Running head: BUSINESS PLAN

BUSINESS PLAN Abstract This business plan synthesizes a variety of expert sources and original analysis to describe and evaluate the operations and strategies of Panera Bread, a publicly traded restaurant founded in Boston in 1981. The paper details the companys offering, marketing strategy, financial status, and the state of the larger restaurant industry. The business plan then analyzes Paneras strengths, weaknesses, opportunities and threats in the context of the current economic climate.

BUSINESS PLAN

ii

BUSINESS PLAN

INTRODUCTION Panera Bread is a retail bakery-cafe founded in Boston in 1981, and headquartered in Saint Louis, Missouri. The company began as a small cookie shop and caf, and soon acquired enough wealth to expand to new locations and become a publicly traded company under the symbol PNRA. The company is the supplier of its own restaurant chain and franchises established in targeted locations in United States and Canada. Panera Breads main business concept is to sell fresh bread and sandwiches, along with soups, salads and specialty beverages, to consumers willing to spend more money for better quality of food. Today there are nearly 1,450 Panera Bread locations in 40 states and Ontario, Canada (Panera Bread, 2011).

BUSINESS PLAN

MARKET RESEARCH AND MARKETING PLAN Panera Bread relies on a number of product, service and environment-based strategies for 1 success. One of the strategies Panera Bread relies on is creating a perception of their product as premium quality, thanks largely to their fresh-baked artisan breads. They then price their product accordingly, allowing for higher price points on sandwiches and drinks than Starbucks or Corner Bakery. Panera Bread also differentiates itself from Starbucks and other competitors by taking a different approach to attracting its customers through a cozier eating experience. Panera Bread designers decorate their interiors with vivid colors and fireplaces that seem suitable for business or personal conversations. The overall impression is distinctly welcoming. While Panera Breads signature offering is fresh-baked artisanal bread, the rising costs of flour and other ingredients mean that beverages currently generate more revenues than baked goods, according to the companys latest financial statements (Panera bread, 2011). Panera Bread mitigates some of the impact by reviewing and revising its menu regularly. This allows it to both serve more economical, seasonally available products and maintain a novelty, which ensures repeat business. Panera Bread also provides free wireless internet service to attract business consumers who use laptops, smart phones, and other wireless devices heavily. These multiple strategies allow Panera Bread to provide offerings that are valuable to a diverse customer base. It attracts individuals and groups for socializing or business. Young adults and baby boomers alike, who

BUSINESS PLAN are looking for a welcoming place to eat healthy, high quality goods, use free wireless internet, and meet with friends or associates in convenient locations are all part of a broad customer base. Editor Michael Arndt reported in his publication, Bloomberg Businessweek, that Panera Bread has also been strategically and aggressively expanding despite declining sales caused by the recent economic crisis, business shutdowns, and consumer cutbacks (2009).

BUSINESS PLAN

PANERA IN CONTEXT: THE RESTAURANT INDUSTRY

Despite the large number of competitors in the restaurant industry, Panera Bread has developed a valuable brand, which has demonstrated its profitability even in time of economic crisis. While the recent recession has caused a sharp drop in consumer spending, increased the number of restaurant closures and negatively affected revenue forecasts, Panera Bread has continued growing, partly by taking advantage of deeply discounted leases to open new locations (Gregory, 2009). In contrast, restaurant closures by early 2010 amounted to 5,204 and independent restaurants have been particularly impacted (Brandau, 2010). The forecast for 2011 indicates improvement in this industry is likely and anticipates many newcomers will enter the marketplace. Last year, the restaurant industry had average daily sales one billion dollars, and for 2011, the estimated daily revenue is expected to surge to $1.7 billion (National Restaurant Association, 2011). This forecast estimates an increase that almost doubles the previous years, with forecasted annual sales of $604 billion for 2011 (National Restaurant Association, 2011).

BUSINESS PLAN PANERA BREAD SWOT ANALYSIS Panera Breads current strategy is to provide fresh bread to consumers throughout the United States while carefully entering foreign markets, beginning with Canada. Their competitors include coffee shops, bakeries and casual full-service eateries, such as Starbucks, Corner Bakery and McDonald's. Further, Panera Bread is threatened by the entry of many new restaurant concepts into the marketplace. For this reason, Panera Bread has a large menu with different types of items that attract consumers looking for better food. The menu is revised often to keep the customers attracted to Panera Breads innovative cuisine ideas (Hitt, Ireland, & Hoskisson, 2007) and amenities like free wireless help keep the chain attractive to consumers. Panera Bread food is considered pricy but the organization strives to demonstrate to its customers that it is worth paying for premium ingredients, fresh product and skilled craftsmanship. Paneras marketing equates bread with art, which helps sell consumers on higher prices. Therefore, one of the significant weaknesses of Panera Breads process is that they keep their produce for 12-14 days meaning their food is often less than fresh (Arndt, 2009). To provide fresher produce in its meals, Panera Bread made the decision to contract with local producers to cut the twelve days of produce delivery to just one day (Arndt, 2009). Panera Bread is promoting healthy choices in their menu by including fresh fruits, vegetables, fresh bread, and chicken raised without antibiotics. Panera Bread offers food appropriate throughout the day, but primarily attracts customers and sees its highest revenue at lunch. Panera Bread has not been successful it convincing customers to try it for dinner. However, given the foods fresh, healthful qualities and the increasingly busy schedules of consumers, there is potential for the company to be successful marketing certain products, particularly fresh-tossed salads and breads to accompany dinner if not replace it entirely.

BUSINESS PLAN

PANERA BREAD PAY WHAT YOU WANT

The Panera Bread Pay What You Want (PWYW) program was created by CEO Ronald Shaich. His idea was to create an environment that allowed people to pay for services not just based on their value, but on the customers budget, subjective assessment of value and convenience. The PWYW program allows customers to pay what they want for the food. There is a suggested retail price posted for each item, but customers can pay anywhere from 0.01$ to $100.00. Anything the customer pays over the suggested amount goes into the charity jar. Mr. Shaich new this idea was based on taking a chance on society's willingness to give and he was right. Approximately 70% of customers pay the recommended amount, 15% pay less or even nothing, and 15% pay more. The success of the program, Mr. Shaich says, is due to placing the jar by the register saying charity. The customers know that the additional amount is going to charity to help people who normally would not be able to afford to eat at a place like Panera Bread. The strength of this program is its uniqueness. No other restaurant has anything close to this program. Most people are generous and caring and when given the opportunity with someone they trust, they will give willingly. The weakness of this program is that it relies on customers ability and desire to give above and beyond suggested retail amount. If economic times become more difficult and more people are unemployed, Paneras revenues may drop even further than a traditional retailer that has the protection of set pricing. The opportunity is having the ability to spread this program to other cities and states. As the program reaches the area, it peaks everyones interest to get involved. Then the cycle starts all over again with 15%

BUSINESS PLAN of customers paying significantly more for their food. Lastly, the threat would be customers getting acclimatized to the program and losing interest in its social-benefit aspect. Customers might either stop going to eat at Panera altogether, or calculate that having already paid a surplus for their food, they are entitled to start paying less or nothing. If Panera Bread loses this customer base or the customer base loses its disposable income, it would be a significant hardship to rebuild.

BUSINESS PLAN FINANCIAL OVERVIEW

Panera Bread sales have been increasing steadily based on its expansion to new locations in target market in United States.

BUSINESS PLAN Panera Bread is benefiting from the price of the meals as seen in the profit of the company, which is operating debt free in the highly competitive market like the restaurant industry.

3 i
i

Panera Bread is debt free with high equity in comparison with its debt. The total equity/debt ratio is not available for Panera Bread has no debt with a debt value per share of 19.97. The total amount of cash that Panera Bread holds is $229.30million (Panera Bread, 2011).

BUSINESS PLAN

9 Financial Ratios for the Year 2010 Current ratio Quick ratio Inventory turnover Accts recvble turnover Number of days to collect Debt to assets Debt to equity Net Profit Margin* Gross profit on sales Return on assets* Return on equity* Earnings per share* there are 3000 shares outstanding

1.6 1.4 70.1 24 days 15 days 0.2 0.4 0.1 0.3 0.1 0.2 $37.29

3 i
i

BUSINESS PLAN

Financial summary

10

3 i
i

BUSINESS PLAN

Panera Bread Company Income Statement For the year ended December 28, 2010. Sales Cost of Goods Sold Gross profit Operating Expenses: Total 1,542,489 1,005,912 536,577 -

Panera Bread Company Statement of Retained Earnings For the year ended December 28, 2010. Beginning balance at [January 1, 2010] Add: Net income (loss) Less: Dividends Ending balance at [enter date] $

432,449 111,866 544,315

Total Operating Expenses Net Income (Loss)

$ $

0 111,866

Panera Bread Company Balance Sheet For the year ended December 28, 2010. ASSETS Current Assets: Cash Accounts Receivable Inventory Total Current Assets Property and Equipment: Equipment Accumulated Depreciation $ $ 229,299 63,136 14,345 330,685 444,094 0 LIABILITIES and OWNER'S EQUITY Current Liabilities: Accounts Payable Notes Payable (due in 8 months) Total Current Liabilities Long-Term Liabilities: $ Stockholders' Equity: Common stocks Retained earnings Total Stockholders' Equity Total Liabilities and Equity $ $ 3 544,315 595,608 924,581 $ 211,516

211,516

Other assets: Total Assets $ 444,094 924,581

11

3 i

BUSINESS PLAN CONCLUSION Panera Bread is not the leader in its industry but it is generating huge profits despite the economic difficulties that other restaurants and coffee shops are facing. The high quality of the freshly-crafted foods, the variety in Panera Bread's menu, comfortable design and attractive amenities have gained Panera Bread a competitive advantage among its rivals. The companys innovative ideas result in a better product and attract new customers every day. This growth trend is likely to gain momentum in years to come. The growth in revenues from $1,298,853,000 in 2008 to $1,542,489,000 in 2010, an 18.76% increase strongly suggest investors will be able to realize this growth in the form of higher stock values and success through market share growth based both on expansion and a growing customer base in already established locations.

12

BUSINESS PLAN References

Arndt, M. (2009, March 19). Panera Breads Apple strategy. Bloomberg Newsweek. Retrieved from http://www.businessweek.com/the_thread/brandnewday/archives/2009/03/panera_bread_ is.html

Daily Finance. (n.d.) Panera Bread Company stock quote. Retrieved from http://www.dailyfinance.com/quotes/panera-bread-company/pnra/nas

Gregory, S. (2009, December 23). How Panera Bread defies the recession. Times. Retrieved from http://www.time.com/time/business/article/0,8599,1949371,00.html Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic focus: Panera Bread Company: Thriving through internal innovation. In Strategic management: competitiveness and globalization (7th edition ed., pp. 412-414). 5191 Natorp Boulevard, Mason, OH 45040: Thomson South-Western. Leonard, C. (2010, May 18). Non-profit Panera restaurant: Pay what you want at pilot location. The Huffington Post Inc. doi:580316

National Restaurant Association. (n.d.). Restaurant industry facts at a glance. Retrieved from http://www.restaurant.org/research/facts/ Panera Bread. (n.d.). Retrieved from http://www.panerabread.com

BUSINESS PLAN Panera Bread Company. (n.d.). Yahoo finance. Retrieved February 18, 2011, from http://finance.yahoo.com/q?s=PNRA Panera Bread Company form 10-K for 2010 [Editorial]. (2010, February 26). The New York Times. Retrieved from http://markets.on.nytimes.com//research/modules/company_topic/drawFiling.asp? docKey=136-0000950123100184830DQROSNL7E07ES9QKQ0S3DRP8A&docFormat=HTM&formType=10-K Panera Bread Company reports fiscal 2010 diluted eps of $3.62. (2011, February 14). Restaurant 13 News Resource. Retrieved from

http://www.restaurantnewsresource.com//article52238.html

3 i
i

Stevenson, A. (2002, January). Rising dough. Kiplingers personal finance, Volume 56(No 1), 71. Steverman, B. (2010, November 8). How Panera Bread kept rising through the recession. Bloomberg Business Week. Retrieved from http://www.businessweek.com/investor/content/nov2010/pi2010118_183529.htm

Brandau, M. (2010, July 20). U.S. restaurant count continues to fall. Nations Restaurant News. Retrieved from http://www.nrn.com/article/us-restaurant-count-continues-fall

BUSINESS PLAN Wasserman, S. (2011, February 14). Call volume rises on Panera Bread following upbeat earnings report. Retrieved from Schaeffers Investment Research, Inc. website: http://www.schaeffersresearch.com/marketcenters/optionscenter/default.aspx? c=bytefeed&ID=105024&single=true

14

3 i
i