Panera Bread: Occupying A Favorable Position In A Highly Competitive Industry

In-Class Case

PMBA Class

Spring 2007

Panera Bread: Occupying a Favorable Position in a Highly Competitive Industry (www.panera.com)

Bruce R. Barringer, University of Central Florida

R. Duane Ireland, Texas A&M University

Introduction

If you analyzed the restaurant industry using Porter's five forces model, you wouldn't be favorably impressed. Three of the threats to profitability--the threat of substitutes, the threat of new entrants, and rivalry among existing firms--are high. Despite these threats to industry profitability, one restaurant chain is moving forward in a very positive direction. St. Louis-based Panera Bread Company, a chain of specialty bakery-cafйs, 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-cafйs 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 both the fast-food category (speed) and the casual dining category (good food), with no significant disadvantages. The owners of Au Bon Pain and Saint Louis Bread Company felt that they could help pioneer this new category, so they repositioned their restaurants and named them Panera Bread. The position that Panera moved into is depicted in the graphic titled "Positioning Strategy of Various Restaurant Chains." A market positioning grid provides a visual representation of the positions of various companies in an industry. About Panera's category, industry expert T. J. Callahan said, "I don't think fast-casual is a fad; I think it's a structural change starting to happen in the restaurant industry."

Panera's Version of Fast-Casual

To establish itself as the leader in the fast-casual category and to distinguish itself from its rivals, Panera (which is Latin for "time for bread") added a bonus to the mix--specialty food. The company has become known as the nation's bread expert and offers a variety of artisan and other specialty breads, along with bagels, pastries, and baked goods. Panera Bread's restaurants are open for breakfast, lunch, and dinner and also offer hand-tossed salads, signature sandwiches, and hearty soups served in edible sourdough bread bowls, along with hot and cold coffee drinks. The company also provides catering services through its Via Panera catering business. Its restaurants provide an inviting neighborly atmosphere, adding to their appeal. Panera even suggests a new time of day to eat specialty foods, calling the time between lunch and dinner "chill-out" time.

With high hopes for future expansion, Panera Bread is now the acknowledged leader in the fast-casual category. System wide sales were $640 million in 2005. Its unique blend of fast-casual service and specialty foods also continues