Professional Documents
Culture Documents
tho29503_case09_C96-C113.indd C-96
COMPANY BACKGROUND
In 1981, Louis Kane and Ron Shaich founded a bakery-caf enterprise named Au Bon Pain Co., Inc. Units
were opened in malls, shopping centers, and airports
along the east coast of the United States and internationally throughout the 1980s and 1990s; the company
prospered and became the dominant operator within
the bakery-caf category. In 1993, Au Bon Pain Co.
purchased Saint Louis Bread Company, a chain of 20
bakery-cafs located in the St. Louis area. Ron Shaich
and a team of Au Bon Pain managers then spent
Copyright 2012 by Arthur A. Thompson. All rights reserved.
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EXHIBIT 1
2010
2009
(267)
801
Less net income (loss) attributable to
non-controlling interest
Net income to shareholders
$ 135,952 $ 111,866 $ 86,050
Earnings per share
Basic
$4.59
$3.65
$2.81
Diluted
4.55
3.62
2.78
Weighted average shares outstanding
Basic
29,601
30,614
30,667
Diluted
29,903
30,922
30,979
2007
2002
$ 894,902
67,188
104,601
1,066,691
$212,645
27,892
41,688
282,225
271,442
286,238
70,398
121,325
749,403
92,852
63,370
63,172
15,408
27,971
169,921
38,432
57,903
68,966
8,289
977,413
89,278
483
333
31,434
(428)
13,794
24,986
1,051
248,184
34,041
32
467
12,242
$ 57,456
$ 21,300
$1.81
1.79
$0.74
0.71
31,708
32,178
28,923
29,891
$ 68,242
23,198
152,121
698,752
127,766
250,573
446,164
$ 29,924
9,149
59,262
195,431
32,325
32,587
151,503
$ 222,640
186
353,119
1,027,322
238,334
372,246
655,076
$ 229,299
152
330,685
924,581
211,516
328,973
595,608
$ 246,400
322,084
837,165
142,259
240,129
597,036
Sources: 2011 10-K report, pp. 4143; 2010 10-K report, pp. 2930, 4648; 2008 10-K report, pp. 4850; and 2003 10-K report, pp. 2931.
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C-99
2010
2009
2007
2002
$1,593.0
$1,321.2
$ 1,153.3
$ 894.9
$ 212.6
$1,828.2
3,421.2
$ 2.292
$1,802.1
$ 3,123.3
$ 2.179
$1,640.3
$2,793.6
$ 2.031
$1,376.4
$2,271.3
$ 1.952
$ 542.6
$ 755.2
$ 1.764
$ 2.315
$ 2.266
$ 2.109
$ 2.051
$ 1.872
$ 44,071
$ 44,527
$ 41,899
$ 43,578
$ 39,050
$ 40,566
$ 37,548
$ 39,438
$33,924
$35,997
4.9%
3.4%
740
801
1,541
7.5%
8.2%
662
791
1,453
2.4%
2.0%
585
795
1,380
1.7%
1.7%
532
698
1,230
4.1%
6.1%
132
346
478
*The percentages for comparable store sales are based on annual changes at stores that were first opened prior to the first day of the
previous fiscal year (meaning that a store had to be open for all 12 months of the year to be included in this statistic).
Sources: Company 10-K reports for 2011, 2010, 2008, and 2003.
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Number of Locations,
2011
Select 20102011
Financial Data
Atlanta Bread
Company
Applebees
Neighborhood
Grill and Bar*
(a subsidiary of
DineEquity)
2,019 locations in 49
states, one U.S. territory,
and 15 countries outside
the U.S.
Au Bon Pain
1,300 locations in 50
states and 241 locations
in 30 foreign countries
and two U.S. territories
Brueggers
California Pizza
Kitchen* (a
subsidiary of
Golden Gate
Capital)
Chilis Grill and Bar*
(a subsidiary
of Brinker
International)
Chipotle Mexican Grill
1,2301 units
130 locations in 10
states and the District
of Columbia (planning to
double number of
locations by 2015)
604 combination retail
stores and restaurants in
42 states
Cracker Barrel*
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2010 revenues of
$254.5 million
Average annual sales
of about $3.2 million
per location
Restaurant-only sales
of $1.9 billion in 2011;
average restaurant
sales of $3.2 million;
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EXHIBIT 3
C-101
(Continued)
Company
Number of Locations,
2011
Select 20102011
Financial Data
average guest check
of $9.22; serves
an average of ~6,800
customers per week
per location
Not available (a
privately held
company)
Culvers
Fazolis (a subsidiary
of Sun Capital
Partners)
Not available (a
privately held
company)
Firehouse Subs
420 locations in 26
states and the District of
Columbia
Not available (a
privately held
company)
McAlisters Deli (a
subsidiary of Roark
Capital Group)
2001 locations in 22
states
Not available (a
privately held
company)
Not available (a
privately held
company); designated
by Parents magazine
as one of the 10 best
restaurant chains in
2011; typical price
point of $7
Jasons Deli
Not available (a
privately held
company)
(Continued)
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EXHIBIT 3
(Concluded)
Number of Locations,
2011
Select 20102011
Financial Data
5831 locations in 42
states and the District of
Columbia
Ruby Tuesday*
Starbucks
T.G.I. Fridays*
(a subsidiary
of Carlsons
Restaurants)
Company
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Specialty Breads
Country
A crisp crust and nutty flavor. Available in Loaf,
Miche.
French
Slightly blistered crust, wine-like aroma.
Available in Baguette, Miche.
Ciabatta
A moist, chewy crumb with a thin crust and light
olive oil flavor. Available in Loaf.
Focaccia
Italian flatbread baked with olive oil and topped
with salt; two varietiesAsiago Cheese and
Sea Salt. Available in Loaf.
Stone-Milled Rye
With chopped rye kernels and caraway seeds.
Available in Loaf, Miche.
Three Cheese
Made with Parmesan, Romano, and Asiago
cheeses. Available in Demi, Loaf, Miche.
Three Seed
Sesame, poppy, and fennel seeds. Available in
Demi.
Whole Grain
Moist and hearty, sweetened with honey.
Available in Loaf, Miche, Baguette.
Sesame Semolina
Delicate and moist, topped with sesame seeds.
Available in Loaf, Miche.
Sourdough
Paneras signature sourdough bread that featured
a golden crackled crust and a firm moderately
structured crumb with a satisfying, tangy flavor.
Available in Loaf, XL Loaf, Roll, Bread Bowl.
Asiago Cheese
Chunks of Asiago cheese were added to the
standard sourdough recipe and baked right
in, with more Asiago cheese sprinkled on top.
Available in Demi, Loaf.
Honey Wheat
A mild wheat bread with tastes of honey and
molasses; the soft crust and crumb made it
great for sandwiches. Available in Loaf.
White Whole Grain
A thin crust and a soft crumb sweetened with
honey and molasses. Available in Loaf.
Tomato Basil
Sourdough bread made with tomatoes and basil,
topped with a sweet streusel topping. Available
in Loaf.
Cinnamon Raisin
Made from sweet dough, egg, Korintge cinnamon,
plump raisins, and brown sugar, topped with
Paneras cinnamon crunch topping. Available in
Loaf.
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Signature Salads
Mediterranean Salmon Salmon Caesar Roasted
Turkey Fuji Apple Steak and Blue Cheese BBQ
Chopped Chicken Chopped Chicken Cobb Grilled
Chicken Caesar Asian Sesame Chicken Fuji Apple
Chicken Thai Chopped Chicken
Caf Salads
Chicken Caesar Classic
Panera Kids
Grilled Cheese Peanut Butter and Jelly Mac &
Cheese Kids Deli (Organic American cheese and
choice of smoked ham, turkey breast, or roast beef)
Beverages
Coffee (4 varieties) Hot Teas Iced Tea Iced Green
Tea Pepsi beverages Bottled Water Organic Milk
or Chocolate Milk Orange Juice Organic Apple
Juice Lemonade
Caf Sandwiches
Smoked Ham and Swiss Smoked Turkey Breast Tuna
Salad Mediterranean Veggie Sierra Turkey
Signature Pastas
Mac & Cheese
Espresso Bar
Espresso Cappuccino Caffe Latte Caffe Mocha
Caramel Latte Chai Tea Latte (hot or iced) Hot
Chocolate
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included an assortment of bagels and morning pastries (with butter, cream cheeses, and preserves), a
fruit bowl, individual servings of steel cut oatmeal,
hot breakfast sandwiches and baked egg souffls,
sandwich assortments, boxed lunches, salads and
soups for a group, and beverages. A catering coordinator was available to help customers make menu selections, choose between assortments or boxed meals,
determine appropriate order quantities, and arrange
pick-up or delivery times. Orders came complete with
plates, napkins, and utensils, all packaged and presented in convenient, ready-to-serve-from packaging.
In 2010, Panera boosted the size of its catering
sales staff and introduced sales training programs and
other toolsfactors that helped drive a 26 percent
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MARKETING
In the companys early years, marketing had played
only a small role in Paneras success. Brand awareness had been built on customers satisfaction with
their dining experience at Panera and their tendency
to share their positive experiences with friends and
neighbors. From time to time, Panera had utilized
focus groups to determine customer food and drink
preferences and price points. In 2006, Paneras marketing research indicated that about 85 percent of
consumers who were aware that there was a Panera
Bread bakery-caf in their community or neighborhood had dined at Panera on at least one occasion; 57
percent of consumers who had ever tried dining at
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Continue efforts to gain increased audience exposure to the ads it placed in various media.
Increase overall advertising expenditures.
Franchise-operated bakery-cafs were required, as
part of their franchising agreement, to contribute 1.2
percent of their sales to a national advertising fund
and 0.4 percent of their sales as a marketing administration fee, and were also required to spend 2.0 percent of their sales in their local markets on advertising.
Panera contributed similar amounts from companyowned bakery-cafs toward the national advertising
fund and marketing administration. The national
advertising fund contribution of 1.2 percent had been
increased from 0.7 percent starting in July 2010; the
0.7 percent contribution became effective in January
2006 when it was raised from 0.4 percent. According
to the franchise agreement, Panera could opt to raise
the national advertising fund contributions as high as
2.6 percent of sales.
Panera had recently hired a new chief marketing officer and a new vice president of marketing.
Both had considerable consumer marketing experience and were playing an important role in crafting
the companys long-term marketing strategy to boost
customer traffic and grow revenues at all of Paneras
restaurant locations. Efforts were underway to refine
marketing initiatives aimed at increasing brand
awareness, continuously improving the customer
experience at the companys restaurants, expanding
customer participation in the MyPanera loyalty program, and developing and promoting appealing new
menu selections.
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FRANCHISE OPERATIONS
Opening additional franchised bakery-cafs was a core
element of Panera Breads strategy and managements
initiatives to achieve the companys revenue growth
and earnings targets. Panera Bread did not grant single-unit franchises, so a prospective franchisee could
not open just one bakery-caf. Rather, Panera Breads
franchising strategy was to enter into franchise agreements that required the franchise developer to open a
number of units, typically 15 bakery-cafs in a period
of six years. Franchisee candidates had to be wellcapitalized, have a proven track record as excellent
multi-unit restaurant operators, and agree to meet an
aggressive development schedule. Applicants had to
meet eight stringent criteria to gain consideration for
a Panera Bread franchise:
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To Whom Paid
Development fee
Panera
Franchise fee
Real property
Leasehold improvements
Equipment
Fixtures
Furniture
Consultant fees and municipal
impact fees (if any)
Supplies and inventory
Smallwares
Signage
Additional funds (for working
capital and general
operating expenses for 3
months)
Total
$19,150 to $24,350
$24,000 to $29,000
$15,000 to $84,000
$175,000 to $245,000
Panera
Contractors
Equipment vendors, Panera
Vendors
Vendors
Architect, engineer, expeditor, others
Panera, other suppliers
Suppliers
Suppliers
Vendors, suppliers, employees,
utilities, landlord, others
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Each bakery-caf sought to provide a distinctive and engaging environment (what management
referred to as Panera Warmth), in many cases using
fixtures and materials complementary to the neighborhood location of the bakery-caf. All Panera cafs
used real china and stainless silverware, instead of
paper plates and plastic utensils. In 20052006, the
company had introduced a new caf design aimed at
further refining and enhancing the appeal of Panera
bakery-cafs as a warm and appealing neighborhood
gathering place. The design incorporated higher-quality
furniture, cozier seating, comfortable gathering areas,
and relaxing dcor. A number of locations had fireplaces to further create an alluring and hospitable
atmosphere that patrons would flock to on a regular
basis, sometimes for a meal with or without friends
and acquaintances and sometimes to take a break for
a light snack or beverage. Many locations had outdoor seating, and all company-operated and most
franchised locations had free wireless Internet to help
make the bakery-cafs community gathering places
where people could catch up on some work, hang out
with friends, read the paper, or just relax (a strategy
that Starbucks had used with great success).
In 2006, Panera began working on store designs
and operating systems that would enable free standing and end-cap locations to incorporate a drive-thru
window. In 20102011, increasing numbers of newly
opened locations, both company-owned and franchised, featured drive-thru windows. Some existing
units had undergone renovation to add a drive-thru
window. Going into 2012, about 50 Panera Bread locations had drive-thru windows. Sales at these locations
were running about 20 percent higher on average than
units without drive-thru capability.
BAKERY-CAF OPERATIONS
Paneras top executives believed that operating excellence was the most important element of Panera
Warmth and that without strong execution and operational skills and energized caf personnel who were
motivated to provide pleasing service, it would be difficult to build and maintain a strong relationship with the
customers patronizing its bakery-cafs. Additionally,
top management believed high-quality restaurant management was critical to the companys long-term success. Bakery-caf managers were provided with detailed
operations manuals and all caf personnel received
hands-on training, both in small group and individual
settings. The company had created systems to educate
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PANERAS BAKERY-CAF
SUPPLY CHAIN
Panera operated a network of 24 facilities (22 companyowned and 2 franchise-operated) to supply fresh
dough for breads and bagels on a daily basis to almost
all of its company-owned and franchised bakerycafsone of the companys 22 facilities was a limited
production operation co-located at a company-owned
bakery-caf in Ontario, Canada, that supplied dough
to all three of Paneras bakery-cafs in that market.
All of the companys facilities were leased. Most of
the 1,300 employees at these facilities were engaged
in preparing dough for breads and bagels, a process
that took about 48 hours. The dough-making process began with the preparation and mixing of starter
dough, which then was given time to rise; other allnatural ingredients were then added to create the
dough for each of the different bread and bagel varieties (no chemicals or preservatives were used). Another
period of rising then took place. Next, the dough was
cut into pieces, shaped into loaves or bagels, and readied for shipment in fresh dough form. There was no
freezing of the dough, and no partial baking was done
at the fresh dough facilities. Trained bakers at each
bakery-caf performed all of the baking activities,
using the fresh doughs delivered daily.
Distribution of the fresh bread and bagel doughs
(along with tuna, cream cheese spreads, and certain
fresh fruits and vegetables) was accomplished through a
leased fleet of about 200 temperature-controlled trucks
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and cost fluctuation. Antibiotic-free chicken was currently obtained from three different suppliers; however, alternative sources of antibiotic-free chickenas
well as certain other organically grown itemsin the
quantities needed were limited.
Management believed the companys fresh doughmaking capability provided a competitive advantage
by ensuring consistent quality and dough-making
efficiency (it was more economical to concentrate
the dough-making operations in a few facilities dedicated to that function than it was to have each bakerycaf equipped and staffed to do all of its baking from
scratch). Management also believed that the companys
growing size and scale of operations gave it increased
bargaining power and leverage with suppliers to
improve ingredient quality and cost and that its various supply-chain arrangements entailed little risk that
its bakery-cafs would experience significant delivery
interruptions from weather conditions or other factors
that would adversely affect caf operations.
The fresh dough made at the regional facilities was
sold to both company-owned and franchised bakerycafs at a delivered cost not to exceed 27 percent of the
retail value of the product. Exhibit 7 provides financial data relating to each of Paneras three business
segments: company-operated bakery-cafs, franchise
operations, and the operations of the regional facilities that supplied fresh dough and other products. The
sales and operating profits of the fresh dough and other
products segment shown in Exhibit 7 represent only
those transactions with franchised bakery-cafs. The
company classified any operating profit of the regional
facilities stemming from supplying fresh dough and
other products to company-owned bakery-cafs as
a reduction in the cost of food and paper products.
The costs of food and paper products for companyoperated bakery-cafs are shown in Exhibit1.
PANERA BREADS
MANAGEMENT
INFORMATION SYSTEMS
Each company-owned bakery-caf had programmed
point-of-sale registers that collected transaction data
used to generate transaction counts, product mix,
average check size, and other pertinent statistics.
The prices of menu selections at all company-owned
bakery-cafs were programmed into the point-of-sale
registers from the companys data support centers.
Franchisees were allowed access to certain parts of
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2010
2009
Segment revenues:
Company bakery-caf operations
Franchise operations
Fresh dough and other product operations at regional facilities
Intercompany sales eliminations
Total revenues
$1,592,951
92,793
275,096
(138,808)
$1,822,032
$1,321,162
86,195
252,045
(116,913)
$1,542,489
$1,153,255
78,367
216,116
(94,244)
$1,353,494
$ 307,012
86,148
20,021
$ 413,181
$ 249,177
80,397
24,146
$ 353,720
$ 193,669
72,381
21,643
$ 287,693
68,651
6,777
4,471
79,899
57,031
7,495
4,147
68,673
94,873
6,483
6,576
$ 107,932
$ 682,246
7,502
47,710
$ 737,458
$ 581,193
6,679
48,393
$ 636,265
66,961
6,452
8,813
82,226
$
$
55,726
7,620
3,816
67,162
46,408
3,681
4,595
54,684
$ 498,806
3,850
48,616
$ 551,272
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PANERA BREADS
PERFORMANCE IN THE FIRST
QUARTER OF 2012
Panera Bread reported strong financial and operating
results for the first two quarters of 2011. Highlights for
the first 26 weeks of 2011 included the following:
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Since January 1, 2011, a net of 40 new companyoperated and franchised bakery-cafs were opened,
boosting the systemwide total of bakery-cafs from
1,453 locations to 1,493 locations. Management
expected that a net of 100 to 105 new bakery-cafs
would be opened in 2011.In its second-quarter 2011
release, Panera Bread management announced that
it was raising targeted earnings per diluted share
for full-year 2011 to the $4.54 to $4.58 range; if the
Company met its target, it would generate diluted
earnings per share growth of 25 to 26 percent in fiscal 2011. Management also said that it was lowering
its full-year 2011 forecast of average sales growth at
existing bakery-caf locations to 4.5 percent, chiefly
because of weaker economic conditions than previously anticipated.
During the first three weeks of July 2011, Panera
Breads stock price traded between $129 and $132
per share, up from a closing price of $101.21 on
December 31, 2010 and a closing price of $66.94 on
December 31, 2009. However, in the days following
the release of the companys second-quarter 2011
performance (which happened to coincide with a 7
percent decline in the S&P 500 and the Dow-Jones
Industrial Average), Paneras stock price dropped
sharply and traded in the $112 to $115 range.
For 2012, top management at Panera expected
to open a net of 100 to 110 new bakery-cafs systemwide, achieve average sales gains at existing locations of 4 to 5 percent, and grow diluted earnings per
share at the low end of its long-term target of 15 to 20
percent.
ENDNOTES
1
According to information posted at Panera
Breads website, www.panerabread.com,
accessed March 30, 2012.
2
As stated in a presentation to securities analysts, May 5, 2006.
3
CEO William Moretons letter to the stockholders, Paneras 2010 Annual Report, April
18, 2011.
4
Ron Ruggless, Panera Cares: One Year
Later, Nations Restaurant News, May 16,
tho29503_case09_C96-C113.indd C-113
8
Information posted in the franchise section
at www.panerabread.com, accessed April 5,
2012.
9
The statistical data in this section is based
on information posted at www.restaurant.org,
accessed July 26, 2011 and April 8, 2012.
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