Panera Bread Case Study Competitive Advantage

1. What is Panera Bread’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Panera Bread is taking? What type of competitive advantage is Panera Bread trying to achieve? Panera Bread aims to use a focused differentiation strategy to provide “quick-casual” meals to a target market comprised mainly of urban workers and suburban dwellers. Through the focused differentiation strategy, Panera Bread offers signature baked goods, sandwiches, and soups to satisfy the specific tastes and requirements better than their closest rivals, namely healthy and intriguing meal choices in a trendy yet comfortable dining setting. The competitive advantage that Panera Bread hopes to achieve is in their high-quality goods that are a smart and easy choice over competitor’s products. 2. What does a SWOT analysis of Panera Bread reveal about the overall attractiveness of its situation? Does the company have any core competencies or distinctive competencies? SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats. Strengths : Product/Dining Experience Differentiation Good Brand Recognition Franchise Support/Operational Performance Superior Growth Model High Quality Ingredients, Expertly Prepared Vertical Integration (Supplier, Distribution) High Corporate Responsibility Weaknesses : High Cost Geographic Concentration High Waste (Perishables) Low Flexibility for System Shock Opportunities : New Market Opportunities Breakfast Take-Home Bakery/Groceries Recovering Economy Rising Organic Market Rising Customer Awareness of Health Issues/Allergens Threats : Gluten-Heavy Strong Competitors Sensitive to Oil Shocks

Panera Bread Company (NASDAQ:PNRA) is one of the most promising companies in the world. The company has several competitive advantages, chief of which is its management. The company has gained its popularity in the market due to its remarkable growth over the last decade. The company also has a well maintained balance sheet. Long-term investors are advised to seriously consider adding Panera Bread to their investment portfolio.

Profile

Panera bread is a national bakery-cafe, and is currently one of the largest food service companies in the U.S. Panera Catering differentiates itself through its healthier food, better customer service, and a well designed decor. Over the years, Panera Bread has become very popular. According to The Wall Street Journal, Panera scored the highest level of customer loyalty amongst quick casual restaurants. It also ranked 2nd amongst excellent large fast-food chains. In addition, Panera made it to Fortune magazine's 2010 list of 100 Fastest-Growing companies.

Competitive Advantage

The biggest competitive advantage with Panera is its ambiance. The ambiance is rich with comfort and delight. In addition, the interior decor of the cafe is artistic and attractive. The company's goal is to offer an "oasis," away from the rush of daily life. Many of Panera's locations incorporate a fireplace and outdoor seating areas, distinguishing it from other neighborhood cafes. Panera promotes the image of freshness. The first object customers see when they enter the cafe is a massive display of bread. Also, the baguettes are tagged with the time when they came out of the oven.

Another competitive advantage with Panera is its high quality customer service. The associates at the restaurant are trained to greet customers by name, and have the skills to make each visit extraordinary. The company looks for and hires associates with the right personalities for the job. In 2010, Panera Bread was listed in BusinessWeek's list of top 25 'Customer Service Champs.'

Panera lays a lot of emphasis on buying fresh ingredients. It is famous for its antibiotic-free chicken. The antibiotics fed to chicken lets it fend off disease, but also produce downsides. Also, the company serves whole grained bread, select organic food, and all-natural ingredients. The bread at Panera is baked on location and not at a faraway 'Fresh Dough Facility.' This helps the company serve the food fresh.

Management

Perhaps, the biggest reason for Panera's success is the presence of its founder, Ron Shaich. Ron Shaich has always emphasized high-quality product, instead of short-term profits. His main goal as regards business is to understand what makes some businesses tick, and others not. He, then, applies that new understanding at Panera. In Ron's own words, "I never got into business to be in business. I got into business because it was the way in which I made a difference and I could have an impact." Ron continues to visit the Panera's locations to regularly speak with customers and receive valuable feedback. Ron Shaich is the man responsible for the company's success, and with his leadership, the company should continue to innovate and please its customers.

Balance Sheet

The company has a lot of admirers in the market, due to its strong financial books. The company has maintained its cash reserves at high levels. Panera has a strong and sustainable current ratio of 1.72. The current ratio has remained high despite constantly increasing investment expenditure.

Also, the company had no outstanding borrowings in 2012. Most of the company's capital expenditures have been financed by operating cash flow. The good financial condition of the company allows it margin to expand further, and venture into newer markets.

Stock Price

Although the stock of Panera seems expensive at first sight, the market deems the valuation appropriate in view of its excellent growth opportunities. Panera has grown gangbusters over the last decade. The EPS has grown 480% in the last 10 years. That produces an average annual growth rate of 19.4%. Due to the company's competitive advantages and excellent management, it seems unlikely that the company's earnings growth would slow down a lot.

Conclusion

Panera is a 'BUY' for long-term investors. The company has excellent future prospects, owing to its world class management. The founder, Ron Shaich, has successfully created a brand that faces no formidable competitors in the market. The company has delighted its customers and enjoys exceptional customer loyalty. The company should prove to be a safe bet for long-term investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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