Question

​Panera Bread's External Market Opportunities and Threats​? As much as possible please.

Answer 1

The below SWOT Matrix gives a summary of the strategies Panera Bread Company could use to exploit its strengths and opportunities, and tackle its threats and weaknesses successfully:

INTERNAL                   FACTORS                                                           (IFAS) EXTERNAL        FACTORS (EFAS)	Strengths (S) Differentiation Operational excellence Strong financials Economies of scale Strong HR management program Quality product	Weaknesses (W) Supply chain Limited buying power Higher prices Low customer awareness High franchising cost
Opportunities (O) Market penetration International market development Domestic market development Product development and diversification	SO Strategies Strong financials for international market, product development, and domestic market penetration Operational excellence and strong HR management program for domestic market development	WO Strategies Improve market penetration by increasing customer awareness. Improve market development by minimizing supply-chain dependence. Product diversification by reducing the influence of commodity prices.
Threats (T) Existing and emerging competition Economic environment Legal environment Political environment Natural environment	ST Strategies Use differentiation and economies of scale to tackle competition. Use operational excellence to solve economic and legal threats. Use strong financials to solve political and natural threats.	WT Strategies Reduce supply chain weakness to tackle threat from competition. Eliminate high price and low buying power weaknesses to counter economic threats. Increasing customer awareness to solve legal and political threats.

Strength-Opportunity (SO) Strategies

The following SO strategies pursue opportunities that can be effectively exploited using Panera’s strengths:

Use strong financials for international market, product development, and domestic market penetration. In order to continue in a high yield growth trajectory, Panera has to capitalize on opportunities to organize and expand its business strategy to promote growth in other major markets. One of Panera’s strengths exists heavily within its capital resources and utilization capabilities. Panera has an opportunity to market and expand its services beyond the North American borders. In the footsteps of McDonalds, Starbucks, and KFC who have found success beyond US borders; Panera must take advantage of transcending their brand to other continents that might be receptive to the service concept and product mix they have to offer. Panera indeed has the capital to invest in the appropriate market research in order to determine the best regions to penetrate. More importantly, they have the capital to take on the risk and to execute their strategies. As an opportunity marker take for example the successful 2010 fiscal numbers for McDonalds which were led by their global sales. McDonalds US sales were up in 2010 by 3.8% but their global sales were up 4.4% in Europe and 6% in the remaining global areas of operations (McDonalds Corporation, 2011).

Product development is also a key component for expanding business into a global market. It takes plenty of capital not only to launch global chains successfully but to sustain global demand and competition specific to global consumer markets. In some circumstances, product development may even move from opportunity to necessity for example if Panera opens chains in an Asian country, research may find that the menu is better served to include a rice dish of some nature as rice is a staple food in many Asian countries like China, Japan, and Philippines. Having familiar dishes can depict a more inviting establishment for that specific consumer group and increase consumer traffic because “people purchase foods based on their income level, their belief in a food's health benefit, and cost however, ethnicity also impacts people's food choices” (Lowe, Beydoun, &Wang, 2007).

The healthy capital structure to help launch product development opportunities in the global setting could also translate to penetrating domestic sub-ethnic markets successfully. For instance succeeding globally with the launch of a rice cake dish might give leverage for Panera stores in the US, that are located in predominantly Asian communities, to compete in local markets more effectively. As an added bonus, this dynamic could also work in the reverse.

Use operational excellence and strong HR management program for domestic market development. Panera is positioned uniquely in a sector of the restaurant industry that doesn’t currently have a direct competitor with the same national reach it currently captures however instead of sustaining their current hold as a leader in the bakery-café service concept, Panera can compete and earn market share from its many indirect competitors by utilizing a combination of its strengths. With a strong operational infrastructure, especially one that speaks well to talented employees and strategic investors, Panera has the ability to draw from other competitors’ talents and investor pools by continuing to strengthen its internal environment. Because Panera has a profitable business model and an incentivized labor force, it can increase market share by acquiring past or current franchisees or acquire past employees of competitive firms who have valuable knowledge, skills, abilities, and relations that can benefit the Panera family. The strategy may result in direct market penetration by stealing consumers attached to business relationships especially with large scale residual business for example Panera’s relatively new Catering division was a core driver in its 26% sales increase from 2009 to 2010 fiscal year (Panera Bread Company, 2011). Catering contracts can be large residual business to business transactions for Panera and its progressive growth could potentially be derived from the acquisition of competing personnel or investor relationships from competing firms who have accounts that make buying decisions based on a strong relationship with franchise owners or account managers. If Panera continues to compete well against its competitors for the best investors, labor and managerial talent, then by default, profitable business relationships attached to these individuals have high probability of transitioning into the Panera family.

Strength-Threat (ST) Strategies

            ST strategies identify ways whereby a firm can use its strengths to reduce its vulnerability to external threats (WikiSWOT, n.d.). Panera can use the following strategies to counter its external threats:

Use differentiation and economies of scale to tackle existing and emerging competition. Strong brand identity and strong customer loyalty are two important barriers of entry in any business environment (Investopedia, n.d.). Panera’s strength lies in its ability to differentiate itself from the other restaurants. By constantly improving processes, customer service, and menu offerings, the company can strengthen its reputation and increase customer loyalty. This will make it difficult for Starbucks or McDonald’s or any other competitor to succeed even if they entered Panera’s market niche in the future.

Further, new emerging companies cannot compete with the size of operations of established companies and hence they have high cost of production and low margins. As stated earlier, Panera enjoys economies of scale due to the size of its operations so the company can use this strength to increase its bargaining position with suppliers and create strong entry barriers against emerging competitors.

Use operational excellence to solve economic and legal threats. Panera’s operational excellence enables it to control its variable costs. During periods of inflation, the company could use this strength to effectively reduce operational costs and maintain the final price of their products. Additionally the “Panera Cares” program is a good way to highlight the company’s concern for its community while handling the threat of recession effectively.

To ensure that the company’s business strategies progress according to plan, Panera needs to exploit its relations with the current franchisees and create an alternate plan for the new franchisees. If for any reason a new franchisee’s license gets delayed or cancelled, one of the existing franchisees could pick up the process and continue with the plan until the original franchisee is ready to take over.

Use strong financials to solve political and natural threats. Currently Panera Bread Company does not have any outstanding dues, which gives them the opportunity to research and explore transportation options that are eco-friendly and cheap; for example the company can mitigate the threat of increase in oil price by investing in hybrid vehicles. This will help Panera in supporting the “green” concept and again highlight their corporate social responsibility.

Building backup warehouses locally is one strategy for the company to hedge against the threat of shortages caused due to unpredictable weather conditions. Another strategy for Panera would be to integrate backwards with some of the suppliers to increase operational capacity and ensure timely, cost-effective supplies. The company’s solid financial position permits it to undertake these demanding but potentially profitable tasks.

Weakness-Opportunity (WO) Strategies

            WO Strategies are strategies that are implemented specifically to defeat weaknesses within a company so that opportunities can be exploited. It is certain that Panera can successfully develop effective WO Strategies due to the minimal legitimate weaknesses present within the company (Perreault Jr., Cannon, & McCarthy, 2009). Currently Panera has the following three major opportunities that can definitely prove profitable if correct measures are taken to capitalize on them:

            Improve market penetration by increasing customer awareness. Panera has to overcome its weakness of inadequate marketing to take full advantage of the market penetration opportunity (Panera Bread Company, 2011). The company’s inability to inform its potential customers about the extensive health benefits and natural quality of its menu items could lead to a serious negative effect in attracting new customers (Watson, 2010). The only method for Panera to overcome this deficiency is to implement a more aggressive marketing mix by increasing their current advertisements (e.g. radio, billboards, social-networking, television, and in-store sampling days) or by developing a different marketing strategy (e.g. saturating local or national newspapers and magazines) to promote the health benefits and quality of their products.

            Improve market development by minimizing supply-chain dependence. The reason for Panera’s existence is its customers’ demand for organic, natural, and fresh made food products. To satisfy this purpose, all ingredients must be delivered multiple times throughout a week to ensure freshness of all foods. Fresh produce is delivered three to six times per week while other ingredients are delivered two to three times per week (Panera Bread Company, 2010). In order for Panera to expand globally or domestically, a more efficient method must be implemented to provide the same ingredients to all restaurants through preservation of delivered goods and modification of the frequency with which the company receives its ingredients. This will help in decreasing the final delivery costs as well. Panera Bread Company can take full advantage of the opportunity of market development (expansion) by implementing a strategy to “manage” the weakness of too frequent deliveries and providing options to ensure long-term preservation of fresh ingredients.

            Product diversification by reducing the influence of commodity prices. Although Panera tailors its products for customers, the company has not explored and exploited the beverage sector effectively. Volatility of commodity prices (which make up a large portion of their daily ingredients) precludes them from making a valiant effort to develop new beverages. Although these commodities do not directly affect the development of a beverage, Panera must adjust customer prices constantly to make up for the volatility. This type of inconsistency does not give Panera the opportunity to explore other menu items and requires them to concentrate on their food menu. If Panera could eliminate the weakness of having to charge customers higher to compensate for an ingredient’s volatility through possible price agreements with suppliers, then it will give the company the opportunity to diversify into the beverage industry.      

Weakness-Threat (WT) Strategies

Panera Bread Company needs to evaluate its present industry standing and develop a defensive strategy to not be susceptible to external threats and avoid weaknesses. This will help the organization to be successful in a bad economic market without major downsizing and allow them to gradually expand while keeping costs low. For the organization to achieve this level of success, it needs to implement WT strategies that minimize weaknesses in the business and neutralize the possible impact of industry’s threats.

Reduce supply chain weakness to tackle threat from competition. Panera’s distinctive niche in the restaurant industry helps it achieve a strategic advantage against all its competitors, big and small. The company produces its main product, bread, in several fresh dough facilities and is able to deliver the product at lower operational cost to its stores (Watson, 2010). This vertical integration allows Panera to neutralize some of the threats from competing large restaurants by controlling its profit margin. On the other hand to minimize the impact of small scale competitors (such as privately owned local coffee or bakery shops) and the threat of entry of substitutes in the industry, the organization will need to market itself with the same warmth and welcoming appeal of a small neighborhood “mom and pop” shop.

Additionally the company needs to address the issue of overdependence on its single distributor. Since many of Panera’s menu ingredients are directly purchased from the open market at competitive prices, the company will need to move in a direction to acquire suppliers and look at alternate ways of delivery for all their restaurants. This will lower delivery prices and allow the firm to compete more strongly with its competitors.

Eliminate high price and low buying power weaknesses to counter economic threats. The restaurant business depends heavily on the discretionary spending of its customers. Companies usually implement low price strategies during economic slowdowns because they think it will help to retain customers and stay afloat (Thompson, 2008). Panera, however, can adopt a different approach to address this potential problem by giving customers more value for their money. By increasing the size and quality of their best-selling menu items, the company can continue charging prices at the same rate and sustain profitability in the long run.

Despite operating in an uncertain cost environment, the company’s concept of aggressive expansion will help Panera to remain strong as evidenced by the leading customer satisfaction ratings, high unit volumes, and resulting strong return on investment (Wikiinvest, 2011). This expansion strategy primarily consists of new market development and further penetration of existing markets. Panera’s franchising plan looks very aggressive for the next three to five years due to the opportunities presented by the current real estate market. This plan can propel the company to reach higher scale of operations, enlarge the firm’s market area, and drastically improve its buying power (Panera Bread Company, 2011). Without long-term debt, with small but sustainable growth over the last several years, high indexes of liquidity and profitability, the organization can definitely continue to expand and adopt an inflation-proof pricing approach.

Increasing customer awareness to solve legal and political threats. Study results suggest that developing positive customer perception relies not only on a company’s ability to increase consumer satisfaction but also on establishing a favorable image and perceived value therefore, favorable image building and brand expansion are crucial for Panera’s future (Combs, 2006). There has been a strong push for healthier eating and proper nutrition consumption in the US. Panera has adapted to this trend by offering a wider variety of salads, healthier meats, and healthier bread options. If the company can expand and capitalize on this latest trend more, it will be able to realize very high level of customer loyalty. By increasing marketing efforts to spread awareness of its use of natural ingredients and antibiotic-free chicken products, the company can maintain interest of its regular customers, satisfy changing consumer preferences, and be responsive to various healthy trends in the market (Watson, 2010).

The taste of consumers evolves over time due to many reasons. Panera should be very attentive to any changes or demands from their customers including the ones outside US (e.g. Canada). Growing number of restaurants now are posting nutrition information on their menus because today 83% of restaurant customers like nutrition information on the food products (Combs, 2006). Panera should continue to focus on a healthy menu advertisement and the presentation of its comprehensive nutritional information. The organization will also need to pay attention to various federal or local government regulations and ordinances. In many cities laws have been passed that require food establishments to post inspection results in a visible place (Panera Bread Company, 2011). By paying attention to its customer’s feedback and evolving healthy trends in the food industry Panera Bread Company can capitalize on its position to increase consumer satisfaction and establish a favorable business image and perceived value