Example of strategic planning and analysis for Panera Bread Company

Panera Bread has a growth opportunity within a challenging industry in two key areas: increased sales of specialty beverages and the opening of international locations, which will allow the company to spread its mission of fresh bread for all while increasing the bottom line for consumers. shareholders. By using many frameworks to think about and project the company’s estimated financials, we can empirically show that these two strategies will be beneficial to the client.

Use historically high margins on specialty beverages 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 from the sale of coffee and related beverages, similar to Starbucks. As for the coffee market, the estimated real growth is 2.7% or about 5.7% given an inflation rate of 3%, while the number of establishments, the real coffee shops, is expected to grow by only 1.6%, which means that each store on average will see an increase in revenue, due in part to a 3.5% growth in domestic demand (See Appendix A). Additionally, profits on specialty drinks are estimated at 19.8%, well above Panera’s 6.4% profit margin. This means that increasing sales of specialty drinks will have a positive impact on Panera’s bottom line; clearly the industry is growing and it’s a good industry for Panera. According to the Buffalo Wild Wings franchise disclosure document, more than 40% of revenue is generated through sales of alcoholic and specialty beverages. If Panera were able to generate this level of sales with a profit margin of 19.3%, its bottom line would increase by almost 7.8% to 14.2%, an abnormally high value for the restaurant industry (which average margins of 4-5%). While this level of profit margin is not likely to be sustainable, the short-term increase in profit margin will help Panera expand its operations internationally to capture economies of scale with its suppliers.

Consult industry headlines for and rearrange menu locations

Visually, the layout of a Starbucks, Dunkin’ Donuts, or Caribou Coffee is much more fluid than Panera Bread in terms of coffee order placement. This analysis is largely based on the Eden Prairie Mall and Downtown Minneapolis Nicollet Mall locations. Customer flow from Eden Prairie and Downtown is awkward; the customer must enter the store, go through the bakery and coffee areas, and then order at the cash registers. The problem is that cafe menus are placed on top of bakery items, not in 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; In addition, the drinks have creative names, which is good for the brand identity, but difficult for the average male customer to order. At a minimum, coffee and specialty beverages must undergo the following changes:

Move menus to the same side of the wall as food menus to ensure customers know what coffee is on offer when ordering.

Place bakery cases closer to cash registers to attract more impulse buys.

Eliminate queue line markers during off-peak hours, especially in front of bakery display cases

Increase special drink offerings, including alcoholic beverage research, to attract regular coffee shop customers to Panera.

Focusing on combining the design of the cafeteria with the atmosphere of a cafeteria, Panera can become a place of “relaxation”, as well as a privileged place for both lunch and dinner. Furthermore, this change can be carried over to international markets where café environments, such as those in France, are more prevalent.

Expand internationally to build a brand image and diversify economic risks

With Panera looking for locations in Canada, it’s safe to assume that the international market for fresh bread is growing. In fact, the international market breakdown of industry revenue can be found in Appendix B. Clearly, the European market is a huge market for fresh bread. However, IBIS World estimates that there are 135,000 bakeries operating in Europe, meaning that the market is fragmented. A brand with a large marketing budget behind it could quickly enter the market and take a key position (see Appendix C). Since the culture and preferences of European customers may differ from those of Americans, it would be best to test new products in Canada before the Panera brand launches abroad. An interesting facet of the European market is the strong relationship between industrial agricultural and milling companies and industrial bakeries. The largest bakeries are owned by the largest farming and milling companies in the UK, Sweden and Austria. This may cause supply chain issues in these countries, although Panera could pursue a partnership or joint venture approach for these markets.

Leveraging existing assets to increase shareholder returns and expand

According to Panera’s 2009 10-K, the company had an interest coverage ratio of 200.9x, with EBIT of $140 million and interest payments of $700,000. In addition, the distance to default, a key metric for debt risk, is quite large (the larger the better) as Panera’s cash on hand is $77.1 million and the debt/equity ratio is 0.0%. . Retained earnings and total equity are $346 million and $495 million, respectively. This suggests a large buffer before debt default in an extreme situation. In Appendix D, the big difference between Panera and its rivals in terms of debt load is clearly seen. Given that Panera has $153.2 million in FCF, it is safe to assume that Panera could issue at least 1.0x FCF, although a safe debt load for a company may be as low as 2x EBITDA, or $400 million in debt. With an average coffee costing $1.6 million, Panera could finance the expansion of its brand into roughly 250 corporate-owned locations internationally. As seen in Appendix E, Panera would be in the top three of its main competition with these new locations.

As with all public companies, Panera must return value to its shareholders without ignoring the broader range of stakeholders with which it interacts. FactSet estimates Panera’s 2010 sales growth at 10.4% with EPS of $3.41 per share, an increase of 20.6% over 2009. Our proposed strategy would benefit the company in both the short and long term. long-term. In the short term, sales would increase and profit margin would increase by 500 bps to 770 bps based on specialty beverage sales. If the international expansion plan is pursued, Panera would see 2011 sales growth in excess of the estimated 10.3% and EPS well above the projected $3.98. Although the increase in debt may force management to pay more attention to the company’s cash flow, the higher leverage will allow Panera to increase its ROE substantially. If Panera wants to remain competitive, it must use its economies of scale to grow faster than the competition and continually innovate, becoming the “fast follower” by utilizing adjacent industry innovations in its cafeteria environment.

The appendices can be found on the Liekos Group website.

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