Panera Bread is a company of small beginnings, starting out as a chain of small scale bakery-cafes along the east coast to having over 1,200 locations in over 40 states. Panera is a company that strives to project an inviting atmosphere in all of its establishments. Panera’s stores are mostly located in suburban areas with heir target customers being urban workers and suburban dwellers. “A loaf of bread in every arm” is the mission statement of Panera Bread. Panera Bread bakes more bread each day than any bakery-cafe in the country.
Panera’s menu spans from muffins and bagels to soups and salads to a variety of sandwiches. Panera Bread prides itself on providing the highest quality of food that customer enjoy. Panera’s competitors include restaurants in the fast-casual restaurant market such as Applebee’s, Baja Fresh and Fuddruckers. Panera Bread also has to compete with common fast food restaurants such as McDonald’s and Wendy’s. Although, competition is fierce in these markets, Panera has been able to differentiate itself from other competitors.
One of the main problems that Panera Bread is facing is their pricing strategy. With the state of the economy today, it definitely affects the consumer’s ability to eat at places like Panera Bread, especially when there are less expensive options available. These competitors, most of which are in the fast food industry, offer less expensive food items, although they may be of a lesser quality, they still pose a major threat. Fast food restaurants such as McDonalds may operate differently, however they have a strong presence in suburban areas, which is where Panera is primarily located.
There is approximately one Panera location for every ten McDonald’s. Also, full service restaurants such as Applebee‘s, are beginning to offer lower priced menu options. For example, Applebee’s recently began offering 2 for $20 deals where customers can get an appetizer and two entrees for $20. Deals like these may start to lure Panera’s customers to other establishments. Customers at Panera are expected to stand in line, place their order, wait for the food and take it to their table. They are also expected to clean their table when they are done, all for the price of a sit down dinner.
On average a customer at Panera can expect to pay around $10 for a sandwich and a beverage. For the same price or just a few dollars more, consumers can get a full service experience at a restaurant like Applebee’s. Although, the food may be great, will customers continue to pay these types of prices for limited services? Described in Newsweek as “the Applebee’s of fast food”, Panera Bread has not altered there pricing to stay competitive in this industry. Instead, Panera uses market segmentation and focuses on the customers who can afford their prices.
As the CEO, Ron Shaich, stated when asked about the 8. 1% unemployment rate, “We prefer to focus on the 92% of the country who still have jobs”. Even though the majority of their target market segment may be still employed, people are scaling back due to the fear of possibly losing their job in the near future. This can pose a major threat to their future success. One of the main causes of Panera‘s higher menu prices is the cost of the quality ingredients that they use in their food. The quality of Panera’s food is part of their marketing strategy.
The company attempts to grow sales through providing an enjoyable dining experience rather than attracting customers on price. Their marketing objective is to grow their customer base with menu development strategies. As indicated in the case, Panera manufactures its own fresh dough, which is produced and delivered daily in facilities all over the country. Although this is a very costly process, management at Panera sees this as a competitive advantage. Also, Panera obtains ingredients for their dough and other products from multiple suppliers.
Due to the rising cost of ingredients, it is likely that Panera’s menu prices will increase. To effectively analyze cost in relation to price, more information is needed on the cost of producing all items on Panera’s menu. How much of the price is affected by cost is a major factor. Management needs to look at ways of offering lower priced foods without having an major financial impact on the company‘s profit margin. One option that Panera can implement is lower priced menu options. This can be done in various ways to ensure the quality is not compromised.
Panera could offer lower priced, smaller portions for the lunch menu. For example, in addition to offering a whole sandwich, Panera can offer half sandwich at a lesser price. This would also tie in with marketing to health conscious people because they would be getting healthier sized portions of food. Panera would also become more competitive with fast food restaurants such as McDonald’s that have everyday low-priced value option on their menu. Although, this may be a good way to bring in a new customer base, there is also a downside.
Introducing lower priced menu items may jeopardize Panera’s current competitive advantage. Panera has grown over the years by staying committed to what they believe in, which is providing a great dining experience. However, by offering a value menu, this may be seen to some customers as a step down, which could result in decreased sales. Another option is for Panera to transform into a full service dining establishment. Essentially they would operate more like Applebee’s where customers are waited on and served.
This would also allow them the opportunity expand their menu, especially for dinner since this is a slow period for them. They would even be able to introduce some higher priced menu items which would be more aligned with other full service restaurants. The current layout of the restaurant is setup very similar to a full service restaurant, so there would be minimal structural changes necessary. There are some negative aspects to this option that have to be explored. The main issue that would have to be examined is the increased cost. Going full service entails hiring additional staff to serve customers.
Also, although minimal, there would have to be some structural changes made at each locations to enable Panera to become more conducive to a full service establishment Another issue that has to be considered with going full service is the additional competition. There are lists of full service restaurants that Panera would have to compete with, which may have a negative impact on sales. Their existing customer base may also not be very accepting of a full service option and this may ultimately result in Panera losing revenue. I think the best option for Panera Bread is to offer lower priced options as a part of their menu.
This is the most cost effective way for them to address the issues that consumers have with their prices. This would also allow them to perhaps gain new customers with these lower priced items. Also, offering lower price menu options would have the least financial impact. This can be done by offering coupons or having specials on certain days of the week. Panera can also offer a customer rewards card which is a very popular trend. Customers would gain points for frequenting the restaurant and after gaining so many points, they would be entitled to a free entree.
This would be a great opportunity to increase customer loyalty. Panera Bread is a successful company that has stood behind their commitment of providing “crave-able food that people trust”. Although, with the current state of the economy change is necessary, Panera Bread can make changes to their strategy without jeopardizing quality. References Donnelly, J. H. , Jr. , & Peter, J. P. Marketing management: Knowledge and skills. (9th ed. ) (2009). Boston, NY: McGraw-Hill Irwin. Panera Bread Company Information Retrieved October 10,2009 from Panera Bread official website http://www. anerabread. com/about/company/ Julie Jargon (2009) Slicing the Bread But Not the Prices Retrieved October 10, 2009 from The Wall Street Journal http://online. wsj. com/article/SB125055615200338805. html? ru=MKTW&mod=MKTW Michael Arndt (2009) Panera Bread’s Apple Strategy Retrieved October 10, 2009 from BusinessWeek http://www. businessweek. com/the_thread/brandnewday/archives/2009/03/panera_bread_is. html Market Scan (2007) Panera Bread in The Oven Retrieved October 10, 2009 from Forbes. com http://www. forbes. com/2007/10/24/panera-bread-update-markets-equity-cx_ml_1024markets36. html