Occupying a Favorable Position in a Highly Competitive Industry

1. Occupying a Favorable Position in a Highly Competitive Industry Group 4 • Louis Bohan • Tsatsral Dorjsuren • Amarzaya Nasanjargal

2. Introduction • Saint.Louis Panera Bread, specialty bakery-cafes, has grown from 602 company-owned and franchised units in 2003 to 1,270 today. • In 2008 alone: sales increased by 23%, • How come that Panera-Bread is prospering while others are experiencing difficulties? • Key of success of Panera Bread’s is positioning and execution.

3. History • It was founded in 1981 as Au Bon Pain.Co by Louis Kane • The company grew slowly until mid 1990, when it acquired a company, chain of 20 bakery–cafes located in the St. Louis area. • In 1993 acquired the St. Louis Bread Company and change name to Panera Bread

4. As a result of these changing , a new category in the restaurant industry, called “fast casual,” emerged. This category provided consumers the alternative they wanted by capturing advantage of the both fast food category (speed) and casual dining category (good food). • The position that Panera moved into is depicted in the graphic titled “Position Strategy of Various Restaurant Chain”.

5. Panera’s Version of Fast Casual • They established fast-casual category and added a bonus to mix – specially food. • The company has become known as the nation’s bread expert and offers a variety of artisan breads, pastries, and baked goods. • Panera Bread’s restaurants are open for breakfast, lunch and dinner and also offer hand-tossed salads, sandwiches, hearty soups, hot and cold coffee drinks.

6. The company also provides catering services through Via Panera catering business. • Panera even suggests new time of day to eat specially foods, calling the time between lunch and dinner “chill-out” time. • Panera Bread is now the acknowledged leader in the fast casual category, sales were $941 billion in 2008. • It is unique blend of fast-casual service and specialty foods also continues to gain momentum.

7. DiscussionQuestions

8. Question 1 Part A • How has Panera Bread established a unique position in the restaurant industry? • Saw a growing niche “Fast Casual” market: • Tired of standard fast-food • Fastfood convenience • Special food selection • “The convenience of fast-food combined with a higher-quality experience.”

9. Question 1 part 2 • How has this unique position contributed to its success? • They created a niche market between already established markets; (1)fast-food, and (2)traditional higher quality restaurants • Faster and more convenient than traditional restaurants • Higher quality food and experience than fast-food restaurants

10. Question 1 part 3 • Do you think Panera Bread will reach its goal of becoming a leading national brand in the restaurant industry? Why or why not? • Yes, because: • Fills void between fast, but bad quality AND good but too slow • Other restaurants are betting on this new niche sector; Chipotle, Five Guys, Panda Express • The niche is not a fad, but a structural change in demand • No, because: • Many hybrid products fail, and a hybrid restaurant will, too • Confusing to customers, as to what type of business it is • Difficult to market to target demographic

11. Question 2 Analyze the restaurant industry using Porter’s five forces model. In what ways has Panera Bread successfully Positioned itself against the forces that are suppressing the profitability of the restaurant industry as a whole?

12. Bargaining Power of Suppliers • This force is strong for “fast casual” sector, but weak for most US restaurants due to the large variety of average quality suppliers to choose from • However, “Fast Casual” offers “special” quality food at a competitive price. This means: • Fewer suppliers to choose from • Suppliers can set the price • Higher food costs for Panera, Chipotle, etc. • Example: Chipotle offers: • Organic vegetables • Free range and hormone/anti-biotic-free meats Result: smaller profit margin between the high cost of high quality food and the price that fast-food consumers are willing to pay. • Bargaining • Power of Suppliers

13. Bargaining Power of Buyer • This force is strong, because in the US there is a wide variety of cheap “fast-food” restaurants. • Fast-food restaurants can very easily add higher quality items to menu, satisfying both “fast-food” and “fast-casual” customers. • Panera cannot satisfy the budget-oriented fast-food customers, so this market will be lost. • Bargaining of Buyer

14. Threat of New Entrants • Threat of New Entrants • This force is very strong, because entry cost in US is relatively low (avg. startup costs $225,000) • Entry is easy • Experience, not only food are important in “fast casual” sector, so newcomer could capture market share simply by offering a new experience

15. Competitive Rivalry Within the Industry • Based on firms gaining a competitive advantage, using one of four ways: • Changing Prices • Improving product differentiation • Creatively using channels of distribution This force is strong, because competitors can easily compete with “fast casual” restaurants? • Fast food restaurants can rebuild interiors and add new high quality menu items • Traditional restaurants can lower prices and increase speed of service • Competitive Rivalry • Within the Industry

16. Threat of Substitutes • This force is strong • Because “Fast casual” restaurant prices are same, $7-$11 avg. check • Because customers may choose cheaper fast-food restaurants, or eat at home • Customers have many options Only advantages: • Over fast food: fast casual has casual dining lounge • Over Casual restaurants: if customer wants to sit down and be waited on, and pay more • Threat of Substi-tutes

17. Question 3 • What barriers to entry has Panera Bread created for potential competitors? • How significant are these barriers?

18. Question 3 • A barrier to entry can be defined as obstacle that makes new firm difficult to enter a given industry. • products differentiation to try differentiate itself from its rivals and this has created brand recognition for customer becausetheir products are distinctive in terms of their taste and quality –> new related products hardly penetrate the market • Another barrier that Panera Bread has created to limit the new entrant is cost advantages independent of size. • Panera Bread as a first mover defined shape, size, taste and anything else that this industry was going to be • Panera has more than 20 years experience which new entrants don’t have

19. Question 4 • What are the Panera Bread’s primary sources of competitive advantage? • In your judgment, are these sources of advantage sustainable? Why or why not?

20. Question 4 • Positioning in restaurant industry (good food served quickly) • Establishing of new category fast casual (is not associated with unhealthy food) • good and healthy food is served fast • Food is more healthy than in fast food (Mc Donalds) and the food is served quickly than in restaurants • Nice and warm atmosphere of restaurants (exterior and interior)

21. Question 4 • Yes • Since people put more and more focus on healthy living style as well as are busy and do not have lot of spare time, they will always need healthy food that is served quickly • Panera-Bread has great background (knowledge as well as finance) to maintaint this business sustainable by keeping follow the customer‘s needs (regarding assortment, environment…innovation)

22. Application Question 2 Think of at least two other businesses that have established unique positions in their industries. How have their unique positions contributed to their success? Monsanto Paypal • Created a bot that would buy goods on eBay, then insist on using Paypal to pay • Created fake activity to incentivize sellers to use Paypal, “seeding demand” • Sellers then asked other buyers to use Paypal • Paypal’s reliability lead to dominance • Uses patented GMO • Products optimized for existing pesticide • Sells product on subscription basis • Cross-pollination causes accidental seeding • Farmers sued for illegal use, or forced to subscribe

23. References • http://www.ohiodominican.edu/uploadedFiles/Library/CoursePages/Courses/Bus/Bus498/Application-PortersFiveForcesModelPaperExample.pdf • http://www.mathmarketing.com/content/are-you-trying-solve-too-many-problems • http://platformed.info/seeding-youtube-megaupload-paypal-reddit/