Panera Bread Case Study

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In 1993, AU Bon Pain Company purchased the Saint Louis Bread Company. In 1995, top management at Au Bon Pain instituted a comprehensive overhaul of the newly-acquired Saint Louis Bread locations. The overhaul included altering the menu and the dining atmosphere. The vision was to create a specialty cafe anchored by an authentic, fresh-dough artisan bakery and upscale quick-service menu selections. This acquisition proved successful for Au Bon Pain. Between 1993 and 1997, average unit volumes at the revamped locations increased by 75% and over 100 additional locations were opened. In 1997, the bakery-cafes were renamed Panera bread in markets outside of St Louis. The Panera business plan had worked well and management concluded it had broad market appeal and could be rolled out nationwide. The management team quickly realized the potential of Panera Bread to flourish into one of the leading fast-casual restaurant chains in the nation. With this realization came the need for a more focused management team and greater financial resources. It was not in their best interest to continue with both Au Bon Pain and Panera Bread. In 1998, they went exclusively with Panera Bread and sold their Au Bon Pain bakery-cafe division. After the sales transaction to ABP Corporation was complete, the new Panera Bread Company was restructured and had 180 St Louis Bread and Panera Bread bakery-cafes and a debt-free balance sheet.

Over the next 8 years a combination of company owned and franchised bakery-cafes opened, for a total of 850 additional locations. Exhibit 1 shows their success between 2002 and 2006. Their financial stats remained strong, with a continuous increase in revenue and net income. Panera's strategic intent was to make great bread broadly available to consumers across the United States. They have plans to open 170-180 cafe locations in 2007 and to have nearly 2,000 Panera Bread bakery-cafes open by the end of 2010. Management was confident that their attractive menu and the dining ambience provided significant growth opportunity, despite the fiercely competitive nature of the restaurant industry.

1. What is Panera Bread's Strategy and what type of competitive advantage are they trying to achieve?

Panera Bread's distinctive menu, signature cafe design, inviting ambience, operating systems, and unit location strategy has allowed it to compete successfully in five submarkets in the food-away-from home industry. Those submarkets are breakfast, lunch, daytime "chill out," light evening fare for eat-in or take-out and take-home bread. Panera's competitive advantage comes in part from their well balanced approach. They count on their Product, Environment, and Great Service (PEGS) to deliver their success. This synergy has worked well for them. The have taken a broad approach to their customer's experience. They don't focus on just the quality of the food, or just the warm and inviting atmosphere of the cafe or just the friendly customer service. They are truly committed to constantly providing all three in harmony, taking the full experience into account. In regards to increasing their evening sales, they tried to succeed by "being better than the guys across the street" and making the experience of dining at Panera so attractive that customers would be willing to pass up their typical fast-casual restaurant and go to a nearby by Panera Bread bakery-cafe instead.

Panera used a three pronged business approach. Franchising had been a key component of the company's efforts to broaden its market penetration, but not its only approach. Panera Bread had organized its business around company-owned bakery-cafe operations, the franchise operations, and fresh dough operations.

Another competitive advantage Panera Bread has is it's ingredients. Their signature product, artisan bread, is made from four ingredients - water, natural yeast, flour and salt. Preservatives and chemicals are not added to the mixture. They use the...
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