Introduction to Panera Bread
Panera Bread, founded in 1987 as the St. Louis Bread Company, is a fast-casual dining sector competitor and prides itself on serving food its customers can trust. The brand’s mission is to make great, flavorful, and clean food accessible to everyone. Moreover, its values include food served how it should be, care for the community, and stewardship of the environment, making Panera one of the most admired companies in the food service industry.
The company’s approach is derived from its core principles concerning food quality and customer service, which are creating no compromise wow and all access. While called the McDonald’s of bread, it was originally a humble chain of one restaurant managed by founder Ken Rosenthal. The business was acquired by Au Bon Pain but was sold in 1999 to concentrate on developing the Panera brand.
Panera’s aptitude to recognize current industry developments is what differentiates Panera from many of its competitors. As such, the company continues to serve food as part of its commitment to improving the well-being and wellness of the public. Panera has made extensive upgrades to its menu to eliminate one sizeable compound for employment during its existence. One of the most important developments took place in 2010 when the chain introduced a new concept called Panera Cares Community Café. This is a chain that feeds those who dine out in return.
Company Background and History
Beginning as a small cookie store called The Cookie Jar located near Boston, Massachusetts, in 1981, Ron Shaich expanded the business to include bread by 1987. With the purchase of a local bakery that already had baking equipment and an investment from a local billionaire, Shaich was able to merge the small cookie store with the new bakery in March under the new name St. Louis Bread Company. The original product line included fresh-baked artisan bread and other baked goods..
Shaich brought in a consultant to replicate the fast and efficient service at The Cookie Jar in the new concept, and in 1988, the first Panera Bread was opened in Kirkwood, Missouri, a suburb of St. Louis. In 1993, the company decided to turn the focus to the fast casual market and to close or sell the other division. The restaurateur was attempting to attract upscale customers with higher-margin foods, while the St. Louis Bread Company was still slightly upscale fast casual dining but for a slightly less wealthy experience. The company made the decision to sell off its division in 1999 in order to focus on the St. Louis Bread Company.
The St. Louis Bread locations were especially popular with customers in the St. Louis area who were attracted to the idea of a small upscale suburban bakery café. Both declined to be a part of the new company and resigned. The restaurant concept opened new locations using the name “St. Louis Bread Company” outside of the St. Louis area. There were 20 St. Louis Bread Company bakery cafés in 1997.
In 1999, the name of the company was changed from St. Louis Bread Company to Panera Bread. Since that time, Panera has opened over 2,200 bakery cafés. Panera is known for its fresh-baked bread, soups, and sandwiches. The business rose from its roots as the St. Louis Bread Company. In 1993, the company decided to turn the focus to the fast casual market and to close or sell off the other restaurant concept.
Key Components of Panera Bread’s Business Model
Today, we discuss components of Panera Bread’s business model. First of all, the primary product of Panera’s business model is the assorted menu options offered. This is important as it caters to diners who might desire various flavors or are impacted by dietary restrictions. The group discovered this while creating the initial menu on a trip throughout the country. “People have different mouth habits,” said a representative. “Some people are looking for very bold flavors. Others are looking for salt. Others are looking for sugar. Others are looking for textures. Others are looking for heat,” said the representative. “Some want purely Italian dishes.
Others want something familiar, comfortable, and contemporary American that you can have a conversation about your food.” Offering choices is a substantial component that grabs the attention of diners, encouraging them to return either specifically for something they can only experience by visiting Panera or as repeat customers because they can regularly have this large pool of choices when stopping in.
When discussing what is similar for the restaurant business, the representative added that it’s really about “creating an inviting environment that differentiates you a bit in service and a bit in ambiance, playing a role in driving customer loyalty.”
By offering the full package – food and drink, technology, and even stepping into the grocery space, Panera is reinforcing its relationship with the customer in a multitude of ways. If a customer prefers to order their meal from the convenience of home, they can use the Panera app to speed up the process through technologies like mobile ordering or making for a quicker pick-up, having their order arrive at their home with delivery options, or even ready-to-eat grocery offerings labeled as “Meal Hacks.”
Product Offering and Menu Diversity
Panera Bread serves a variety of bakery-cafe products. The company breaks down its product offerings into several categories. The core menu makes up their long-standing permanent products, the PRMO products are relatively more recent permanent menu offerings, the limited-time offerings are products that are on the menu for around three months, and finally, Panera Bread has a special category for “Bakery Items,” which are all the breads and pastries they are known for. The products can be further classified into six subcategories, consisting of bakery items, hand-tossed salads, hearty soups, sandwiches, paninis, pastas, and flatbreads. The company is unique in the wide variety of products it offers in its stores, and it keeps expanding them.
As customer dietary preferences change, the menu items are adjusted. Lately, there has been an increase in customer attention to healthy and organic food options. Panera serves many healthier alternatives, such as whole grain bread, fruit cups, and yogurt parfaits. However, even with increasing health concerns, taste remains an important factor in product success. Recently, Panera has been focusing on lighter meals, particularly in the summer months.
In addition to offering light options, Panera introduces many new carbohydrates and sweets as well. These include new frozen coffee beverages and flavored lemonades, and smaller portions of breads and pastas. Fully realizing that many people do want healthier options, Panera has expanded their salad choices, particularly the salad drinks. Their goal is to offer innovative products that give customers a different dining experience.
Bread and pastry have been the focal point of this emerging concept, and the quality of their artisan breads and pastries has been key menu items. Panera’s motto is “bread is core,” and while Panera is focusing on broadening their menu choices, they have no plans of altering this foundation. Every Panera Bread features more than three dozen fresh-baked breads and pastries and oversees their own sourdough starter in each café.
The company has developed an initial collection of bread recipes that reflect the traditions of Eastern European, Scandinavian, and Mediterranean artisanal baking. Although a number of bakers work shifts around the clock to keep their cafés supplied with freshly baked breads and pastries, Panera employs the slow-fermentation process. This old-world process uses mass-production technology by hand to craft fresh dough to produce moist and crusty breads. Panera wishes to please all by providing vegetarian menu items for those with dietary restrictions.
Few vegetarians may want to ingest anything with flesh, poultry, seafood, or bones, while others do not. Panera’s human sources are also suitable for vegetarians, and only fresh 100% natural premium beef is used. Necessary materials comprise only premium quality items from prepared and fresh vegetables to the finest tuna loaf, all properly monitored and trained. Panera uses natural and organic items to create some of its finest meals, except for freshly baked bread and bread loaves.
Customer Experience and Service Model
Customer Experience Over the past few years, many quick-service restaurant chains started to revamp their customer experience to answer the evolving customer needs seeking a well-orchestrated food experience, and not just “something to eat.” Panera Bread has been proactive in understanding how to align the whole operation with this new trend and offers a variety of ways and experiences to make your meal feel uniquely yours. Coffee at Panera could be the standard coffee house, with two seasonally available brews that the guest can also enjoy in a bottomless cup. Guests may also enjoy espresso drinks, a premium offering in addition to the usual offerings.
Personal Panera delivers both elements: the distinctive space that is park-like and neighborhood-like, with personal touches throughout the dining area. As soon as a guest walks in, the associate delivers food right to the table. A differentiator in the guest experience is how the meal is delivered; the employee offers it to the guest as though it is a personal choice. Training is key for this element: “We teach our cashiers how to interact in a gracious way.” Panera Bread has many leaders who started with the company in high school or have been with the company for more than 15 years. Similarly, customers also recognize Panera for its home-like atmosphere.
Feedback Loops At Panera Bread, two different feedback mechanisms allow the company to gather useful data for both service and food quality improvements. The digital one is powered by the loyalty program. Customers coming into Panera Bread may sign up for the rewards club, receiving a free pastry. The membership allows guests to collect points by ordering from the kiosk, website, mobile application, or the fastest way, from the digital reservation. The data team sends three million personalized recommendation emails based on what customers have ordered before.
Digital The most frequently used digital tool for customers is the mobile app that allows them to view menus, pay in stores, browse delivery times, and order ahead. Another function of the app is reserving a table. Although the majority of Panera’s guests do not make a reservation, the company encourages guests to use the app to order ahead. The company is preparing to release a mobile payment option in the app and hopes to eventually complete the digital transformation of the company, allowing guests to receive their food at a cubby once it arrives. PaneraGo is the first Panera express kiosk, established in 2006.
PaneraGo is like a normal café, with trained employees as well as cashiers. The guest simply goes up to the counter, selects an item, and the cashier quickly swipes their card, identifying how much money the guest has available. The process requires the same set of employees and systems that can be found on the opposite side of the counter. Therefore, the share of sales made through PaneraGo is negligible, and the customer experience enabled is by no means league-leading.
PaneraGo allows Panera to reach a new market, appreciate customers, and provide jobs. This proposal liberates the majority of Panera associates to “focus on what brings the most value,” rather than asking them to recall orders all day, taking the humanity out of the business.
Technology Integration
Brick-and-Mortar Operations. Today’s economic environment has been shaped by constantly evolving technological advancements, challenging businesses to adapt their operations using digital, social, and mobile platforms. Legacy brands such as Panera Bread have been continuous innovators in this space, adding new technologies to its offerings. To better understand, a customer at a Panera Bread café has access to self-service kiosks, a mobile app to place orders for pickup and drive-thru services, rapid pickup services, and face-to-face interactions with Panera employees in a physical store location.
Self-service kiosks provide customers with the ability to entirely bypass human clerks in the ordering process in exchange for a more efficient and expedited experience with transaction accuracy. The kiosk was designed to allow for the rapid reordering of items and entering of customer rewards to apply price discounts. Drive-thrus with pickup centers are for customers who placed orders using Panera’s mobile app and drive to the restaurant to park in dedicated parking spots designated for vehicle pickup. Data and Information Technology. The digital and technological ecosystem of Panera integrates data and information technologies behind the scenes in food pantry inventory and in research and development of business operations through the areas of sales forecasts.
The sales forecasts bring into play future trends, demographics, price sensitivity analysis, existing capacity limits for operations, throughput, and many more markets to forecast expected food pantry product purchases. Panera managers also have access to information and data technology platforms which forecast at the monthly micro-level how many orders will be picked up in store and how many will be delivered. Delivery food forecasting is another tool that must be accessed by agents. Panera managers release data to large restaurant online platform aggregators, which advertise Panera meals for customers through these large food-based websites.
Also, Panera customers can order online checkouts that use logistics shares and their truck fleet to make meal deliveries. For deliveries of Panera’s meals, managers can distribute meat and steamed vegetables from their specially designed food cook pots and containers. Each platform orchestrates data platforms for transporting prepared food with proprietary record item and meat package temperature and total time in transit monitoring systems. If there are any concerns along the way, this data can be integrated with artificial intelligence software used by platform drivers.
Revenue Streams and Financial Performance
Panera Bread reported revenues of $5,049 million in the fiscal year 2016-2017, a 2.4% increase over the previous fiscal year. As of Q1 2017-2018, the company reported revenues of $687 million, a decline of 3% over the same period in 2016, suggesting that the company may not be able to maintain that growth. Revenues for 2017-2018 had been projected to fall to $2.9 billion. Revenues are generally evenly distributed over the course of the year, indicating that there is no significant seasonality associated with the company.
There were distribution increases across the board, from fresh bakery products to prepared food at home. Panera Bread has invested in catering services, which are available both online and in-store. At one time, catering was only available as a delivery service, but now people can pick up their own Panera Bread on the go. Currently, the company markets catered delivery services to businesses, schools, and residences. In fact, restaurants selling digital services outperformed stores not selling digital offers, which led to an increase in sales volume of 10%. Panera’s strategy is to create products and services that are worth the cost.
They have achieved this by aligning their pricing strategies with the ways that customers perceive the value of what they offer. We look at average transaction value and shopper frequency to help us understand how much people are willing to spend for what they get at Panera Bread. Also offered are bundled meals for reduced prices and “you pick two” options to reduce choices. These strategies have increased meal and product prices, which increases the average transaction value of each customer.
The store concept was also rearranged to allow for better organization, which speeds up service, and patrons are encouraged to complete an online survey after each visit, the findings of which are incorporated into the retailer’s corporate decisions.
One major drawback of online forums is that the majority of comments are negative since satisfied customers are likely to seek out the site after a vexing visit rather than taking the time to comment after experiencing a satisfactory visit. This year, despite the tough economy, Panera has also committed to new store development with a goal of 80 new locations built in 2010. Current financials show a profit margin of 4% and operating expenses of 30% of revenue. These statistics are within a healthy range for an organization.
Sales Breakdown by Product Category
Panera Bread has grown rapidly over the years by offering healthier food items compared to traditional fast-food chains. While other fast-food chains have offerings in salads and soups, the more limited menus of those companies can reduce customer interest in those areas. Thus, the more diverse Panera Bread menu can be an appealing option for a good number of customers. It is possible to get a good sense of the most popular offerings of Panera Bread by examining its sales categories. Panera Bread breaks down its sales into eight separate categories. Salads, sandwiches, and soups are usually the biggest drivers in terms of revenue at Panera Bread.
Sandwiches have the highest average percentage of total revenue at 24.98%, with a high of 27.92% in one year and a low of 22.66% in another. There are generally some year-to-year fluctuations that can impact some portions of the menu more than others. In addition to the sale of actual food items, these figures also show that the product mix can change from year to year. Since food items can have significant price differences between them, a higher average price per item may not necessarily indicate that more of that type of food was sold.
Catering sales have a market that is roughly the same in the vast majority of Panera Bread stores. With those fluctuations in mind, there is not much Panera Bread can do about changing catering sales other than driving customer traffic, since on-the-fly catering for meetings isn’t available at the vast majority of stores.
Average Transaction Value and Frequency
Analysis of the Business Model of Panera Bread 3.2. Average Transaction Value and Frequency 3.2.1. Transaction Value The average transaction value describes the typical guest ticket. At Panera, pricing strategies and the mix of menu items affect the spend per visit. Additionally, at fast food chains where much of the cost is fixed, an add-on or combo meal can significantly increase transaction spend. The refined pricing strategy that increased the transaction spend in 2018 was a strategic move in the direction of food as an experience. This average is examined to check consumer behavior.
At Panera, a typical visit was about USD 8 before COVID-19. The typical order was a bowl or a sandwich complemented with a salad or a cup of soup, and a soft drink or a freshly brewed iced tea. Continued improvement of the company’s loyalty program and other customer engagement efforts would likely increase transaction frequency slightly. While these initiatives are aimed mainly at boosting purchase frequency among already engaged customers, seasonal promotions usually increase both transaction value and ticket frequency among the entire customer base.
Factors such as traffic, economic indicators, coupon redemption rates, and marketing can affect an individual who values multiple tickets on a regular basis. A loyal consumer is more concerned about the overall experience with the business model as a complete value is higher; they will buy more frequently. Additionally, as consumers get closer to making decisions on where to go for lunch, fast food stores encourage increased frequencies. At that stage, spending tends to be less influenced by value and more by what seems intriguing. 3.2.2. Frequency For the company, understanding guest behavior, knowing that the frequency of a guest ticket may be the most important result, is crucial.
Getting consumers to visit more frequently can often be easier and cheaper than adjusting procedures to get more guests or increase the average bill. To drive more activity, seasonal promotions and limited-time offers can encourage ticket visits, and their loyalty cards are used. A broad range of conditions could affect visit frequency, many of which are external to the organization, such as personal security. Moving from eight to ten regular ticket visits per month would translate into millions of dollars. Value spent by customers who regularly visit may average USD 3.2 in all ticket premiums.
Many eateries strive to get clients to consume more frequently than sticking their visitors to the major players. Panera is no different. Enhancing client experiences means making a satisfactory initial connection and improving the emotional and practical advantages they acquire from their products to captivate the clients. What is the net effect of proposed changes to customer transaction value and frequency? If the total visit values are positive, they can be used to increase the transaction rate.
Competitive Landscape and Market Position
Although Panera operates in a very competitive environment, the firm has utilized a unique combination of a focused menu of food items that are perceived to be healthy in a comfortable atmosphere that features high-end customer service as a means to carve out a niche in the market. The primary fast-casual restaurant competitive set includes several competitors, with a smaller share also coming from casual dining and quick-service restaurants. All of the aforementioned are considered to offer similar, high-quality dining experiences with a focus on health, so they are the most closely aligned with Panera.
The largest competitor in the health-oriented fast-casual market has a significant market share. They offer relatively low-end customer service, but customers report being very satisfied and are still devoted to the store. The quick-service alternative also has a large market share, with another competitor being the market share leader here as well. Since another competitor does not directly compete within Panera’s market share customer base, none of these alternatives seem to be a legitimate threat to Panera’s brand equity.
A rapidly changing food-service industry may lead to substantive changes in the way these competitors relate to and operate vis-à-vis Panera, however. One competitor is able to offer better prices for its food, but only because it can hit customers harder on the upsell with extensive margined food items, as the average check in such an establishment is roughly 50% higher than in Panera.
In the long term, if this holds true, Panera should be able to continue to compete marginally on food prices based on the experience and therefore hold out in the fast-casual model category. Subsequently, this will allow Panera to push ahead into new realms without intense competition from high-end and low-end customer experience competition. They should continue to focus on the in-cafe experience and gift card segments of their market.
Comparison with Fast Casual and Quick Service Restaurants
Fast casual and quick service restaurant segments accounted for sales in 2006, respectively. There are many elements that differentiate Panera Bread from these other restaurant competitors, in particular fast food chains. Panera Bread serves fresh bread baked in each location and uses only fresh ingredients combined into a wide variety of sandwiches, tossed salads, as well as soups and You-Pick-Two combinations.
The stores are larger than traditional fast food stores, and the chain focuses on driving usage beyond lunch into the evening. The functional positioning of the Panera Bread managers and its operational and service strategies are based on differentiation. The company wants customers to view their visit to the bakery-cafes as an enjoyable and indulgent experience – like a mini-vacation.
Neither quick service experiences nor modern fast casual concepts focus solely on speed. However, some competitors are entirely based on offering raw fresh ingredients that are mixed together. These items are also positioned as essentially healthy since they are not processed foods, and the consumer has control over the caloric content by holding back on items such as cheese and sour cream.
One competitor advertises heavily that all of their traditional sandwiches have low fat content – a claim Panera Bread could not make because it uses additional fattening items like cheese as well as premium deli products, which would drive calorie and fat content higher. Nonetheless, all of these products have the perception of providing consumers with a healthier fast food option.
Panera Bread does not advertise or make these types of health claims, although it says there are no preservatives added and that all products are clean food. Further, the ingredient base in the sandwiches and salads contains artisan breads, premium deli meats and cheeses, and a wider list of fresh ingredients than non-traditional fast food products. Few quick serve food items are served with French baguettes.
Future Growth Strategies and Innovation
Some words that come to mind in anticipation of future growth strategies and innovations for Panera Bread are dedicated to the changing marketplace and customer base. In the earliest section of this analysis, it was shown that sustainability and potential damages to human health as a result of product consumption would weigh heavily on corporate decisions. Overall, the consensus is that sustainability will be a highly valued initiative; Panera should engage with companies that are significantly invested in their resources and are working to reduce waste. This survey data was cross-referenced, and the following could present potential opportunities for Panera.
Geographic expansion might provide exposure to a new market. Menu innovation would introduce new customer favorites to snack on, break meals with, or replace a meal altogether. Improvements in technology can create a better customer and employee experience. With feedback from the voice of their customer, Panera should focus on menu expansion, greater technological adaptations, new restaurant locations, and create more partnerships to benefit the organization. Commitment to a sustainability initiative may increase the satisfaction of their customers while limiting the over-purchase power of suppliers.
In addition, Panera should investigate further into recent scientific studies that suggest an established link between the consumption of their food products and serious, chronic health problems. Panera could alter its menu so that the ingredients in those menu items are less likely to degrade a consumer’s health. Technologies becoming more advanced can be improved and integrated into Panera’s current systems.
Artificial intelligence and chat bot technologies can be developed to create a personalized interface to enhance customer knowledge with minimal staff and time. Delivery services can be adapted to have more immediate tracking services for customers to follow and know when they will receive their order. Panera would seek to conduct partnerships or collaborations with organic and free-range food distributors, current suppliers to lower prices on the new service made to local farmers, and with a major news network to help spread the word about their innovative new store location.
Panera Bread is devoted to creating a culture of innovation. They are continuously revamping the way that they do business. A program has been employed. It is designed for the teams at Panera to have the freedom to cultivate the next big idea. Community service has also always been a charged sentiment around Panera. The Panera Foundation, which is funded and created by Panera associates, will continue to grow on their mission of helping end the cycle of hunger. They will continue to not only provide children with healthy food but also expand on the education and tools that they need to succeed.
Panera considers its stakeholders as the communities that they feed and also the customers that they serve every day. Panera Bread isn’t just a brand; it’s a great place to have a balanced breakfast, a meeting place, a second office, a great place for lunch with friends and family, and a sanctuary for connoisseurs of gourmet soups and breads. It is great to see a brand that is about much more than the What and embodies the Why.
