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Panera Bread has an prospect for growth within a challenging industry in two key areas – increased sales of special line of work drinks and opening international locatings – that will enable the company to disseminate it is mission of fresh bread for every one while increasing the bottom line for shareholders. By utilizing numerous frameworks for thought and projecting the approximated financials of the company, we are competent to empirically show that these two schemes will be beneficial to the customer. Utilize Historically High Margins on Specialty Drinks to Drive Bottom Line Growth While Panera’s core business revolves around fresh bread, the style of the emplacements proposes that there is significant revenue in merchandising coffee and affiliated drinks, similar to Starbucks. Looking at the coffee market, approximated real growth is 2.7% or roughly 5.7% given a 3% inflation rate while the number of establishments, the actual coffee shops, is expected to grow only 1.6%, meaning that each shop on intermediate will see increased revenue, due in share to a 3.5% growth in domestic demand (See Appendix A). Further, earnings in special line of work drinks is approximated at 19.8%, much higher than Panera’s 6.4% net income margin. This means that increasing the sales of distinguishing trait drinks will have a positive affect on Panera’s bottom line – without doubt or question the industry is growing and is a good industry to be in for Panera. According to Buffalo Wild Wings’ franchise disclosure document, more than 40% of revenue is generated by way of alcohol and special line of work drinks sales. If Panera were capable to generate this level of sales with a 19.3% net profit margin, it is bottom line would increase by almost 7.8% to 14.2%, abnormally high for the restaurant industry (which averages 4-5% margins). Though this net profit margin level is likely not sustainable, the short-term boost in net income margin will help Panera exaggerate it is operations globally to capture economies of scale with it is suppliers. Look to Industry Incumbents for Knowledge and Re-arrange Menu Locations Visually, the layout of a Starbuck’s, Dunkin’ Doughnuts, or Caribou Coffee are much more liquid than Panera Bread with respect to the coffee ordering location. This analysis draws to a great extent on the Eden Prairie Mall and Downtown Minneapolis Nicollet Mall locations. The client flow for Eden Prairie and Downtown is awkward; the client will have to enter the store, walk past the bakery and coffee areas, and then order at the registers. The issue is that the coffee menus are located above the bakery items, not in clear view of the client at the time of ordering. By the time the client is ready to order, he or she has forgotten what drink to order; furthermore, the drinks are creatively named which is positive for brand identity, but awkward for the intermediate male client to order. At the very least, the coffee and special line of work drinks need to undergo the following changes: · Move the menus to the same wall face as the meal menus to assure clients know what coffee is offered when ordering · Arrange the bakery display cases nearer to the registers to entice more momentum purchases · Remove queue line markers for the duration of non-rush times, in particular in front of the bakery display cases · Increase the offerings of special line of work drinks, including researching alcoholic beverages, to attract coffee shop regulars into Panera By focusing on combining the café design with a coffee shop atmosphere, Panera may become a “chill out” spot as well as a premier emplacement for both lunch and dinner. Furthermore, this alter may be carried to the international markets where café atmospheres, such as those in France, are more prevalent. Expand Internationally to Build Brand Image and Diversify Economic Risks Given that Panera is carrying out or participate in Canadian locations, it is safe to assume that the global market for fresh bread is growing. Indeed, the global market breakdown of industry revenues may be found in Appendix B. Clearly, the European market is a big market for fresh bread. However, IBIS World estimates that 135,000 bakeries operate in Europe, meaning the market is fragmented. A brand with a huge selling budget behind it could quickly enter the market and take a key position (See Appendix C). Given that the culture and predilections of European clients may differ from Americans, it would be best to test new productions in Canada prior to the overseas launch of the Panera brand. An interesting facet of the European market is the strong kinship amid the industrial agricultural and milling companies and the industrial bakeries. The greatest bakeries are owned by the greatest milling and agricultural firms in the U.K., Sweden, and Austria. This may cause supply chain issues in these countries, though Panera could pursue a cooperative relationship or joint effort approach to these markets. Leverage on Existing Assets to Increase Shareholder Return and Expand According to Panera’s 2009 10-K, the company had an interest coverage symmetry of 200.9x, with EBIT of $140m and interest payments of $700k. Additionally, distance-to-default, a key metric for danger of debt, is rather huge (larger is better) as the cash on hand of Panera is $77.1m and the debt/equity ratio is 0.0%. Retained earnings and total equity are $346m and $495m, respectively. This proposes a huge cushion prior to debt default in an uttermost situation. In Appendix D, the huge divergence amid Panera and it is rivals in terms of debt load is without doubt or question seen. Given that Panera has $153.2m in FCF, it is safe to assume that Panera could issue at the very least 1.0x FCF, even though a safe debt load for a company may be as low as 2x EBITDA, or $400m in debt. With the intermediate café costing $1.6m, Panera would be competent to finance the elaboration of it is brand throughout approximately 250 corporate-owned locatings internationally. As seen in Appendix E, Panera would be in the top three of it is main contest with these new locations. As with all public companies, Panera ought to return value to it is stock holders while not ignoring the broader array of stakeholders with whom it interacts. FactSet estimates Panera’s 2010 sales growth at 10.4% with EPS of $3.41 per share, a 20.6% increase over 2009. Our proposed scheme would gain the company both in the short term and long term. In the short term, sales would be increased and earnings margin would increase by 500 bps to 770 bps based on distinguishing trait drink sales. If the global elaboration plan is pursued, Panera would see sales growth in 2011 beyond the approximated 10.3% and EPS well beyond the projected $3.98. Though the increase in debt may strength management to compensate more attention to the cash flow of the company, the increased leverage will grant Panera to increase it is ROE substantially. If Panera wishes to stay competitive, it must utilise it is economies of scale to grow more quickly than contest and continually innovate, getting the “fast follower” by utilizing adjacent industry inventions in it is café atmosphere. Appendicies may be found at Liekos Group’s website.
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