If you analyzed the restaurant industry using Porter’s five forces model, you wouldn’t be favorably impressed. Three of the threats to profitability—the threat of substitutes, the threat of new entrants, and rivalry among existing firms—are high. Despite these threats to industry profitability, one restaurant chain is moving forward in a very positive direction. St. Louis–based Panera Bread, a chain of specialty bakery-cafés, has grown from 602 companyowned and franchised units in 2003 to 1,450 today. In 2010, sales increased by 7.9 percent. In 2010 and 2009, combined sales jumped 10.1 percent. These numbers reflect a strong performance for a restaurant chain, particularly during a difficult economic period. So what’s Panera’s secret? How is it that this company flourishes while its industry as a whole is experiencing difficulty? As we’ll see, Panera Bread’s success can be explained in two words: positioning and execution.

Changing Consumer Tastes
Panera’s roots go back to 1981, when it was founded under the name of Au Bon Pain Co. and consisted of three Au Bon Pain bakery-cafés and one cookie store. The company grew slowly until the mid-1990s, when it acquired Saint Louis Bread Company, a chain of 20 bakery-cafés located in the St. Louis area. About that time, the owners of the newly combined companies observed that people were increasingly looking for products that were “special”—that were a departure from run-of-the-mill restaurant food.
Second, they noted that although consumers were tiring of standard fast-food fare, they didn’t want to give up the convenience of quick service. This trend led the company to conclude that consumers wanted the convenience of fast food combined with a higher-quality experience.
In slightly different words, they wanted good food served quickly in an enjoyable environment.
The Emergence of Fast Casual
As the result of these changing consumer tastes, a new category in the restaurant industry, called “fast casual,”
emerged. This category provided consumers the alternative they wanted by capturing the advantage of both the fast-food category (speed) and the casual dining category (good food), with no significant disadvantages.
The owners of Au Bon Pain and Saint Louis Bread Company felt that they could help pioneer this new category, so they repositioned their restaurants and named them Panera Bread. The position that Panera moved into is depicted in the graphic titled “Positioning Strategy of Various Restaurant Chains.” A market positioning grid provides a visual representation of the positions of various companies in an industry. About Panera’s category, industry expert T. J. Callahan said, “I don’t think fast casual is a fad; I think it’s a structural change starting to happen in the restaurant industry.”

Panera’s Version of Fast Casual
To establish itself as the leader in the fast-casual category and to distinguish itself from its rivals, Panera (which is Latin for “time for bread”) added a bonus to the mix—
specialty food. The company has become known as the nation’s bread expert and offers a variety of artisan and other specialty breads, along with bagels, pastries, and baked goods. Panera Bread’s restaurants are open for breakfast, lunch, and dinner and also offer hand-tossed salads, signature sandwiches, and hearty soups served in edible sourdough bread bowls, along with hot and cold coffee drinks and other beverages. The company also provides catering services through its Via Panera catering business. Its restaurants provide an inviting neighborly atmosphere, adding to their appeal. Panera even suggests a new time of day to eat specialty foods, calling the time between lunch and dinner “chill-out” time.
With high hopes for future expansion, Panera Bread is now the acknowledged leader in the fast-casual category. Systemwide sales were $1.5 billion in 2010. Its unique blend of fast-casual service and specialty foods also continues to gain momentum. This sentiment is captured in the following quote from Mark von Waaden, an investor and restaurateur who signed an agreement to open 20 Panera Bread restaurants in the Houston, Texas, area early in the company’s recent growth spurt.
Commenting on why he was attracted to Panera Bread as opposed to other restaurant chains, von Waaden said, My wife, Monica, and I fell in love with the freshbaked breads and the beautiful bakery-cafés. We think the Panera Bread concept of outstanding bread coupled with a warm, inviting environment is a natural fit with the sophistication that the Houston market represents. customers, its leaders helped the firm carve out a unique and favorable position in a difficult industry.

Present Status and Goal for the Future
Panera’s leadership in the fast-casual category and its financial performance has drawn considerable attention to the company. The company serves nearly six million customers a week systemwide, and is currently one of the largest restaurant chains in the United States. The company is counting on its unique positioning strategy, its signature foods, and savvy execution to continue its positive momentum.

Discussion Questions
1. How has Panera Bread established a unique position in the restaurant industry? How has this unique position contributed to the firm’s success? Do you think Panera Bread will reach its goal of becoming a leading national brand in the restaurant industry? Why or why not?
2. Analyze the restaurant industry using Porter’s five forces model. In what ways has Panera Bread successfully positioned itself against the forces that are suppressing the profitability of the restaurant industry as a whole?
3. What barriers to entry has Panera Bread created for potential competitors? How significant are these barriers?
4. What are Panera Bread’s primary sources of competitive advantage? In your judgment, are these sources of advantage sustainable? Why or why not?

Application Questions
1. What are the ways that Panera Bread can conduct ethical and proper forms of competitive analysis to learn about potential competitors entering the fast-casual category?
2. Think of at least two other businesses that have established unique positions in their industries. How have their unique positions contributed to their success?