Part B of Integrative Case 4.1 compares the profitability of Starbucks with Panera Bread Company. Although Starbucks and Panera Bread Company are not direct competitors in terms of the principal food products offered, they compete in the sense of offering a relaxed café experience. Whereas the products of Starbucks center on coffee and related beverages, Panera Bread Company emphasizes freshly baked bread and pastries. Panera Bread Company also sells sandwiches, soups, and similar lunch and light dinner products that build on their bread offerings, as well as coffee and other beverages. The average size of a Panera Bread Company retail outlet is typically larger than that of Starbucks. Both Starbucks and Panera Bread Company own some of their retail stores and franchise or license rights to use their names and products to other parties that own and operate other retail stores. Panera Bread Company prepares fresh dough daily in various regional facilities to use in company-owned stores and to sell to franchisees. Unlike Starbucks, it has not expanded beyond the United States. Exhibit 4.46 presents profitability ratios for Panera Bread Company for 2006–2008, and Exhibit 4.47 presents segment profitability and other data. The format of Exhibit 4.46 is similar to that of Exhibit 4.44. However, due to less detailed disclosures by Panera, Exhibit 4.47 does not contain specific cost structures for Panera’s operating segments, similar to what was available from Starbucks and presented in Exhibit 4.45. The proportions of general and administrative expenses not allocated to divisions for Panera Bread Company are similar to the corresponding percentages for Starbucks (suggesting they are not material enough to specifically factor into the analysis).

Required
a. Panera’s ROA has typically been below that of Starbucks prior to 2008. What are the likely reasons for the relative levels of ROA between Panera and Starbucks? Analyze the data to the maximum depth permitted by the information given and speculate on economic explanations for what the analysis indicates.
b. Panera’s ROCE also has typically been below that of Starbucks, but by a large margin. Why?