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Panera Penetration To China 2017 - Final Paper
Panera Penetration To China 2017 - Final Paper
Co.
MGT 5xxx
Robert L
Thomas S
Jacob L
Daniel C
Brian J
PANERA BREAD CO.
Executive Summary 3
Section I Write Up 4
History of the Company 4
Vision & Corporate Planning 7
Section II: Quantitative Analysis 7
Introduction 7
Part 1: Product Based Measures 8
Individual Coffee Consumption 8
Wheat Production 8
Wheat Imports 8
Part 2: Consumer Based Measures 8
Urban Population 9
Median Annual Household Disposable Income 9
Percent Population aged 45+ 9
Part 3: Economy Based Measures 9
Political Risk Rating 10
Economic Freedom Index 10
Cost of Business Startup Expenditures 10
Quantitative Analysis Conclusion 10
Section III: Qualitative Analysis of Top 3 Countries 10
Economic Growth Analysis 10
Consumer & Social Trends Analysis 11
Political & Legal Analysis 16
Section IV: Mode of Entry into China 25
Mode of Entry 25
Mode of Entry Verdict 26
Scale of Entry 27
Timing of Entry 28
Conclusion 28
Appendix 1: Final Index Rankings 29
Appendix 2: Category Weights 30
References 31
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Executive Summary
In order to find the best potential emerging market, our team created an index
evaluating the most important qualities that are associated with Panera’s current
success. By evaluating twenty-six different countries based on the most important
characteristics for success abroad (Individual Coffee Consumption, Wheat Production,
Wheat Imports, Urban Population, Education Index, Median Annual Household
Disposable Income, Percent Population Aged 45+, Political Risk Rating, Economic
Freedom, and Cost of Business Start-Up Expenditures), we narrowed down the list to
three of the best potential markets for Panera. Out of them came China, Czech
Republic, and Greece, each of which providing positive reasons to become a new
market for Panera Bread Company.
Moving forward to narrow down the three possible choices into the best emerging
market, we performed a qualitative analysis breaking down the pros and cons of each
country in several different important aspects (Economic, Consumer/Social Trends,
Political/Legal, Technology/Infrastructure, and Competitive Environment analysis). After
the completion of this qualitative analysis, we found that the best potential emerging
market for Panera Bread would be China. By evaluating China in depth, we gained
valuable insight into what needed to be considered for cost and earnings, and ultimately
found the best way to expand into this emerging market.
By deciding to use a joint-venture approach similar to one that our market leading
competitor (Starbucks) had done in the recent past, we believe Panera Bread has what
it takes to thrive in China. Through our analysis, it was clear-cut that China was the
most economically and technologically advanced option, and our company vision and
goals aligned providing the most opportunities for growth for Panera Bread. By investing
heavily in technology and health-oriented menu offerings, mobile ordering, in-store
kiosks, delivery, dining ambience and in store Wi-Fi, Panera Bread has begun to make
organizational changes that are vital for success in our new potential market.
Furthermore, with the multitude of investments for their future, Panera has been able to
provide customers one of the best fast-casual dining experiences in the world. Focused
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on the future, and also making sure current customers were satisfied, we have brought
high quality ingredients, market leading service, and efficiency trends allowing us to
venture overseas into this new emerging market.
Section I Write Up
In 1993, Au Bon Pain Co., Inc. acquired Saint Louis Bread Company which was a chain
of 20 bakery-cafes located in the St. Louis area. By this year, Au Bon Pain Co., Inc. had
managed an extensive re-staging of Saint Louis Bread Co. So from 1993 to 1997, it had
successfully increased average unit volumes by 75%, and by this time the concepts
name was changed to Panera Bread. It was also clear by this year that Panera Bread
had the potential to become one of the leading brands overall in the entire nation. In
order for Panera to reach their potential, they needed to take advantage of all of their
financial and management resources. At this point, all of Au Bon Pain Co., Inc.’s
business units were sold with the exception of Panera Bread. When this happened, the
company was officially renamed Panera Bread. Since then, Panera’s stock has grown
at an exponential rate, and today it has a market capitalization of $4.5 billion.
In 2007, Panera decided to purchase a majority stake in Paradise Bakery & Café, which
is a Phoenix based company with 70 locations in 10 different states mainly in the west
and southwest. Two years later in 2009, Panera purchased the remainder of Paradise
Bakery & Café. In May of 2010, Ron Shaich became the Executive Chairman of the
Board. Soon after, Bill Moreton, who was the previous EVP and Co-CEO, was named
CEO and President of the Board of Directors. Soon after these transitions were made,
in 2012 Panera announced that Ron and Bill would share the title of CEO. This move
was made to signify their partnership and shared commitment to Panera. As of
September 27th of last year, there are 2,046 bakery-cafes. They are operated in 46
states, the District of Columbia, and in Ontario, Canada under the Panera Bread, Saint
Louis Bread Co. and Paradise Bakery & Café names
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Panera Bread operates in the “fast casual” market of the restaurant industry. The
Panera Bread business model incorporates a focus on high quality foods at low-costs.
The “fast casual” market segment in the restaurant industry has been steadily
increasing over the years because consumers have become more health conscious
while still wanting a fast food experience (See chart below for fast casual trends).
This “fast casual” element has become a growing trend within the restaurant industry
and Panera Bread has found their niche in the industry by satisfying customers’ needs
who are looking for a quick yet healthy food option. Other restaurants that compete in
this “fast casual” segment would include: Five Guys, Chipotle, Boston Market, and
Noodles & Co. The Panera Bread consumer is generally someone who wants a high
quality meal in a reasonable amount of time. The major target segment for marketing is
generally a college educated individual who has an annual income of over $125k a
year. The average age is also over 65 years old. The Panera store’s tend to be located
in urban areas that have a high population.
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Panera Bread is able to create recipes that feature cheap proteins that can make the
company money while they save customers money and time. This way of doing
business has worked very well for Panera Bread because they are one of the most well-
known food chains in the United States. There are many restaurants that offer fast
service and higher quality ingredients, but Panera Bread emphasizes on the traditional
deli-style/bakery experience and personal customer service. One of the key concepts in
the “fast casual” industry is the customer turnover rate. Panera Bread does a great job
at providing high quality food to its customers in a timely fashion.
Panera Bread creates value for their customer by providing high quality food at a
reasonable price. Panera Bread has great customer service and expects their
employees to be creative in order to differentiate themselves from the competition.
Value can also be found in cleanliness, speed, cost, and the menu items. Panera Bread
also has developed kiosks for customers to order from and they allow customers to
order online, which adds value for the customer. Panera Bread does a great job of
creating brand loyalty amongst their customers because customers feel that Panera
Bread has a high-perceived value compared to other “fast casual” restaurants. They
also have adapted a “Starbucks” style approach and offer a very warm, relaxing, and
engaging environment for their customers. Seating is comfortable and clean, including
outdoor seats and lounges for their customers. Panera has also began adding drive-
thrus to new locations, another improvement to their customer experience. For the
customer that does not have the desire or time to dine in, this is an attractive option. On
average, sales increased 20% at locations that had a drive-thru window.
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When considering potential international success, the services that Panera offers would
make them very successful. Clean eating is very popular worldwide, especially in
Europe. Panera’s foods and ingredients would appeal to a wide range of people who
make an effort to eat healthy. In the United States, fast casual restaurants such as
Panera have greatly cut into the market share of companies such as McDonald’s and
Burger King. This same phenomenon would also occur internationally as people
became more familiar with Panera.
Our team is part of a strategic planning group for Panera Bread that is interested in
selling our internationally sourced products, service and experience, in an overseas
emerging market. Panera Bread has shown its creativity in creating health-oriented
products in the US market, while also emerging as a dominant “3rd meeting place” and
coffeehouse. Panera has a very strong corporate image with its philanthropic which
positions it to be a very well received brand on the global front.
The chefs at Panera have the expertise to create delectable food and drink from
regionally sourced crops, as they have already proven to be innovators and their
evolution to an “all-clean” menu. Food is a language spoken by all, which greatly
reduces certain barriers to growth in new market. It is this powerful branding and core-
competencies that make their expansion into a global market so attractive and
promising.
Introduction
To evaluate the attractiveness of countries to enter, an index was created for 26
countries that Panera is considering entering. These countries were Brazil, Chile,
Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar,
Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, South
Korea, Malaysia, Philippines, Pakistan, Taiwan, Thailand, Nigeria, and Vietnam. The
ranked index of these countries can be seen in Appendix 1.
Creating an index for Panera was a task that took our group multiple attempts. For our
first attempt, we created an index that consisted of 22 categories and was far too vague
for the purpose of this project. After redesigning our index, we were able to use 10
factors that best measure the qualities that Panera desires in a new country to expand
into. These categories delivered conclusive results that showed Panera where they
should expand into.
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Wheat Production
Wheat is the single entity that is most important in Panera’s day to day operations. Their primary
operation is as a bakery that produces and sells fresh bread daily. Obviously, this makes wheat
availability critical to their operating margins. When considering countries to expand into, it does
not make sense for Panera to move to a country that is not producing or importing high amounts
of wheat. Additionally, that would mean a country is not consuming significant amounts of
wheat. If wheat is not readily available for Panera, then they will have to use heavy amounts of
capital to build a supply chain that can sustain their wheat needs. We gave wheat production a
10% weight in our index. The unit used was “per 1000 tons”. The countries that scored the
highest in this category were Russia, United Arab Emirates, and China.
Wheat Imports
Wheat Imports is the second wheat-related category that we used as a measure in our index. If
a country does not produce large amounts of wheat domestically, then they must be able to
efficiently export it in order to be an attractive destination for Panera. We gave wheat imports a
10% weight to show the importance of this category. This category was also measure in weight
per 1000 tons, similar to wheat production. The countries that had highest amounts of wheat
imports were Brazil, Egypt, and Indonesia. If a country does not produce high amounts of wheat
domestically or import large amounts, then it is not a good fit for Panera’s expansion.
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education index, median annual household disposable income, and percent population aged
45+.
Urban Population
Urban Population is a measure that is important to Panera due to the fact that they need to be
located in a dense, technologically advanced area. A rural area would not suit Panera well. This
is especially true due to the new, technologically advanced direction that they are moving with
Panera 2.0. This new business model is designed to make Panera a more mobile experience by
giving customers the ability to order through their mobile devices, as well as order in restaurants
through kiosks. Panera 2.0 is a more efficient, customer-friendly way of operating their
restaurants. We gave urban population a weight of 10% in our index. The countries that had the
highest urban populations were China, India, Brazil, and Indonesia.
Education Index
As stated earlier, Panera’s target market consists of highly educated, wealthy, middle-
aged individuals. Education had to be included as a factor that we considered when
evaluating potential countries to enter. We looked at the world education index and
gave it a weight of 5% for our index. The countries that rated the highest were Czech
Republic, Poland, South Korea, and Taiwan.
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professional customers. In this section, we measured political risk, economic freedom, and cost
of business startup for the 26 countries in our index.
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the world. China has been the largest contributor to the global economy since the
economic crisis of 2008. Individuals in China also spend astronomical amounts of
money eating out annually. This makes China an attractive destination for Panera since
citizens are willing to eat out and spend their money in restaurants.
The consumer confidence of China is on the rise from a low in 2016 and maintaining at
this general height is in line with global economic perception of China (2). Consumer
confidence is illustrated in the diagram below.
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This suggests a spend more, save less attitude in the Chinese people, as economic
outlook is believed to be good. The Chinese have an Environmental awareness EPI
score 65.1 in 2016 (3), meaning they are not very environmentally thoughtful or
progressive towards health. However, there have been recent efforts to improve this
such as project “Airborne”, and others. China is in poor standing in regards to economic
and social globalization. They have earned a Social Globalization index rating of 54.23
in 2016 (4). This is significant as it suggests a moderate amount of IT users as well as
moderate receptiveness to the likes of McDonalds and Ikea. This however could be
affected by more rural China, where implementation of Panera would be unlikely. Urban
use is understood to much higher.
China borders 4 major bodies of water and numerous countries which is good for trade.
The population density is 145 ppl/sq km and has numerous, massive population density
epicenters. Its largest is Shanghai at 22M and 2059 ppl/sq km followed by 5 cities with
10-11M (8). China is highly homogenous and shares one language and culture. The
primary language is mandarin and based on the Beijing Dialect. Rice and noodles are
an important component of the Chinese diet. There are four primary geographic areas
where food variety differs. In the north and west, wheat is the primary component as it is
too dry to grow rice. With this comes high consumption of noodles and bread (preferably
steamed). Every meal includes soup as the last course. The east and south are most
attractive as they include meat, bread and rice. Tea is a very common drink in China,
while coffee is a new delicacy picking up steam (5).
Eating is a highly communal activity where the whole table shares large dishes, similar
to a sit down buffet. Desserts are not common in Chinese custom (7). The Chinese
consumer desires and is willing to spend money on Premium products with a clear trend
of the population thinking this way since 2011 (1). The eating out market is also
massive. In 2016, Chinese people spent $507 Billion eating out (6). They are starting to
put a higher value on premium products and willing to pay for it. In China, Consumer
spending sets a new record YoY, illustrated in the figure below (2).
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The consumer confidence of Czech Republic is on the rise from a low in 2012.
Households worrying about their financial situation remained good. This suggests a
spend more, save less attitude in the Czech people, as economic outlook is believed to
be good. Concerns about unemployment did affect a 10 point fluctuation recently and
can be expected in the future (9).
The Czech have an Environmental awareness EPI score of 84.67 in 2016, meaning
they are highly environmentally thoughtful and progressive towards health (10). Czech
Republic is in good standing in regards to economic and Social Globalization. They
have been a European Union member since 2004 (11) and earned a Social
globalization index of 82.19 (12). This is significant as it suggests a high amount of IT
users as well as positive receptiveness to the likes of McDonalds and Ikea.
Czech republic is landlocked in middle Europe and is almost entirely populated by the
Czech Ethnicity. The population density is 135 ppl/sq. km and has its largest epicenter
in Prague at 1.2M and 4,600 ppl/sq km, followed by Brno at 370K (8). The Czech diet is
considered very heavy as there is high meat and potato content. Soups and vegetables
are very common, with soups being consumed once a day. They also enjoy bread
derived sweets. Consumers are spending more money in Czech Republic in recent
years. In 2017 it hit an all-time high (9). The Primary language is Czech and nearly half
of the people are roman catholic (8). Social interaction is typically more formal than that
of the US with the older generations. The younger generations tend to be more informal
and could drive the fast casual and gathering place idea of Panera to the older,
communal generations.
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Overall, consumer spending has been increasing in Czech Republic since 2012. This is
illustrated in the graph below.
The consumer confidence in Greece’s economy is low, negative, and has been since
1985. This means consumers are saving more than they are spending. This could be an
interesting opportunity should Panera enter at this low and be there for the rise, as the
Greek people seemingly have high liquidity with such a lack in spending.
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The Greek have an Environmental awareness EPI score of 85.81 in 2016, meaning they
are highly environmentally thoughtful and progressive towards health (16). Greece
Republic is in good standing in regards to economic and Social Globalization. They
have been a European Union member since 1981 (17) and earned a Social
globalization index of 80.74 (18). This is significant as it suggests a high amount of IT
users as well as positive receptiveness to the likes of McDonalds and Ikea.
Greece is a European peninsula a different sea on each side and shipping access to the
ocean. The population density is 85 ppl/sq. km and has its largest epicenter in Athens at
664K and 17,000 ppl/sq km, followed by Thessaloniki at 355K (19). In Greece,
consumer spending is seemingly seasonal yet stable when averaged YoY (15). Greece
has hot, wet summers and cold dry winters. Due to this, the economy is seasonally
active, as illustrated in the chart below.
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Greek is the official language and spoken by nearly all. Many Greek staples consist of
meat and bread, as well as fresh vegetables. Soups are more common in the winter
time, but meat, cheese and spinach pies are consumed year round. Grain grapes and
olives are other typical dietary elements, while proteins such as dairy and white meat
are also well-consumed. Coffeehouses serve as local communal gathering places and
Greeks have a sweet tooth epitomized by their cultural delicacy of Baklava. Higher
education is strongly valued and merit-based. Many turn to higher education abroad if
not admitted to the state university of Greece.
According to EuroMonitor, the financial state of Greece is prime time for low-cost, high
value meal options. Dining out is a way of socializing and citizens are willing to cut back
and travel and shopping to avoid reduction in outings. In a shift away from full-service
restaurants, Greece saw a rise in popularity of coffee-houses and fast food operators
(20). It is important to note, that Mikel Café Sa is creating and dominating a niche and
food service market (a would be competitor) and is now ranked 3rd in Greece.
China: Political
The People’s Republic of China has undergone massive amounts of reforms and policy
changes in recent years, of which, many have helped them to become one of the
world’s leading economies. With several reform and policy changes being introduced in
the late 1970’s, China’s economy as a whole has evolved into a world superpower.
There have also been massive changes in their political and legal climates. As a result
of these ongoing changes in the Chinese political climate, performing business in China
is not as simple as it might seem. The strict policies and regulatory environment instilled
by the Chinese government, foreign investment and market activity becomes a difficult
area to understand.
Until recently, China was extremely selective on which Chinese companies with foreign
trading rights would be approved to import products into China. However, as China has
begun to expand as a world leading economy, they have become more open to foreign
industry. For these companies that wish to engage in important trade, they now need to
register with the Ministry of Commerce and be approved. All Chinese Companies have
the right to import most products but a limited number of goods are reserved for
importation through state trading enterprises. For Panera, this is important because they
must be able to import things such as wheat or coffee that might not be plentiful enough
for their markets within China.
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looking to join their markets. Furthermore, the Czech Republic is among the first
countries to launch a program focused on reducing administrative burdens. “Cutting red
tape is still a priority for the government, however, contrary to many other countries, the
focus has not been widened to other regulatory costs. Evaluation of the performance of
existing regulations takes place usually on an ad hoc basis and is used rather rarely.”
(8). As a result of this, these changes pose good potential opportunity for expanding
Panera Bread into the Czech Republic.
Greece: Political
Greece does corporate taxes on corporate income. Resident corporations are taxed on
their worldwide income. Non-resident corporations are taxed in Greece on any Greek
source income they derive, with an average of 29%. This might pose a problem for
Panera because of the higher tax rate, and the possibility of harsher taxes imposed on
foreign companies such as them. In terms of tariffs & trade, they are apart non-tariff
barriers. Greece apart of the World Trade Organization has both European Union
mandated and Greek government-initiated trade barriers. These commodities are under
surveillance according to EU quotas. This is good for a company like Panera, because
they will be able to outsource supplies without worrying about high tariffs and taxes on
imported products.
China: Legal
Similar to the economy, consumer protection, China has come on leaps and bounds in
recent years. With several new laws and different types of legislation being passed to
ensure increased safety for people apart of their markets Labor laws and regulations in
China are another particularly interesting aspect of the country. With much speculation
on how workers are treated and the rights that protected them, China instilled
documentation answering questions about important issues such as employment
contracts. Set into place in 2000’s, China has made significant changes from previous
employment laws, making workers’ rights more transparent. The changes in the
employment law have helped provide more protection to employees, while also putting
more pressure on companies competing within their markets. For a company like
Panera that is looking to integrate into the Chinese Market, they can rest easier without
worrying about unknowns regarding workers’ rights and the potential ethical issues that
would arise with them.
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The Czech Republic has also become more concerned with consumer protection
recently. The rules of consumer protection on the financial market have been increased.
Dealing with the prohibition of unfair commercial practices and discrimination, the
pricing of services and how they are set, which could be critical if foreign companies
look to price out a potential Panera entrant. Moving forward, Czech has also started to
adjust their taxes becoming more beneficial for foreign business.
Greece: Legal
The general policies and regulatory environment are rather transparent in Greece.
There is a variety of formations under which a company can be established and
operate. Some types of capital companies and the most important forms of business in
Greece are: a company limited by shares, also known as corporation, and the limited
liability company, otherwise known as a private capital company. For a private capital
company like Panera, they can be formed with a private document unless a notarial
deed is needed. This procedure is carried out through the General Commercial
Registrar, and is relatively easy to pass.
Technology/Infrastructure Analysis
China: Technology
Many people are starting to claim China as the world’s new technology powerhouse.
Their R&D investment has skyrocketed over the past couple of decades, and they are
now the second highest spender on R&D in the entire world. They account for 20% of
the total world’s R&D expenditures. The rate of growth for China’s R&D expenditures
has surpassed both the US and the EU. Also, 95.1% of people accessed the internet via
their mobile phones, and that is good for Panera, because they do a lot of orders and
business through their App. As a matter of fact, China’s internet market grew 6.2% last
year and is now up to 731 million people with access to the web. As seen below, it is
clear to see that China is well on their way to pass both the U.S. and the EU in
technology R&D.
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Greece: Technology
Greece has made significant strides in technology over the past few decades, and they
are certainly trending in the right direction, but as of right now they are in a “catching up”
phase compared to other EU member states. They are notably behind, and their
spending on R&D is nowhere near that of China.
China: Infrastructure
Similar to their R&D investment and expenditures, China leads the world in
infrastructure investment. Investing in infrastructure is a top priority for China’s
government, and they have realized that in today's day and age, a successful economy
needs reliable roads, electricity, and telecommunications. If all three of those are
thriving, then that can only help Panera’s chances for success. Not to mention, Panera
does a lot of business through their deliveries, so that goes hand in hand with a good
infrastructure.
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Greece: Infrastructure
The infrastructure in Greece is lacking. The country recently went through a deep
recession, and saw a decrease in infrastructure by 77% between 2006 and 2016. Also,
Greece is ranked 26th among the EU countries in terms of infrastructure. Not too much
else to say here, Greece is lacking in their infrastructure but trying to get back on track.
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Greece, they also provide free education for public schooling. From the data available
online, it seems that Czech Republic has a slightly above average education system,
with a good amount of higher education options available, but is most likely behind
China’s standards, as usual.
China: Transportation
Overall, it goes without saying that a quality and efficient transportation system in a
country is a must for Panera. Their consumers need to be able to get to and from
Panera quickly and methodically. Panera also has a fast growing delivery system, so
that will also rely on an efficient transportation system. The transportation system in
China has grown very quickly over the last few years, comprising of a vast network
across its massive area. We need to keep in mind though, the nodes tend to be in the
more economically developed areas. The number one mode of long distance
transportation is the railway which is now comprised of over 75,000 miles of railway
lines, putting it at the 2nd longest network on earth.
Greece: Transportation
Greece has made significant strides in their transportation system over the last couple
of decades, which has helped modernize their infrastructure. Since Greece is home to
different islands, they use Ferry transport as the main mode of transportation to get to
and from the islands. They have made solid improvements to their rail, urban transport,
and airports, which help them to stay competitive with other surrounding nations.
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Mode of Entry
Choosing the correct mode of entry for Panera Bread is critical to its success. There are
six potential modes of entry: Importing/Exporting, Alliance, Equity Joint Venture, Merger,
Acquisition, and Greenfield FDI.
When considering Importing/Exporting, there are several pros and cons that need to be
explored. The advantages are that you are able to realize the location and experience
the curve economies first hand. The disadvantages are high transport costs, trade
barriers, and problems with local marketing agents. Initially, it is crucial to find good
locations for our Panera Bread restaurants. However, problems with high transport
costs and trade barriers pose a huge issue considering we are a service industry. Since
exporting is the process of selling of goods and services produced in one country to
another, this would not make sense for what our company is pursuing.
When looking into an Alliance as a mode of entry, you have a cooperative agreement
between different firms. The focus of an alliance is often to create new products or
technology, rather than distributing existing ones. Also, they are often only intended for
a short duration, non-equity based agreement in which companies are separated and
independent. The pros of an alliance are increased technology exchange, global
competition, and industry convergence. The cons are difficulties to find local partners,
unequal benefits between partners, and relationship management issues across
borders. Considering that Panera Bread is provider of goods and services, and not a
technology driven industry, an alliance partnership would not be the best fit.
When using an Equity Joint Venture mode of entry, there are numerous advantages and
disadvantages associated with the process. A firm benefits from a local partner’s
knowledge of the host country’s competitive conditions, its culture language and political
situation. Using a local partner also can help minimize risks because the firm can share
costs and risks with a local partner. Lastly, for some countries, joint ventures are the
only option due to the political situation in the foreign country. There are also some
disadvantages with using a joint venture approach. Using a joint venture allows the local
partner to access the firm's technology; this can be risky depending on the type of firm.
This should not be an issue for a firm like Panera because they don't differentiate
themselves based on technology. Also, a joint venture does not give a firm complete
control over its subsidiaries. Lastly, the shared ownership can lead to conflicts over
control between the firm and the local partner if their goals and objectives don't align. A
joint venture seems to be the best entry strategy for Panera.
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Looking into an Acquisition approach, there are three major advantages. First, an
acquisition is quickly executed and a firm can rapidly build its presence in the foreign
market. For Panera this would be an important factor because it would allow them to
penetrate the market quickly. Secondly, an acquisition allows for the firm to preempt
their competitors which is important in a rapidly globalizing country such as China.
Lastly, acquisitions are viewed as less risky compared to using a greenfield venture,
which is similar to an acquisition. However, there are disadvantages to using the
acquisition method as well. Firms tend to overpay for the assets of the acquired firm
because management can be too optimistic about the valuation. Also, they can fail
because of the difference in cultures between the merging firms. This could be an issue
for Panera because China’s culture is much different than America’s.
While a Merger in many ways is similar to an acquisition, they differ in one major way. A
Merger is a combination of two companies to form a new company, while an acquisition
is the purchase of a company by another in which a new entity is not formed.
A Greenfield FDI is a form of foreign direct investment where a parent company builds
its operations in a foreign country from the ground up. The major advantage of
establishing a Greenfield Venture is that it gives a firm the ability to build the kind of
subsidiary company that it desires. As a result, it is much easier to establish rules within
a Greenfield than having to onboard established ones from a previous organization.
This becomes very important for companies that are focusing on transferring products,
competencies, skills and know-how from established operations of a firm to a new
subsidiary. The cons of a Greenfield investment is that they are slow to establish, very
risky, and pose a degree of uncertainty associated to the future revenue and profit
prospects of a company. As a result, we do not think this would work out the best for our
Panera Bread mode of Entry.
Another main reason why we believe a joint venture is the best option is because
companies similar to Panera Bread have been successful with this mode of entry in the
past. Starbucks, a direct competitor, used a joint venture approach when first globalizing
in Japan and it worked very well for them. They used this Joint Venture approach to
integrate their product into the Japanese culture, and eventually as a result of the
success, the Starbucks format was licensed to the venture. The Joint Venture ended
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after the mutual goals were reached, and Starbucks purchased the rest of Starbucks
Coffee Japan from its partner Sazaby League for $914 Million. A similar Joint Venture
Exit Strategy will be considered for Panera. This sets a strong precedent and provides a
promising opportunity to prospective partners.
When considering a potential partner, Panera needs to consider factors such as their
partner’s reach, scale, cultural influence, and consumer perception. As stated above,
the advantage of a joint equity venture is the assistance when assimilating within a new
culture. In this process, it would be ideal for Panera to be partnered with a company
who is viewed very positively by the general public. In this relationship, majority control
is important. While the advice of the partner is very useful, Panera needs to reserve the
right to make the final call regarding their business decisions. The relationship will be
able to be balanced due to the fact that Panera has a controlling stake in their joint
venture agreement.
Scale of Entry
Panera should pursue a large-scale market entry into China that demonstrates a long-
term commitment, is well-positioned, and locally partnered. This will allow them to be a
near first-mover (more appropriately a fast-follower) and gain market-share in target
regions quicker (opposed to an incremental entry strategy). Typically, large-scale entry
would introduce risk, since there is less time to evaluate the market and make
adjustments. However, this should be relatively low-risk when following the successes
of Starbucks and other fast food companies in China. To hedge the large financial
exposure, the strategic joint venture will allow Panera’s quick adaptation to the new key
markets; risk will be hedged by launching both of Panera’s brick and mortar products:
Panera Cafe & Bakery, and Panera 2.0.
Panera is a near first mover relative to its competitors in North America and Europe.
The Panera Cafe & Bakery identifies as part coffeehouse, part teahouse, and part
dining. The former, which competes directly with the large first mover, Starbucks.
Therefore, a large-scale entry will enable Panera to gain market-share quickly and at a
time when Starbucks is looking to expand.
In the Joint Venture agreement, each company should hold a 50% stake. Additionally,
the entry strategy will include partitioning the initial investment between two products:
Panera Café & Bakery and Panera 2.0. Capitalizing on the quick, automated, tech-
driven food service culture of China is key. Also entering the fast casual, teahouse, and
dining market that consumes China is very important. The large investment is critical to
developing a recognizable footprint and brand in each of the “many China’s” that are
within the borders of China.
Panera locations will be targeted in the most populated markets, i.e. the highest
population densities: Shanghai, Beijing, Guangzhou, Tianjin and Guangdong. The entry
strategy will tailor the presence of Panera Café’s and Panera 2.0’s by greatest potential
for success in each city. Researching successful locations of Starbucks show that only
real estate along major rail lines or within close proximity to stations should be
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considered. Starbucks have proved these type of locations successful and that path
should be followed to mitigate risk. Implementation and Planning will target a ratio
designed to be optimized for each specific market. The Beijing and Shanghai market will
utilize 50% of the total entry investment and offer Panera’s at a 1:1 ratio (Panera Cafes
to Panera 2.0s). This is because these two cities are Top 10 for most Starbucks
locations in a single city, supporting the success potential of the cities’ markets (21).
The remaining 50% will be utilized in 4-6 other major cities at a 1:3 ratio. This will allow
for a higher perceived presence in those markets due to the efficiency and lower cost of
Panera 2.0’s, while also maintaining a lower overall burden to the investment budget.
Beijing and Shanghai have high receptiveness to competitors such as Starbucks and
offers Panera an opportunity for quick cultural adaptation and execution, while
maximizing local sourcing efficiency. Again, this makes Beijing and Shanghai the key
cities of the launch in China. With this entry strategy, risk is hedged multiple times by
betting on two products. The majority of the investment is placed in well precedented
sub-markets through splitting with a joint venture partner.
Timing of Entry
When Panera Bread enters China, they are going to be a fast follower. This makes the
most sense for a few reasons. First, China’s fast-casual industry is an ultra-competitive
and rapidly changing industry. Jumping right into that without figuring out how our
closest competitors operate could lead to immediate failure. There are constantly new
competitors entering the industry, but very few of them succeed because they enter too
quickly. Second, the way we see a first mover strategy is essentially the race to see
who can fail first. Given that China’s fast-casual industry is much different than in the
United States, we will need to learn from other’s mistakes to become as efficient as
possible. Also, per Shane Snow, a renounced global market researcher, first movers
had a 47% failure rate compared to only an 8% failure rate for companies that took
control of a product's market share after the first movers pioneered them.
The differences between borders is much different than what meets the eye. Diving
head first into China’s cut-throat and rapidly growing fast-casual industry can result in
disaster for our company. It is best to learn from other’s mistakes and take advantage of
what they did right. By doing this, we will be able to see how we can operate and
expand as efficiently as possible.
Conclusion
After reviewing all 26 markets in both qualitatively and quantitatively, it is clear that China is the
best international market for Panera to enter. This is due to their large population, rapidly
growing economy, and consumer willingness to spend money on dining out. The best method of
entry into China is a Joint Equity Venture. Through this, Panera will be able to partner with a
local company that has a pre-existing relationship with the Chinese public. This will help Panera
enter the market as efficiently as possible. Panera has the potential to be very successful in
China with both their restaurant and Panera 2.0 business models.
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Brazil 38.7 9
Chile 42.05 6
Colombia 35.45 13
Mexico 28.35 23
Peru 28.45 22
Czech Republic 46.95 2
Egypt 32.75 16
Greece 46.8 3
Hungary 39.65 8
Poland 45.85 4
Qatar 34.3 15
Russia 45.45 5
South Africa 29.45 21
Turkey 36.3 12
Arab Emirates 36.5 11
China 49.85 1
India 30.65 18
Indonesia 30.1 20
South Korea 41.9 7
Malaysia 31.95 17
Philippines 30.3 19
Pakistan 20.15 25
Taiwan 37.2 10
Thailand 34.85 14
Nigeria 18.5 26
Vietnam 26.6 24
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Category Weight
Individual Coffee Consumption 10%
Wheat Production 10%
Wheat Imports 10%
Urban Population 10%
Education Index 5%
Median Annual Household Disp. Income 10%
% of Population aged 45+ 15%
Political Risk Rating 10%
Economic Freedom 10%
Cost of Business Startup Expenditures 10%
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