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Environmental Analysis


The United States Fast Food Industry has entered a period of slow growth in recent years as consumer attitudes regarding health and nutrition have changed. Panera Bread Company has been a pioneer in a new developing sector of the market that has been responsive to changes in consumer tastes. In this paper we will briefly describe industry features and identify environmental risks and opportunities facing Panera Bread Company. We will specifically look at the remote environment, the industry environment, and the operating environment in an attempt to formulate a strategy that can assist the company in achieving long-term growth.

Industry and Company Description

The United States Fast Food Industry is comprised of businesses who sell food and drinks for immediate consumption in their establishments or elsewhere. The market is currently divided into four sectors; Quick Service Restaurants, Takeouts, Mobile/Street Vendors and Leisure Locations. (DataMonitor 1) In 2004, over 50% of worldwide fast food revenue was generated in the United States. Recently the US fast food market has experienced a slower rate of growth than European and Asian markets but it still is continuing to grow. The US market reached a value of more than $50 billion in 2004, and has exceeded expectations for 2005.

The sharp rise in consumer health awareness and the staggering national obesity rate of 30% seem to be major contributors to the slow market growth of the past few years. Consumer response to unhealthy foods have prompted many industry leaders to reduce excessive portion sizes, introduce healthier menu items to their menus, and diversify corporate holdings to include the next generation of fast food,' fast casual'.(Hajim, Corey) This sector has put emphasis on healthier food, and has paid close attention to store design and atmosphere. Intended to capitalize on the lesser market of high-end, health conscious customers, this sector is small but has shown massive growth potential.

Panera Bread Company has been a pioneer in the new generation of 'fast casual' fast food. The company specializes in fresh baked goods, sandwiches, salads, soups, roasted coffee, and other cafe beverages. Formed in 1981 as the Au Bon Pain Co., Inc. by Louis Kane and Ron Shaich, the company soon dominated the east coast of the United States with its bakery style cafes. By the 1990's it further expanded its bakery-cafes' into the international market, and purchased the Saint Louis Bread Company, a chain of 20 bakery-cafes located in St. Louis Missouri. From 1993 and 1997 the company's average unit volume increased by 75%. In an effort to ensure brand success, the company's financial resources were funneled into new Panera Bread. By 1999, all of Au Bon Pain Co., Inc.'s businesses were sold, except Panera Bread. (Panera)

Once this transition was complete, company stock grew exponentially, and in 2006 Panera Bread was recognized as one of Business Week's "100 Hot Growth Companies." (Panera) Today Panera Bread operates more than 897 bakery-cafes in 36 states. With reported revenues of $479.1 million in 2004, the company has seen a 34.6% increase from 2003. The company is slated to open 150-160 new bakery-cafes in 2006.( Panera) Panera has paid close attention to its customer base and has created an enticing blend of whole healthy food, appealing atmosphere and friendly service that continues to grow a loyal customer base.

Problem Statement and Related Circumstances

Panera Bread will maintain steady growth and capitalize on the new 'fast casual' fast food sector. The company will continue to grow its brand identity and customer base to solidify its position as an industry leader by 2010.

In order to stay on track Panera needs to be ever conscious and proactive. The slowed economic growth of the last five years has inflamed competitive pricing within the fast food industry. Competitor and Industry Giant McDonald's even sold its "Big and Tasty" burger 7 cents under cost during its initial promotion. (Pearce & Robinson) Second, rising prices of basic feed commodities such as wheat, rice, corn, and soy make it even more difficult to keep costs low and compete, especially in a business built on baked goods. (Datamonitor 2) Lastly the Low-carb diet revolution, whose core principles frown upon pastas breads and other refined carbohydrates, has inhibited the public's interest in much of Panera's menu.

Opportunity and Risk Analysis

Panera has realized changing customer tastes, and offers a warm comfortable atmosphere that welcomes patrons. Along with its appealing design and wholesome health conscious menu, Panera also provides a bit of "high tech" as a bonus to its loyal customers. Via free wireless connections, customers can linger on their laptops while enjoying their meal, or perhaps just a cup of coffee. Successfully addressing the distinct environmental challenges facing its business, Panera has the opportunity to not only promote financial growth for the company; it can also help reset an industry standard for design, service and healthy eating.

Remote Environment

Within the remote environment consumers have shown increased sensitivity to health and improved dietary habits. Since the Market is saturated with high fat fast food competitors, Panera has a competitive advantage by establishing its brand early on and offering good tasting healthier food choices to its consumers. This is further supported by a steady growth in the organic and health food industry as a whole. Panera has also been proactive in meeting the needs of the low-carb customer with a wide range of Atkins, and South Beach diet friendly menu items such as soups and salads. They have even developed a limited selection of lower-carb, and whole grain baked goods as a reasonable indulgence for customers who want to cheat on their diet with as little



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