Strategic Plan of Action for Panera Bread - Essay Example

The paper will discuss the core problems as revealed after the analysis of business case of a retail bakery products supplier ly Panera Bread which has observed phenomenal growth in last 10 years (1997 – 2006) in highly lucrative US food market. The company has proficiency in production and marketing of premium quality bakery products, fast food items, beverages and miscellaneous items such as bread, butter, cheese, sandwiches, burgers, juices, coffees, salads etc. Indeed, the company has received tremendous response in 36 US states where sales increased considerably because of repeat customers who always enjoy experience at Panera cafes. The company has plans to establish 2000 bakery cafes and franchises by 2010. After thoroughly reading the case, the researcher has discovered the following three financial issues that need to be addressed for betterment and enhancement of Panera Bread’s business in upcoming years. Issue 1: It is worthwhile to mention that the company could be considered as financially stable and strong because it had negative flows in 2004 and 2005 that later turned positive in following year of 2006. Also, the Working Capital or Current Ratio = Current Assets / Current Liabilities = 1.16, which indicates that only $1.16 highly liquid assets are available for each $1 debt that has to be paid in near future. According to financial pundits and economists, a company is said to be in strong financial position having excellent liquidity when the current ratio is between 1.5 and 2. In other words, at least $1.5 should be available for every $1 short term debt. Hence, Panera Bread obviously does not have excellent liquidity position because of fewer highly liquid assets. This also confirms that company has uncertain cash flows that could be considered as reliable by any economic expert. In the light of above, the author is justified to argue that Panera managers have to formulate and implement certain strategies that could result in better cash inflows and fewer outflows. Recommendation: The company have to increase sales on cash as well as has to ensure timely royalty and sales commission payments from franchise owners. In addition, it is justified to reveal that Panera Bread has lower current assets because it reinvests a large sum of retained earnings to open new bakery cafes and outlets. Obviously, these investing activities should be devised prudently so that the fast food producer could maintain current ratio in between 1.4 – 1.7 range. Indeed, it is not wise to increase number of outlets at an extremely higher rate in successive years by risking company’s liquidity position. At present, Panera Bread has plans to increase total outlets by a staggering 15% per annum. Obviously, the company will be disadvantaged and unable to assimilate any external shock in case of economic recession or turmoil in core US markets. The reason being the fact any declining trend in sales will adversely affect the current assets figure and working capital may reduce further during recessionary cycle. In short, the researcher would recommend to expand business by opening new outlets at the rate to 6 – 8 % (for example if there are 1100 outlets in 2006 then Panera should open 80 – 90 new outlets in following year instead of investing in 200 new cafes). Issue 2: The sales and growth rate at company owned outlets and cafes are lower as compared to sales at franchised outlets. The average weekly sales per company operated outlet were $2,000 lower than a franchised bakery café. Obviously, this is the evidence that there are some management deficiencies that have led to this difference. Also, the annual growth rate reported to be 3.9% against 4.1%. Recommendation: Panera Bread have to make internal employees aware of new workplace practices and managerial principles such as greater teamwork and collaboration, open communication, experimentation, benchmarking and continuous learning in order to increase internal efficiency, service quality and direct marketing. Indeed, the company has to increase the internal display and atmosphere so that it could attract potential customers from targeted segment. Panera has to opt to make cafes real public gathering corners and destinations by offering attractive meals and deals for teenager groups, adults, elderly. At present, the growth rate at company outlets is 0.2% lower than franchised outlets, which is the evidence that it’s high time to adopt new managerial and marketing practices to enhance monetary and volumetric sales, specifically, at Panera’s self – owned bakery cafes. Issue 3: It has been observed that Panera Bread is failed to control total costs of doing business. Indeed, the total expenditures increased substantially by 30% year-on-year basis (in 2006) because of higher general and administrative expenses, labor disbursements, depreciation and amortization, food and paper products and other operating expenses. The profit margin would have increased if costs had been controlled through efficient internal management. Recommendation: The soaring operating and administrative costs are, indeed, one of the major weaknesses in today’s unstructured, unclear, unpredictable and uncertain business environment. Companies operational in Retail food industry across United States of America have already been facing stiff competition amid presence of many domestic and international fast food chains such as McDonalds, KFC, Pizza Hut, Starbucks, Carl’s Jr., Burger King etc.; hence each company has to maintain optimal quality, which has now become a threshold in this extremely competitive industry. For instance, it is a proven fact that Panera Bread has not been able to control its costs structure and there is dire need to reduce aggregate costs to increase profitability. For this purpose, the researcher would like to recommend strategic planners of Panera Bread Company to hire more contractual workers (on salary or hourly rates) than regular employees on fixed salaries so that they could minimize labor and administrative expenses. Secondly, there is need to efficiently utilize all capital resources for greater production. Third, the purchasing department should acquire all commodities and inputs in large quantities to reduce food processing costs. However, the prices of essential inputs such as wheat, flour, yeast, baking powder etc. are uncontrollable because they depend on US agricultural production patterns and market demand / supply mechanisms. Similarly, depreciation and amortization expense may not be reduced because increase in machinery, furnishings and equipments at new and existing outlets. In short, the first three expenses could be controlled that would definitely increase profit margin. SWOT Analysis: Strengths: 1) Rapid growth in past few years after inauguration of new franchise outlets has significantly improved Panera’s financial position as sales and profitability jumped by over 150 - 160% in 2006 in comparison to 2002. 2) New customers are targeted because of this expansion, thereby reducing dependency for sales on existing customers. 3) Sound market penetration, product differentiation and development strategies that enabled the company to enhance product portfolio and variety for consumers. 4) The company enjoys excellent countrywide consumer acceptance because of higher customer satisfaction and perceived loyalty. In addition, Panarea Bread has also won various accolades during 2003 – 2006 that enhances its credibility. 5) Extensive market research through use of focus groups, consumer surveys and on – store feedbacks. This enables the company to produce and market top quality breakfast eatables and evening snacks that meet consumer preferences. 6) High proportion of trial to repeat customers. Weaknesses: 1) Some perceived internal inefficiencies has resulted in decline in sales across company owned bakery cafes and outlets. 2) High operating costs have reduced the net profit margin. This negative trend may lead to adverse consequences in future because Panera would not be able to assimilate rising total expenditures because of extremely competitive nature of retail food industry. 3) The company’s has relatively weak liquidity position as presented by working capital ratio. Opportunities: 1) Constant growth in food industry because of improving standard of living amid availability of better employment opportunities across USA’s market. 2) Changes in social trend as today consumers are more interested in eating out. This creates room for establishment of new retail food outlets in opportunistic US market. Threats: 1) Stiff competition among various domestic, regional and international food chains. 2) Great threat of substitute products from competitors that may force potential consumers to switch to other food chains. 3) Rising costs of raw materials, basic inputs and property units across USA would place additional financial burden. Conclusion: The researcher would like to conclude that Panera Bread has observed tremendous growth during 1997 – 2006 because of expansion and increase in monetary profits. However, the company still needs to focus over weak cash flows and aggregate business costs to remain competitive in the marketplace. The escalating costs would adversely impact the growth of company because it will face stiff competition from other leading international and domestic food chains. The author would recommend improving financial management practices in the light of presented suggestions to restore cost – efficiency and increase sales growth rate. Reference: Thompson, Arthur (2008) “Panarea Bread Company” University of Albama, Case 8 c-162-176 Read More