Tuesday, May 1, 2012


Sample Strategic Planning and Analysis For Panera Bread Company

Executive summary about Sample Strategic Planning and Analysis For Panera Bread Company By Adam Link

Panera Bread has an opportunity for growth within a challenging industry in two key areas - increased sales of specialty drinks and opening international locations - that will enable the company to spread its mission of fresh bread for everyone while increasing the bottom line for shareholders.

Utilize Historically High Margins on Specialty Drinks to Drive Bottom Line Growth

While Panera's core business revolves around fresh bread, the style of the locations suggests that there is substantial revenue in selling coffee and related drinks, similar to Starbucks. Further, profit in specialty drinks is estimated at 19.8%, much higher than Panera's 6.4% profit margin. This means that increasing the sales of specialty drinks will have a positive impact on Panera's bottom line - clearly the industry is growing and is a good industry to be in for Panera. If Panera were able to generate this level of sales with a 19.3% profit margin, its bottom line would increase by nearly 7.8% to 14.2%, abnormally high for the restaurant industry (which averages 4-5% margins).

Look to Industry Incumbents for Knowledge and Re-arrange Menu Locations

 Visually, the layout of a Starbuck's, Dunkin' Doughnuts, or Caribou Coffee are much more fluid than Panera Bread with respect to the coffee ordering location. The issue is that the coffee menus are located above the bakery items, not in clear view of the customer at the time of ordering. By the time the customer is ready to order, he or she has forgotten what drink to order; furthermore, the drinks are creatively named which is positive for brand identity, but awkward for the average male customer to order.

At the very least, the coffee and specialty drinks need to undergo the following changes:

• Move the menus to the same wall face as the meal menus to ensure customers know what coffee is offered when ordering

• Arrange the bakery display cases nearer to the registers to entice more impulse purchases

• Remove queue line markers during non-rush times, especially in front of the bakery display cases

• Increase the offerings of specialty drinks, including researching alcoholic beverages, to attract coffee shop regulars into Panera

By focusing on combining the café design with a coffee shop atmosphere, Panera can become a "chill out" spot as well as a premier location for both lunch and dinner. Furthermore, this change can be carried to the international markets where café atmospheres, such as those in France, are more prevalent.

Expand Internationally to Build Brand Image and Diversify Economic Risks

Clearly, the European market is a large market for fresh bread. A brand with a large marketing budget behind it could quickly enter the market and take a key position (See Appendix C). An interesting facet of the European market is the strong relationship between the industrial agricultural and milling companies and the industrial bakeries.

Leverage on Existing Assets to Increase Shareholder Return and Expand

According to Panera's 2009 10-K, the company had an interest coverage ratio of 200.9x, with EBIT of $140m and interest payments of $700k. Additionally, distance-to-default, a key metric for risk of debt, is quite large (larger is better) as the cash on hand of Panera is $77.1m and the debt/equity ratio is 0.0%. Retained earnings and total equity are $346m and $495m, respectively. This suggests a large cushion prior to debt default in an extreme situation.  In Appendix D, the large difference between Panera and its rivals in terms of debt load is clearly seen. With the average café costing $1.6m, Panera would be able to finance the expansion of its brand across approximately 250 corporate-owned locations internationally. FactSet estimates Panera's 2010 sales growth at 10.4% with EPS of $3.41 per share, a 20.6% increase over 2009. In the short term, sales would be increased and profit margin would increase by 500 bps to 770 bps based on specialty drink sales. If the international expansion plan is pursued, Panera would see sales growth in 2011 beyond the estimated 10.3% and EPS well beyond the projected $3.98. Though the increase in debt may force management to pay more attention to the cash flow of the company, the increased leverage will allow Panera to increase its ROE substantially.

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