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|Panera opened 69 new bakery-cafes in 2009 - 30 company-owned and 39 franchise-operated – and is targeting approximately 80-90 new openings in 2010.<ref> [[http://www.panerabread.com/pdf/er-20100211.pdf]]</ref>||Panera opened 69 new bakery-cafes in 2009 - 30 company-owned and 39 franchise-operated – and is targeting approximately 80-90 new openings in 2010.<ref> [[http://www.panerabread.com/pdf/er-20100211.pdf]]</ref>|
|-||The company’s growth strategy is two-fold. First, management seeks to expand into new markets, such as the Western states and Canada. Second, Panera wants to open open bakery-cafes in existing markets. Although this strategy could increase Panera Bread’s penetration, market saturation may limit gains.<ref> [[stock:Panera_Bread_Company_%28PNRA%29/Filing/10-K/2008/F5447468#001 | PNRA 10-K 2007, Item 1]]</ref>||+||The company’s growth strategy is two-fold. First, management seeks to expand into new markets, such as the Western states and Canada. Second, Panera wants to open open bakery-cafes in existing markets. Although this strategy could increase Panera Bread’s penetration, market saturation may limit gains.<ref> [[stock:Panera_Bread_Company_%28PNRA%29/Filing/10-K/2008/F5447468#001 | PNRA 10-K 2007, Item 1]]</ref>|
|===Business Model===||===Business Model===|
Panera Bread Co. (NASDAQ: PNRA) operates the signature restaurant chain Panera Bread, selling hand-crafted breads, sandwiches, salads, and drinks. Panera Bread bakery-cafes are often associated with the concept of “fast casual”, a mixture between fast food and more upsale casual dining. Customers still pay for their food at the counter, like a traditional fast food restaurant, but Panera is more upscale, arranging tables and chairs to be conducive to group meetings and spending over $1MM per store on furnishings.
Most Panera Bread restaurants are located in suburban strip malls and regional malls. As of December 29, 2009, Panera had 1,380 bakery-cafes, spanning 38 states, as well as some locations in Canada. In 2009, Panera Bread's revenues reached $1.35 billion, a 4.1% increase over its 2008 revenues. Traditionally, companies like Panera have suffered in recessions, which decrease the frequency with which consumers eat out at restaurants. Panera’s CEO Ron Shaich commented that Panera’s strategy during the recession has been “to stay consistent and not to react to the recession”, keeping costs constant and offering new salads and sandwiches.  As it grew revenues in a year (2009) in which overall restaurant traffic decreased 3 %, analysts have pointed to Panera’s “fast casual” niche (between casual dining and fast food) as contributing to its relative success; this positining may allow it to avoid discounting wars and maintain its margins by attracting customers with a higher quality product perceived to be a good value for the money. Traffic in fine dining restaurants fell by 12% in 2009, while revenues increased by 4% in the fast casual category – some of which may be explained by customers “trading down” from more upscale restaurants. 
Over the past three years, Panera Bread's revenues have increased steadily, driven mainly by growth in the number of new restaurants. However, operating income has wavered, primarily the result of increased commodities prices.
In 2009, Panera Bread's revenues reached $1.35 billion, a 4.1% increase over its 2008 revenues, while net income rose 28% to $86 million. Operating margins have increased by over 1% for each of the last seven quarters, with 2009 operating margin reaching 10.4%. Comparable bakery-café sales growth increased by 0.5% overall in 2009 (dragged down by lower comp sales in stores opened in 2008, -3.8%, compared to comp sales in cafes open since 2007 or earlier, 2.4%). Comp sales picked up in Q4 2009, reaching 5.4%.
Panera plans to open 80-90 new stores in 2010, with more than half to be company-owned.
Panera Bread offers handcrafted, fresh-baked, artisan items such as breads, bagels, muffins, scones, rolls and sandwiches, as well as soups, salads, and specialty coffee drinks. The restaurant chain distinguishes its products by emphasizing nutritional value and quality (such as antibiotic free chicken and whole grain bread), especially when compared to hamburger-based fast food restaurants such as McDonald's, Burger King, and Wendy's, which focus on affordable pricing. Panera also differs from traditional fast food in its focus on providing longer dining experiences to its customer - for example, by offering free Internet access in its buildings.
Panera opened 69 new bakery-cafes in 2009 - 30 company-owned and 39 franchise-operated – and is targeting approximately 80-90 new openings in 2010. The company’s growth strategy is two-fold. First, management seeks to expand into new markets, such as the Western states and Canada. Second, Panera wants to open open bakery-cafes in existing markets. Although this strategy could increase Panera Bread’s penetration, market saturation may limit gains.
The company generates revenue through sales from company-operated stores, fees and royalties from franchisees, and sales from fresh dough facilities. At the end of 2009, the company itself fully owned 585 restaurants, which generated $1,152 million in revenues (85.2% of total revenues). Furthermore, franchisee groups owned 795 additional, franchised restaurants. Franchise-operated restaurants are required to pay the company franchising fees and royalties based on the percentage of sales, the two of which amounted to $78 million in 2007 (5.8% of total revenues). The franchises themselves grossed $1376.4M in sales. Although its franchises only generate a small percentage of the Panera Bread’s total revenue, they are important to the company’s brand name recognition. In addition to restaurants, the company operates 23 fresh dough facilities that supply dough to both company-operated restaurants and franchises. The 23 facilities generated $121 million in sales to franchises in 2009 (9.0% of total revenues).
An important aspect of Panera Bread’s business is its product niche—artisan fast food, also termed “fast casual”. This niche protects the company from ``direct`` competition in the fast food industry as well as the casual dine-in industry. It targets consumers who seek meals of higher quality than those offered by traditional fast food chains, yet do not have the time to dine in or have a sit-down meal in a restaurant. Although there are many restaurants that also offer this mixture, these restaurants tend to be local, and therefore do not benefit from a national brand name and a large advertising budget, which become increasingly important during times of recession. On the average, each individual Panera Bread bakery-cafe expends $1M on furnishings and decorations, arranging tables and chairs to be conducive to group meetings (as opposed to most fast food restaurants, which are oriented around quick, in and out dining). Yet, as at other fast food restaurants, customers pay before they receive their food, giving them the freedom to finish their meal and leave without having to ask for the bill and pay gratuity.
Panera Bread's product niche gives it the tools to cope more effectively with the challenges facing the fast food industry as well as the challenges facing the dine-in industry. Fast food restaurants chains are often criticized for offering unhealthy food, but the higher nutritional value found in Panera Bread’s products makes it less prone to nutrition campaigns that have hurt chains such as McDonald’s.. Indeed, the health care bill enacted in 2010 includes provisions that will require chain restaurants to publish the caloric content of their menu items, and Panera has gotten ahead of the crowd by becoming the first major restaurant chain to voluntarily publish its food items’ calorie counts; Panera’s lower-calorie fare may help it grab market share from fost food chains among health-conscious consumers.  Meanwhile, dine in restaurants are very susceptible to drops in consumer spending. Therefore, Panera’s cheaper items make it an attractive alternative to traditional eateries. However, this does not mean that Panera is immune to these challenges. The company must achieve a balance between quality food and competitive pricing.
Nevertheless, Panera’s product niche does give it flexibility in raising menu prices because consumers perceive its products as having high quality, especially in comparison to traditional fast food restaurants. In 2007, the company’s management introduced a 2.5% increase in Panera’s prices, and reported no significant decrease in the total number of sales. This tool becomes important when production costs increase.
The company markets its brand name to associate it with the concept of fast casual dining - an alternative to traditional fast food. The company invests 2.6% of its total revenues in marketing campaigns. Each individual restaurant is required to give 0.7% of its sales to the national advertising fund, and spend 2% of its sales on local advertising. The company’s marketing strategies focus on product merchandising (such as the promotion of new menu items), instead of product prices. It also frequently sponsors charitable events as a marketing tool. Most Panera Bread restaurants donate their leftover breads and other foods to local charities at the end of each day.
Panera Bread currently operates in 36 states. The chain is not very well established in the West and Southwest regions, which means that these two regions are attractive markets for expansion. Furthermore, the company's management has indicated that it intends to expand into Canada (Toronto and locations in Ontario) through franchising agreements.
|Region||Percent of Total Restaurants|
Panera Bread must still compete with traditional fast food chains, as well as specialty food cafes, casual dine in restaurants, street vendors, pizza parlors, bakeries, and national, regional and locally-owned restaurants. Many of the company’s competitors have greater financial resources, which translate into greater advertising capacity. These competitors include:
The fast food industry is highly fragmented. Total revenues are estimated to be around $120B.