CASE 5.1 Panera Bread: Occupying a Favorable Position in a Highly Competitive Industry . Web: www.panerabread.com . Facebook: Panera Bread . Twitter: @panerabread Bruce R. Barringer, Oklahoma State University R. Duane Ireland, Texas A&M University Introduction If you analyzed the restaurant industry using Porter's standard fast-food fare, they didn't want to give up the convenience of quick service. This trend led the five forces model, you wouldn't be favorably impressed company to conclude that consumers wanted the with the results. Three of the threats to profitability -the convenience of fast food combined with a higher-quality threat of substitutes, the threat of new entrants, and experience. In slightly different words, they wanted good rivalry among existing firms- are high. Despite these food served quickly in an enjoyable environment. threats, one restaurant chain is moving forward in a very positive direction. St. Louis-based Panera Bread, a chain The Emergence of Fast Casual of specialty bakery-cafes, has grown from 602 company- owned and franchised units in 2003 to 2, 100 in early As a result of these changing consumer tastes, a new 2017. In 2016, system wide sales reached $2.7 billion, up category in the restaurant industry, called "fast casual," emerged. This category provided consumers the 6 percent from the previous year; and, sales revenue was alternative they wanted by capturing the advantage of ticking upward in 2017 as well. These numbers reflect both the fast-food category (speed) and the casual dining a strong performance for a restaurant chain. So what's category (good food), with no significant disadvantages. Panera's secret? How is it that this company flourishes The owners of Au Bon Pain and Saint Louis Bread while its industry as a whole is experiencing difficulty? Company felt that they could help pioneer this new As we'll see, Panera Bread's success can be explained category, so they repositioned their restaurants and named in two words: positioning and execution. 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 Changing Consumer Tastes provides a visual representation of the positions of various Panera's roots go back to 1981, when it was founded companies in an industry. Panera Bread emerged as under the name of Au Bon Pain Co. and consisted of a bakery-cafe that sells flavorful, wholesome food in a three Au Bon Pain bakery-cafes and one cookie store. warm, friendly environment. Customers order their meal The company grew slowly until the mid-1990s, when at a counter and receive it from a server in a booth or at a it acquired Saint Louis Bread Company, a chain of table, usually in less than 10 minutes. 20 bakery-cafes located in the St. Louis area. About that time, the owners of the newly combined companies Panera's Version of Fast Casual observed that people were increasingly looking for To establish itself as the leader in the fast-casual products that were "special"-meaning that they category and to distinguish itself from its rivals, Panera differed from run-of-the-mill restaurant food. Second, (which is Latin for "time for bread") added a bonus to they noted that although consumers were tiring of188 PART 2 DEVELOPING SUCCESSFUL BUSINESS IDEAS Positioning Strategy High 4 of Various Restaurant Casual Dining Fast Casual Chains Applebee's Panera Bread Red Lobster Bruegger's Chili's Chipotle Carrabba's Italian Grill Cosi Food Quality Fast Food Mcdonald's Unfavorable Position for Wendy's Everyone Burger King Taco Bell Low Slow Fast Speed of Service the mix-specialty food. The company has become category. Its unique blend of fast-casual service and known as the nation's bread expert and offers a variety specialty foods also continues to gain momentum. This of artisan and other specialty breads, along with bagels, sentiment is captured in the following quote from Mark pastries, muffins, scones, and baked goods. The bread von Waaden, an investor and restaurateur who signed and bakery items are typically baked by an on-staff an agreement to open 20 Panera Bread restaurants in baker each day before dawn. Some locations also the Houston, Texas, area early in the company's growth participate in a program that donates their unsold baked spurt. Commenting on why he was attracted to Panera goods to local charities after closing each day. Panera Bread as opposed to other restaurant chains, von Bread's restaurants are open for breakfast, lunch, and Waaden said, "My wife, Monica, and I fell in love with dinner, and also offer hand-tossed salads, signature the fresh-baked breads and the beautiful bakery-cafes. sandwiches, and hearty soups served in edible We think the Panera Bread concept of outstanding sourdough bread bowls, along with hot and cold coffee bread coupled with a warm, inviting environment is drinks and other beverages. The company also provides a natural fit with the sophistication that the Houston catering services. Its restaurants present customers with market represents." a neighborly atmosphere and relaxing decor, adding to The spirit of von Waaden's statement captures their appeal. Panera even suggests a new time of day to the essence of Panera's advantage. It isn't just eat specialty foods, calling the time between lunch and another restaurant. By observing trends and dinner "chill-out" time. listening to customers, its leaders helped the With high hopes for future expansion, Panera firm carve out a unique and favorable position in Bread is an acknowledged leader in the fast-casual a difficult industry.CHAPTER 5 INDUSTRY AND COMPETITOR ANALYSIS 189 Present Status and Challenges Moving Forward Panera's leadership in the fast-casual category and the customer experience, in 2016 Panera also started eliminating the few remaining preservatives, sweeteners, its financial performance have drawn considerable artificial flavors, and artificial colors that remain in its attention. The company employs more than 47,000 food items. people, serves 8.3 million customers per week, and To keep its growth on track, Panera is considering is currently one of the largest restaurant chains in additional initiatives. The company is exploring opening the United States. It also continues to innovate and Panera Bakery-Cafes in nontraditional locations. evolve. In 2012, Panera started testing a notion called It is also exploring food delivery. Given its unique Panera 2.0, which is a series of integrated technologies positioning, Panera sees food delivery as a mass-market intended to enhance the guest experience. The concept opportunity moving forward. was rolled out in a select number of restaurants in 2014 with more being added each year. Panera 2.0 brings Discussion Questions together new capabilities for digital ordering, payment, and operations. The Panera Bread restaurants that have 5-40. How has Panera Bread established a unique position transitioned to Panera 2.0 have table kiosks, which the in the restaurant industry? company calls Fast Lane, where customers may place 5-41. How has Panera Bread's unique position in the res- taurant industry contributed to the firm's success? an order and pay without going to the counter. The 5-42. What barriers to entry has Panera Bread created for orders are placed on iPads. Customers can also place potential competitors? orders and pay via a smartphone app. 5-43. What are Panera Bread's primary sources of competi- In regard to challenges, Panera has a growing tive advantage? number of competitors. The fast-casual category now 5-44. What are the ways that Panera Bread can conduct includes restaurant chains such as Chipotle Mexican ethical and proper forms of competitive analysis to Grill, McAlister's Deli, Panda Express, and Jimmy John's learn about potential competitors entering the fast- Gourmet Sandwiches among others. As a result, in casual category? 2015 Panera refined its positioning to reconceive its brand mission as one of offering craveable wellness Sources: Panera Bread Homepage, www.panerabread.com and an elevated experience within the fast-casual accessed February 18, 2017); Panera Bread Annual Report 2015; Panera Bread, Wikipedia, www.wikipedia.com (accessed February space. Panera 2.0 is part of this. The company also 18, 2017); M. Armental, "Panera's Quarterly Results Beat Project introduced new menu items that are intended to help the tions," The Wall Street Journal Online, https://www.wsj.com/articles/ firm establish a premium reputation. The items, which paneras-quarterly-results-beat-projections-1486503767, February 7, have become very popular, include Panera's Roasted 2017; "Industry by Industry:" A Look at the Start, Their Stocks-and Turkey, Apple and Cheddar Sandwich and its Ancient Their Latest Picks," The Wall Street Journal, May 12, 2003, R8. Grain, Arugula and Chicken Salad. As part of enhancing