If you analyzed the restaurant industry using Porter's five forces model, you wouldn't be favorably impressed. Three of the threats to profitabilitythe threat of substitutes, the threat of new entrants, and rivalry among existing firmsare high. Despite these threats to industry profitability, one restaurant chain is moving forward in a very positive direction. St. Louisbased Panera Bread Company, a chain of specialty bakery-cafés, has grown from 602 company owned and franchised units in 2003 to over 877 today. In 2005 alone, its sales increased by 33.6% and its net income increased by 35.2%. So what's Panera's secret? How is it that this company flourishes while its industry as a whole is experiencing difficulty? As we'll see, Panera Bread's success can be explained in two words: positioning and execution.
Changing Consumer Tastes
Panera's roots go back to 1981, when it was founded under the name of Au Bon Pain Co. and consisted of three Au Bon Pain bakery-cafés and one cookie store. The company grew slowly until the mid-1990s, when it acquired Saint Louis Bread Company, a chain of 20 bakery-cafes located in the St. Louis area. About that time, the owners of the newly combined companies observed that people were increasingly looking for products that were "special"that were a departure from run-of-the-mill restaurant food. Second, they noted that although consumers were tiring of standard fast-food fare, they didn't want to give up the convenience of quick service. This trend led the company to conclude that consumers wanted the convenience of fast food combined with a higher-quality experience. In slightly different words, they wanted good food served quickly in an enjoyable environment.
The Emergence of Fast Casual
As the result of these changing consumer tastes, a new category in the restaurant industry, called "fast-casual," emerged. This category provided consumers the alternative they wanted by capturing the advantage of...