Resource and Competitive Position Analysis

CASE 8: Panera Bread Company

Arthur A. Thompson

The University of Alabama

As Panera Bread Company headed into 2007, it was continuing to expand its market presence swiftly. The company’s strategic intent was to make great bread broadly available to consumers across the United States. It had opened 155 new company-owned and franchised bakery-cafés in 2006, bringing its total to 1,027 units in 36 states. Plans were in place to open another 170 to 180 café locations in 2007 and to have nearly 2,000 Panera Bread bakery-cafés open by the end of 2010. Management was confident that Panera Bread’s attractive menu and the dining ambience of its bakery-cafés provided significant growth opportunity, despite the fiercely competitive nature of the restaurant industry.

Already Panera Bread was widely recognized as the nationwide leader in the specialty bread segment. In 2003, Panera Bread scored the highest level of customer loyalty among quick-casual restaurants, according to a study conducted by TNS Intersearch.1 J. D. Power and Associates’ 2004 restaurant satisfaction study of 55,000 customers ranked Panera Bread highest among quick-service restaurants in the Midwest and Northeast regions of the United States in all categories, which included environment, meal, service, and cost. In 2005, for the fourth consecutive year, Panera Bread was rated among the best of 121 competitors in the Sandleman & Associates national customer satisfaction survey of more than 62,000 consumers. Panera Bread had also won “best of” awards in nearly every market across 36 states.

COMPANY BACKGROUND

In 1981, Louis Kane and Ron Shaich founded a bakery-café enterprise named Au Bon Pain Company Inc. Units were opened in malls, shopping centers, and airports along the East Coast of the United States and internationally throughout the 1980s and 1990s; the company prospered and became the dominant operator within the bakery-café category. In 1993, Au Bon Pain Company purchased Saint Louis Bread Company, a chain of 20 bakery-cafés located in the St. Louis, Missouri, area. Ron Shaich and a team of Au Bon Pain managers then spent considerable time in 1994 and 1995 traveling the country and studying the market for fast-food and quick-service meals. They concluded that many patrons of fast-food chains like McDonald’s, Wendy’s, Burger King, Subway, Taco Bell, Pizza Hut, and KFC could be attracted to a higher-quality, quick-dining experience. Top management at Au Bon Pain then instituted a comprehensive overhaul of the newly acquired Saint Louis Bread locations, altering the menu and the dining atmosphere. The vision was to create a specialty café anchored by an authentic, fresh-dough artisan bakery and upscale quick-service menu selections. Between 1993 and 1997, average unit volumes at the revamped Saint Louis Bread units increased by 75 percent, and over 100 additional Saint Louis Bread units were opened. In 1997, the Saint Louis Bread bakery-cafés were renamed Panera Bread in all markets outside St. Louis.

Copyright © 2007 by Arthur A. Thompson. All rights reserved.

By 1998, it was clear that the reconceived Panera Bread units had connected with consumers. C-162C-163Au Bon Pain management concluded the Panera Bread format had broad market appeal and could be rolled out nationwide. Ron Shaich believed that Panera Bread had the potential to become one of the leading fast-casual restaurant chains in the nation. Shaich also believed that growing Panera Bread into a national chain required significantly more management attention and financial resources than the company could marshal if it continued to pursue expansion of both the Au Bon Pain and Panera Bread chains. He convinced Au Bon Pain’s board of directors that the best course of action was for the company to go exclusively with the Panera Bread concept and divest the Au Bon Pain cafés. In August 1998, the company announced the sale of its Au Bon Pain bakery-café division for $73 million in cash to ABP Corporation; the transaction was completed in May 1999. With the sale of the Au Bon Pain division, the company changed its name to Panera Bread Company. The restructured company had 180 Saint Louis Bread and Panera Bread bakery-cafés and a debt-free balance sheet.