Part B

Part B of Integrative Case 4.1 compares the profitability of Starbucks with Panera Bread Company. Although Starbucks and Panera Bread Company are not direct competitors in terms of the principal food products offered, they compete in the sense of offering a relaxed cafe experience. Whereas the products of Starbucks center on coffee and related beverages, Panera Bread Company emphasizes freshly baked bread and pastries. Panera Bread Company also sells sandwiches, soups, and similar lunch and light dinner products that build on their bread offerings, as well as coffee and other beverages. The average size of a Panera Bread Company retail outlet is typically larger than that of Starbucks. Both Starbucks and Panera Bread Company own other parties that own and operate other retail stores. Panera Bread Company prepares fresh dough daily in various regional facilities to use in company owned stores and to sell to franchisees. Unlike Starbucks, it has not expanded beyond the United States. Exhibit 4.45 (page 321) presents profitability ratios for Panera Bread Company for 2010-2012, and Exhibit 4.46 (pages 321-322) presents segment profitability and other data. The format of exhibit 4.45 is similar to that of Exhibit 4.43. However, due to less detailed disclosures by Panera, Exhibit 4.46 does not contain specific cost structures for Panera's operating segments, similar to what was available from Starbucks and presented in Exhibit 4.44. The proportions of general and administrative expenses not allocated to divisions for Panera Bread Company are similar to the corresponding percentages for Starbucks (suggesting they are not material enough to specifically factor into the analysis).

Required

a. Both Starbucks and Panera have larger than average ROA. However, Panera's ROA has typically been below that of Starbucks. What are the likely reasons for the relative levels of ROA between Panera and Starbucks? Analyze the data to the maximum depth permitted by the information given and speculate on economic explanations for what the analysis indicates.

b. Panera's ROCE also has typically been below that of Starbucks, but by a large margin. Why?

Exhibit 4.43 Starbucks Financial Statement Ratio Analysis (Integrative Case 4.1, Part A) 2012 2010 9.1% 16.2% 2011 Profit margin for ROA Assets turnover 10.9% 1.70 18.5% 10.6% Profit margin for ROCE Capital structure leverage 28.1% 41.2% 32.4% Cost of sales/Operating revenues Store operating expenses/Operating revenu Other operating expenses/Operating revenues Depreciation and amortization expense/Operating revenues General and administrative expense/Operating revenues Restructuring charge/Operating revenues Income from equity investees/Operating revenues Interest revenue/Operating revenues Income tax expense (exduding tax effects of interest 30.9% 42.0% 30.7% 3.4% 4.5% 64% 0.0% 1.5% 1.1% es 4.8% 05% 1.4% 05% 4.9% 4.7% expense)/Operating revenues Accounts receivable turnover Inventory turnover Fixed asset turnover 7.3 4.3