Question

not less than 1500 words)

Strategic management and business policies
(Panera Bread Company (2010): Still Rising Fortunes)
Develop a complete strategic audit report that contains the following components
1. Background about the organization
2. Corporate governance
3. External environment analysis
4. Internal environment analysis
5. Financial Analysis
6. SWOT Analysis
7. TOWS Matrix
8. Implementation and Evaluation

Answer 1

Strategic Audit report:

1. Background about the Organization:

   Panera Bread Company is an American chain store of bakery-café fast-casual restaurants with over 2,000 locations, all of which are in the United States and Canada. Its headquarters are in Sunset Hills, Missouri, a suburb of St. Louis. The company operates as Saint Louis Bread Company in the Greater St. Louis area, where it has over 100 locations. Offerings include bakery items, pasta, salads, sandwiches, soups, and speciality drinks.

   The company, which also owns Au Bon Pain, is owned by JAB Holding Company which is, in turn, owned by the Reimann family of Germany.

   Panera offers a wide array of pastries and baked goods, such as bagels, brownies, cookies, croissants, muffins, and scones. These, along with Panera's artisan bread, are typically baked before dawn by an on-staff baker. Aside from the bakery section, Panera has a regular menu for dine-in or takeout including flatbreads, panini, Panera Kids, pasta, salads, sandwiches, side choices, and soups, as well as coffee, espresso drinks, frozen drinks, fruit smoothies, hot chocolate, iced drinks, lattes, lemonade, and tea.

   During its final 20 years as a public company, from 1997 to 2017, it was the best performing restaurant stock, delivering an 86-fold return to shareholders

2. Corporate Governance:

   The Board of Directors of Panera Bread's primary objective is to conduct the company's business activities legally and ethically, to add economic value and sustainable stockholder returns. "The Board" is responsible for ensuring that nominees for the Board of Directors Possesses appropriate qualifications and reflect a reasonable diversity of backgrounds and perspectives.

   Unless otherwise permitted by NASDAQ rules, the members of the Board are all independent directors. There are two qualifications to be considered an independent director. First off, it must apply to the rules of the NASDAQ Stock Market. Secondly, the independent director must not have a relationship with the company that interferes with judgement in carrying out the responsibilities of a director. Any new members of the Board can only serve until the next annual meeting of stockholders is held, at which the members' term expires, and would have to be re-elected by the stockholders at that time.

   The Board meets at least 4 times each fiscal year but may hold additional meetings as necessary. At least two of the Board members have to agree for there to be additional meetings held.

   These Corporate Governance Principles and Practices provide a set of flexible guidelines for the Board to function efficiently. The summary of current practices is not a fixed policy, but a statement of current practices that is subject to continuous assessment and change. The Board can modify or amend the Corporate Governance Principles and Practices at any time they see fit.

   The Corporate Governance Principles and Practices are very detailed and in-depth. Below are a few links to help get a better understanding of the guideline

3. External Environment Analysis:

   1. Political Factors:

      1. Legal framework for contract enforcement
      2. Intellectual property protection
      3. Trade regulations & tariffs related to Services
      4. Favoured trading partners
      5. Anti-trust laws related to Specialty Eateries
      6. Pricing regulations – Are there any pricing regulatory mechanism for Services
      7. Taxation - tax rates and incentives
   2. Economic Factors:
      1. infrastructure quality in Specialty Eateries industry
      2. Comparative advantages of host country and Services sector in a particular country.
      3. Skill level of workforce in Specialty Eateries industry.
      4. Education level in the economy
      5. Labour costs and productivity in the economy
      6. Business cycle stage
   3. Social Factors:
      1. Demographics and skill level of the population
      2. Class structure, hierarchy and power structure in the society.
      3. Education level as well as education standard in the Panera Bread Company ’s industry
      4. Culture
   4. Technological Factors
      1. Recent technological developments by Panera Bread Company competitors
      2. Technology's impact on product offering
      3. Impact on cost structure in Specialty Eateries industry
      4. Impact on value chain structure in the Services sector
      5. Rate of technological diffusion
4. Internal Environment Analysis
   1. The threat of new entrants: New entrants in Specialty Eateries brings innovation, new ways of doing things and put pressure on Panera Bread Company through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Panera Bread Company has to manage all these challenges and build effective barriers to safeguard its competitive edge.
   2. Bargaining power of suppliers: All most all the companies in the Specialty Eateries industry buy their raw material from numerous suppliers. Suppliers in a dominant position can decrease the margins Panera Bread Company can earn in the market. Powerful suppliers in Services sector use their negotiating power to extract higher prices from the firms in Specialty Eateries field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Specialty Eateries.
   3. Bargaining power of buyers: Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Panera Bread Company profitability in the long run. The smaller and more powerful the customer base is of Panera Bread Company the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
   4. The threat of substitutes: When a new product or service meets a similar customer needs in different ways, industry profitability suffers. For example services like Dropbox and Google Drive are a substitute for storage hardware drives. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry.
   5. Rivalry among existing competitors: If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. Panera Bread Company operates in a very competitive Specialty Eateries industry. This competition does take a toll on the overall long term profitability of the organization.
5. Financial Analysis:
   1. Panera Bread's net income of $42 million in I. Quarter decreased by -2.26 % from net earnings of $43 million achieved in IV. Quarter a year ago.
   2. Sequentially net earnings fell by -8.21 % from net income of $45.94 million realized in the previous quarter.
   3. Panera Bread Company does not pay out a common stock dividend.
   4. In the trailing twelve-month period Panera Bread Company earned $ 16.24 cash per share, on a free-cash flow basis 236.11 % of net earning per share.
   5. Book value fell by -7.63 % sequentially to $12.61 per share.
      Tangible Book value fell to $ 5.01 per share from $ 5.28.
   6. The company issued 1.47 million shares or 6.95 % in I. Quarter.
      Interest Coverage Ratio was 23.97. Debt Coverage Ratio was 0.58.
6. SWOT Analysis:
   1. Strengths:
      1. Highly skilled workforce through successful training and learning programs. Panera Bread Company is investing huge resources in the training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
      2. Superb Performance in New Markets – Panera Bread Company has built expertise at entering new markets and making a success of them. The expansion has helped the organization to build a new revenue stream and diversify the economic cycle risk in the markets it operates in.
      3. Automation of activities brought consistency of quality to Panera Bread Company products and has enabled the company to scale up and scale down based on the demand conditions in the market.
      4. Highly successful at Go To Market strategies for its products.
      5. Strong Free Cash Flow – Panera Bread Company has strong free cash flows that provide resources in the hand of the company to expand into new projects.
   2. Weaknesses
      1. Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Panera Bread Company
      2. Limited success outside core business – Even though Panera Bread Company is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
      3. There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
      4. The high attrition rate in work force – compare to other organizations in the industry Panera Bread Company has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
      5. The company has not been able to tackle the challenges present by the new entrants in the segment and has lost a small market share in the niche categories. Panera Bread Company has to build an internal feedback mechanism directly from the sales team on the ground to counter these challenges.
   3. Opportunities:
      1. New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represents a great opportunity for Panera Bread Company to drive home its advantage in new technology and gain market share in the new product category.
      2. Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in the bank, the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for Panera Bread Company in other product categories.
      3. Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Panera Bread Company’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
      4. Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at a lower interest rate to the customers of Panera Bread Company.
      5. New trends in consumer behaviour can open up a new market for the Panera Bread Company. It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
   4. Threats:
      1. The demand for the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
      2. New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories.
      3. As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in several markets across the world.
      4. The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
      5. Growing strengths of local distributors also present a threat in some markets as the competition is paying higher margins to the local distributors.