Panera Bread Case Study

Panera Bread

With locations in urban, suburban, strip mall, and regional malls, Panera created three business segments: company owned bakery-cafes, franchises, and dough distribution of franchises and company stores. The Panera Bread concept became have quality food at value prices. According Panera Bread case study the company's strategy intended to make"Panera Bread a nationally recognized brand name and to be the dominant restaurant operator in the specialty bakery-café segment." To achieve this Panera is intended to be better than its competition and implementing a successful business model. Therefore, Panera's business model satisfies customers needs through providing quality food in a casual setting that continues to bring customers in for the atmosphere as well as the food.

Assessment of Panera Bread Company's Financial Performance

Panera Bread Company showed growth in its profitability from 2002 to 2006. For the most part, Panera Bread Company showed consistent results for the profitability financial ratios calculated.

2006 Compound Annual Growth Rate:

$ 828,971 (1/5)

282,225 - 1=.2405

* This means: If you have $282,225 million today, and after 5 years (2002-2006), you'd like your investment to be worth$828, 971 million, then you will need to find an investment that is expected to achieve a compound annual growth rate of 24.05% per year.

Exhibit 1 Revenue Growth %

2006 2005 2004 2003

Company owned bakery-café 33% 38% 36% 25.0%

Fresh dough operations 17% 19% 18% 48.0%

Franchise operations 13% 22% 23% 30%

(Current Sales - Previous Sales) / Previous Sales x 100 = Percentage Growth

* Example: Panera's company owned bakery-cafe generated $666,141 million in 2006 a revenue growth of 33% since 2005 fiscal year.

Exhibit 1 shows the Panera's business segments annual rate of increase/decrease in revenue or sales growth. So while Panaera's business segment of owning a bakery - cafe fluctuated revenue growth for each fiscal year, it still managed to have the highest revenue growth percentage in 2006 of 33% than Panera's Fresh Dough operations 17 % and Franchise operations 13%. This helps give analysts, investors and participants an idea of how much a company's sales are increasing over time.

Exhibit 2 Net Income

2006 2005 2004 2003 2002

Panera Bread $58,849 $52,181 $38,430 $30,669 $21,300

Net Income = Income From Operations + Non-Operating Income - Taxes

In exhibit 2 we see Panera Bread has increased its net income each year since 2002 from $21,300 to more than double in 2006 with a net income of $58.8 million. This is important, because it's the measure of how profitable the company is over a period of time. Thus, Panera's ability to maintain cash reserves allowed the company to expand and open new cafés while maintaining management's goal of not taking on large amounts of long-term debt.

2006 Current Ratio: Current Assest $ 127,618

Current Liabilities $109,610 = 1.164

Also, Panera's current ratio was 1.16 in 2006, shows the company was able to satisfy all current obligations from operating activities without the need for long-term financing. The company presented low total debt and debt-to- equity ratios which allowed the company to avoid overleveraging itself. This also left some room for the company to take on long-term debt if deemed necessary during expansion. The company has created a strong financial position for itself by having available cash reserves and limiting the amount of long-term debt assumed. This created an opportunity for expansion.

Exhibit 3 Net Profit Margin

2006 2005 2004 2003 2002

Panera Bread 7.09 8.15 6 8.43 7.55

Net Profit Margin= Net Profit/Revenue

* Example: In 2006 Panera had a net income of $0.0709 for each dollar of sales.

Lastly, in Exhibit 3 we see an increase/decrease pattern with the net profit margin through 2002 and 2006. The net profit margin is a key ratio of profitability for Panera, because it is very useful when comparing companies in similar industries. A higher net profit margin means that a company is more efficient at converting sales into actual profit.

Recommendation

In my opinion, I would recommend the company owned bakery-cafe business segment as one of the basis for Panera's future growth strategy. The reason being it has the highest revenue growth of 33% in 2006 from the rest of the company's segments. This is important because if I was a high-level manager for Panera Bread I want to be able to expand the company, and how I can do so is by utilizing the business segment that has highest growth percentage. I also want to continue to increase the company's sales every fiscal year, while also incorporating other business segments as well.

My second recommendation is Panera needs to maintain existing core values as well as the expanding their current strategies. It is important for the company to identify the critical strategies and values that made the organization successful and attempt to build upon them. My suggest is eventually, Panera will not be able to grow anymore in the United States so they must start the process of looking into foreign countries. For example,