Panera Bread Company in 2016:

Is the Company’s Strategy to Rejuvenate its

Growth Working?
Created to Fulfill
Strategic Management Final Group Assignment

Group 4
Alvian Tamba – 18/436896/PEK/24420
Gilang Shanahan – 18/436959/PEK/24483
Raras Warasantiningsih – 18/437042/PEK/24566

MM UGM
International 7
2019
 Chapter 1

Executive Summary

Panera Bread is one of the oldest fast casual restaurants chain in The United States of America,

currently has over 2,000 bakery-cafés in the US and Canada. The company runs bakery café

concept with balanced menu, ranging from artisanal breads, pastry, salads, , through soups to

sandwiches. Panera puts strong emphasis on high-quality ingredients, fresh-made dough,

antibiotic-free chicken, and organically sourced ingredients. The growth in revenue enabled

the company to increase its operation in other regions by establishing new units. Panera Bread

also has their franchise business model that help their rapid growth by partnering with qualified

restaurants owner.

Panera Bread’s corporate culture seems to be very good and not anythingnothing was said

against it. Panera is very dedicated put forth dedication to wards human resources management

and holding a strong professionalism within the company. Important is how the employees feel

and treat the customers that can set the mood for an entire company.How the employees feel

and treat their customers can set the mood to the entire company.

Panera Bread has a lot going for them in the way of resources. First, Tthey have a very strong

and visionary CEO and Mmaster Bbaker in their teamgood human resources from the

executives to the daily operators. Second, The second resource that Panera has is the franchise

operations. Having a successful franchise operation can make the company grow faster along

with bringing in a percentage of sales from all the stores., At there moment, there were are 429

franchised bakery-cafes open and commitments to open upopen another 409. They also have

armies of delivery logistics to make sure their products are well-distributed.

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The third resource thatThird, Panera has is their own management information system. All the

Panera stores have computerized cash registers, but they that provided give a lot more

information than most businesses. These systems can able do many things, such as help

assisting with cost managing, scheduling, and also seamless ordering for customers.

Albeit these competitive advantages, Panera faced a slowing of growth in 2015-2016 fiscal

years. The current position of the bank financial statement is not good due to its Commented [GSL1]: Ini maksudnya posisi keuangan
Panera? IF yes, suggest to change to ‘trade balance’ or
‘company account’
reducingreduced sales revenue that arises from the lower demand of the company’s products.

Despite the expansion of the company’s new units, the firm has realized reduced growtha

decline in annualized growth volumes and sales when compared to other years. Therefore, Iis

the Panera’s strategy good enough to keep them in the business? AreIs the new strategies

implemented to rejuvenate the company’s growth working?

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 Chapter 2

Major & Minor Issues (3 pages)

1.1. Major Issues

Panera Bread is not a company without a fault. Despite having 1,860 company-owned and

franchised bakery-cafés as of 2016, the figures did not bring immediate positive impact toward

the company’s financial condition. Back in 2009 until 2013, Panera Bread recorded a vigorous

compound average growth of 19.9%. These numbers are long gone, since the company

recorded a revenue growth of only 6.0% and 6.1% in 2014 and 2015, respectively. The slower

revenue growth also directly caused a decline in Earnings Per Share (EPS), from $6.85 in 2013,

to $5.81 in 2015, a severe 15% plunge. As it can be seen from the financial statements, Panera's

performance has been shrinking in the last twelve months in all key metrics--operating margins,

return on assets, and revenue and earnings growth

When we look at the possible cause of these drop, several issues came to mind. First,

Panera has slowed down its new location openings sequentially over the last three years. In

2013, the company opened 133 new restaurants; in 2014, this dropped to 114; and for 2015,

Panera expects to open between 105 and 115 new locations. Second, The second issue facing

Panera Bread is, the company's cash flow is taking a hit as its sales growth has slowed. In the

last 12 months, Panera only managed to increase its core operating cash flow by 0.2%. Investors

might be willing to accept slower revenue growth if Panera was churning out cash flow growth,

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but it's very difficult to accept both issues at once. As a bottom line, the slowing economic

growth in the USA can also impact on the sluggish growth of Panera’s business.

Facing these issues, Ronald M. Shaich, the founder and also CEO of Panera Bread has

done numbers of strategic move to ensure the company regrow and giving benefit both to the

shareholders and the stakeholders.

1.2. Minor Issues

1.2.1. Panera 2.0

Similar to other companies who are entering Industry 4.0 phase, Panera Bread also

develop its own application, dubbed Panera 2.0. Launched in 2012, the application was

designed with convenience in mind; customers are now able to make orders and payment

digitally, while store employees and managers may use the application for internal activity.

Panera 2.0 application were designed to enhance guest experience, aid the induction of

marketing innovations, promoting cost-efficient handling of growing customer orders, and

make way for better operating efficiencies in the bakery-cafés.

Panera 2.0 were initially launched in 14 bakery-cafes and was a tremendous success that the

company decided to enroll it throughout the entire branch, aiming a company-wide application

by 2017, only to complete it even quicker in 2015.

Panera 2.0 offers “Rapid Pickup” feature that allows customer to place an order and

make payments online, and pick up their order in the desired location. By the end of 2015,

online orders accounts for nearly 25% of Panera bread bakery-cafes total sales.

Despite the impressive result, major shareholders express concerns in the effectiveness

of the application in promoting internal efficiency and improving guest number in non-peak

times.

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1.2.2. Panera Delivery Services

Panera delivery services were introduced to accommodate Panera Bread’s target market,

urban workers and suburban dwellers. Most of Panera Bread’s customers are business people,

who typically has a tight schedule and in need of a swift food service to nourish themselves to

lasts the day.

Therefore, delivery services are a good solution to help these urban workers and suburban

dwellers to focus more on their work and have their food need sorted up in a more practical

manner.

The initial roll out of delivery service were tested out between 2012-2013 at 25 cafes

in two geographic markets. During the early testing stage, delivery sales averaged at $5,000

per week, well exceed the $3,000 breakeven point (excluding the startup, training, and initial

awareness costs). According to Panera Bread’s CEO, Ron Shaich, the delivery services are

superior new channel to grow Panera’s sales and profit. He claimed that the delivery channel

has 6 advantage; (1) Panera’s food product are ideal for delivery since it requires minimal use

of heating, (2) The initial rollout prove Panera’s are able to tap new customer that are

previously unserved, (3) Delivery sales growth trajectory surpassed sales growth without the

delivery service, (4) Delivery process curb the operating costs since all items are made to order,

(5) Modest transition costs, and (6) Delivery service will leverage the implemented technology.

The delivery service however, are also challenged with the abundance of third party food

delivery service courier.

1.3. Research Questions

Is Panera strategies to rejuvenate their growth working?

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 Chapter 3

Theoretical Findings & Smart Chart (5 pages)

1.4.3.1. Theoretical Findings

1.4.1.3.1.1. SWOT Analysis

Strengths

The first strength of Panera Bread Company’s strength lies in its corporate resources. The

companyPanera has skilled leadership that has ensured its success in not only baking high

quality bread and dough products, but alboth in creation of high quality product and

impressiveso financial performance. Through his leadership, Ron Shaich (CEO) leadership,

Panera has led to the development of the created competitive advantage unavailable elsewhere

of the company that enables the company produce and distributes fresh dough products. Using

its corporate strategic resources, the company has been able to provide its clients with fresh

high quality dough products. Not all companies are able to do that and it has enabled the

company to increase it market share. This competitive advantage are also supported by a strong

supply chain model exercised by Panera Bread that ensure secure delivery of both raw and

finish product towards the final destination. they deliver their raw materials and also end

product fresh by using their inhouse delivery services. Panera also owns one of the business’s

best franchise model. The system is well designed and provided adequate support to future

6
franchisee, including market analysis, training program, and site selection. This allows

seamless transition should Panera introduced new item into the menu.

The second strength of the company is their franchise business model. They have a very clear

management system for the franchisee to apply. Panera Bread also provide numerous support

through the operations of the franchise stores, such as market analysis, site selenction

assistance, training program, and certification. Furthermore, the ability of the company to

frequently change its menu in the restaurants to fit into consumer taste and preferences.

Through this strength, the company has been able to maintain a large number of loyal

customers.

Weaknesses

High qualitTy product offered by Panera equals to higher price point. Freshly baked artisanal

bread and organic salad does not come cheap. Compared to competitors on similar level,

Panera’s product are priced higher and may be unfavorable for customer with middle-low

income. he first weakness of the company is high prices that are charged to its fresh products.

The company offers fresh bread and dough products daily to its customers. When it is compared

with its competitors that offer organic food products, the company sells its products at higher

prices. The high prices that are charged by the company are not favorable to some middle and

low-income clients. Additionally, the prices of food products in Panera restaurants are higher

than its competitors are. Panera also lacks a dedicated Research & Development division in the

company. Without a proper division solely dedicated to creation of new menu items,

The second and major weakness of the company is the incompetence of the company in

research and development. Although there are limited field of research and development in the

industry, the company does not have established department in charger of research and

development or innovation. Tthe aggressive expansion strategies by management can also lead

to mismatch ofthe speed of the R&D department

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Opportunities

The company has its first opportunity asPanera has opportunity to diversifying its product mix.

Panera’s target market has the capability to meet company’s price demand without trouble.

Panera’s current menu that cater to healthy lifestyle can also be expanded to tap more customer

from the market. This is because it has a diverse culture of consumers who are capable of

meeting the company’s price demands without any doubts. Healthy lifestyle is a hype issue

nowadays and Panera already known with their high-quality ingredients and antibiotic-free

chicken, that can be a way to tap into new market. Panere also adopted a strong technology

usage covering their whole supply chain. Usage of technology allows Panera to minimize idle

time, giving more opportunity for future supply chain improvement. Panera also has

opportunity to expand further internationally using franchise agreement. Current model are

well established and can easily be adapted to fit international markets.

They company also adapted a very strong technology usage that cover their supply chain.

Starting from ordering, stock taking, and also training and managing the human resources. By

adapting technology, Panera Bread can minimize the idle time thus putting advantage on their

supply chain.

The third opportunites are establishment of international franchise agreements. The company

has succeeded in establishment of franchise business. By internationalizing using franchise

business, the company will be able to operate in international markets and be able to improve

its financial performance further through increased international outlets.

Threats

The first threat facing the Panera Bread is the threat of rivalry from the company’s competitors

in the industry. Competitors are very aggressive and the company must keep up with the pace

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on competitiveness in order to maintain its position in the market. The competitors pose a threat

to the existence of the company.

The second threat to the existence of the company is the threat of is new entrants in the industry.

Due to the free entry and exit in the industry, new entrants have entered the industry leading to

market saturationmay lead to market saturation. Any person or organization with enough

capital can establish a restaurant. The advantage of new restaurants is that customers are willing

to try them while looking for a variety of meals. Last but not least, the instability of a

nationnation’s economic instability economic can also be a threat tothreaten Panera Bread since

it can lower the consumer’s buying power.

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1.4.2.3.1.2. Porter’s 5 factors Analysis

With this guidelines, we can analysis further about the condition both internal and external

from Panera Bread point of view.

In the rivalry among existing competitors factor, Panera is facing a high competitive

environment since there are more than 1 million restaurants located throughout the United

States of America (National Restaurant Association, 2019). This environment is forcing

restaurants to continue to seek ways for themselves apart from rivals via pricing, food quality,

menu theme, signature menu selections, dining ambience and atmosphere, service,

convenience, and location. As for the threat of new entrants is high because of the barriers to

entry is quite low. Consumers are always looking for different places to eat. Anybody could

open a restaurant, as long as they have the financial. This can be faced by Panera by

innovating both products and services this can bring new costumers in and also win back old

costumers to revisit Panera Bread and not moving to other competitors.

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Furthermore, suppliers in dominant position can decrease the margins Panera Bread

Company can earn in the market, this is a crucial case happening right now at Panera. They

are very depended with their current antibiotic-free chicken supplier as well as the organic

ingridients. The overall impact of higher supplier bargaining power is that it lowers the

overall profitability of Panera Business. For Bargaining Power of Buyers, Panera need to

rapidly develop innovative menu to grab every single buyers available out there, they also

need to maintain their loyal customer database by giving them special offer and privileges.

For the Threat of Substitue products, Panera Bread can shift their paradigm to focus more on

the services they provide rather than the product because they already done very well in

providing healthy fast food option. By understanding the core need of the customer rather

than what the customer is buying can benefit Panera more in the long run.

1.4.3.3.1.3. McKinsey’s 7s Framework

Strategy - The company has a unique strategy in the market place where the company is able Formatted: Font: Not Bold

to differentiate itself in the market place but the fresh dough facilities are limited and need to

be increased to further improve its supply chain and increase efficiencies.

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Structure - structure follows strategy. Therefore, there is a need to restructure the Panera Formatted: Font: Not Bold

Bread Company's organization dividing the three different businesses of company owned Formatted: Font: Not Bold

bakery cafes, franchise bakery cafés and fresh dough facilities into three separate Strategic

Business Units (SBUs) and since each SBU will function as an independent entity being

responsible sales, cost and profit center, it will bring more efficiencies in the organization.

Systems - Panera Bread Company has already implemented IT system with electronic Formatted: Font: Not Bold

ordering with its fresh dough facilities and monitoring and tracking the orders along with

support and wider application of analytics to forecast sales. The company further needs to

strengthen its competitive intelligence systems to monitor and track the steps taken by

competitor restaurants and cafes. Although the company provides online training and has HR

system linking the compensation in the form of bonus to cash flow from bakery cafes, still

there is a need to strengthen HR systems where the employees are motivated to perform.

Staff - The company has a full time staff of more than 12,000 employees called associates in Formatted: Font: Not Bold

2009 and 13,200 part time associates. Since the company is aggressively expanding its

operations across United States of America and Canada, there will be a requirement of

staffing more skilled employees and less unskilled employees due to automation of certain

systems.

Skills - Panera Bread Company has invested in rigorous training programs for its associates Formatted: Font: Not Bold

for ensuring the quality of operations at the company. Further, there is a need to identify the

areas where skill development is required such as customer service, supply chain, processing

of fresh dough etc. and develop specific training programs targeted at the employees working

in different areas.

Style - The leadership style of the CEO is has strong vision and commitment to providing Formatted: Font: Not Bold
Formatted: Font: Not Bold
quality products to the consumers.

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Shared Values - The shared values of the company constitute its work culture. Panera Bread Formatted: Font: Not Bold

has good employee relations as per the facts of the case.

1.5.3.2. Smart Chart & Conclusion

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 As Leavitt (Sarker, 2003) (1965) mention that the management need to be more flexible Commented [Alv2]: We need to add reference here
Formatted: Font: (Default) Times New Roman, 12 pt,
regarding the change with integrated and interactive approach. To aim the goal to be a leader Do not check spelling or grammar

in the industry, the company need to have willingness to change. And the whole department

need to be aware of the changes, the strategy of the changes, what is need to be done, so that

the plan of the change might be successful.

Based on Leavitt’s diamond, to have a good culture, there are four elements that need to

highlighted. These are the structure, task, people, and technology.

Task

Take Panera Bread for example, to implement the change, the restaurant needs to understand

the key task of the process are to take order, cook the food and then serve it to the customers.

When the strategy is change, the employees need to aware that it would be affected their tasks

significantly.

People

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As the task might changes, the training for employees needed to adapt the new process. As

Panera Bread is highly concerned about their employee’s development, Panera always conduct

training for the new process.

Structure

As the new process implemented, the new structure in the restaurant would be changes to. For

example, as Panera 2.0 is launch, the customers are now able to make orders and payment

digitally so the individuals taking order are no longer needed, so the restaurant need to

restructuring the process. This will result in either a lay-off of workers, or transferring them

into new roles.

Technology

The technology will need to be developed so that it is efficient enough to make the order

process faster than before. Panera implemented the technology 4.0 with Panera 2.0. With the

technology, the company can integrated their whole business process.

Besides the good corporate culture, company also need to have a good leadership role. As

stated by Koestenbaum (2002 in his book (Koestenbaum, 2002)), a leader has four orientations, Commented [Alv3]: This reference as well
Formatted: Font: (Default) Times New Roman, 12 pt,
vision, ethics, courage, and reality. Each person has these qualities inside them. Do not check spelling or grammar

15
 The relationship between these four elements determines the shape and size of the space

of the person’s leadership capacity, which Kostenbaum calls greatness. To implement a good

corporate culture, the company needs good leaders to lead the changes.

As conclusion, Panera Bread has shown Greatness as their key value driver in their

business. Panera has a very distinct leaders, integrating the ethics, vision, courage, and realities.

They also show that they are adaptable and agile to change happening in the market for years

they exist in the business. Panera was not afraid to switch to digitalize their process even the

management had slight controversy about this idea, they also prepare the people for changes

happen inside the organization and outside. Furthermore, Panera structured their business not

only as an organization that serve the customers directly but also as a manufacturer and

consultant for the franchisee. We believe, the strategies implemented by Panera are good

enough to rejuvenate their growth in upcoming years.

Chapter 4

Final Opinion (2 pages)

4.1. Implementation of Findings in Indonesia

Panera Bread as a fast-casual dining and quick service for healthy food has a good strategy

to implement in Indonesia. There are many restaurants that over several menu but they are not

really has the significant value to be the leader in industry. To be the leader, company must

have corporate culture that defined their differences with other restaurants. And the company

need to have a good visionary leader thus drive the business in a good mannership too.

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 We believe by understanding and analyzing Panera case with Strategic Management point

of view can bring some insight to be implemented in Indonesia especially in food industry.

First, company should shift from profit oriented to value oriented thus the goal of the

company is making value for stakeholders (profit for shareholders, satisfaction and

enjoyment for customers, eco-friendly, etc). Then breaking it down little by little, from the

commitment in giving the best ingredients available to using the best products to serve the

costumer (dining utensils, furnitures, etc).

Furthermore, a great organization is a product of a great leader and Indonesia is

lacking of great leader. Thus by applying Koestenbaum Diamond leadership model, we can

see more emerging leader in the market. Great leader need a combination of strong ethical

perception, great vision, clear awareness of the reality and rock-solid courage to drive not

only himself but also the entire team and organization for a better innovation. Greatness

comes about when a person has pushed the points of the combination to their maximum

extent. When your vision is as grand as you can make it, when your ethical base is as strong

as possible, when you are aware of all of the realities surrounding you, and when your

courage is at its peak, you can achieve greatness.

In the VUCA world, the only thing that constant is change thus, Levitt’s Diamond

Models come in handy. Change initiatives often fail due to a lack of preparation, and hence

never had a chance of succeeding. One common mistake is to treat the initiative in isolation

17
from the rest of the organisation. It is almost impossible to implement a change strategy

without it having an effect on other processes, departments, or individuals, whether they are

intentional or not. Therefore, being aware of the effects the change will have on the

organisation as a whole, and planning accordingly, is crucial for the success of any change

strategy.

One of the phenomena that can describe this is the emerging culinary business of

Indonesian artist around 2010-2013. They had a very bright initial phase but after one year,

the business slowing down and even close down due to lack of strategic management.

As Leavitt (1965) mention that the management need to be more flexible regarding the Commented [Alv4]: We need to add reference here

change with integrated and interactive approach. To aim the goal to be a leader in the industry,

the company need to have willingness to change. And the whole department need to be aware

of the changes, the strategy of the changes, what is need to be done, so that the plan of the

change might be successful.

Based on Leavitt’s diamond, to have a good culture, there are four elements that need to

highlighted. These are the structure, task, people, and technology.

18
Task

Take Panera Bread for example, to implement the change, the restaurant needs to understand

the key task of the process are to take order, cook the food and then serve it to the customers.

When the strategy is change, the employees need to aware that it would be affected their tasks

significantly.

People

As the task might changes, the training for employees needed to adapt the new process. As

Panera Bread is highly concerned about their employee’s development, Panera always conduct

training for the new process.

Structure

As the new process implemented, the new structure in the restaurant would be changes to. For

example, as Panera 2.0 is launch, the customers are now able to make orders and payment

digitally so the individuals taking order are no longer needed, so the restaurant need to

restructuring the process. This will result in either a lay-off of workers, or transferring them

into new roles.

Technology

The technology will need to be developed so that it is efficient enough to make the order

process faster than before. Panera implemented the technology 4.0 with Panera 2.0. With the

technology, the company can integrated their whole business process.

Besides the good corporate culture, company also need to have a good leadership role. As

stated by Koestenbaum (2002), a leader has four orientations, vision, ethics, courage, and Commented [Alv5]: This reference as well

reality. Each person has these qualities inside them.

19
 The relationship between these four elements determines the shape and size of the space

of the person’s leadership capacity, which Kostenbaum calls greatness. To implement a good

corporate culture, the company needs good leaders to lead the changes.

4.2. Advantages of the Findings

The culture of changes gives the company advantages to develop their effective and

efficient process to maximizing their profit for their shareholder. In Indonesia there so many

restaurant that runs in old-school way such as rumah makan padang. They implement the basic

way of restaurant. They don’t use any technology to improve their service, they don’t really

need to care about the employee’s development. Rumah Makan Padang can improve their

whole process by implementing what Panera has done before. Starting by resourcing their best

raw material, producing the best product and services, integrating technology in their business,

creating a business model that interesting enough for investor to invest and develop the

business further.corporate culture as we mention above, following the changes of the

environment and technology so they could be a leader of the restaurant industry in Indonesia.

4.3. Disadvantages of the Findings

Restaurant in Indonesia seems not really ready to change. They sometimes resist to

change for better strategy. For example, coffee shop in Indonesia, even though Starbucks

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already use technology on their basis business process, others coffee shop such as Kopi

Kenangan and Fore is starting to elaborate their technology in their process. Thus people can

order ahead for the coffee and pick up at their choosen stores. This adaptive style is one of

the competitive advantage shown by Kopi Kenangan and Fore making them growth

exponentially compared to other brand. Why we do not see more restaurant or café growing

as fast as this? The most important this is the lack of learning habit in Indonesia. This led to

laziness and less agile to change. and Kopi Janji Jiwa still use conventional process for

taking orders, for example. Many of the restaurant owners are too proud with their success

story and believe they can sustain with their ancient strategiesThis could be because the cost

of capital expenditure for the change need a huge amount of money, yet they fail.. So most of

restaurant resist to do so.

References

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National Restaurant Association. (2019, 12). National Statistics. Retrieved from National Restaurant
Association: https://restaurant.org/research/restaurant-statistics/restaurant-industry-facts-
at-a-glance

Sarker, S. (2003). Toward a Methodology For Managing Information System Information : A Social
Constructivist Perspective. Informing Science, 195-205.

Koestenbaum, P. (2002). Leadership The Inner Sideof Greatness. San Francisco: Jossey-Bass.

Exhibit

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