Website design By BotEap.comPanera Bread has an opportunity for growth within a challenging industry in two key areas: increased specialty beverage sales and opening international locations, which will allow the company to spread its mission of fresh bread for all while increasing the bottom line for customers. shareholders. By using many frameworks for thinking about and projecting the estimated financials of the company, we can empirically show that these two strategies will be beneficial to the customer.

Website design By BotEap.comUse historically high margins on specialty beverages to drive bottom-line growth

Website design By BotEap.comWhile Panera’s core business revolves around fresh bread, the style of the locations suggests that there is substantial revenue from the sale of coffee and related beverages, similar to Starbucks. As for the coffee market, the estimated real growth is 2.7% or about 5.7% given an inflation rate of 3%, while the number of establishments, the actual coffee shops, is expected to grow only one 1.6%, which means that each store on average will see an increase in revenue, due in part to a 3.5% growth in internal demand (See Appendix A). In addition, earnings on specialty drinks are estimated at 19.8%, well above Panera’s 6.4% profit margin. This means that increasing sales of specialty drinks will have a positive impact on Panera’s results; Clearly, the industry is growing and it’s a good industry for Panera. According to the Buffalo Wild Wings franchise disclosure document, more than 40% of revenue is generated through sales of alcoholic and specialty beverages. If Panera were able to generate this level of sales with a 19.3% profit margin, its bottom line would rise by almost 7.8% to 14.2%, an abnormally high value for the restaurant industry (which averages margins of 4-5%). While this level of profit margin is not likely to be sustainable, the near-term increase in profit margin will help Panera expand its operations internationally to capture economies of scale with its suppliers.

Website design By BotEap.comCheck with industry headlines to learn and rearrange menu locations

Website design By BotEap.comVisually, the layout of a Starbucks, Dunkin’ Donuts, or Caribou Coffee is much more fluid than Panera Bread with respect to coffee order placement. This analysis is largely based on the Eden Prairie Mall and Downtown Minneapolis Nicollet Mall locations. Eden Prairie and Downtown customer flow is awkward; the customer must enter the store, go through the bakery and coffee areas, and then order at the cash registers. The problem is that the cafe menus are located above the bakery items, not in view of the customer at the time of ordering. By the time the customer is ready to order, he or she has forgotten which drink to order; Plus, the drinks are creatively named, which is positive for brand identity, but hard for the average male customer to order. At a minimum, coffee and specialty drinks must undergo the following changes:

Website design By BotEap.comMove menus to the same side of the wall as food menus to ensure customers know which coffee is offered when ordering.

Website design By BotEap.comPlace bakery cases closer to cash registers to attract more impulse purchases.

Website design By BotEap.comRemove queue line markers during non-peak hours, especially in front of bakery display cases

Website design By BotEap.comIncrease drink specials, including alcoholic beverage research, to attract regular coffee shop customers to Panera.

Website design By BotEap.comFocusing on blending cafeteria design with cafeteria ambiance, Panera can become a “chill out” spot as well as a prime spot for both lunch and dinner. Furthermore, this change can be brought to international markets where coffee environments, such as those in France, are more prevalent.

Website design By BotEap.comExpand internationally to build a brand image and diversify economic risks

Website design By BotEap.comWith Panera looking for locations in Canada, it’s safe to assume that the international market for fresh bread is growing. In fact, the international market breakdown of industry revenue can be found in Appendix B. Clearly, the European market is a great market for fresh bread. However, IBIS World estimates that there are 135,000 bakeries operating in Europe, which means that the market is fragmented. A brand with a large marketing budget behind it could quickly enter the market and take a key position (see Appendix C). Since the culture and preferences of European customers may differ from those of Americans, it would be best to test new products in Canada prior to the overseas launch of the Panera brand. An interesting facet of the European market is the strong relationship between industrial agricultural and milling companies and industrial bakeries. The largest bakeries are owned by the largest farming and milling companies in the UK, Sweden and Austria. This may cause supply chain issues in these countries, although Panera could pursue a partnership or joint venture approach for these markets.

Website design By BotEap.comLeverage existing assets to increase shareholder return and expand

Website design By BotEap.comAccording to Panera’s 2009 10-K, the company had an interest coverage ratio of 200.9x, with EBIT of $140 million and interest payments of $700,000. In addition, the distance to default, a key metric for debt risk, is quite large (the bigger the better) since Panera’s cash on hand is $77.1 million and the debt/equity ratio is 0.0%. . Retained earnings and total capital are $346 million and $495 million, respectively. This suggests a large cushion before debt default in an extreme situation. In Appendix D, you can clearly see the vast difference between Panera and its rivals in terms of debt load. Given that Panera has $153.2 million in FCF, it is safe to assume that Panera could issue at least 1.0x FCF, although a safe debt load for a company can be as low as 2x EBITDA, or $400 million in debt. With the average coffee costing $1.6 million, Panera could finance the expansion of its brand into approximately 250 corporate-owned locations internationally. As seen in Appendix E, Panera would be in the top three of its main competition with these new locations.

Website design By BotEap.comAs with all public companies, Panera must return value to its shareholders without ignoring the broader range of stakeholders with which it interacts. FactSet estimates Panera’s 2010 sales growth at 10.4% at EPS of $3.41 per share, an increase of 20.6% over 2009. Our proposed strategy would benefit the company both in the short and long term. long-term. In the short term, sales would increase and the profit margin would increase by 500bp to 770bp based on sales of specialty drinks. If the international expansion plan is pursued, Panera would see 2011 sales growth above the estimated 10.3% and an EPS well above the projected $3.98. Although the increase in debt may force management to pay more attention to the company’s cash flow, the increased leverage will allow Panera to substantially increase its ROE. If Panera wants to remain competitive, it must use its economies of scale to grow faster than the competition and continually innovate, becoming the “fast follower” by using adjacent industry innovations in its cafeteria environment.

Website design By BotEap.comThe appendices can be found on the Liekos Group website.