Panera Bread® - From Humble Beginnings to Incredible Success
Sunset Hills, Missouri is home to the headquarters of Panera Bread®!
The story of Panera is an interesting one. The company began with St Louis Bread back in 1987 in Kirkwood, Missouri. Outside of the St Louis vicinity, the St Louis Bread Company is known as Panera Bread. There are several key players who brought this thriving franchise to life, and each of them contributed in rather unique ways. The restaurant chain was founded by Louis Kane and Ron Shaich as Au Bon Pain Company. This company acquired the St Louis Bread Company which was founded by Ken Rosenthal back in 1987. Just 12 years later, the Au Bon Pain Company made the decision to expand the franchise into a national restaurant chain. Following this strategic decision, Panera Bread set up its new HQ in Richmond Heights, Missouri.
Panera Bread Commercial - The Hard Road
Loaf of Bread
The company has a rather nebulous mission statement which is simply – A loaf of bread in every arm. However, the misguided mission statement has hardly dampened the public's excitement about the quality and desirability of Panera’s products. To better illustrate the company’s objectives; Panera Bread has at its heart the goal of making terrific bread widely available to customers across the United States. Its bread leadership role is best defined as follows:
Today, Panera Bread operates in excess of 1,800 bakery cafes across 45 states in the nation. It also has restaurants up and running in Ontario Canada, and the District of Columbia. The architect behind the runaway success of Panera Bread is Ron Shaich. Three decades ago he set out on a mission to bring a new way of eating to America. His two restaurant concepts totally redefined the public's perception of fast food. By offering freshly baked artisan food, Shaich was able to prove that eating healthy was a concept that could go mainstream. Many at the time were sceptical that what was for all intents and purposes a bakery-style business could compete with industry juggernauts like Wendy's, Burger King, McDonald's, Arby’s and other unhealthy fast food businesses. But the numbers don't lie: today Panera serves an estimated 8,000,000 people per week, and is responsible for the employment of 80,000 associates. Equally impressive is the company's ranking on Fortune's World's Most Admired Companies List, where Panera sits comfortably in fifth position. And much of this success can be directly attributed to the creativity, vision and strategic approach adopted by its chief executive officer and chairman – Ronald M. Shaich.
What Makes Panera Bread® so Enticing?
The company prides itself on healthy eating. All of the meats used at Panera are raised antibiotic free. Every meal has a balanced variety of all the necessary food groups, and it is presented in a way that makes people want to come back for more. It's not surprising that the company has quickly become one of the fastest-growing restaurant chains in America, and it ranks as the most popular bakery-cafe in the country. But the true success of this fast food restaurant enterprise is not limited to the sensation that it elicits from people's taste buds. Panera Bread® is a highly lucrative business that is raking in the cash – hand over fist.
Panera Commercial - Live Consciously. Eat Deliciously.
Things You May Not Have Known About Panera Bread®
It began way back, in 1981. After the expansion took place in 1999 it took another six years for the company to hit the big time. By 2005, BusinessWeek listed it as #37 on its Hot Growth Companies List. Barely 7 years later, Panera Bread® generated revenues of $2.13 billion. This is impressive, especially when compared to the $1 billion that it generated back in 2008. But the true success of the company rests with its appeal. Panera has clearly hit on a winning formula that resonates with customers across the US and Canada. And the reason for this is the healthy alternative that Panera presents to customers. For starters, none of the food is deep fried and dripping with TFAs. The Panera Bread® restaurants are designed with comfortable eating in mind and are nothing like the cheap and nasty seating you’re likely to find at Wendy’s, Burger King, McDonald’s or Arby’s. It’s the wholesome and healthy alternative that Panera offers which been gobbled up by patrons, and they want more of it. The graphic below shows how a $100 investment in Panera Bread 5 years ago performed against the NASDAQ Composite Index and S&P MidCap Restaurants.
Panera comparison of 5 year cumulative total return.
It's all about customer service!
There are many reasons for the phenomenal success of Panera Bread® and it all comes back to the customer experience. People can’t seem to get enough of the brand – but is this a fad or does it represent a genuine shift in the fast food industry? Here are some interesting facts about Panera before we delve into the financial viability of the company, the restaurant industry and the potential growth problems facing the company.
- Panera Bread stores receive fresh dough daily from 20 bakeries around the country
- During 2006/7 Panera Bread offered more free Wi-Fi than any other company in the US
- Unbeknownst to many, Panera Bread donates all leftover baked goods and bread to hunger relief charities
- Only 5 states do not have any Panera Bread stores, including: Wyoming, North Dakota, Idaho, Montana and Utah
- Panera Bread goes by its original name in St. Louis – The St. Louis Bread Company
In the Money – Panera Bread has been an Investor’s Dream Come True
Panera listed on the NASDAQ on the 10th June 1991. At the time, the opening price was $13.25. By the 15th October 2014, the price of a single Panera Bread (PNRA) share was trading at an astonishing $165.59. That’s 12.5 times higher in 23 years. The stock’s 1-year target is $184 and the 50-day average daily volume is 490,985. The company has a market cap of $4.481 billion with a P/E Ratio of 24.32, which is a little on the high side. Even in the midst of the recent October crash on the US equities markets, the community sentiment for PNRA remains bullish. The 2013 financial reports show a company that is strong and positioned for growth moving forward.
Panera Bread® share price since inception in 1991
Are there Problems with the Panera Bread® Model?
In spite of the aforementioned achievements, Panera Bread has challenges ahead of it. Several analysts believe that its current business model is unsustainable, for the simple fact that sales have outstripped their process for delivering their food. Operations management is an issue that needs specialised attention. Customer wait times at many locations are excessive, and store layout remains a challenge. It has been reported by many customers in surveys that there is inadequate seating at Panera restaurants during busy hours. Of course it's entirely possible that the business could focus on more on to-go orders, without alienating those who are seated at their restaurants.
Many customers complain that the beverage stations obscure their vision of the pickup area in the restaurant. As a result, lines begin to develop and customer dissatisfaction is an issue that is increasing. Now it should be remembered that having such high demand is in itself a positive thing for the company, but managing that demand so that it does not lead to dissatisfaction is paramount. Another issue that crops up in the analysis of the process at Panera is that of employee spacing. The more employees that are hired, the lower the overall return – it’s the law of diminishing returns. The company cannot hope to speed things up by packing more employees into the kitchen, because that ultimately drives up costs and slows things down.
The Panera App
In an attempt to correct this very real problem, Panera launched an app to reduce the time needed to take orders. However the roll-out of this technology was plagued with problems and it was incompatible across a wide range of devices. On the issue of noise coming from the pick-up counter, Panera decided to raise the wall alongside the Barista station. The issues of quality control and throughput need to be addressed urgently. Employees are constantly repeating orders between one another in an attempt to get them right. Since the allocated kitchen space is limited, additional employees will not make things smoother; they will simply get in one another's way. The app currently allows for customisation of orders, but as more people cotton onto it the throughput will become more complicated. Employees need a system to manage the orders better, perhaps an electronic system that notifies employees which ingredients they have already used and what ingredients are unavailable. An interesting set of data was released from morning Star which shows that during the last 5 years at Panera, margins increased from 15.37% to as high as 17.61% in 2013, but for the last 12 months the margins are down to 16.71%. The app is a great way to boost the number of take-out orders, but bottlenecks and operations management needs to improve to avoid a recurrence of the problem.