yahoo! FinanceDays’ Sales in Receivables201520142013Panera Bread Co.15.7615.3912.95Chipotle3.103.102.73Starbucks13.7014.0013.76Industry10.8510.839.81Source: Hoovers, Yahoo! FinanceThe asset turnover is the ratio of the value of a firm’s revenues generated relative to the value of its assets. This ratio can often be used as an indicator of the efficiency with which a firm is using its assets in generating income. Therefore, for every dollar in assets, Panera Bread generated 1.62 in sales for the year 2015. The high asset turnover ratio indicates that Panera is generating more revenue per dollar of assets. When comparing the ratios below, Panera seems to be generating more revenue than its competitors as well. However, when you look at Panera’s profitability ratios specifically its profit margin, it is evident that Panera Bread is not as efficient with its operations. For instance, profit margin for Starbucks and Chipotle is closer to the 20% mark compared to Panera which is closer to 10%. Total Asset Turnover201520142013Panera Bread Co.1.821.822.02Chipotle1.651.611.60Starbucks1.541.531.29Industry1.671.651.64Source: Hoovers, Yahoo! FinanceShareholder RatiosIt is very important for companies to analyze shareholders ratios because this is of particular interest to shareholders of a company or investors that may be interested in purchasing shares from a particular company. The ratios will show what shareholders can expect to receive from their investment. Shareholders seeking short term, quick return on their investments will look for dividends. While others seeking long term return on their investments may forgo dividends in the short run and allow profits to be reinvested back into the company. Shareholders want to see that the business is growing because growth drives the price of shares to increase which results in capital gain for shareholders. (Rudd, 2008)Panera Bread’s major competitors in the U.S. quick service restaurants industry are Starbucks, La Madeleine, Einstein Noah, and Chipotle. Although La Madeleine and Einstein were included in the industry analysis, because they are privately held companies, these two companies were not included in the financial analysis. Financial measures can only be calculated for publicly traded companies. (DME, 2016, p. 449) Information for this data was collected from various sources to include Yahoo! Finance, NASDAQ, and Hoovers Online. Because we could not find industry averages for 2013 and 2014, we used Panera Bread, Chipotle, and Starbucks’ ratios and averaged them to get the industry benchmark for that year. Market Value Measures:Market value measures looks at the relative value of a company’s stock. Evaluation of the market value ratios will show whether the company's stock is overvalued, undervalued, or priced fairly. (Peavler, 2016) Investors use market value ratios to see “how a company’s current share price stacks up to its various metrics, it gives management an idea of what the firm's investors think of the firm's performance and future prospects, and it is useful to analyze stock trends.” (Peavler, 2016). The market value ratios that were used to assess the worth of Panera’s company and the market price of their stock include Earnings per Share (EPS), Price Earnings (P/E) ratio, and market value to book ratio.Earnings per Share (EPS) 201520142013Panera Bread Co.$5.79$6.64$6.81Chipotle$15.10$14.13$10.47Starbucks$1.82$1.35$0.01Industry$7.57$7.37$5.76Source: NasdaqEarnings per Share (EPS) measures the amount of net income earned per share. Basically, it shows how much money the company is making in profits for every outstanding share of stock. Shareholders want to see higher EPS because this means the company is more profitable which means more profit to distribute to its shareholders. (Nasdaq.com) The higher the EPS, the value of the company’s stock is worth more because investors are willing to pay more for higher profits. Panera’s EPS show a downward trend. Although the difference from 2013 to 2014 is only 2%, EPS continues to drop each year. From 2014 to 2015, Panera’s EPS dropped another 13%. Compared to industry average, in 2013, Panera’s EPS was up 18% above industry, but for 2014 and 2015, EPS dropped 10% and 24% respectively. Review of Panera’s balance sheet from 2013 to 2015, the number of outstanding shares they had was much lower in 2013, which indicates the company bought back some of their outstanding shares. However, in 2014 and 2015, Panera’s number of outstanding shares increased which may be a reason their EPS dropped. Panera may have issued additional shares to raise capital through an equity financing. It can also be assumed the drop in EPS is due to rise in operating expenses from its bakery cafes and high cost of food and paper-products which contribute to the drop in operating profits. In 2015, Panera’s CEO Ron Sheich advised its investors that Panera’s 2.0 initiatives and other structural enhancement will “adversely impact their 2015 results” but he is confident that the changes will “elevate Panera’s competitive position and broaden their growth opportunities.” (Caplinger, 2015). If Panera’s EPS continues to drop, investors will quickly lose confidence in Panera and possibly not invest in the company anymore. However, we are also confident once Panera’s 2.0 initiatives are implemented, and more and more Panera bakery-cafés are equipped with this new technology, operating cost will go down and the enhanced experience for dine-in and to-go guests will cause sales to increase which will push EPS to rise back up. Panera’s EPS seems to be doing much better than Starbucks. Starbucks EPS has significantly been below industry average for the past 3 years from 2013 to 2015 at -100%, -82%, and -76% respectively. Although Starbucks EPS is below industry average, the company appears to be slowly making operations improvements within the organization as it shows a slight upward trend each year. Chipotle on the other hand is doing very well every year as their EPS shows continuous trend upwards increasing from 82%, 92%, to 99% above industry average. It would seem Chipotle has a good control of its operating cost and is efficient at using its capital to generate income. Exhibit #: Source: http://marketrealist.com/2016/07/will-2q16-results-drive-valuation-multiple-panera-bread/Price Earnings (P/E)201520142013Panera Bread Co.$35.32$28.67$28.46Chipotle$58.18$49.02$52.24Starbucks$30.38$49.73$7,787Industry$41.29$42.47$2,622Source: Hoovers, NasdaqThe price earning (P/E) ratio shows what the market will pay for a stock based on its current earnings and is often called a price multiple or earnings multiple. In 2015, Panera’s shares carry P/E multiple of 35.33 which means investors were willing to pay $35.33 dollars for every dollar of earnings. Although Panera’s P/E ratio seems to be lower compared to industry average, Panera’s P/E ratio does show trending upwards since 2013 to 2015 which indicates positive future performance and significant prospect for future growth. (DME, 2015, p. 451) Investors will be more than willing to pay for Panera’s stocks because they can anticipate higher performance and growth for the company in the future.For 2013, it is worth mentioning that the industry average is abnormally high because of Starbucks extremely high P/E of $7,867. In 2013, Starbucks settled with Kraft. The settlement was recorded as an operating expense in Starbucks income statement which wiped out their earnings. When a firm doesn’t report any earnings, its P/E would be quite large. (DME, 2015, p. 450) Thus, it is very important to also review all financial statements to determine if there are any anomalies that may drive the ratios to be extremely low or high. For example, with Starbucks, if normalized earnings for the year were considered, Starbucks real earnings of $1.7B applied to their $58B market with result in a more realistic P/E of 34. (Moser, 2013) Market-to-book201520142013Panera Bread Co.9.696.376.99Chipotle6.9010.5610.75Starbucks15.2411.2817.81Industry10.619.4011.85Source: Hoovers, Yahoo! FinanceBook Value per Share201520142013Panera Bread Co.$20.11$27.45$25.29Chipotle$69.59$64.85$49.57Starbucks$3.92$3.52$2.97Industry$31.21$31.94$25.94Source: Hoovers, Yahoo! FinanceMarket Value per Share201520142013Panera Bread Co.$194.78$174.80$176.69Chipotle$479.85$684.51$532.78Starbucks$59.75$39.70$52.90Industry$244.79$299.67$254.12Source: Hoovers, Yahoo! FinanceThe market-to-book ratio also known as price-to-book (P/B) ratio compares the market value of the firm’s investment to its cost. (DME, 2016, p. 450) The book value per share and the market value per share are completely different and are based upon different information and therefore should not be compared to each other. (Peavler, 2016) It is also worth noting that it isn’t easy to put cash value on some assets so the book value tends to get undervalued. (Peavler, 2016) Certain factors contribute to the disparity between book value and market value. For instance, building the company’s brand and reputation is very important and firms spent many years nurturing it and yet this investment is only seen as expense. Others include patents, goodwill, and intellectual property. (Peavler, 2016)Panera’s market-to-book value from 2013 to 2015 has consistently been higher than the industry average. Because the value is over 1, it means historically, Panera has been successful in creating value for its shareholder. (DME, 2016, p.450) Although from 2013 to 2014, the market-to-book value dropped down slightly it seems to be consistent across the industry as both Starbucks’ and Chipotle’s market to book value also dropped. Considering the ratio of price to book value is strongly influenced by the return on equity, a review of Panera’s financial reports shows significant increase in its operating expenses between 2013 and 2014. This would explain the drop in market value for its stocks. It is also around this time frame that the fast food and quick service industries were differentiating themselves by offering higher quality menu selections which may be another underlying reason their operating expenses increased. The problems appear to have been addressed as Panera’s market value was back up in 2015. It would be safe to assume that the stockholders’ confidence for the company is still high as Panera’s stock prices is increasing.Financial Analysis ConclusionIn order to thoroughly analyze a business’s performance it is important to choose relatively close competitors based on products and services, but also the size of the company. It is important to compare all ratios (liquidity, leverage, activity, profitability, and shareholder) with a good understanding to truly assess how the firm performs, rated against its peers. Is Panera Bread a financially healthy firm? The financials for Panera reflect positive trending liquidity ratios, however we noticed that leverage ratios are increasing. This suggests that Panera is utilizing long-term financing to grow the business. Unfortunately, Panera reflects negative trending profitability ratios. This could suggest that Panera needs to focus on creating efficiencies to reduce costs. A correlation that should be addressed is the inventory turnover rate increase, and what slower inventory turnover could cost the firm. When a firms profit is down, their earning per share is down. However, even with the decline in EPS, Panera’s price earnings ratio suggests that investors are still interested in Panera; they have been willing to pay more annually given the circumstances. The outlook for Panera appears to be long-term and this is supported by this three year historical review. There are key indicators in the balance sheet that suggest the company is positioning themselves for long-term future growth and success, and there are key indicators in the market place that suggest investors believe it is achievable. Is Panera Bread healthier or more stable than others in the US quick service restaurant industry? Taking the same approach and understanding that there are many factors that deviate from an apple to apples comparison, we believe that Panera Bread compares favorable. Panera’s current ratio is below the industry average, but it has a quick ratio above the industry average simply suggests that the competitors are carrying more inventory. Due to Panera’s and the Industry’s current ratio and quick ratio above 1:1, we have determined liquidity ratios are not a good indicator to conclude the comparison. Although we identified the negative profit trends on the firm level as a concern, Panera has exceeded the industry standards for pre-tax ROA and ROE every year. They have the ability to generate better profits from their assets and each dollar of shareholder equity than industry competitors. Panera has more debt and higher leverage than comparable companies. Leverage should be managed, but often companies need to be leveraged to grow and expand. For the most part, Panera’s activity ratios are more favorable than the industry. The review of shareholder ratios, reflects companies better and worse than Panera. It was difficult to obtain a benchmark, because these ratios are really independent in nature. The confidence in investors for the future outlook of Panera is promising, but their confidence is also with others. Concluding an industry analysis can be very subjective, however, we felt our review concludes that Panera Bread compares favorably to the industry and to its competitors CORE CAPABILITIES, DISTINCTIVE COMPETENCIES, AND VRIOWe will evaluate the core capabilities of Panera Bread Company using VRIO analysis. Performing this analysis will allow us to determine which of their resources give Panera Bread Company a competitive advantage over their competitors. We will be evaluating the core capabilities using four criteria: is it valuable, is it rare, is it difficult to imitate, and does the organization use it well?Healthy Food ChoicesPanera Bread is focused on offering its consumers food options that are on the healthier side for a fast casual dining restaurant. They promote a menu that has a variety of healthy choices which allows its consumers to have the ability to choose how they want to eat. In 2015 Panera Bread Company created eat well, your way menus that help people distinguish what types of food on their menu will help their reach their dietary goals. There are menus for vegans, vegetarians, and people who want a high protein diet to name a few. (Panera Bread curated menus, 2015) Panera Bread Company has taken the position of allowing its consumers to decide which food choices are best for them by having varying menus and such a large selection of healthy food items. Many other fast casual dining restaurants only have a few healthy options to choose from which limits a consumer’s ability to decide for themselves. ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Healthy Food ChoicesYNYYTemporary Competitive AdvantageLooking at this resource using VRIO analysis we see that this is a temporary competitive advantage. With the trend in the country moving to healthier eating, this resource can be seen as very valuable. (USDA, 2014) There are direct competitors of Panera Bread Company who also offers a large selection of healthy choices which makes this resource not rare. (Chipotle, 2016) It is difficult to imitate because you have to have a large commitment within the company to offer such large selections of healthy choices. Finally, the organization does use this resource well because they target the consumers who will want to eat healthier and they make sure to use their healthy food in their marketing tactics.Only Quality Ingredients UsedPanera Bread Company has made a choice to only have the best ingredients in their food. Their commitment is to have all of their menu items contain no artificial additives by the end of 2016. This is a huge commitment that is somewhat unheard of when it comes to today’s fast food choices. (Panera Food Policy Statement, 2016) ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Only Quality Ingredients UsedYYYYSustainable Competitive AdvantageWhen we analyze this resource using the VRIO analysis we see that this is a Sustainable Competitive Advantage for Panera Bread Company. The same trend to eat healthier that made the healthy food choices valuable makes removing food additives valuable. People are beginning to realize they need to become more aware of what they are consuming. (USDA, 2014) There is no other firm in the industry who has gone to the point of eliminating all additives in their food and this makes this resource rare. This will be very difficult to imitate because of the level of commitment it would take to make this happen. Panera Bread Company will have to track all of its food and have to work very closely with its suppliers to make sure that they can keep their promise of serving food with no additives. This would be too time consuming of a commitment for many other firms which makes this resource difficult to imitate. Again, the organization is utilizing this resource well to differentiate themselves from their competition by utilizing it to appeal to the consumers in the industry they are trying to target.Sustainable PracticesPanera Bread Company has made a commitment to make sure that their food sources are sustainable. They call it making sure that they and the food you eat are having a “positive impact”. (Panera Food Policy Statement, 2016) They want to make sure that they are sourcing food that comes from places that treat their animals well and with care. They are also using food sources that will not have negative impact on sustainability of that food. They are working closely with food suppliers to make sure that they are true to their commitment and they also donate unused portions of food to hunger relief organizations to reduce the amount of unused food that is thrown away. (Panera Food Policy Statement, 2016) ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Sustainable PracticesYNYYTemporary Competitive AdvantageWhen analyzing this resource using VRIO analysis we see that this is a temporary competitive advantage. It is Valuable to the firm because people are becoming more concerned with the treatment of animals and making sure that we have sustainable food sources. (Feenstra, 2016) It is not a rare resource because Chipotle also is committed to sustainability. (Chipotle, 2016) It would be very difficult to imitate because it would be very costly and time consuming to have to track all of your suppliers to make sure they are sourcing food that is sustainable. Finally, the organization utilizes this resource well by promoting this on their website and making sure consumers know about their actions.Fresh BreadPanera Bread Company’s most well known for their selection of fresh baked breads. They make and supply the dough every day to their restaurants so that consumers can enjoy fresh baked bread daily. They want to be known for their bread and have made their mission statement, “A loaf of bread in every arm.” (Panera 10k, 2015)ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Fresh BreadYNNYCompetitive ParityAnalyzing this resource we see that making fresh bread every day is something that is valuable to the firm. It continues to push their menu selections and brings consumers into the restaurant who are looking to just purchase bread. We also see that the organization is utilizing this resource well by promoting their business as a bakery who has fresh bread baked daily on site. It is not a rare resource because consumers can find fresh baked bread from different bakeries and other locations. We would also say that it is not hard to imitate as other fast casual dining restaurants could implement a way to produce their own fresh baked items. We would say that having fresh baked bread gives Panera Bread Company competitive parity.Dining ExperiencePanera Bread Company designs the interior of their restaurants to make the stores feel welcoming, inviting, and warm. They utilize elements of the neighborhood to give each location a feeling like it belongs in the neighborhood. They include features like fireplaces, inside and outside seating, and cozy seating to build this type of environment. (Panera 10k, 2015) Along with the dining atmosphere they also offer free Wi-Fi to their customers which creates a culture where people will want to gather and spend time.ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Dining ExperienceYNNY Competitive ParityAs we analyze this resource using VRIO we identify that I is a valuable tool as it will make people want to eat their meals at the restaurant which may result in more purchases the longer consumers spend at the location. It is not rare as many other casual dining and fast food restaurants have begun to improve their dining experiences making them more inviting. It would not be difficult to imitate as it would just take some designing and extra spending for competition to improve their dining experiences. We do see that the organization is utilizing this well by offering other perks like free Wi-Fi that makes people want to spend more time in the restaurant and enjoy the atmosphere. We have determined that this resource is a competitive parity for Panera Bread Company.Brand and ReputationPanera Bread Company has created a strong brand and reputation for themselves through their Panera 2.0 initiative. They are known for their commitment to healthy ingredients that are good for you and for their fresh baked breads. This has allowed them to build a strong brand in the industry and a good reputation with their consumers. We have determined that this resource is a temporary competitive advantage because they are not the only company in the industry with a strong brand and their brand is not the strongest either. In this industry issues with spoiled food and food contamination can quickly tarnish your reputation and brand image. We can see this from what Chipotle recently went through in the last couple of years.ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Brand and ReputationYNYYTemporary Competitive AdvantageSupply Chain RelationshipsWith Panera Bread’s commitment to food with no additives and food that only comes from sources that are concerned with their impact on the environment they must build and maintain strong working relationships with the businesses in their supply chain. Panera Bread has built these relationships and keeps a list of approved businesses that stores can work and operate with. We see this resource as a sustainable competitive advantage. Panera Bread has taken a lot of time to identify and then build strong relationships with these suppliers. IT would take a lot of time and money to do what Panera has done which makes this hard to imitate and rare. The organization uses these relationships well by marketing their menu items to consumers who want to eat healthier food items and who want to reduce the amount of food additives that they are consuming. Because there is a movement to eat healthier this also creates value to the firm because consumers are willing to pay a premium for this type of food.ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Supply Chain RelationshipsYYYYSustainable Competitive AdvantageOrdering SystemWith the implementation of the new ordering system through the Panera 2.0 initiative they have created a system that allows consumers to easily place orders through their mobile devices, the Internet, and in the restaurant. This variation in the ordering system has been beneficial to consumers because they can choose how they want to order and pick up their food.We have identified this resource as a competitive parity as it is not rare or difficult to imitate. Many firms in this industry have begun to utilize internet ordering and mobile ordering. Panera Bread does utilize this well though as they have marketed this new system to people who are always on the go and want to order their food and get it quickly. It is valuable to Panera because they have seen an increase in sales and people have taken well to the new system. ResourceIs it Valuable?Is it Rare?Difficult to imitate?Organization use it well?Competitive Advantage?Ordering SystemYNNYCompetitive ParitySTRUCTURE AND CULTURECorporate Structure. Panera Bread is a corporation that is a member of a limited-liability company, Panera LLC. As a corporation, the company has issued stock to shareholders and listed its stock on NASDAQ (Long). Moreover, it can create a separate entity that is responsible for debts and liabilities created by the company. As an LLC, both Panera Bread and Panera LLC, receive limited liability protection by making the business and not the owners liable for any debts connected with the business. Panera Bread Company and its subsidiaries, referred to as “Panera Bread,” “Panera,” is a national bakery-cafe concept with 1,972 Company-owned and franchise-operated bakery-cafe locations in 46 states, the District of Columbia, and Ontario, Canada (Panera Bread, 10K, 2015). The corporate office is in St. Louis, Missouri. The Panera®, Panera Bread®, Saint Louis Bread Co.® , Panera® Catering, You Pick Two® , Paradise Bakery® , Paradise Bakery & Café® , the Mother Bread® design, MyPanera®, and Panera to You® trademarks are some of the trademarks we have registered with the United States Patent and Trademark Office (Panera Bread, 10K, 2015). Panera Bread operates a functional organizational structure. The major functions of the firm are grouped internally and the coordination and integration of the functional areas is the responsibility of the chief executive officer (DME, pg. 318, 2016). All decision making of the firm is centralized at the top of the organization with an executive leadership comprised of several executives as noted in exhibit below. However, all “major decisions are made by [the CEO]” (M.W. Interview, 2016). Additionally, Panera Bread has a Board of Directors with its CEO acting in a dual role as Executive Chairman.It is the job of the CEO, Ron Shaich to set the vision of the firm and to ensure that the rest of executive leadership continues to believe in his vision. Mr. Shaich states, "Our job as leadership is to protect and enable leaps of faith, making sure the company is there when the future arrives (Baer, 2014)." Mr. Shaich sees his role as CEO as helping to maintain competitive advantage by continuing to discover new ways of building competitive advantage instead of taking limited risk and focusing on only maintaining the current success. Corporate CulturePanera Bread’s corporate culture has set the standard for creating a strong culture and superior customer experiences. They place a strong focus on not only the customer but the employee as well. In an interview with the New York Times, CEO Mr. Shaich stated that his leadership has changed over the past 10 years and he found himself spending more time on the people, because oftentimes people — how they are organized and work together — are what ultimately drive your ability to meet those key initiatives (Bryant, 2012). Panera Bread wrote their official cultural values document after the culture had taken place and they have maintained the culture despite their tremendous growth. Panera’s focus on the people they hire is a prime example of why their culture is envious. They have a ‘no jerk’ policy which means that they don’t want jerks working for the company. Everyone must treat everyone with respect and dignity no matter if you are an associate or a manager. They will terminate your employment if you are a jerk to other employees (M.W. Interview 2016). “Culture eats strategy for breakfast” is a repeated quip of Peter Drucker and has become a reminder of how important people are to any organization’s success. Without people, an organization is simply a set of ideas, hypothetical processes, and latent materials (DeKrey, 2013).The culture within Panera is warm, inviting, and embracing, and they focus their investments on elevating this experience (Panera Bread, 10K, 2015). They put effort into hiring warm, friendly, motivated and caring associates who are committed to embodying Panera’s culture and actively growing themselves and the brand. They place a heavy emphasis on the qualification and training of their personnel and spend a significant amount of time and money on training their employees. They pride themselves in not only providing a great place to work for their employees, they have also set their sights on solving social problems and have transformed their culture into one that supports this change. Shaich’s vision is one that includes building a corporate culture that has a positive impact on society. Part of his corporate responsibility includes going beyond writing checks and donating goods. Although, the firm donates about $150 million a year in food, Shaich felt that this wasn’t enough to help the one in four children in the U.S. still struggling with hunger which is an issue that Panera cares deeply about. Their program Panera Cares serves the full menu in a pay-what-you-can platform located in communities that have both poor and affluent residents. These cafe’s feed about 12,000 people each week, some pay some, some pay nothing at all, and some pay more than their bill to help cover other’s checks.Panera Bread has built a strong corporate culture; they developed a vision that the entire organization prides themselves on. Ron Shaich described the firm’s culture the best when he stated, “bring humanity to work.” It is this culture that has helped Panera continue to grow its brand and build such a strong following.SWOT ANALYSISFor Panera Bread, we performed a SWOT analysis to determine where the company stands on the four strategic areas: strengths, weaknesses, opportunities, and threats. Performing the analysis will help the company to understand the company’s core market advantages and weaknesses. The analysis will identify opportunities and threats that Panara Bread can focus on to attract more customers, increase sales, and be profitable.Strengths (internal conditions):Brand name and reputation: Panera Bread’s brand-name is known nationwide. Panera Bread has multiple highly recognized brands: Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Café. The company has a reputation of serving healthy food fast. They are the leader in the bakery-café quick service restaurant industry. Panera brand has grown over the last couple of years as they have committed to producing a healthier menu with items that have lower amounts of food additives. They have also grown their Brand by implementing Panera 2.0 which allows consumers to order their food from anywhere and pick it up fast. Fresh bread: Panera Bread is well known for their selection of fresh baked breads. Fresh baked breads are its signature product and their fresh bread is one of the company’s core competencies. The company has their own bakers at their cafe locations which ensure that there is a continuous, fresh supply of fresh bread. The dough is sent from their dough making facilities in the morning to all of their restaurants so that the restaurants can offer fresh bread daily to their consumersFresh dough facilities: Panera Bread has the advantage of having their own fresh dough facilities (FDF) which supply dough to the bakery cafe’s for their fresh bread on a daily basis removing the need to wait or count on an outside supplier. This allows them to not have to worry about getting the dough from another firm and allows them to better control what goes into their dough. Reducing the time and money it would take to find suppliers to meet their demands of having no additives in their food products. It also allows them to control the delivery of their dough so they do not have to rely on other businesses to get the dough on time to their restaurants.Customer service and dining experience: Panera Bread is committed to providing excellent customer service. To enhance guest experience Panera 2.0 initiative has incorporated mobile ordering, Rapid Pick-Up for to-go orders. Each Panera bakery-café is designed to make customers feel welcomed. The coffeehouse-type atmosphere in Panera Bread locations and free WiFi encourages customers to relax and spend time there. They want customers to feel like they can spend extra time in their restaurants and hold meetings or gatherings. Having people spend more time in the restaurant means they may spend more and making the comforting atmosphere that makes people want to have meetings and gatherings brings more people into the restaurant. High quality food: Panera Bread is committed to offer high-quality ingredients and premium products to its customers. No other company in the industry has gone to so much effort to ensure their menu food items uses only quality produce, antibiotic free livestock and poultry, and no artificial additives. There has been a trend in the United States that shows that people are making a commitment to eating healthier and Panera Bread is using this commitment to high quality food to appeal to these consumers. Panera Bread has been successful in implementing these healthier menus and it is shown that consumers are willing to pay higher prices for these premium items.Relationship with Suppliers: Since Panera Bread has committed to offering such premium ingredients with no food additives they had to build strong relationships with their suppliers to make sure they can keep the promises they are making to their consumers. Because of their commitments they have stronger relationships with their suppliers that will allow them to work well with them and be able to ask for changes to their supplies if a situation arises. Suppliers have taken notice of Panera Bread’s commitment and have taken on the challenge of making sure that they can keep true to what they say. Weakness (internal conditions):Brand name: Panera Bread’s brand is less well known than its competitors. Starbucks brand name is better known than Panera. Starbucks Brand is prevalent across the whole country while Panera Bread is only present in 46 states. Starbucks also has a strong presence in other countries which further strengthens their brand against Panera Bread. Prices tend to be higher: Panera Bread’s prices tend to be higher than its competitors. This is a weakness considering there are plenty of substitutes that customers can choose from. There is nothing to prevent customers to seek out a cheaper alternative. Since consumers have such a large selection of places to eat, high prices can affect the possibility of bringing in more consumers to the restaurant. Consumers can choose to not eat out, bring food from home, go to a restaurant that offers cheaper menu choices, or go to a restaurant that has sent out coupons for discounts on selected item. Franchise policy has too many restrictions: Panera Bread imposes a lot of constraints to start a franchise. Applicants must meet a list of criteria to be considered such as having prior experience as a multi-unit restaurant operator, must be well-capitalized and have a net worth of $7.5M and liquid assets of $3M, and must have the resources to meet development schedule. Panera Bread requires franchise developer to open at a minimum of 15 bakery-cafes within a 6-year period. This is a large commitment that a potential franchisee must consider before they take on the responsibility of opening a franchise with Panera Bread. Not a lot of investors will want to take these responsibilities on and may choose to open a different franchise or open their own restaurant.Fresh Dough Delivery: Because Panera Bread has committed to having fresh baked breads at their restaurants daily they could run into a situation where the delivery is not on time which will hinder their ability to make fresh bread or the dough could spoil because of improper handling. Refrigerated trucks can also fail and the dough could end up spoiling. If this were to happen restaurants would be without fresh bread and for a business that prides themselves on being able to offer this menu item it could be detrimental to their business if any of the above were to happen.Food Spoilage: In the restaurant business food that is poorly handled and that contracts bacteria can make consumers sick. If consumers become sick from eating your food your brand and image will take a significant hit and competitors will be quick to take advantage of your shortfalls. We have seen this happen with Chipotle which is one of Panera Bread’s main competitors. With Panera Bread making the commitment to offer food without additives they need to make sure they are properly handling the food and not allowing the food to go bad. Without some additives food may spoil quicker and Panera Bread needs to be ready to commit to removing any food item that is potentially spoiled or contaminated. Without this type of commitment they could end up where Chipotle was trying to correct the issue and not allow it to ruin their brand and reputation.Highly Leveraged: Panera Bread is highly leveraged since they took the $100 million loan out in 2014 to help implement the Panera 2.0 initiative. This amount of debt can limit Panera Breads ability to take further loans out as creditors may see them as too risky of an investment. This could end up hurting Panera Bread if they want to capitalize on a new opportunity and do not have the funds or ability to take on debt to do it. They may also be outmaneuvered by their competitors who are less leveraged because those companies could be able to take on debt that would allow them to capitalize on the opportunities that Panera Bread cannot. In an industry as competitive as the quick service restaurant industry being slow can result in large amounts of loses.Opportunities (external conditions):Expand and enhance their menu: With the nation’s push to eat healthier, consumers are willing to spend more for healthier food options. Panera Bread can continue to expand its menu to provide consumers a variety of healthy choices. By having a larger selection of healthier food items on their menu, customers can customize their meals. Customers that have food allergies or dietary restrictions will be attracted to eat at Panera Bread. Panera Bread could further promote themselves as a restaurant that not only cares about eating healthy but also allowing you to eat without worries. With food additives removed and the transparent menu being implemented having more options that can be tailored for people with specific allergies or specific eating requirements could potentially bring in more consumers to the restaurant. Expand to other states: Currently, there is no Panera Bread in five states: Utah, Idaho, Montana, North Dakota, and Wyoming. Panera Bread may consider finding investors to open franchise in these states. (Myers, 2014) By fully saturating the country with Panera Bread restaurants they would be able to build a stronger brand that everyone throughout the country would be able to recognize. Panera Bread must also realize that there are people in those states that want to eat healthier food, fresh bread, and food without additives. They are missing out on the potential of gaining these people as loyal customers.Expand globally: Again, Panera Bread may want to consider going global and enter foreign markets. Expanding globally could be difficult and time consuming but if done right they could capitalize on the bringing their business model of fresh breads and healthy items to other countries. They could lessen some of the time, money, and the learning curve if they were to create alliances with other businesses currently in these markets. This would help to reduce the barriers to entry for Panera Bread in global markets. By moving globally they could end up strengthening their brand and building a brand that is known worldwide. Threats (external conditions):High number of product substitutes: High number of product substitutes is a threat for Panera Bread because customers have many options to choose from. Customers can easily find a wide array of food options. When the switching cost is low, there is nothing to stop customers from buying competitors’ products. Customers can choose to dine at other quick service restaurants which results in decrease profit for the company. High product substitute is a threat because when there are plenty of substitutes, it places a ceiling on prices that firms can charge. (DME, 2015, p. 56) With Panera Breads high prices this could force customers away from them and into their competitors’ arms. Panera Bread might want to consider finding ways to lower their prices to reduce the chance of having customers choose to dine at other locations.Competition is fierce: There are many firms in the U.S. quick service restaurant industry which makes competition fierce. The rivalry between firms is strong which puts pressure on one another and limit profit potential for all firms within the industry. Each firm is vying for customers and is constantly looking for ways to differentiate itself from each other. Consumers have a growing number of options to get quality food served quickly at reasonable prices, which places great demands on fast-food operators to offer the highest levels of service and food quality. In such a competitive environment small slip ups are magnified and competitors will take advantage when they can. The main goal in this industry is to find a way to get consumers into your restaurant when there are more than 10 other restaurants surrounding you. Suppliers: Panera Bread wants to make sure that they are maintaining good working relationships with their suppliers and that they are choosing the right suppliers. Since they have committed to food without additives that comes from renewable sources they want to make sure they are not misleading their consumers because their suppliers are not telling them the truth. If a supplier does not keep their end of the deal with Panera and supplies food that does have the additives they said they eliminated, it will be Panera Bread that will be impacted negatively. Panera Bread must understand that any mistake on the suppliers part in this situation will be seen as failure on Panera Bread to live up to what they are telling their consumers. It is imperative that Panera Bread make sure that suppliers understand the importance of this commitment and are fully on board to meet Panera Bread’s demands. If they are not then Panera Bread will have to find suppliers who will meet these demands.TOWS ANALYSISTOWSStrengths1. Brand name 2. Fresh Bread3. Fresh dough facility (FDF)4. Customer Service5. Dining Experience6. High Quality Food7. Strong supplier relationshipWeaknesses1. Brand name2. Higher Prices3. Restrictive Franchise policy4. Fresh dough delivery5. Food spoilage6. Highly leveragedOpportunities1. Brand name2. Expand and enhance menu3. Expand to other states4. Expand globally(SO)- Improve brand name by focusing on being a transparent company that cares about all stakeholders. - Commitment to helping the community and the environment helps build customer loyalty. - Use of clean ingredients will appeal to consumers that want healthy meals that taste good.- Continue to build new Panera cafes nationwide.- Use promotional campaigns and tools to attract new customers and bring existing customers back in the restaurant.- Sell dough for customers to bake fresh bread at home.- Offer free delivery service and drive-thru to enhance customer service. - Global expansion will provide growth opportunities and help promote brand awareness worldwide. Continue to partner with local farmers and growers to supply fresh ingredients. (WO)- Use social media to promote the Panera brand and to stay in touch with customers and announce new menu offerings.-Use of high quality products and ingredients will attract customers that are willing to pay higher price for better quality food.- Offer value meal items at reasonable prices. - Work with local growers and farmers to ensure produce are fresh.- Ensure storage facility is properly maintained to avoid food spoilage. - Train employees and suppliers of proper food handling. - Consider making fresh dough in each bakery-café instead of being delivered.- Offer international franchise opportunities. -Expanding either globally or into states not currently present in would bring more sales into the company which would allow Panera Bread to pay off their debt quicker.Threats1. High product substitutes2. Fierce competition 3. Suppliers(ST)- Panera’s commitment to use clean ingredients will set them apart from their competitors. Panera will not use items found in the no-no list.- Come up with creative use of ingredients to come up with unique flavors and menu specials.- Panera will have to continuously update their menu to ensure dietary information is accurate. Also, specifically highlight newly added items in their menu.- Sell Panera bread in grocery stores.- Form alliances with manufacturers, distributors, and local growers to ensure there is sufficient amount of supplies and/or produce readily available for purchase/delivery.(WT)- Be selective with suppliers. Ensure suppliers share the same commitment to providing clean produce.- Hire consultants to ensure Panera’s is operating as efficiently as possible.- Strong relationship with suppliers takes a lot of time and effort to build which makes it difficult for competitors to imitate. -Reduce debt to improve ability to stay competitive in the industry.STRATEGIC DIRECTIONThe TOWS chart analysis is used to show how Strengths, Weaknesses, Opportunities, and Threats interact. Interactions and issues that appear to be recurring are important. We have identified four Key Strategic Issues that Panera Bread should manage. Key Strategic Issue #1 – Brand ExpansionAs with many companies, Brand is a very important intangible asset. For companies like Panera, it can be a very high valued asset listed on the balance sheet. Due to the highly competitive nature and risk of substitutes in this industry, we have identified Brand Preservation as a Key Strategic Issue. As Panera grows and expands, it is important to have Brand Recognition, but most importantly a continued positive image and positive impact with their food. Strategic Alternatives Status Quo: Panera Bread has been successful historically. They could continue managing their brand with little to no change and hope that they can continue to see the same success as they have in the past. In this industry competition is fierce and competitors will continue to push their brands and better themselves. If Panera Bread does not continue to push themselves like their competitors they could find themselves behind quick and trying to play catch up. This avenue would not have them expanding into other markets which would limit them from being able to capitalize on this potential. Evolutionary Change: Panera Bread could also make implemental improvements. They could enhance marketing strategies. They could continue to make their products healthier. They could expand into markets that they have little to no presence in currently. All of these things could make the Panera Bread brand more well-known. If they move into markets that they are not currently in they could help to build their brand across the U.S. Some of their competitors are better known than them because they are present across the whole country. Bringing their strong reputation and interesting menu selection to other states and even other countries would help to strengthen their brand and allow them to compete with competitors like Starbucks who have a much stronger brand then Panera Bread.Revolutionary Change: Panera Bread could also make large changes. They could acquire other businesses and diversify their offerings. They could change their business to be more focused on serving coffee drinks to be able to bring more consumers to their restaurants. This type of change would mean that they would have to spend a lot of money to change the set-up of their restaurants and would have to hire workers that would be needed to run the coffee house and make the drinks. With Panera Bread already quite leveraged and already committed to so much this would be quite difficult to take on. Recommendation As it pertains to Brand Expansion, we recommend evolutionary changes. Brands should remain relevant, therefore, they need to evolve. Due to the highly competitive nature of this industry, we believe that status quo could allow for reduced market share. Often with food, people like to try the new popular restaurants, so Panera needs to make implemental improvements to maintain relevance. By expanding into untapped markets they could bring in what they already know and do with little to no changes and bring in more revenue into their business. Revolutionary changes are too risky and would be difficult to achieve with the state of Panera Bread’s financials and commitments. Panera Bread knows bread and should focus on remaining a leader in what they know. Key Strategic Issue #2 – Food Handling and Safety Panera Bread is focused on having a positive impact with their food. Product quality is extremely important and the ability to deliver consistent quality products can always be an issue. Panera Bread strives to be known as a healthy alternative in the quick service restaurant industry, so we have identified Food Quality as a Key Strategic Issue. As Panera expands into new markets, they have to consistently manage the ability to obtain fresh products from suppliers that can meet their demands and help them reach their commitment they have made to their consumers. By removing additives to insure healthier products, products are subject to faster spoilage risk. They will need to find a way to reduce the chance of causing illnesses in their consumers who consume their food. They also run the risk of their fresh dough deliveries not getting to the restaurants on time or not sufficiently cooling the dough and causing the dough to spoil. With the competitiveness of the industry any slip up with the quality of their food can result in them losing ground to their competitors very quickly. Strategic Alternatives Status Quo: Panera Bread promotes their food quality and provides a healthy alternative well. They are able to obtain fresh ingredients and deliver fresh product consistently well. They have not had any major issues regarding illnesses from eating their food or with a large amount of their products being spoiled. However, the chance of something happening is always there and by eliminating food additives form their food they could end up having food spoil quicker on them. Panera Bread may feel comfortable now but as we stated above any small mistake with their food could result in loss of consumers.Evolutionary Change: Panera Bread could build data on all of their food products and food trucks. If they monitor their food without the additives and determine what the average number of days or hours it takes for that specific food to spoil they could help to reduce the chances of causing illnesses in their consumers. Refrigerated delivery trucks can also be monitored and inspected to determine which are performing well, which need to be serviced, and which need to be replaced. If they are able to obtain all of this data they could help to reduce the chances of serving spoiled or contaminated food to their consumers. Revolutionary Change: Panera Bread could decide to change their menu all together. They could decide that their commitment to reduce additives in their foods is too costly and they could begin to use food products that have more preservatives and have longer shelf lives. This would mean that they would have to abandon their large commitments that they have made to offer food that is clean and free of additives. However, it would reduce the costs of having to spend for premium ingredients and would also reduce the chances of having their food cause their consumers to become ill. Recommendation As it pertains to Food Handling, we recommend evolutionary changes. Health and food studies are constantly conducted and if they are going stick to their commitments they need to stay on top of this issue and collect as much data as possible on their food and delivery trucks to make sure they are doing all they can to better the situation. Even though Panera Bread has done a great job with this in the past they are entering new territory by eliminating additives from their food. Revolutionary changes would result in a drastic change of direction for the firm but would offer a safer less expensive alternative for them. We are basing our decision off of the large amount of time and commitment that Panera has put into its menus and the fact that we see their commitment to their food quality as a competitive advantage over their competitors. Because of this we do not see the revolutionary change to be a viable option. Incidents of food illnesses are going to happen but if Panera Bread can show that they are doing the most that they can to reduce the chances of it happening it may be able to reduce the negative impact that would follow.Key Strategic Issue #3 – Relationships with Suppliers Panera Bread has made large commitments to their consumers regarding the quality of the food they are offering. Panera Bread needs to know that they have made a commitment that they are not fully in control of. In order for Panera to fulfill these commitments they have to rely on their suppliers to keep their end of the deal. Additives are in almost anything that we consume and there could be a situation where not even the supplier knows that the additive was in the food. Panera Bread must find a way that they can monitor their food for these additives and it needs to find a way to make the suppliers know how important this is their business and future success. They also must realize that if they are only able to work with a few select suppliers Panera Bread’s bargaining power will reduce as suppliers will demand higher prices for the premium products. Strategic Alternatives Status Quo: Panera Bread could continue to perform as is with the relationships that they have made with their current suppliers. It looks like they have found suppliers that are on board with their commitments and the suppliers see value in their pursuit of offering healthy clean food to consumers. They may already have built the relationships they need and will not need to do anything further to be able to fulfill its commitments.Evolutionary Change: Panera Bread could develop even stronger relationships with these suppliers and could also look for more suppliers that would help them pursue their cause. By finding more suppliers they could build a strong list of approved suppliers that they can utilize which would help to reduce costs as suppliers will continue to have to compete with each other. This would eliminate the risk of getting stuck having to pay premium prices to only a select few suppliers. However, the more suppliers Panera Bread has means that they will have to spend more time and money monitoring the operations of these suppliers. Revolutionary Change: Panera Bread could bypass having to work with outside suppliers and could pursue opening up facilities like their dough making facilities that grow produce and or meat for their restaurants. This would allow them to fully manage the operations of its supplier like it does with its dough’s and would mean that they would not have to pay premium prices for supplies as they would be only charging themselves for the cost of producing the supplies. This would result in a large commitment of time and money which may not be possible because of their current leveraged position.RecommendationWe recommend that Panera Bread pursue a revolutionary change when it comes to this issue. The reason for this is the fact that they have committed to something that demands they spend a lot of time and money in monitoring. They could pursue this recommendation by acquiring suppliers that they are already working with or they could start from scratch. Because Panera Bread has already built a list of suppliers that they have a strong relationship with they could utilize this information to purchase one of the suppliers they feel is the best fit for what they want to accomplish. Even though this is a large undertaking Panera Bread already has experience managing their dough facilities and they could use this experience to help them manage the produce and meat supplier. The downside to this recommendation is that they will have to spend a lot of money and time to do this. With Panera Bread already being leveraged it could be difficult to accomplish this but we see any solution to this issue to be costly and time consuming. Key Strategic Issue #4 – High Prices for Premium ProductsPanera Breads menu items are all high quality and premium products for the quick service industry. Because of this they have to offer their menu items at higher prices than their competitors in order to be able to make a good enough profit to continue to operate. Panera Bread could be losing out on potential customers because they do not offer value priced items on their menu. Most of the time these value priced items are associated with lower quality food and are not what Panera Bread wants to be known for. Panera Bread is focusing on differentiating themselves from their competitors by only offering high quality food and a value menu may end up going against this differentiation strategy. With their being so many options in this industry consumers may decide that they cannot afford to pay these prices resulting in potential customers buying food at cheaper locations.Strategic Alternatives Status Quo: Panera Bread could continue to offer only high quality food at premium prices. They are already known for this and they are committing themselves to offer higher quality food in the future. They have shown that they are successful doing this and they have not seen a rush of customers leaving their restaurants because their prices are too high. Panera Bread currently offers the ability of choosing only half of a sandwich or salad at lower prices that may be alleviating this issue somewhat. In fact we see a trend for U.S. consumers to want to eat healthier and Panera Bread looks primed to capitalize on this new trend. Evolutionary Change: Panera Bread could look to add a value menu to their current selection with food that is of lesser quality. This could allow them to capture more customers who cannot afford the higher prices for Panera Breads food. They would be able to maintain their current path of offering high quality food on all of the other food items. However, it may be difficult to monitor the differences in quality of products which may lead to confusion when the meals are prepared. Revolutionary Change: Panera could completely switch their direction they are moving in and change their menu to be more value focused. This would go against everything they stand for and everything they have currently built. When you say Panera people immediately think about eating fresh quality food. However, if they did purse this choice they would be able to appeal to a larger portion of consumers and may improve their revenues by having more customers. Recommendation We recommend that Panera Bread follow the status quo for this issue. Panera Bread already has built a strong image of serving quality food and has already spent a lot of time and money to get to the point that they are at. With the trend in the U.S. towards eating healthier they may be the trailblazers in this industry for a new way to eat fast food. Because of this trend we also see their focus on healthier food to be a competitive advantage for them. We would recommend that they put more focus into marketing their products and their commitment to healthy eating so that consumers may realize that they want to spend more money on eating better quality food. Panera Bread could also perform research on why eating healthy is the best option no matter what the cost. They could then use marketing to get this information out to their potential consumers so that more consumers will begin to understand the importance of quality food and why it costs more.ONE YEAR OPERATION PLANSKSI #1 Brand ExpansionYear one:Q1Year one:Q2Year one:Q3Year one:Q4Action StepResearch locations in states not currently operating in to potentially openLocate potential franchisees that would meet qualificationsLocate local suppliers that would meet demands Sign up Franchisees Begin building restaurants Sign up suppliers that work well with the businessDetermine what dough facilities will be supplying dough to restaurantsBegin marketing campaign to consumersOpen restaurantsManage supply routesMonitor operations and collect data on consumersContinue Marketing campaign Monitor suppliersCheck on operations and make improvements to new restaurantsLook at new potential locations to continue expansion for the franchiseeContinue Marketing Monitor suppliersAccountable PartyFranchise approval teamSupplier approval teamFranchise approval teamSupplier approval teamFresh dough management teamBuilding Project teamMarketing teamOperations managementITMarketingOperations managementMarketingProjected CostLowHighModerateModerateKSI #2 Food handling and safetyYear one:Q1Year one:Q2Year one:Q3Year one:Q4Action StepConduct analysis on food and determine timeline for spoilageConduct analysis of food delivery trucks to determine how well they are operating Identify the food that could cause the most problems when it comes to spoilageIdentify the delivery trucks that need maintenance and need to be replaced. Begin to develop plans to reduce these issuesImplement plans (timelines) to remove spoiled items before they reach the consumerPerform maintenance on trucks that need it and purchase new trucks to eliminate trucks that are beyond maintenanceMonitor actions to determine if there is an improvement in operationsMonitor delivery trucks for maintenanceMake corrections to plans for food as needed to improve operations.Maintenance trucks as needed and purchase new ones as needed.Continue to monitor operations to make sure no spoiled food reaches consumersAccountable PartyFood Research teamTruck Maintenance teamITFood Research teamTruck Maintenance teamOperations managementITFood research teamTruck maintenance teamOperations managementITFood research teamTruck maintenance teamOperations managementITProjected CostModerateLowHighModerateKSI #3 Relationship with SuppliersYear one:Q1Year one:Q2Year one:Q3Year one:Q4Action StepMonitor prospective suppliers operations to purchaseConduct financial analysis on prospective suppliers to purchaseConduct analysis on operations of farms and ranches to better understand the industry Identify potential avenues of attaining money to perform the acquisitionAttain Money to acquire supplierContinue to monitor potential suppliers to determine who to acquireContinue to conduct analysis on industry Identify the supplier(s) to be acquired Purchase the supplier(s)Begin operations and maintain current management team of supplier to run operationsDevelop a plan of which restaurant locations will be supplied from these newly acquired supplier(s) Begin to utilize acquired supplier(s) only for restaurant identified in Q3Monitor operations to determine how well operations are running at suppliers and how well restaurants are being suppliedIdentify new local supplier(s) for acquisition for other restaurant locationsAccountable PartyOperations ManagementFinancial DepartmentITOperations ManagementFinancial DepartmentITOperations ManagementFinancial DepartmentIT Operations ManagementFinancial DepartmentIT Projected CostModerateHighHighModerateKSI #4 High Prices for Premium ProductsRelationship with SuppliersYear one:Q1Year one:Q2Year one:Q3Year one:Q4Action StepContinue strong marketing campaign explaining what Panera Bread is about, what commitments they have made towards food, and what avenues Panera will pursue to continue to improve its food quality and freshnessPerform research to further back Panera Bread’s initiatives to better quality and healthier food.Continue Marketing Campaign Continue Marketing Campaign and include the research to back why it is beneficial to eat Panera Breads food. Monitor if the Marketing Campaign has helped bring more customers to the stores and improved sales.Continue Marketing campaignAccountable PartyMarketing DepartmentMarketing DepartmentResearch DepartmentITMarketing Department Marketing DepartmentResearch DepartmentITProjected CostModerateHighModerateHighSummary and ConclusionIn producing a thorough analysis for management of Panera Bread Company, we (“the analysts”) learned a great deal about the fast food and quick service restaurant industry as a whole. The identified competitors used in this report include: Starbucks, Chipotle, La Madeleine, & Einstein Noah. Since Panera Bread Company primarily operates in the United States, majority of the analysis acknowledges and focuses on business in the United States. Many different analyses were performed to help gain a more well-rounded perspective of the business historically, today, and in the future. The first focus was external factors. Although all Five Forces analyzed apply to Panera Bread Company, we found that Intensity of Rivalry and Bargaining Power of Suppliers had the most merit. This industry is highly competitive and due to Panera’s size Rivalry is a greater concern than Threat of New Entrants. Because Panera Bread’s competitive advantage is being the healthier alternative, their ingredients (primarily dough) suppliers have a lot of power because the company needs timely deliveries at an affordable cost. The report includes an Industry Cycle Analysis where we describe Panera Bread’s industry operating in the mature stage. The second focus was internal factors. We performed a Value Chain Analysis, identifying strengths and weaknesses, for the company’s inbound logistics, operations, outbound logistics, marketing and sales, general administration, human resources, technology, and procurement. Our Financial Analysis compared liquidity, leverage, activity, profitability, and shareholder information to closely identified competitors. The financials provided positive trends and our only identified concern was the companies leverage. We understand the companies do leverage themselves to grow and attribute a portion to growth. This is an area that needs to be monitored and improved over time. It could be an indicator that they are trying to grow too quickly. A VRIO Analysis was completed on core capabilities and distinctive competencies. We identified healthy food choices, only quality ingredients used, sustainable practices, fresh bread, dining experience, brand and reputation, supply chain relationships, and ordering systems as core capabilities and distinctive competencies that Panera Bread Company tries to leverage as competitive advantages. The company’s corporate culture helps them deliver on some of these areas and also deliver on their brand promise. Understanding the external and internal factors is the platform of what the company was historically and where they are today, but our goal in this report is to provide guidance for the future. A SWOT and TOWS analysis were completed to help us determine what the key strategic issues that the company faces and provide a recommendation for approach. We generalized several concepts into the following four key strategic issues: brand preservation, food quality, customer experience, and growth. We believe that these four areas are constantly considered when discussing strategic management. Execution is key for a company like Panera Bread’s stability and success. Our recommendation in most cases was evolutionary change. The highly competitive nature of this industry prevents companies from a status quo approach long term. The risk-reward relationship for revolutionary changes are good, but intimidating for a company that either it or the industry are in the mature stage of the life cycle. The analysts felt that evolutionary changes keep the business relevant and the approach remains conservative. Implemental improvements are easier to manage. APPENDIXInterview Transcript Interviewed: M. W., Operations Manager, October 31, 2016How important is employee engagement?Employee engagement is very important to Panera. The company is very big in making sure that employees feel rewarded for their hard work. We routinely provide lunch for employees for different occasions to say “thank you” to employees for their hard work. Employees feel encouraged by this and feel that their work is appreciated.Is culture important for Panera?Absolutely! It’s important for Panera Bread employees to know that all people are appreciated. It doesn’t matter where you are from. Everyone has different situations in their life where they had to overcome adversities and we like to let employees know that they are important. At Panera every culture and race is just as important as the next. For instance, every year around April we have adversity week in which we have a celebration of all the different nationalities. Do you feel that Panera Bread values its employees? Panera does a lot for employees. It offers fair wages, training and many opportunities to advance. How is this company different from any other company you have worked for?There is one thing that sticks in my mind. Panera has a “no jerk” policy. This means that we don’t want jerks working for the company. Everyone must treat everyone with respect and dignity no matter if you are an associate or a manager. They will terminate your employment if you are a jerk to other employees. They just fired a manager that was a jerk towards his counterparts. The company takes that very seriously.How is the structure at Panera?All major decisions are made by the CEO. His vision is what we all strive to follow. We believe in it. When he makes a promise to make something happen, it will and we make sure that it will. It is the entire company’s job to make sure that it happens.CEO, Shaich released a “no-no list” of ingredients Panera will be free of by the end of 2016. Do you think he will be able to keep that promise?Yes. If not by the end of the year, it will be close to it.Tell me about the logistics at Panera? Panera has fresh dough facilities that deliver bread and produce to all the cafe’s that it’s assigned to. Typically, each facility delivers to about 130-180 cafe’s.Why does Panera lease its trucks instead of owning them?We lease our trucks from Penske and they handle all the maintenance of the trucks which is less of a headache for Panera Bread. If we need the truck replaced by a newer one then they handle that as well. It’s a good relationship and like I said, less of a headache for us.REFERENCESAccPOS. (2016). “The History of Fast Food in America.” Retrieved: November 1, 2016 from http://www.accupos.com/pos-articles/history-of-fast-food-in-america/Baer, D. 2014. Business Insider. 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Solution: Action PlansAction Plans
Solution: Action Plans