Panera Case Study Analysis

Executive Summary

The Panera Bread Company was the first fast food company that provided freshly baked goods every day and offered a comfortable environment where people could enjoy real food. Their business model as a result, was to provide high quality meals in an environment that customers would willingly pay for at a price that can benefit the company financially. The company saw great success since their opening in 1993.

As recently as 2007, however, the company began facing multiple challenges. The transaction growth was starting to decline and profit margins, although still high, were showing a slight decrease from what they were over the previous two years. As 2007 was coming to a close, the slowing transaction growth, declining profit margins and increased costs caused Panera’s stock prices to drop by almost 40%. The company is aware that improving their profit margin by raising prices will decrease their stock prices further and tighter profit margins will allow for growth but place limitations on their ability to generate internal funds to finance their growth. In previous years, Panera used to have very strong profit margins which allowed the firm to be financed through their retained earnings. They are currently facing a declining profit margin and are having difficulty generating internal funds so they have to turn to outside funds to make up for their income loss. There are three different methods of external financing that Panera can take into consideration: equity, short term borrowing and long term borrowing. Based upon Panera’s finances forecasted for the next few years, the company would benefit from using short term borrowing to get the extra financing they need.

Introduction

The Panera Bread Company originated from the company Au Bon Pain, a bread company that was founded in 1981. The success of Au Bon Pain enabled them to purchase the St. Louis Bread Company in 1993. By 1999, the St Louis Bread Company was operating under the Panera...