Panera Bread Rising

by Steve McKee

"Most of the world seems to be focused on the Americans who are unemployed. We're focused on the 90% that are still employed."


Those are the words of Ron Shaich, CEO of Panera Bread, the 1,300-unit bakery-cafe that has found a way to thrive in spite of the recession. Its formula? A combination of smart financial management and keen understanding of its core customers, most of whom remain gainfully employed (and ever-more attuned to good value).

Rather than cutting corners, Panera has focused on offering more to its broad range of middle income customers, including free wi-fi access and frequent new menu offerings. According to Shaich:


"In many ways, we're renting space to people and the food is the price of admission,"


Panera COO Rick Vanzura agrees, saying, "A bunch of folks have been cutting quality to cut price to go after the marginal customer. We said a better strategy that addresses a bigger group of people is providing better value."

The strategy is working. In 2008 (a very bad year for most fast-casual restaurants), Panera Bread grew by double digits. In 2009 - the worst economic year in generations - the company managed to keep same store sales from declining, and in the third quarter actually increased them by 3 percent. Food industry analyst Darren Tristano pinpoints why:


"Panera's on-trend with what consumers are asking for: fresh, customizable, convenient, won't break the bank."


Panera Bread has been able maintain its focus because of careful cash management. Rather than using debt to expand, assuming the good times of years past would keep on rolling, the company grew slowly and deliberately over the past decade. That kept it healthy from a cash flow perspective and prevented it from having to cut corners or cut margins (or both) when times got tough. As Shaich says:


"Every chain is cutting something - portion size, quality, hours of labor. The result is that ultimately the customer feels it."


Most players in the restaurant industry - in most industries, for that matter - think the current game is all about price. Panera Bread is an all-too-rare exception, demonstrating that companies that keep their focus, nerve, consensus and consistency can thrive even in bad times. I'm a fan.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Has Old Navy Righted its Ship?

by Steve McKee

It's a classic "When Growth Stalls" scenario: start with a fast-growing and profitable company; add an aggressive new competitor that begins to successfully woo the same customers; watch as the previously flourishing company loses its nerve, its focus, and its consistency, leading to languishing sales and lackluster results.

When Gap, Inc. launched Old Navy in 1993, the spare retail chain sporting affordable merchandise and wacky ads was an immediate hit. Rather than risk losing focus at brand Gap (which was near its zenith atop the retail world), parent company Gap, Inc. used Old Navy as a counterforce to the big discount stores that were trying to ride on Gap's fashion coattails by ripping off its designs.

Within four years Old Navy sailed past the billion-dollar revenue mark, accounting for nearly half of Gap, Inc.'s top line and some 40 percent of its profits. Offbeat commercials featuring has-been celebrities made the chain the talk of the retail industry, as well of teens and young families that comprised its core market.

Enter H&M, the trendy Swedish retailer, which opened its first U.S. store in 2000 offering discount apparel with a more fashionable edge. Fearing that H&M's success marked a sea change in the industry, Old Navy shifted its focus from the basics to more trendy, upscale mechandise. It didn't work. Sales fell by more than a billion dollars between 2006 and 2008, with last year's same store sales sinking an incredible 17 percent.

It was then that Gap, Inc. decided to do something about it. As the Wall Street Journal put it, "Returning Old Navy to its roots was the central theme of Gap's remaking of the brand." The Journal quoted Old Navy's interim president, Tom Wyatt, as he reflected on the brand's original recipe: "We got tired of it. The customer never did."

Eighteen months ago Old Navy recommitted to its original focus and began redesigning more than a thousand stores, hoping to leverage consumers' renewed frugality in this toughest of tough economies. Year-to-date 2009 revenue is up 1 percent, due largely to a third quarter same store sales increase of a healthy 10 percent (the first rise in five long years). Pardon the pun, but Old Navy seems to have righted its ship.

There's no guarantee that, having returned to its former course, Old Navy can count on smooth sailing. The retail industry is too dynamic to let any successful company alone. But Old Navy's experience is one more point of evidence that when even the most successful concept runs into a rough economy, a tough competitor, or some other external threat, destructive internal dynamics can turn it into its own worst enemy.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Future of Shopper Marketing

by Kevin Roberts

The Sam Walton Business School at the University of Arkansas is on our calendar every October because of the superb annual conference run by the Center for Retailing Excellence. Andy Murray, Global CEO of Saatchi & Saatchi X, was a founder of the conference, and this year a keynote speaker. His subject was "the future of shopper marketing" - which should apply to anyone and everyone who wants to sell something to a customer.

The presentation featured five key points (and a whole bunch of arresting stories, insights, and examples):

• Put yourself at the heart of the customer (most companies try it the other way around)


• Navigate the experience of your customer from the "shelf back"


• Create ways for customers to participate and be involved in your brands and store experiences


• Explore the fringe/edge/margin for new ideas (Wal-Mart was a fringe idea, it came from Bentonville, not Chicago)


• Find new ways for manufacturers and retailers to collaborate authentically based on trust, transparency and shared goals

This is a special presentation and will be viewed in five years time as a definitive statement about the world's biggest activity: shopping.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

When Wal-Mart Enters the Funeral Business

The Funeral Business is About to Change

by Idris Mootee

Will Amazon.com Follow? What's The Latest Innovation In The Funeral Business?

Some survey stated that the average person's greatest fear is having to give a speech in public. That's not it for me, but I am sure it is for many. I remember one guy telling a story about how he when he was put on stage in front of 800 people, the dead silence was like death itself. Giving a speech in public ranked higher in the survey than death (third on the list). So, you're telling me that at a funeral, most people would rather be the guy in the coffin than have to stand up and give a eulogy?

The first baby boomers are entering their mid-60s, and the death rate in the U.S. is expected to rise from 8.1 people per thousand in 2006 to 9.3 in 2020 (according to the National Center for Health Statistics). Yet the traditional funeral industry is hardly healthy: The Federated Funeral Directors of America, an accounting firm for independently owned funeral homes, found that in the past 20 years, its clients' profit margins have been cut nearly in half. Some 44% of funeral home directors, up from 28% in 2006, blame the increasing popularity of cremations and alternative burials for sinking profits. Some funeral homes have responded by more innovation such as themed funerals, from backyard barbecues to mini concerts.

The $11 Billion industry is forced to innovate when Wal-mart enters the business. Wal-mart has started selling coffins online at prices that undercut many funeral homes. People can choose from fourteen different models, from the $895 "Dad Remembered" steel model, to the exclusive "Sienna Bronze" model for $2,899. Why did Wal-mart decide to enter the coffin market?

Well, in fact this is a response to Costco's move to sell coffins online (not in bulk thank God) with delivery within twenty-four hours. I guess people don't want to wait for this category. I think it is a good idea. The funeral home industry is overcharging and often people don't know what these things should cost. With Wal-mart you need only to pay $1,000 versus three or four times more through a funeral home.

The funeral homes industry has reason to be concerned. I am sure their argument is these funeral homes can provide full service (like gas station) and ability to provide comfort and empathy, but it comes at a price. If it works for Wal-mart, the next one to join would be Target. They would invite Stella McCartney or Phillipe Starke to design caskets that costs just a little more, but with a lot more style. Amazon.com will follow with online customization that you can pick your favorite patterns or engraved your family crest on it. And for those creative types who are big thing art lovers, forget the traditional wooden box, you want something very special. A company called Crazy Coffins can pretty much order any design you want. There isn't a lot they can't make. The bespoke coffins are made by two carpenters and costs between $3,000 and $10,000.

And when you decide to spend more on a coffin, may be you should consider an upgrade to Louis Vuitton or Karl Lagerfeld. And for those die hard rock fans, they used to sell a KISS goodbye with the "Kiss Kasket". It is decorated with the logo and pictures of the band members; plus: it is waterproof. The Kiss Kasket went on sale in 2001 until 2006 and now it's no longer available from Kiss' website. I'd like to see a Beatles one.

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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.

Is there something to like about Sara Lee?

by Steve McKee

I've kept my eye on Sara Lee for several years now, originally because the company was a poster child of the Loss of Focus principle. But in 2005 new CEO Brenda Barnes introduced a plan to streamline Sara Lee, which analysts would have described as a conglomerate but could more accurately have been characterized a beast.

Launched in 1939 as C.D. Kenny Company, over the course of the next sixty-plus years the organization acquired and divested brands in industries as varied as supermarkets (Piggly Wiggly), electronics (Electrolux), apparel (Aris Isotoner, Hanes, Champion, Playtex), shoe polish (Kiwi), and even chemicals (Oxford Chemical Corporation). It took its present name from a company acquired in 1956, The Kitchens of Sara Lee.

By the early 2000s Sara Lee's strategic chickens had come home to roost in the form of slow sales growth and weak earnings. A company that had fueled growth for decades through artificial diversification had simply become too unwieldy to manage.

That's when Barnes launched (according to internal company documents) "a bold and ambitious multi-year plan to transform Sara Lee" by divesting brands comprising 40 percent of its revenues and focusing R&D efforts on food. By 2007 Sara Lee was increasing market share faster than any of its major competitors, and last month Barnes announced that she was selling Sara Lee's deodorant and skin care brands to Unilever. When asked about the rationale behind this recent move, Barnes - no doubt for the umpteenth time over the past four years - said, "Our intent is to build a great business in food and beverage." (It was a "multi-year plan," remember?)

Count me a fan. Contrary to the strategic flailing about demonstrated by many companies when they encounter rough waters, Sara Lee has kept its focus. Barnes has consistently executed on her now four year-old strategic plan, and the nearly $2 billion take she'll get from the sale to Unilever will equip her to further strengthen Sara Lee's food and beverage brands. Which will leave a good taste in the mouth of the company's investors. Smart.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Big Box, Little Box

by Matthew E May

Have you seen it? Best Buy 2.0, I mean. They're going up everywhere. They're less than 10% of the normal 40,000 square foot big box Best Buy. I'm not talking about the store-within-the-store structure they use for selling cellphones. I'm talking about stand-alones of the same flavor going up in malls and downtown areas.

Best Buy Mobile. Little boxes, just for cellular. Radically original idea? Nah. They bought half of Carphone Warehouse's retail operations to form a joint partnership. Now they offer nearly a hundred phones from nine carriers. And borrowed from Apple: help customers set the darn things up and get them working before leaving the store.

And it comes at a time when a good number of retailers are closing their doors. They've got over 40 already in the U.S. Fourth quarter 2008 sales were nearly double that of the same quarter of 2007. And as everyone knows, fourth quarter 2008 was a retail nightmare.

All in all it's a fairly elegant strategy, if you think about it: expansion through subtraction.

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Matthew E. May is the author of "IN PURSUIT OF ELEGANCE: Why the Best Ideas Have Something Missing." He is constantly searching for creative ideas and innovative solutions that are 'elegant' - a unique and elusive combination of unusual simplicity and surprising power.

Smart 'R' Us?

by Steve McKee

Toys 'R' Us has faced its share of difficulties over the past several years. The company has had to contend with the likes not only of traditional competitors including Sears, KB Toys and FAO Schwarz, but bricks-and-mortar bruisers like Target and Walmart and Web behemoth Amazon. Not so long ago the company faced what appeared to be an existential threat from a very-well funded (and heavily advertised) "new economy" competitor, an online startup called eToys. There was a period when I thought Toys 'R' Us not only had seen its better days, but would have very few days left.

My how times have changed. Toys 'R' Us now owns--that's right, owns--the FAO Schwarz, eToys and KB Toys brands. And in a gutsy move that runs counter to the loss of nerve by which most retailers are still being tripped up, the company, which has fewer than 850 stores, will launch an additional 350 temporary locations during the upcoming holiday season. That means more rent, more people, more inventory, and more risk. It also means significant potential to gain market share.

In a Wall Street Journal interview, Toys 'R' Us CEO Gerald Storch said about the decision, "The current economic disruption provides an opportunity. The people who made their fortunes during the Great Depression where those that moved when everyone else was pulling back."

He's right, of course. The same Wall Street Journal article cites a CIT Group study which suggests that two thirds of retailers plan on hunkering down during the upcoming holiday season. While they make their toys easier to buy (with bigger discounts) but harder to find ( by stocking less inventory), Toys 'R' Us is positioning itself to be in the right place at the right time as harried shoppers look to cross items off their list (given the category, often impulsively). That will help the company not only pick up share, but protect its margins.

Rather than sitting around, wringing its hands about another potentially difficult holiday season, the Toys 'R' Us team has decided that disruptive times often call for disruptive measures. I predict their stockings will be full this year.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.