Case Studies Marketing Strategies

Case: Panera Bread Company – Believing in Reciprocity

“WE ARE PANERA. We are bakers of bread. We are fresh from the oven. We are a symbol of warmth and welcome. We are a simple pleasure, honest and genuine. We are a life story told over dinner. We are a long lunch with an old friend. We are your weekday morning ritual. We are the kindest gesture of neighbors. We are home. We are family. We are friends.”[endnoteRef:1] [1: http://www.panerabread.com/about/]

Panera is a bakery-café organization and as of September 28, 2010, had 1,421 bakery-cafes in 40 the states and in Ontario, Canada “operating under the Panera Bread®, Saint Louis Bread Co.® and Paradise Bakery & Café® names, delivering fresh, authentic artisan bread served in a warm environment by engaging associates.”[endnoteRef:2] They “offer made-to-order sandwiches using a variety of artisan breads, including Asiago cheese bread, focaccia, and its classic sourdough bread. The chain's menu also features soups, salads, and gourmet coffees. In addition, Panera sells its bread, bagels, and pastries to go. More than 580 of its locations are company-operated, while the rest are run by franchisees.”[endnoteRef:3] [2: http://www.panerabread.com/about/company/history.php] [3: http://www.answers.com/topic/panera-bread-company]

“The Panera Bread® legacy began in 1981 as Au Bon Pain Co., Inc. Founded by Louis Kane and Ron Shaich, the company prospered along the east coast of the United States and internationally throughout the 1980s and 1990s and became the dominant operator within the bakery-cafe category.”[endnoteRef:4] However, it wasn’t until 1993 when the Au Bon Pain company acquired a chain of bakery-cafes under the name of the St. Louis Bread company® that the Panera concept would start to take shape. [4: http://www.panerabread.com/about/company/history.php]

“A major opportunity came in 1993, when Au Bon Pain acquired the St. Louis Bread Company. At the time the deal was struck, St. Louis Bread had 19 company-owned and operated bakery-cafés and one franchised outlet. Thereafter, Au Bon Pain continued to expand the purchased company, introducing the bakery-café concept into new markets. In its home area in Missouri, the new franchised units were opened as St. Louis Bread bakery-cafés, but elsewhere they opened under a different name - Panera Bread. Over the course of its ownership by Au Bon Pain Co., Inc., the Panera/St. Louis Bread division would enter new markets and continue to grow at a solid clip.

By the end of 1996, Au Bon Pain had grown to 231 company-run and 58 franchised bakery-cafés. Of the 231 company-operated units, 177 were Au Bon Pain owned and operated outlets and 54 were Au Bon Pain franchise-operated bakery-cafés. The remaining 54 company-owned bakery-cafés and 10 franchise units were St. Louis Bakery Company units. As concepts, the Au Bon Pain and St. Louis Bakery Company stores were very similar. Both specialized in high quality foods served for breakfast and lunch. Their menus included fresh baked goods, made-to-order sandwiches, soups, salads, and custom-roasted coffees as well as other beverages. The company's targeted customers were principally urban white-collar workers, suburban residents, and shoppers, students, and travelers with busy schedules to keep. The company's chief strategy was to provide high quality, fresh foods at reasonable prices and with greater variety than its chief market competitors. Most of the bakery-cafés were located in and around major urban centers, including Boston, other New England cities, New York, Philadelphia, Pittsburgh, Washington, D.C., Columbus, Cleveland, Cincinnati, Chicago, St. Louis, Minneapolis, Los Angeles, Atlanta, and outside the U.S. in Santiago, Chile. For the 1996 fiscal year, total sales generated by the company-owned stores and its franchised units reached approximately $259 million. On the average, company-owned Au Bon Pain bakery-cafés generated about $940,000 each, while the Panera/St. Louis Bakery units generated about $1.1 million per outlet.”[endnoteRef:5] [5: http://www.answers.com/topic/panera-bread-company]

Under the new management, the St. Louis Bread company was re-positioned, including changing its name to Panera, and from 1993 to 1997 saw a 75% increase in volume while out pacing its Au Bon Pain bakery-cafes counterpart. It was during this period that the Panera concept had been realized. As a result of its success, the owners decided to gamble on the Panera concept by taking it to an even grander scale. To do this required focusing all of it resources behind the Panera bakery-café concept.

“In May 1999, all of Au Bon Pain Co., Inc.'s business units were sold, with the exception of Panera Bread, and the company was renamed Panera Bread. Since those transactions were completed, the company's stock has grown thirteen-fold and over $1 billion in shareholder value has been created. Panera Bread has been recognized as one of Business Week's ‘100 Hot Growth Companies.’ As reported by The Wall St. Journal's Shareholder Scorecard in 2006, Panera Bread was recognized as the top performer in the restaurant category for one-, five- and ten-year returns to shareholders.”

What seems to be behind the Panera success story is an organization centered on values of quality of food ingredients; using old-style artisan bakery methods; providing a friendly, warm, and clean restaurant atmosphere; hiring and training personable employees; and being a good corporate neighbor - and, a consistency to the adherence of these values even in hard times.

“At Panera Bread®, we believe in giving back to local communities. We show our appreciation for customers not only within our bakery-cafes but also throughout the communities we serve by sponsoring special events open to the neighborhood, participating in charitable events and offering various Operation Dough-Nation® programs.”[endnoteRef:6] [6: http://www.panerabread.com/about/community/]

The Operation Dough-Nation® programs include providing charity to those in need, daily donations of unsold products to local food banks, and participating in various fundraising events. For example, they have been a strong advocate in the fight against breast cancer.[endnoteRef:7] Recently, they have been experimenting with a new non-profit business model that utilizes “Pay What You Want” (PWYW) pricing. [7: Cornell, Scott (2011), “Panera raises money for breast cancer,” NCNLocal, February 2nd, http://ncnlocal.com/ncnlocal_mall/article_31b614ca-2ee7-11e0-9e74-001cc4c03286.html]

“Panera Bread Co. is asking customers at a new restaurant to pay what they want. The national bakery and restaurant chain launched a new nonprofit store here this week that has the same menu as its other 1,400 locations. But the prices are a little different - there aren't any. Customers are told to donate what they want for a meal, whether it's the full suggested price, a penny or $100. The new store in the upscale St. Louis suburb of Clayton is the first of what Panera hopes will be many around the country. Ronald Shaich, Panera's CEO until last week, was on hand at the new bakery Monday to explain the system to customers. The pilot restaurant is run by a nonprofit foundation. If it can sustain itself financially, Panera will expand the model around the country within months. It all depends on whether customers will abide by the motto that hangs above the deli counter: ‘Take what you need, leave your fair share.’ Panera hopes to open a similar location in every community where it operates. Other nonprofits have opened community kitchens, where customers set the price, and the idea has spread among food enthusiasts and philanthropists. But Panera brings new scale to the idea - its community restaurants will use the company's distribution system and have access to its national food suppliers.”

If Panera Clayton’s restaurant can sustain itself, the net proceeds will be donated to community groups. “The downtown Clayton store's menu items are the same as at other Panera outlets. But instead of prices, there are ‘suggested funding levels’ on its menu board. After placing their orders, customers are handed a receipt with a suggested price - which doesn't include any sales tax - and they're told to pay what they think is appropriate. There are still cash registers, but they are used to provide change or to take payment with credit cards. Customers are encouraged to pay more. And the cafe asks customers who can't pay to volunteer an hour of their time at the store at a later date, but it was unclear Monday how exactly that system would work. ‘You're on your honor,’ a sign by the menu board said. The proceeds will pay for the store's operations, and remaining money will go to community groups that have not yet been disclosed.”[endnoteRef:8] With the 2008 recession, the Panera restaurant is not only about donating to community groups but also is able to help individuals that have hit hard times and need a meal. As stated by Chairman Shaich – “I have long harbored desires to contribute to the broader world beyond Panera.”[endnoteRef:9] Panera executives have indicated that they are pleased with the initial experiment reporting that customers had been paying 85% of the retail price and are planning on opening other non-profit stores utilizing the PWYW pricing. [endnoteRef:10] [8: Kumar, Kavita (2010), “Customers pick their own price at Panera,” The SunNews, May 22rd, http://www.thesunnews.com/2010/05/22/1488263/customers-pick-their-price-at.html] [9: Kumar, Kavita (2010), “Customers pick their own price at Panera,” The SunNews, May 22rd, http://www.thesunnews.com/2010/05/22/1488263/customers-pick-their-price-at.html] [10: Kumar, Kavita (2010), “Panera’s café for charity starts to pay off,” stltoday, October 5th, http://www.stltoday.com/business/article_f77cccaf-f498-5bb7-9b72-eb641095a175.html ]

Research Panera and find out how the PWYW pricing is working. If it is working, explain why you believe this form of pricing works. What suggestions would you make and when would this type of pricing be appropriate?

References:

Mark E. Hill, Chapter 11

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