Panera Bread Company

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Course Code                :        Management and Organizational Behavior  

Case Title                :        Panera Bread Company

Case number                :         Case 1

Developed by Carol P. Harvey, Assumption College, and John R. Schermerhorn, Jr., Ohio University

Panera Bread is in the business of satisfying customers with fresh baked breads, gourmet soups, and efficient service. The relatively new franchise has surpassed all expectations for success. But how did a startup food company get so big, so fast? By watching and carefully timing market trends.

Company History

Despite its abundance of restaurants, Panera Bread is a relatively new company, having only been known as such since 1997. Its roots go back to 1981, when Louis Kane and Ron Shaich founded Au Bon Pain Company Inc., having merged Kane’s three existing Au Bon Pain stores with Shaich’s Cookie Jar store. The chain of French-style bakeries offered baguettes, coffee, and sandwiches served on either French bread or croissants. It performed quite well on the East Coast, becoming the dominant operator in the bakery-café category, and it even expanded internationally.

As part of its expansion, in 1993 Au Bon Pain purchased the Saint Louis Bread Company, a Missouri-based chain of about 20 bakery-cafes. To experiment with a different restaurant format and new menu offerings, the company renovated the Saint Louis Bread Company stores and reimagined their identity, naming them Panera Bread. Clearly, something worked: from 1993 to 1997 the average unit volumes at these stores increased by 75%.

Executives at Au Bon Pain saw the potential for this new restaurant concept and dedicated themselves-and all of the company’s financial resources-to building this brand. In 1999 the company sold all of its business units except for the Panera-concept stores. The reorganized company was, not surprisingly, christened Panera Bread.

Since then the new brand has sought to distinguish itself in the soup-and-sandwich restaurant category. Its offerings have grown to include not only a variety of soups and sandwiches, but also soufflés, salads, panini, and a selection of pastries and sweets. Most of the menu offerings somehow pay homage to the company name and heritage-bread. Panera takes great pride in noting that its loaves are handmade and baked fresh daily. To conserve valuable real estate in the retail outlets, as well as to cut the necessary training for new employees, many bread doughs are manufactured off-site at one of the company’s 17 manufacturing plants. The dough is then delivered by truck-over as many as 9.7 million miles per year-daily to the stores for shaping and baking.

At this point, there are nearly 950 Panera Bread outlets in 37 states. Franchise stores outnumber company-owned outlets approximately two to one.  

Modern Tastes, Modern Trends

Panera’s success has come partly from its ability to predict long-term trends and orient the company toward innovating to fulfill consumers. Its self-perception as a purveyor of artisan bread well predated the current national trend for fresh bread and the explosion of artisan bakeries throughout metropolitan America. In addition, proactively responding to unease in the market-place about the role of trans fats in a healthy diet, Panera voluntarily removed trans fats from its menu. “Panera recognized that trans-fat was a growing concern to our customers and the medical community. Therefore we made it a priority to eliminate it from our menu,” said Tom Gumpel, Director of Bakery Development for Panera Bread.

According to Ron Shaich, chairman and CEO of Panera, “Real success never comes by simply responding to the day-to-day pressures; in fact, most of that is simply noise. The key to leading an organization is understanding the long-term trends at play and getting the organization ready to respond to it.

Value Creation and Customer Satisfaction

As a retail bakery-café, Panera Bread has taken the concept of “quick casual” dining one step further than its competition. Each location features an earth-toned décor with a fireplace, comfortable couches, and current newspapers available to customers. Patrons order and pay at the counter and then wait for their names to be called to pick up their food. The menu features a wide variety of made-to-order sandwiches prepared with freshly baked artisan breads, desserts, crisp salads, homemade soups, and gourmet beverages.

Unlike the paper and plastic fast-food experience, here food is served in baskets or in china plates and cups, and customers eat with metal silverware. Diners are encourage to linger or to read. At Panera Bread locations, book club and business meetings are welcomed. There is also a separate bakery counter where customers can purchase breads and pastries to take home. However, Ron Shaich says that Panera bakery-cafes “aren’t just about the atmosphere. It isn’t just about the food. It is the totality of it. This is where you go everyday to catch your breath and chill out.”

Panera caught sight of the demand for free Wi-Fi early on, and now more than 700 of its stores offer customers a complimentary access. According to spokesperson Julie Somers, the decision to offer Wi-Fi began as a way to separate Panera from the competition and to exemplify the company’s welcoming atmosphere.

“We are the kind of environment where all customers are welcome to hang out,” Somers said. “They can get a quick bite or a cup of coffee, read the paper or use a computer, and stay as long as they like. And in the course of staying, people may have a cappuccino and a pastry or a soup.” She went on to note that the chief corporate benefit to offering Wi-Fi is that wireless customers tend to help fill out the slow time between main meal segments.

Executive Vice-President Neal Yanofsky concurred. “We just think it’s one more reason to come visit our cafes,” he said. And wireless users’ tendency to linger is just fine with him. “It leads to food purchases,” he concluded.

Staffing/Human Capital

Although Panera has an aggressive growth strategy that requires the organization to open many stores each year, becoming a franchise owner requires considerable financial investment and business experience. In addition to a net worth of $7.5 million and liquid assets of $3 million, each applicant must also have worked as a multi-unit restaurant operator. Unlike most franchises Panera does not allow an owner to open in only one location. Instead the owner must open 15 or more bakery-cafes in six years within a defined geographical area.