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Panera Bread Founder Ron Shaich on Fast Casual Dining · Masters in Business

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
0:12
Speaker 1: Business with Barry Ritholt on Bloomberg Radio.
0:16
Speaker 2: This week on the podcast What Can I Say? Ron
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Speaker 2: Shake is a legend in the fast casual dining space.
0:24
Speaker 2: He began with a single restaurant, a single cookie store,
0:28
Speaker 2: and eventually parlayed that into a series of acquisitions, mergers, expansions,
0:35
Speaker 2: ultimately leading to the Panarabread concept, which now has two
0:41
Speaker 2: thousand locations and does about six and a half billion dollars.
0:46
Speaker 2: He sold the company in twenty seventeen or so for
0:50
Speaker 2: about seven and a half billion dollars. He now runs
0:54
Speaker 2: Act three, which is a fascinating sort of venture fon.
1:00
Speaker 2: One of their big firms is Kava Fast Men are
1:03
Speaker 2: written Cuisine. What can I tell you? The guy is
1:06
Speaker 2: a brilliant operator, one of the best performing publicly traded
1:10
Speaker 2: CEOs in history, at least in the food and consumer
1:16
Speaker 2: services sector. He knows everybody, from the head of Starbucks
1:22
Speaker 2: to Sam Adams to Shake Shack. All those people travel
1:26
Speaker 2: in the same circles. He has carved out his own
1:30
Speaker 2: unique identity in space. And I just thought this conversation
1:34
Speaker 2: was fascinating, And I think you will also so with
1:37
Speaker 2: no further ado, my discussion with the former chairman and
1:41
Speaker 2: CEO of Ombalpint and Panera Bread, Ron Shake, Ron Shake,
1:47
Speaker 2: Welcome to Bloomberg.
1:49
Speaker 3: Thank you Berry. Good.
1:50
Speaker 2: So those numbers are astonishing, and I also recall reading
1:54
Speaker 2: Panera was the best performing restaurant stock in the last decade,
2:00
Speaker 2: you were CEO, second best consumer stock on the S
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Speaker 2: and P.
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Speaker 3: Are those data points right? Yes, But to be clear,
2:07
Speaker 3: I sold Panera in twenty seventeen and have not had
2:12
Speaker 3: anything to do with it since then. But I am
2:14
Speaker 3: today a lead investor and the chairman at kVA helped
2:19
Speaker 3: take that thing public.
2:20
Speaker 2: We're going to talk about Cava. We're going to talk
2:22
Speaker 2: about know what matters. The book you wrote, lessons from
2:25
Speaker 2: a Lifetime of Transformation.
2:27
Speaker 3: But let me.
2:28
Speaker 2: Roll this all the way back, sure to your education.
2:32
Speaker 2: Bachelors from Clark in nineteen seventy six, NBA from Harvard
2:36
Speaker 2: in seventy eight.
2:37
Speaker 3: Don't hold that against me.
2:38
Speaker 2: What was the career plan? By the way, you are
2:41
Speaker 2: not the first Harvard MBA I've had in the studio.
2:45
Speaker 3: I guess I would say to you this, I never
2:48
Speaker 3: really had a career plan. I had a drive to
2:51
Speaker 3: make a difference.
2:52
Speaker 2: Huh.
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Speaker 3: And the challenge for me was whether that was going
2:55
Speaker 3: to take form as politics, which was a love of mine,
2:58
Speaker 3: or business. And I found over the years that that
3:02
Speaker 3: when I was doing business, I brought a strategy for
3:06
Speaker 3: political context to it. When I was doing politics or
3:09
Speaker 3: political campaign management, it was a business. Put another way,
3:13
Speaker 3: a business is an election that never ends. A political
3:17
Speaker 3: campaign is a business that has one judgment day, the
3:22
Speaker 3: election day.
3:23
Speaker 2: Huh. That's fascinating. So there was a quote from you,
3:26
Speaker 2: maybe this was from the book you go to business school.
3:30
Speaker 2: You didn't know what an investment banker was.
3:33
Speaker 3: I didn't know, you know, I actually never set out
3:37
Speaker 3: to do business. I had been the treasurer of the
3:39
Speaker 3: student council at Clark and I was tossed out with
3:43
Speaker 3: a couple of friends from a local convenience store. They'd
3:46
Speaker 3: suggested we were shoplifting. We weren't, but it was just
3:48
Speaker 3: a heavy security presence. And I came back to campus
3:51
Speaker 3: and I said, you know what, why are we giving
3:53
Speaker 3: these guys our money? Why don't we create our own
3:56
Speaker 3: student run store. And I was able to text, yeah,
4:00
Speaker 3: I taxed the student body. They agreed to it, and
4:04
Speaker 3: there was nobody else there to essentially build the store.
4:08
Speaker 3: I built it. There was nobody to run it. I
4:10
Speaker 3: ran it. And as a kid who really thought he
4:14
Speaker 3: was going to go to law school like you, Barry,
4:16
Speaker 3: and had never you know, I couldn't dance, I couldn't sing.
4:20
Speaker 2: I just come outside shot.
4:22
Speaker 3: My outside shot is better than how I dance, you know.
4:25
Speaker 3: But I have to tell you, yeah, I have to
4:28
Speaker 3: tell you that I had more fun. It was the
4:30
Speaker 3: most creative endeavor I had ever been, involving a live
4:33
Speaker 3: performance art. And I love food, I love retail, I
4:37
Speaker 3: love running the place. I loved the people, and it
4:40
Speaker 3: became sort of a way I lived my life.
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Speaker 2: That's really fascinating. So that tease up what becomes at
4:47
Speaker 2: least the first part of your career. Tell us about
4:50
Speaker 2: the work you did at a cookie company.
4:53
Speaker 3: Oh, I started a cookie company. So I got out
4:57
Speaker 3: of business school. I took what I call the third
4:59
Speaker 3: year of the NBA. I went to learn. I went
5:03
Speaker 3: to work for a company called Coal National and help
5:06
Speaker 3: run a part of their company called the original Cookie Company.
5:09
Speaker 3: I remember that, do you in the malls? Yeah?
5:12
Speaker 2: Right, that's right.
5:13
Speaker 1: Yeah.
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Speaker 3: I was a district manager. I was running stores. I
5:18
Speaker 3: came back dan Quayle. I remember I was in Indiana
5:21
Speaker 3: and there was a dan Quayle for the US sent
5:23
Speaker 3: a billboard up and I came back and wanted to
5:26
Speaker 3: do political campaigns, and I couldn't get a job, and
5:31
Speaker 3: I decided I was going to try to open my
5:33
Speaker 3: own cookie store. And and at that point, all the
5:37
Speaker 3: cookie stores were in malls. I said, let's open it
5:40
Speaker 3: where there were lots of people. In Boston. There's a
5:44
Speaker 3: place called Park Street Station. It's the entrance way to
5:47
Speaker 3: the downtown and the financial district. I thought wanted to
5:50
Speaker 3: open a cookie store there, And in fact I ultimately
5:54
Speaker 3: found the job in political campaign consulting, but I was
5:59
Speaker 3: while I was down in I was offered a location
6:02
Speaker 3: near Park Street Station. I thought I'd come back one
6:06
Speaker 3: day a week. I ended up creating this cookie store
6:10
Speaker 3: that was a two day a week, three day a
6:12
Speaker 3: week endeavor. I never went back to d C to
6:14
Speaker 3: run campaigns. And that cookie store later was merged with
6:18
Speaker 3: Obom Penn and that company which we created in nineteen
6:23
Speaker 3: eighty one was the company I sold for seven point
6:27
Speaker 3: eight billion literally in twenty seventeen.
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Speaker 2: So let's go back to that acquisition again. And I
6:36
Speaker 2: don't remember if I read this in the book or
6:38
Speaker 2: somewhere else. Nobody buys cookies before noon.
6:42
Speaker 3: This is a challenge, yes.
6:44
Speaker 2: But croissant and baked breads and other goods like that,
6:48
Speaker 2: that's perfect breakfast. Fair was that the obvious. Let's combine
6:52
Speaker 2: these two. We'll cover the whole day as long as
6:54
Speaker 2: we're paying rent for twenty four hours.
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Speaker 3: Yeah, I mean, I'm running this cookie store for about
6:58
Speaker 3: six months, having the time my life. But as as
7:01
Speaker 3: you said, nobody was buying cookies before twelve noon. I
7:04
Speaker 3: had about fifty thousand people a day walking by me.
7:07
Speaker 3: So I said, what can I put in here that
7:09
Speaker 3: could represent a product that would appeal to people in
7:12
Speaker 3: the morning. And I decided to become a licensee of
7:15
Speaker 3: a French bakery. And there was a number that were
7:19
Speaker 3: actually in that business. I hooked up with a group
7:21
Speaker 3: called O Boon Pen and they had at that point
7:26
Speaker 3: three bakeries. They had at one point opened I think
7:31
Speaker 3: thirteen of them, close ten of them. I didn't fully
7:34
Speaker 3: understand they were on the edge of bankruptcy, but I
7:37
Speaker 3: did a deal with them. I became their licensee for
7:41
Speaker 3: this one square block.
7:42
Speaker 2: So a little background about that. The predecessor of one
7:47
Speaker 2: of the companies, and I don't remember if this was
7:49
Speaker 2: a bone pan something else was Paviliar, a French manufacturer
7:53
Speaker 2: of Pavie Pavier.
7:54
Speaker 3: Yeah, we got to work on your French bart.
7:56
Speaker 2: Well I was youkub but not very well if I'm
8:00
Speaker 2: going to parassel bonup.
8:01
Speaker 3: But uh probably vo front Si.
8:05
Speaker 2: So they were setting up bakeries in order to sell
8:09
Speaker 2: their ovens. It sounds like you said, hey, you forget
8:12
Speaker 2: the ovens, let's sell the bakeots.
8:14
Speaker 3: Well. Actually, actually Pavier founded open a group bought the company.
8:23
Speaker 3: It was led by the man who became my partner
8:25
Speaker 3: of over two decades, a gentleman named Lucane. Lucane and
8:30
Speaker 3: his partners bought the O Boon pen from Pavier, and
8:35
Speaker 3: to be clear, they they they essentially thought they could
8:41
Speaker 3: grow this across North America, and they were sort of
8:44
Speaker 3: delusions of grandeur.
8:46
Speaker 2: They were right, they just said the wrong operator they had.
8:49
Speaker 3: They had the wrong operator, They had probably the wrong concept,
8:52
Speaker 3: and that's what led them to borrowing a great deal
8:56
Speaker 3: of money against their own person of real estate, as
8:59
Speaker 3: I said, opening thirteen units of which by the time
9:03
Speaker 3: I came along, they had closed ten.
9:04
Speaker 2: Of them, So you licensed the spot. How does that
9:08
Speaker 2: lead to eventually purchasing Obonpont.
9:11
Speaker 3: Well, I'm I'm their licensee for about six months, and
9:15
Speaker 3: I begin to become friends with their CEO, a gentleman
9:17
Speaker 3: named lu Kane, who had essentially was running the company,
9:21
Speaker 3: and it was very clear to me the trouble they
9:23
Speaker 3: were in, and I began to say, this was a
9:25
Speaker 3: powerful opportunity to apply what I knew about running food
9:29
Speaker 3: businesses and actually create the kind of company I wanted
9:32
Speaker 3: to work for. I wanted to build, and I went
9:36
Speaker 3: to Lieu with an idea, and the idea was we
9:38
Speaker 3: would merge our two companies, my one cookie store, his
9:42
Speaker 3: three French bakeries, and their three million dollars in debt.
9:48
Speaker 3: I hit the cash cow, they hit the three stores,
9:51
Speaker 3: and I really thought I could operate my way out
9:53
Speaker 3: of the business. Then what ended up happening is I
9:56
Speaker 3: received sixty percent of the company, Lou and his partners
9:59
Speaker 3: kept forty of the new company, and then we went
10:04
Speaker 3: marching off that company. O Bumpen CoInc. Was the company
10:08
Speaker 3: I ended up running for nearly thirty seven years.
10:12
Speaker 2: So thirty seven years and along the way, you IPO
10:17
Speaker 2: in nineteen ninety one.
10:18
Speaker 3: Twenty seven years is a public company ceo Berry longer
10:22
Speaker 3: than cal rip can play baseball. That's unbelievable. And I'm
10:24
Speaker 3: still standing that's weak lease, But I'm still staying.
10:27
Speaker 2: You know, Warren Buffett and Jamie Dimon probably your your
10:31
Speaker 2: two competitor summers.
10:32
Speaker 3: I had a better performance than Warren Buffett my last
10:34
Speaker 3: twenty years as a public company CEO.
10:37
Speaker 2: Well he's backloaded, so he began strong and then did
10:40
Speaker 2: okay afterwards. But but what's really fascinating is how do
10:45
Speaker 2: you go from you know, three or four locations to
10:51
Speaker 2: an IPO in nineteen ninety one.
10:54
Speaker 3: Three and four three to four, three or four location
10:56
Speaker 3: that we're bleeding, we're losing money. You know, I'm always
11:01
Speaker 3: trying to learn, and probably the most powerful thing in
11:04
Speaker 3: my life is not the success. It's the learning and
11:08
Speaker 3: then the action one takes from the learning. And I
11:11
Speaker 3: had a revelation in the early eighties. I would be
11:18
Speaker 3: working in one of these French bakeries and people walk
11:21
Speaker 3: in and say, you know what I want that baguette,
11:23
Speaker 3: and I'd start to slice it for him. They say, oh,
11:25
Speaker 3: I don't slice it like bread, slice it from top
11:27
Speaker 3: to bottom. And I'd hand them the baguette and they
11:29
Speaker 3: look at me, berry and they and they pull out
11:32
Speaker 3: a bag from stopping shop and they put yeah, they
11:35
Speaker 3: put meat on it, bison, you know, cheese, smoke, turkey.
11:40
Speaker 3: And again you didn't have to have a Harvard MBA
11:43
Speaker 3: to say, you know, the opportunity is not in the
11:45
Speaker 3: bread recroissant. The opportunity is and what the bread incroissant
11:49
Speaker 3: can allow the consumer to do. So we said, instead
11:52
Speaker 3: of selling the bread and croissant, let's sell the product
11:54
Speaker 3: they want, which was the sandwich. That allowed us to
11:57
Speaker 3: create the first of what became many many units, which
12:02
Speaker 3: was a French bakery cafe up in Copley Square in Boston.
12:05
Speaker 2: So that included breakfast quassaws and I'm assuming other breakfast sandwiches,
12:11
Speaker 2: full launch soup, salad sandwiches, and suddenly it's not just
12:16
Speaker 2: a two dollars item. Suddenly you're selling actual product.
12:20
Speaker 3: And again I'm always looking for what job am I
12:23
Speaker 3: doing for people? What's the need I'm meeting? And we
12:26
Speaker 3: were really the first concept at O Bumppen in the
12:32
Speaker 3: late eighties that was serving white collar folk food that
12:36
Speaker 3: they wanted with quick service. And so Lou, my partner,
12:40
Speaker 3: was an extraordinary human being. We worked together till they
12:43
Speaker 3: passed away. Lou had tremendous real estate connections all over
12:49
Speaker 3: the East Coast and in the Midwest, and we were
12:53
Speaker 3: in every major building were here. We were in New
12:56
Speaker 3: York at Rockefell Center, World Financial Center, World Trade Center,
12:59
Speaker 3: but it rocks.
13:00
Speaker 2: You know.
13:00
Speaker 3: The folks would come down and this was the only
13:03
Speaker 3: place they could get really food that they respected and respected.
13:07
Speaker 2: Them quality food at a reasonable price. Reasonable price wasn't
13:10
Speaker 2: even the the the reason for existence. Our reason for
13:15
Speaker 2: existence was this was food people really wanted and they
13:18
Speaker 2: were willing to pay for it. They were willing to
13:19
Speaker 2: pay more than they could get. When the all terms
13:21
Speaker 2: were fast food or a lengthy lunch at at a
13:25
Speaker 2: sit down, there was nothing in between. And I'm thinking
13:27
Speaker 2: back to that eighties and nineties era. Your choice was
13:32
Speaker 2: McDonald's or Burger King, maybe pizza hot maybe.
13:37
Speaker 3: The pool grill, the four seasons, you know, I mean right,
13:41
Speaker 3: I mean it was you know back then it was
13:44
Speaker 3: fast food or fine dining, nothing in between, nothing between.
13:47
Speaker 2: And if you had this was a white space, wide open.
13:50
Speaker 2: Nobody else was there.
13:51
Speaker 3: Yeah, I would say that was really true, and I
13:54
Speaker 3: think this became very hot, this whole French bakery cafe
13:58
Speaker 3: category and walls all over the Andrew We had everybody
14:01
Speaker 3: come after us. Pepsi came after us. This was going
14:03
Speaker 3: to be the third leg of Pepsi food service. Sarah
14:06
Speaker 3: Lee came after us, a company called Vita Front which
14:09
Speaker 3: has now gone by the wayside. All of these companies
14:14
Speaker 3: were larger, had more capital, But the truth was we
14:18
Speaker 3: ended up running rings around them. We cared more, our
14:21
Speaker 3: folks were more dedicated, We worked harder, and by nineteen
14:25
Speaker 3: ninety one we had built this out to probably one
14:28
Speaker 3: hundred units. We had the highest average unit volumes in
14:33
Speaker 3: the category. It was very clear we were going to
14:36
Speaker 3: be the winner, and we went public with Morgan Stanley
14:39
Speaker 3: in an IPO in June of nineteen ninety one.
14:44
Speaker 2: So after the IPO, you eventually acquire Saint Louis Bread
14:48
Speaker 2: Company later to be renamed Panera Bread. Tell us how
14:54
Speaker 2: that transformed.
14:55
Speaker 3: The key is the learning. So the first thing I
14:58
Speaker 3: began to realize after the IPO, oh, was that the
15:01
Speaker 3: market pays for growth, and yet old Boone Penn's growth
15:05
Speaker 3: at that point was somewhat limited. Obone pen was at
15:08
Speaker 3: its best in these urban locations. It didn't work in
15:10
Speaker 3: the malls in LA and so we expanded into a
15:16
Speaker 3: number of different other businesses. We built an international business.
15:21
Speaker 3: If the old bone Pen was the best United States
15:22
Speaker 3: at I denity urban feeding, there were more locations outside America.
15:27
Speaker 3: We built a manufacturing business. We were manufacturing all of
15:31
Speaker 3: our product and we were selling it also in supermarkets
15:35
Speaker 3: product meaning food or ovens, bakers, bakecoods, not not kitchen
15:39
Speaker 3: quin bacoods. And then third we bought in nineteen ninety
15:46
Speaker 3: three a business called Saint Louis Bread Company from a
15:49
Speaker 3: wonderful human being named Ken Rosenthal and Saint Louis. It
15:53
Speaker 3: was nineteen stories at that point, and I thought this
15:55
Speaker 3: would be the gateway to the suburban marketplace. At the
15:58
Speaker 3: same time, I was trying to figure out what was
16:02
Speaker 3: going on for the consumer, and I was running around
16:06
Speaker 3: the West coast for about a year or year and
16:08
Speaker 3: a half with a guy who's now one of my partners,
16:11
Speaker 3: Dwight Juson, a guy named Scott Davis who was our
16:17
Speaker 3: concept officer, and we were trying to figure out what
16:21
Speaker 3: was the themes that were impacting consumers, and we began
16:24
Speaker 3: to develop a belief that the really important signal that
16:30
Speaker 3: needed to be read the deeper trend, was that consumers
16:34
Speaker 3: were rejecting the mass market and they wanted to feel
16:37
Speaker 3: special in a world which had increasingly become consolidated in oligopolies.
16:42
Speaker 3: Think Coffee and Miller and I think coffee and Folgers
16:47
Speaker 3: and Maxwell House beer and I was a Bush and Miller.
16:51
Speaker 3: Think soft drinks, Coke and Pepsi. Every one of those
16:54
Speaker 3: in the early nineties had a reaction. You can talk
16:58
Speaker 3: about Starbucks, you can talk about out what you see
17:02
Speaker 3: occur with specialty beer. A good friend of mine in Boston,
17:07
Speaker 3: Jim Cook, developed Adams. Yeah, of course, again a reaction
17:11
Speaker 3: of the mass market. We saw the same thing as
17:15
Speaker 3: Cokinpepsi lent itself, doud Waldo and Snapple and four hundred
17:20
Speaker 3: beverages in seven to eleven, and we began to say
17:24
Speaker 3: this was a deeper trend. Consumers rejecting that mass market
17:27
Speaker 3: and want of specialty goods built made the way their
17:30
Speaker 3: grandparents made it, without chemicals, without preservers, And we said
17:34
Speaker 3: the same thing was going to happen in the food industry,
17:37
Speaker 3: and in fact, the same thing was happening in the
17:39
Speaker 3: bakery industry. Baked bread had once been done in stone
17:43
Speaker 3: deck ovens that had become three lows for a ninety
17:45
Speaker 3: ninth sense, as supermarkets and consumers wanted that kind of
17:51
Speaker 3: quality that they hadn't had, and we're willing to pay
17:53
Speaker 3: for it. And we began to say there was a
17:56
Speaker 3: powerful opportunity in specialty food, specialty restaurants, much like there
18:03
Speaker 3: was this powerful opportunity in specialty coffee, specialty beer, specialty beverages.
18:09
Speaker 3: And that was the genesis for what became this ideology,
18:13
Speaker 3: this paradigm that's today called fast casual What it said,
18:17
Speaker 3: what it spoke to was real food, actually people that
18:22
Speaker 3: that engaged you, served in environments that excited you, and
18:28
Speaker 3: ultimately left your sense of self esteem, what you felt
18:31
Speaker 3: about yourself. It elevated it as opposed to depleting it
18:35
Speaker 3: as fast food did. The currencies of fast food were
18:38
Speaker 3: a lot of food for not a lot of money.
18:40
Speaker 3: The currencies of fast casualties let's do something better for
18:43
Speaker 3: a bit more money. And the result that category, that
18:47
Speaker 3: that that understanding is today three hundred billion dollar category.
18:51
Speaker 3: So let's look just to finish it up.
18:53
Speaker 2: We did it.
18:55
Speaker 3: Howard Schultz came along about that time. Steve El's a
18:59
Speaker 3: little bit later, but it was a paradigm that informed
19:02
Speaker 3: a whole new category. When people said you couldn't do this.
19:05
Speaker 3: Steve Els is with what Chipotle?
19:07
Speaker 2: Chipotle? All right, So let's you mentioned Howard Schultzon's Starbucks.
19:12
Speaker 2: I think of Starbucks as a coffee shop that serves food.
19:16
Speaker 2: I think is that food?
19:17
Speaker 3: No, I don't want to I'm sorry.
19:20
Speaker 2: Well, it's not exactly fresh. I know some of that
19:24
Speaker 2: stuff has to be frozen.
19:26
Speaker 3: No, all of it is.
19:27
Speaker 2: All of it is.
19:28
Speaker 3: Yeah. I mean these businesses are defined by their systems.
19:33
Speaker 1: Huh.
19:33
Speaker 3: So when we look at Starbucks and they tried many
19:36
Speaker 3: times to improve the quality of food, Howard got it.
19:40
Speaker 3: And in fact we actually I work with them probably
19:44
Speaker 3: two or three times trying to help them. Think about
19:46
Speaker 3: that question. We were friends.
19:49
Speaker 2: Why would you help your one of your largest competitors
19:52
Speaker 2: catch up to you on the food space.
19:54
Speaker 3: I have to ask that, Well, we were kind of
19:56
Speaker 3: frind of me. It went back for thirty five years
19:59
Speaker 3: when he had had you know, four or five stores
20:03
Speaker 3: in Seattle, and he had you know, we were looking
20:07
Speaker 3: to bring specialty coffee into O Bom Penn And ultimately
20:10
Speaker 3: we chose to go take a ownership position a company
20:15
Speaker 3: called Coffee Connection in Boston, which was the Starbucks of
20:18
Speaker 3: the East Coast. And and he wanted to buy star
20:21
Speaker 3: Coffee Connection, and we went through a process. We had
20:25
Speaker 3: to write a first refusal. We drove up the price,
20:28
Speaker 3: but we had a friendly robbery. And the truth of
20:30
Speaker 3: the matter is I profoundly respected Howard.
20:33
Speaker 2: I clearly built.
20:35
Speaker 3: I respected not just the size of the business, but
20:38
Speaker 3: he shared with us the same values about really doing
20:42
Speaker 3: something that delighted customers, that made a difference. He broke
20:46
Speaker 3: through on design and environment and and and what it
20:50
Speaker 3: meant and and so you know, we always had this
20:54
Speaker 3: relationship of both competition and mutual respect.
21:00
Speaker 2: That's really fascinating. I'm going to share a Starbucks story
21:03
Speaker 2: that I bet you haven't heard. I'm curious as to
21:05
Speaker 2: your thoughts. And I believe Howard Schultz was gone when
21:09
Speaker 2: this happened, because I can't imagine.
21:11
Speaker 3: Howard pulled out of Starbucks I think three or four times, right.
21:15
Speaker 2: So during the pandemic, I get two emails on the
21:19
Speaker 2: same day. The first one is from Delta. Hey, we
21:23
Speaker 2: know that you've worked hard to achieve your Platinum Medallion
21:26
Speaker 2: status and the pandemic is a disaster. Don't worry. We're
21:31
Speaker 2: going to roll your status over next year, when hopefully
21:35
Speaker 2: things will be back to normal and you'll be flying again.
21:38
Speaker 2: I'm like, gee, you know, Delta really has their act together.
21:42
Speaker 2: How thoughtful. The same day, I get an email from Starbucks. Hey,
21:47
Speaker 2: you've accumulated three hundred and seventeen Starbucks points because you're
21:51
Speaker 2: here all the time, but unfortunately, due to the pandemic,
21:55
Speaker 2: these will expire next month. And the third leg of
22:01
Speaker 2: the stool was a link a story in the Wall
22:03
Speaker 2: Street Journal that everybody who preloads their credit card onto
22:07
Speaker 2: the Starbucks apps, we're essentially giving Starbucks a three billion
22:11
Speaker 2: dollar interest free loan. Sure, And I was so morally
22:16
Speaker 2: indignant over the You're gonna take our.
22:20
Speaker 3: Crappy loyalty points loyalty points.
22:22
Speaker 2: Away like it cost you nothing, and you know what,
22:27
Speaker 2: you're bad players. Get refund my my fifty bucks that's
22:32
Speaker 2: on the app. I'm deleting the app. Thanks Starbucks for
22:36
Speaker 2: the past few years. I'm not boycotting you. But you're
22:40
Speaker 2: like something I'll put up with. And Starbucks to me
22:44
Speaker 2: today is like McDonald's. I worked at McDonald's for two
22:49
Speaker 2: days in high school. Have never gone back since. It's
22:53
Speaker 2: a horrific source of you know, junk food. And I
22:58
Speaker 2: don't know what they've done in the ensuing one hundred years,
23:02
Speaker 2: but I don't step foot into McDonald's and I rarely
23:06
Speaker 2: step foot in Starbucks, Obon and Panera on the other hand,
23:10
Speaker 2: And I'm not blowing smoke.
23:12
Speaker 3: Have you been to our new concept tat I have not.
23:15
Speaker 3: It's so it's forty five restaurants in Boston and d C.
23:19
Speaker 3: It's effect. We're opening this week in Ridgewood, New Jersey,
23:24
Speaker 3: will be opening in Garden City.
23:25
Speaker 2: And Garden City's not far from where I live here
23:28
Speaker 2: in Manhattan.
23:29
Speaker 3: It's it's it's it's third wave coffee, It's it's Levon
23:36
Speaker 3: infused bakeods Levon Israel, Turkey, really in North Africa, Lebanon.
23:42
Speaker 3: It's fascinating. And then we have chefs in every unit.
23:45
Speaker 3: We're doing real food again from the levant, but fascinating
23:49
Speaker 3: real food and doing really significant volumes. Back to your
23:52
Speaker 3: your story, you know, here's the point Starbucks has been
23:56
Speaker 3: through many waves. Brian Nichols friend, very good guy. He's
24:02
Speaker 3: doing the right stuff. He's doing what Howard did when
24:05
Speaker 3: that business was formed, which is focusing on a competitive
24:09
Speaker 3: advantage as doing a better job for the guest. If
24:13
Speaker 3: you don't make a difference for the guests, you have
24:16
Speaker 3: no right to be in business. And the reality is
24:18
Speaker 3: in my industry, my industry is the second oldest profession
24:23
Speaker 3: of the world, of the food industry. If you don't
24:26
Speaker 3: have a competitive advantage or reason, the customers are walking
24:29
Speaker 3: past your competitors to choose you. All you're gonna do
24:32
Speaker 3: is gonna get your market share. And when you get
24:34
Speaker 3: your market share, this is dirt farming. And that's ultimately
24:38
Speaker 3: what happened to Starbucks. And what Brian is trying to
24:42
Speaker 3: do is reassert its points of difference. It's specialness in
24:47
Speaker 3: a way that delights guests and gets them to come back.
24:50
Speaker 3: And when you tell your story of Starbucks, it speaks
24:53
Speaker 3: to how Starbucks was actually diminished by management. It's bad
24:59
Speaker 3: profit when you're abusing customers, and it's good profit when
25:03
Speaker 3: you're making a difference in the lives of your guests.
25:05
Speaker 2: You have such a fascinating background, and you've dealt with
25:09
Speaker 2: so many really interesting people in competitive space. We talked
25:16
Speaker 2: earlier about you being frenemies with Hoard Schultz and Starbucks.
25:21
Speaker 2: Take me through how you go from ipoing at oh
25:28
Speaker 2: BoNT pint to acquiring Panero.
25:30
Speaker 3: What was that experience like, Well, we didn't acquire Panera.
25:34
Speaker 2: We acquired a busin Saint Lewis Bread com.
25:36
Speaker 3: We acquired a company called Saint Louis Bread Company. We
25:39
Speaker 3: recognized the ideology and power of what would later be
25:43
Speaker 3: called fast casual, real food for real people. We ended
25:48
Speaker 3: up using Saint Louis Bread Company as a test laboratory
25:53
Speaker 3: to apply those principles. We changed everything. We took a
25:56
Speaker 3: unit doing a million dollars a year. We had a
25:59
Speaker 3: breakfast that took us to a million two fifty. We
26:02
Speaker 3: changed the environment in big ways that took us to
26:05
Speaker 3: a million seven to fifty, added a gathering place segment,
26:09
Speaker 3: and by nineteen ninety five I realized the name Saint
26:14
Speaker 3: Louis Bread Company was the wrong name to take national,
26:17
Speaker 3: and we changed the name to Panera Bread And the
26:20
Speaker 3: big and very important step was really in nineteen ninety eight.
26:26
Speaker 3: I at that point was running a public company with
26:28
Speaker 3: four divisions, Oh Bompenn, oh Bon Penn International, Oh Boon
26:32
Speaker 3: Pen Manufacturing, and this thing called Panera Bread. Panera was
26:36
Speaker 3: the third largest of them. I have to tell you,
26:39
Speaker 3: I would look at Panera and say, this brand has
26:42
Speaker 3: the potential to be nationally dominant. And it wasn't at
26:45
Speaker 3: that point, but it had It had consistent volumes, and
26:48
Speaker 3: I was I was struck by the degree to which
26:52
Speaker 3: the folks that were running it didn't really understand what
26:55
Speaker 3: growth was going to take and what was going to
26:57
Speaker 3: hit them. And I was deeply worried. And I was
27:00
Speaker 3: down to the Caribbean with a friend and I was lamenting.
27:04
Speaker 3: I was kind of bummed about it. And she looked
27:06
Speaker 3: at me and she said, Ron, what would you do
27:09
Speaker 3: if Panera owned Oh Boon Penn the company. The name
27:12
Speaker 3: of the company was Panera, and it owned all those
27:14
Speaker 3: other divisions. And I looked at her and I said,
27:18
Speaker 3: you know what, if I had any guts, I'd monetize
27:21
Speaker 3: every asset we have. Panera is the gem. It could
27:25
Speaker 3: be a nationally dominant company. I would take all the
27:28
Speaker 3: capital from those other businesses. I'd go down there myself
27:32
Speaker 3: and make it work. And I bring the best human
27:35
Speaker 3: capital we have. And I'm this kind of person. If
27:38
Speaker 3: I think about something long enough and I say I'm
27:40
Speaker 3: going to go do it, I go do it. It
27:41
Speaker 3: took me three months. I made the decision to go
27:44
Speaker 3: do it. I brought the idea on my board. They
27:45
Speaker 3: thought I was crazy. They all had hired on this
27:48
Speaker 3: company called Oh Boon Penn and not Panera. But eventually
27:52
Speaker 3: they gave me the room to do it. It was
27:54
Speaker 3: a bet your job kind of proposition. And over the
27:57
Speaker 3: next year and a half we sold every other business
28:00
Speaker 3: but Panera, and I ended up with Panera a bunch
28:06
Speaker 3: of cash, maybe one hundred and eighty stores, and I
28:09
Speaker 3: moved a new wife down to Saint Louis, Missouri, and
28:12
Speaker 3: off we went and running Panera.
28:14
Speaker 2: And ten X did up to two thousand stores. Which
28:17
Speaker 2: how long did that take?
28:18
Speaker 3: Well, I will tell you from that point forward the
28:21
Speaker 3: stock was up one hundredfold. Wow in the early that
28:26
Speaker 3: happened in I guess ninety nine, early two thousands. You know,
28:33
Speaker 3: you know, people would later would say to me, Ron,
28:35
Speaker 3: why didn't you tell me? And I'd look at him
28:37
Speaker 3: and go, yeah, I know, I look at him, say yo,
28:40
Speaker 3: I was telling you, nobody wanted to listen. And the
28:44
Speaker 3: truth of the matter is, for at least a year,
28:47
Speaker 3: you could have bought my stock at three bucks a share,
28:49
Speaker 3: which is what it was trading at at that point.
28:51
Speaker 3: You could have bought my stock at three bucks a
28:53
Speaker 3: share by the wheelbarrow load.
28:56
Speaker 2: And what did you have in cash at the time.
28:58
Speaker 2: A couple hundred million, so a buck or so and cash. Yeah,
29:02
Speaker 2: so you're risking two dollars.
29:04
Speaker 3: Yeah, you could have bought it, you know, split adjusted,
29:06
Speaker 3: but you could have bought it. That stock Ultimately three
29:09
Speaker 3: bucks a share then traded for three point fifteen when
29:12
Speaker 3: we sold the company seventeen years and that was seven
29:14
Speaker 3: billion plus yeah seven point eight. Wow, that's almost eight billion.
29:18
Speaker 2: And I'm not sure if this is true. According to perplexity,
29:22
Speaker 2: Panera is either Latin or Spanish for bread basket, Is
29:25
Speaker 2: that right?
29:26
Speaker 3: Yeah? It was actually an empty vessel where we could
29:28
Speaker 3: put a personality into. Okay, so we weren't looking for
29:32
Speaker 3: a name. You know, there's no Joey Panera. It's not
29:35
Speaker 3: my cousin right there. It was really a vehicle to
29:40
Speaker 3: produce an identity that was rooted in some of you
29:43
Speaker 3: who were around Panera, no mother Bread.
29:46
Speaker 2: So ninety nine everything gets sold off. You accumulate all
29:49
Speaker 2: this capital. At what point did you start to get
29:53
Speaker 2: the sense.
29:54
Speaker 3: Hey, this is going to work. I know, I actually
29:58
Speaker 3: knew back then from day No. You know, it's not
30:02
Speaker 3: that it can't fail. But I see something, I can
30:06
Speaker 3: feel it. And you know, my definition as an entrepreneur
30:10
Speaker 3: is I'm I'm a risk avoid I'm not a risk seeker.
30:14
Speaker 3: But to me, the greatest risk is blowing a powerful idea,
30:17
Speaker 3: is blowing a market niche that I can see and taste,
30:21
Speaker 3: and it's for me. It's beholding on me to fulfill that.
30:24
Speaker 3: And I can literally remember understanding what we had with
30:29
Speaker 3: Panera back then, and knowing what it could become, and
30:33
Speaker 3: knowing we had this obligation to help it fulfills its destiny.
30:37
Speaker 3: I could feel it.
30:39
Speaker 2: Huh, that's really fascinating. So twenty seventeen, you sell out
30:44
Speaker 2: to a private company.
30:46
Speaker 3: Well, whoa, whoa, whoa wait, wait, Barry there, we got
30:49
Speaker 3: a few years, so well get.
30:50
Speaker 2: About all right, So twenty years and then men, So
30:52
Speaker 2: how do we get from fifteen to twenty seventeen?
30:54
Speaker 3: Twenty years? Fifteen hundred restaurants and one hundred x in
30:59
Speaker 3: the stock price.
31:01
Speaker 2: So what was that tell us about those two decades?
31:03
Speaker 2: What was it like growing from you know, fifty stores
31:08
Speaker 2: to fifteen hundred plus.
31:11
Speaker 3: It was a lot of work and a lot of
31:13
Speaker 3: fun and wonderful people who shared it, who believed in
31:16
Speaker 3: it deeply, who cared about it. It was a focus
31:19
Speaker 3: on the guests. It was a focus on something we
31:23
Speaker 3: call concept essence, this brand's role in the world. And
31:29
Speaker 3: quite frankly, we really over those roughly twenty years, stayed
31:35
Speaker 3: highly disciplined. We were never about liquidity, We were never
31:40
Speaker 3: about trying to sell any sell the company. We were
31:43
Speaker 3: about running a great company for our guests, producing high
31:47
Speaker 3: compstore sales through good days, through the Great Recession, going
31:52
Speaker 3: through all those ups and downs, and we stayed true
31:54
Speaker 3: to that. We ended up having very strong compstore sales,
31:58
Speaker 3: very high rois, and we ended up, you know, building
32:02
Speaker 3: a massive organization.
32:03
Speaker 2: What was the biggest challenge during that ramp up? Because
32:08
Speaker 2: we have all seen companies either over expand or expand
32:12
Speaker 2: into the wrong food categories or the wrong geographies. Like,
32:17
Speaker 2: how challenging is that process? Knowing that, hey, either this
32:22
Speaker 2: is great or it's a disaster, there's almost nothing in
32:24
Speaker 2: the middle.
32:25
Speaker 3: Yeah, I know. It's really funny to me. Running a company,
32:30
Speaker 3: a small or a very large company is all about
32:33
Speaker 3: discipline and not getting ahead of your skis. I never
32:37
Speaker 3: wanted to be a company that had to go through layoffs.
32:39
Speaker 3: I never wanted to be a company ahead of closed stores.
32:43
Speaker 3: So I kept trying to say, how do we run
32:47
Speaker 3: this thing with discipline on what matters, that is satisfying
32:52
Speaker 3: the guests in a way none of our competitors could.
32:54
Speaker 3: How do we create differentiation, competitive advantages everything? How do
32:59
Speaker 3: we create an experience and other people can't do with food?
33:01
Speaker 3: Other people can't provide with a culture and an experience
33:07
Speaker 3: when you walk into the store that other people weren't offering.
33:10
Speaker 3: And it was that that focus on that that never
33:13
Speaker 3: broke in those twenty years. And I think anybody who
33:16
Speaker 3: worked for me knew that.
33:17
Speaker 2: Huh, that's really fascinating. So now, fifteen hundred stores seventeen
33:22
Speaker 2: years later.
33:24
Speaker 3: Maybe with seventeen hundred stories, but keep going.
33:26
Speaker 2: Okay, almost two thousand stores today, what led you just
33:32
Speaker 2: to decide, all right, these guys really want to throw
33:35
Speaker 2: a dumb amount of money at me.
33:37
Speaker 3: I'll take it, well, we have to we have to
33:38
Speaker 3: make one stop along the way.
33:40
Speaker 2: Okay.
33:40
Speaker 3: So I you know, as I told you, I have
33:42
Speaker 3: this other love politics and trying to fix the world.
33:45
Speaker 3: And I fundamentally believe, as in business, the ability to
33:50
Speaker 3: think long term is what was the key to up
33:52
Speaker 3: an Era and the way we approached it. I also
33:55
Speaker 3: think that in our civic society, being able to think
33:59
Speaker 3: long term had come together as a country as powerful.
34:03
Speaker 3: I would often think that Chinese have twenty year plans,
34:06
Speaker 3: and you know, we can't agree on a budget for
34:08
Speaker 3: twenty months, and today we can't agree on taris for
34:11
Speaker 3: twenty hours. But the truth in the matter is back
34:15
Speaker 3: in eighth nine, I felt this desire to take what
34:19
Speaker 3: I'd learned in running large organizations and apply it in
34:23
Speaker 3: civic society, and I had some discussions with the Obama administration.
34:28
Speaker 3: I couldn't step down to do that because of my
34:31
Speaker 3: commitment to Panera, and I made the decision I wanted
34:33
Speaker 3: to step down, jump off the high diving board and
34:36
Speaker 3: see what it felt like applying myself elsewhere. I made
34:41
Speaker 3: that decision. I stepped down as CEO, staate as executive chairman.
34:45
Speaker 3: I created something called Paneric Cares, which were these cafes,
34:50
Speaker 3: cafes have shared responsibility, no set prices. It was quite
34:53
Speaker 3: an interesting experiment in humanity. We opened five of them.
34:57
Speaker 3: I also went off and helped co form an organation
35:00
Speaker 3: called No Labels, which was about reducing again the hyper
35:03
Speaker 3: partisan I ever called No Labels, yet I was one
35:06
Speaker 3: of the folks that were really the founders of that.
35:10
Speaker 3: And I'm out as executive chair for about a year
35:13
Speaker 3: or two, and I was still doing acquisitions. I was
35:16
Speaker 3: still the largest shareholder and doing some consumer work. And
35:19
Speaker 3: I came back one weekend around twoy ten eleven and
35:23
Speaker 3: I sat down at a computer and I wrote a
35:25
Speaker 3: vision for how I would compete with Pinera. And that
35:28
Speaker 3: vision essentially called for digital access. None of that existed
35:31
Speaker 3: in twenty eleven. It called for loyalty. Very little of
35:35
Speaker 3: that was in this country. Tesco it formed it in
35:37
Speaker 3: the UK had come to Kroger. We called for loyalty.
35:41
Speaker 3: We called for omlilety meaning like system, the reward system. Yes,
35:45
Speaker 3: how do you find a way to build a deeper
35:48
Speaker 3: personal connection with guests. It called for clean food, free
35:53
Speaker 3: of all artificial chemicals, preservatives, and.
35:57
Speaker 2: The minimal process, yes, and no little additives of annie
36:01
Speaker 2: if any exactly.
36:02
Speaker 3: And then I'm the channel approach. And I brought this
36:05
Speaker 3: this memo into my very dear friend, gentleman. I love
36:09
Speaker 3: Bill Morton, who was our CEO. He'd been my CFO
36:13
Speaker 3: for two decades. And I shared it with Bill and
36:17
Speaker 3: he took a look at and said, would you go
36:18
Speaker 3: work on it? And I said, you know I would.
36:21
Speaker 3: And a year later, the executive chairman is working eighty me.
36:26
Speaker 3: I'm working eighty hours a week, having the time of
36:28
Speaker 3: my life building up a prototype for technology and digital
36:33
Speaker 3: access and clean food. And Bill comes to me and
36:37
Speaker 3: says he can't travel when I come back as CEO.
36:41
Speaker 3: We fought over for about a year. I didn't really
36:43
Speaker 3: want to come back and do what I had done
36:46
Speaker 3: as CEO, but he couldn't travel and it was required.
36:51
Speaker 3: So I came back a CEO. I put all that
36:53
Speaker 3: plan in place. It was horrific at paneroh yeah, and
36:58
Speaker 3: it did not work. I spent one hundred and fifteen million.
37:01
Speaker 3: It was that the transformation was huge. Okay, so well
37:05
Speaker 3: let me get there. I mean I had activists along
37:08
Speaker 3: the way. One of my partners in Act three today
37:10
Speaker 3: was the activist who attack me. I had a lot
37:13
Speaker 3: of fun with him. I could never tell anybody actually
37:15
Speaker 3: respected him. Name Noah Elbogin, okay, but I couldn't tell
37:19
Speaker 3: anybody that. But I actually grew to like him and
37:22
Speaker 3: today he works with me. But at any rate, So
37:25
Speaker 3: those years twenty fourteen, fifteen sixteen, anytime you go through transformation,
37:31
Speaker 3: anytime you change something, and this was probably the largest
37:34
Speaker 3: transformation in a large public restaurant company. It was difficult.
37:38
Speaker 3: I remember when we were driving technology. Were the first
37:41
Speaker 3: real restaurant technology in an integrated way. Again, I used
37:47
Speaker 3: to call technology the social security of Panera. It was
37:50
Speaker 3: only a matter of time till it was one hundred
37:52
Speaker 3: percent of our revenue, and we were committed to this
37:56
Speaker 3: and we did it. By twenty sixteen, our comps were
38:00
Speaker 3: pushing double digits again. Ibadah was up thirty five percent.
38:04
Speaker 3: The company was rocking. Starbucks made an approached us to
38:08
Speaker 3: buy us. That didn't. We go forward and in twenty
38:12
Speaker 3: seventeen the leadership of JB which was a European money manager,
38:20
Speaker 3: came calling and they had fallen in love. And frankly,
38:26
Speaker 3: my view of a business is I spent all of
38:27
Speaker 3: my time building it. But when somebody's in love, that
38:32
Speaker 3: always provides the opportunity to harvest.
38:34
Speaker 2: So Starbucks comes knocking. Were they offering a stock deal?
38:39
Speaker 2: Was it remotely close to the nearly eight billion that
38:42
Speaker 2: JB came up with.
38:44
Speaker 3: If you read my book, you read the whole story,
38:47
Speaker 3: But I think the Starbucks deal was around two forty
38:52
Speaker 3: a share. The JB deal was done at three fifteen,
38:56
Speaker 3: much more ass six months after the Starbucks discussion, and frankly,
39:01
Speaker 3: the Starbucks discussions didn't reach conclusion. It was at that
39:07
Speaker 3: point that Howard was making his own decisions about stepping
39:10
Speaker 3: down and replacing himself with Kevin Johnson and my senses,
39:16
Speaker 3: they did not want to take on an acquisition like
39:19
Speaker 3: Panera at that moment, so our stock price got ahead
39:22
Speaker 3: of itself. They couldn't do the deal. So the Starbucks
39:25
Speaker 3: deal didn't didn't go forward.
39:26
Speaker 2: But at the very least it's set a floor for
39:29
Speaker 2: future discussions with whomever.
39:31
Speaker 3: Well, it wasn't public, so we had we I mean
39:33
Speaker 3: to be honest with you, we had had this these
39:37
Speaker 3: discussions that two forty a share with Starbucks. It didn't
39:41
Speaker 3: go forward, and when we began with JB. And again
39:44
Speaker 3: you can read the book it. You know, I think
39:47
Speaker 3: it started in the high two hundreds. By the time
39:51
Speaker 3: we were done, they were paying three fifteen for it.
39:53
Speaker 1: Wow.
39:53
Speaker 2: And the book is know what matters, lessons from a
39:57
Speaker 2: lifetime of transformations. All right, So let's talk about Act three,
40:01
Speaker 2: which I don't mean that in the Shakespearean sense, but
40:05
Speaker 2: you launched Act three Holdings to invest in new brands.
40:09
Speaker 2: Tell us about the motivations for that.
40:11
Speaker 3: Well, after I I had sold Paneria, I didn't know
40:14
Speaker 3: where I was headed. There was a discussion with JB
40:18
Speaker 3: about joining them as a partner.
40:21
Speaker 2: And and this is the big European investment shop they
40:24
Speaker 2: took uh took over.
40:26
Speaker 3: Yeah, but I it wasn't for me. And and I
40:29
Speaker 3: was doing a bunch of speaking about the pervasive short
40:31
Speaker 3: termism in our capital markets and and how I thought
40:35
Speaker 3: it had been it had an untoward impact frankly on
40:39
Speaker 3: innovation and GDP growth. And and one of my now
40:44
Speaker 3: partners and who've been my chief concert officer of Panera,
40:48
Speaker 3: was a gentleman named Keith Pascal, And he said, why
40:51
Speaker 3: why don't you take some of your money? You made
40:52
Speaker 3: all this money, Why don't you take some of it,
40:54
Speaker 3: and and and and and invest it in the long term, uh,
41:00
Speaker 3: with a long term focus. And I thought about it,
41:03
Speaker 3: and that I had been out of Panera about two
41:05
Speaker 3: months at this point, and I actually had an idea.
41:09
Speaker 3: And the idea I had it was a company. I
41:15
Speaker 3: basically had had deep belief that the Mediterranean category had
41:20
Speaker 3: the potential to be the next major culinary category.
41:23
Speaker 2: Oh that's really interesting.
41:25
Speaker 3: Oh it's obvious. I mean it was the number one
41:26
Speaker 3: diet in America, Mediterranean. Every time I went to the doctor,
41:29
Speaker 3: they were doing a commercial for Mediterranean. It's bold flavors,
41:33
Speaker 3: but it's flavors that feel safe. It's also craveable wellness.
41:37
Speaker 3: It's healthy, it's good for you, and it tastes good.
41:41
Speaker 3: And it was very clear this category had power. And
41:44
Speaker 3: I had made an investment in a very small company
41:48
Speaker 3: in the DVM DMV, which was down in DC Calcava
41:56
Speaker 3: when it was two restaurants. I knew them, and I
41:59
Speaker 3: had a restaurant company. As I had left, Panera approached
42:03
Speaker 3: me called Zoways, asked me if I would join their board,
42:06
Speaker 3: that'd give me warrants of, you know, in ten percent
42:08
Speaker 3: of the company or something to see if I could
42:11
Speaker 3: help them compete. And I looked at them and I
42:16
Speaker 3: thought to myself, wow, And at the same time Cave
42:19
Speaker 3: the guys at COVID asked me if I joined their board.
42:21
Speaker 3: I thought to myself, you know, this is an industry,
42:25
Speaker 3: the food industry, in which in every major category winner
42:31
Speaker 3: takes all. You know, you can talk McDonald's and Burking,
42:35
Speaker 3: Panera and Corner Bakery, you can talk Chipotle and Quadoba.
42:39
Speaker 3: And I said, somebody is going to win a Mediterranean
42:42
Speaker 3: and there is a powerful potential to take Zoe's. To
42:46
Speaker 3: buy this company, Zoe's, which was about two and fifty restaurants,
42:51
Speaker 3: take the culinary skills of Kava, merge them together, and
42:55
Speaker 3: end up with the you know, clearly ten x dominant
43:00
Speaker 3: in the Mediterranean category. And I thought I might do
43:02
Speaker 3: this well. COVID asked me to join their board. I
43:06
Speaker 3: went to their CEO, Brett Schulman, with this idea and
43:11
Speaker 3: I said, and he said, before you you know, you
43:12
Speaker 3: better talk to my board about it. I went to
43:14
Speaker 3: a meeting with the board. I pitched them on the
43:16
Speaker 3: idea of buying a company five times larger and then
43:20
Speaker 3: merging with them. Ultimately, they asked they wanted to do
43:23
Speaker 3: the acquisition. I agreed to finance the dealer at least
43:27
Speaker 3: half of the capital they needed, about one hundred and
43:30
Speaker 3: fifty million I put into it, and I became, you know,
43:34
Speaker 3: one of the very largest shareholders, and I became chairman
43:37
Speaker 3: of the company.
43:38
Speaker 2: And how large is COVID today.
43:40
Speaker 3: Well, it went public about eighteen months ago. It stock
43:48
Speaker 3: was up as high as seven x since the IPO,
43:52
Speaker 3: it's now up five x. It's a it was, it's
43:55
Speaker 3: a ten billion dollar market cap company. It treated as
43:59
Speaker 3: highest sixteen billion. It's perceived by the market, frankly as
44:05
Speaker 3: has the potential to be the next Chipotle, the next Panera.
44:09
Speaker 3: It's a powerful brand with an amazing management team led
44:13
Speaker 3: by Brett Schulman. And I'm pleased to say we've been
44:15
Speaker 3: able to help them along the way, know what they
44:18
Speaker 3: needed to do to become the kind of great company
44:21
Speaker 3: it is today.
44:22
Speaker 2: Let me push back a little bit on Winner Take All,
44:25
Speaker 2: even though I'm a big believer in that as a reality.
44:30
Speaker 2: But McDonald seems to have gotten kind of old and stale.
44:35
Speaker 2: And along comes Shakeshack and a dozen other five guys
44:40
Speaker 2: and down the round and it suddenly seems like in
44:43
Speaker 2: the burger space as an example, there's increasing competition and
44:49
Speaker 2: it's no longer Mickey dies as the only winner. Is
44:55
Speaker 2: that just what happens eventually or what's your perspective.
44:58
Speaker 3: On Well, first, let me let me share with you something.
45:00
Speaker 3: Danny Meyer, who is the brilliant a chairman, very dear friend,
45:04
Speaker 3: chairman really of Shakeshack. He's a dear friend. But my
45:08
Speaker 3: son actually works at Shakeshack in operations, and so I
45:13
Speaker 3: have great affinity for those guys. But here's the truth.
45:17
Speaker 3: McDonald's is worth what seventy five billion, one hundred billion.
45:21
Speaker 3: I mean, it's it's got a huge market cap. There
45:24
Speaker 3: isn't another hamburger business that's got a market cap anywhere
45:29
Speaker 3: near that, and that's what we're talking about.
45:31
Speaker 2: But they got a sixty five year head start, seventy
45:34
Speaker 2: five year head start over.
45:36
Speaker 3: Yeah, that's what I mean. Winner takes all. When you
45:38
Speaker 3: have a position of dominance in a category, you win.
45:41
Speaker 3: Now you can be niched, and niches come along and
45:44
Speaker 3: they redefine themselves and they can in themselves become a category.
45:48
Speaker 3: But ultimately, this is an industry in which scale matters.
45:53
Speaker 3: It matters as you spread the overhead, and it's a
45:55
Speaker 3: winner take all industry.
45:57
Speaker 2: I'm looking at a lot of the winners of the past,
46:01
Speaker 2: and I know they are all different industries, whether it's
46:04
Speaker 2: general electric, or seers.
46:06
Speaker 3: Or or retail. You're a great investor and a smart man,
46:12
Speaker 3: but you're confusing two things. One dominance of a category
46:17
Speaker 3: and then what happens to businesses as they lose their
46:21
Speaker 3: competitive event exactly, So, let me share with you a
46:24
Speaker 3: principle that was very clear to me. When businesses form,
46:28
Speaker 3: it requires a powerful, powerful effort by somebody to discover
46:33
Speaker 3: a better alternative. Because you have no scale, You've got
46:36
Speaker 3: to get customers to walk across the street, you have
46:39
Speaker 3: no purchasing, no ability to access to capital. When a
46:43
Speaker 3: business starts to get some success because it's actually worked,
46:48
Speaker 3: capital comes in. And as capital comes in, people began
46:52
Speaker 3: to say, you know, we know you've discovered something better,
46:55
Speaker 3: but we need to figure out how to be more efficient,
46:58
Speaker 3: how to run it better. And what old happens is
47:00
Speaker 3: you bring in what we would call discover delivery people.
47:05
Speaker 3: Delivery people are about improving the margins, about purchasing, about
47:08
Speaker 3: financial planning, and often in companies and particularly in my
47:12
Speaker 3: industry as they approach a billion dollars, the discovery people
47:16
Speaker 3: and the delivery people, they ultimately do well together. At
47:21
Speaker 3: the beginning, the margins get better, but ultimately there's conflict
47:25
Speaker 3: in friction. Sure, the language of discovery is the language
47:28
Speaker 3: of could you imagine, let's try this, what would happen
47:31
Speaker 3: if it's poetry. The language of delivery is financial planning.
47:35
Speaker 3: Prove it to me. I want to see the numbers.
47:38
Speaker 3: I don't believe it, logistics numbers. It's got to be proven.
47:43
Speaker 3: And what ends up happening is the delivery capabilities of
47:47
Speaker 3: most companies drive out the discovery capabilities, and companies that
47:51
Speaker 3: were once very effective they become more and more reliant
47:55
Speaker 3: on efficiency. And what happens typically in many companies is
48:00
Speaker 3: they get very good, very efficient at doing what the
48:04
Speaker 3: marketplace wanted from them five years ago, ten years ago,
48:08
Speaker 3: twenty years ago, and not very effective at figuring out
48:12
Speaker 3: what the consumer of tomorrow wants.
48:14
Speaker 2: There's a wonderful pull Gram quote that goes all experts
48:19
Speaker 2: are experts in the way the world used to be exactly.
48:23
Speaker 3: And so my point to you is, once we define
48:28
Speaker 3: the categories dominance matters, somebody will own. The reason the
48:33
Speaker 3: market is paying upwards of has been paying upwards of
48:37
Speaker 3: fifteen billion dollars of valuation on Kava. This thing is
48:41
Speaker 3: four hundred restaurants. I mean, we've had valuations of thirty
48:45
Speaker 3: to forty million dollars a restaurant. What is the market
48:48
Speaker 3: paying for. They're paying for the future. They're paying for
48:50
Speaker 3: an expectation that this business will will will take form
48:54
Speaker 3: as one of the great companies in this country. The
48:57
Speaker 3: question that's dominant of a category now. The challenge to
49:02
Speaker 3: the team at Kava is staying on that edge, staying
49:06
Speaker 3: on that wave, is continuing to discover, which is why
49:09
Speaker 3: the role of CEO in so many companies in my view,
49:14
Speaker 3: is to be the innovator in chief and lead that discovery,
49:17
Speaker 3: because if the CEO isn't doing it isn't going to happen. Huh.
49:20
Speaker 2: That's really interesting. So I want to talk about some
49:23
Speaker 2: of the companies that AC three has invested in, but
49:26
Speaker 2: let's get a little broader view. Tell us about ACT three,
49:30
Speaker 2: What are you doing? What's the philosophy here?
49:32
Speaker 3: So after we we we helped form the modern Kava
49:36
Speaker 3: and invested in that. I had also had had a
49:40
Speaker 3: company I'd bought four Panera called TAT, which a large
49:44
Speaker 3: stake in it with its founder a zerid Or when
49:48
Speaker 3: I when I left Panera, I took with me Panera's
49:51
Speaker 3: interest in TAT and we decided to take our own money.
49:58
Speaker 3: I took, you know, roughly a quarter of a billion
50:02
Speaker 3: dollars of my own money and number of people who
50:07
Speaker 3: decided to join me. They co invested, and we decided
50:10
Speaker 3: to put that money to work investing in growth companies
50:16
Speaker 3: with a couple of very simple principles. The number one
50:19
Speaker 3: principle was founder friendly capital. We think that in growth concepts,
50:26
Speaker 3: the last thing they need to do is do fundraising.
50:28
Speaker 3: Is if it's an annual life cycle event. You know, literally,
50:32
Speaker 3: the last thing that needs to happen is money raising
50:36
Speaker 3: needs to an annual event. So we come along and
50:39
Speaker 3: we make an investment, hopefully at a reasonable valuation, but
50:43
Speaker 3: we then take a write a first refusal with a
50:45
Speaker 3: pre agreed to valuation multiple at all follow on rounds,
50:50
Speaker 3: and we've never turned that down. So all of our
50:53
Speaker 3: investments know that they essentially never have to raise money
50:56
Speaker 3: again to worry about it. So all the money is there,
50:59
Speaker 3: it's already negotiated It also allows us to consolidate up
51:03
Speaker 3: our position. That's principal one. It's common stock and no
51:07
Speaker 3: dilute of no pref terms. Number two we practice will
51:11
Speaker 3: be called Sherpa management. So almost every private equity firm
51:14
Speaker 3: that makes investments, their people are financial. They're in the
51:17
Speaker 3: boardroom often asking what the next liquidity event is. Of
51:21
Speaker 3: our twenty five people, only one of them is financially driven.
51:25
Speaker 3: As I said, Noah Elbogan, our former activist. Everybody else
51:29
Speaker 3: our senior C suite executives. I've got a guy who's
51:32
Speaker 3: opened five thousand retail stores. I've got another guy who's
51:36
Speaker 3: my partner, Dwight Juson, who was with us for twenty
51:41
Speaker 3: years and really invented fast casual. My joke with him
51:45
Speaker 3: is from his brain to my lips. I make the speech,
51:48
Speaker 3: he's the one who does the thinking. We have another partner,
51:51
Speaker 3: Chuck Chapman, who's extraordinary. Was with Darden, was with Berkshire,
51:56
Speaker 3: Hathaway and Dairy Queen, was with Bruger's, Isn't it was
52:00
Speaker 3: on my board, was the CEO at Panera. He's great
52:04
Speaker 3: at scaling and building these businesses. I've got a major
52:08
Speaker 3: technology group that has the capability of knowing what's going
52:14
Speaker 3: to work in three years at any rate. When we're
52:17
Speaker 3: sitting in a boardroom, we're there as a sherpa, and
52:21
Speaker 3: I have a simple expression. Building a nationally dominant business
52:26
Speaker 3: is tougher than climbing Mount Everest. Very few people ever
52:28
Speaker 3: do it. Nobody goes up Mount Everest without a sharpa.
52:32
Speaker 3: Why don't you understand that you will be well served
52:35
Speaker 3: if you have a shurpa as you build a nationally
52:37
Speaker 3: dominant company. We're in that boardroom, we're talking to management
52:41
Speaker 3: about how to make sure they don't fall off the
52:43
Speaker 3: side of the mountain, how they don't make sure they
52:45
Speaker 3: don't trip up and fall. And frankly, we've been very
52:49
Speaker 3: successful in helping build these dominant companies in these core categories.
52:55
Speaker 3: And then the last Barry, the last principle is I
52:59
Speaker 3: told you when we began and talking, we believe deeply
53:01
Speaker 3: in competitive advantage. We only invest where we have competitive advantage.
53:06
Speaker 3: What AC three is really good at is we have
53:09
Speaker 3: one hundreds of years of pattern recognition in this industry.
53:13
Speaker 3: We know what categories are going to have a wind
53:17
Speaker 3: at their back, and we know how to help these
53:19
Speaker 3: companies build the dominant position in that category. And frankly,
53:23
Speaker 3: we now are involved with seven companies. We've yet to
53:27
Speaker 3: have anything other than a huge success.
53:30
Speaker 2: Huh. That's really fascinating. Let's talk quickly about two of
53:34
Speaker 2: the companies that you've invested in besides Cava. One is
53:38
Speaker 2: Life Alive and the other is Level ninety nine.
53:41
Speaker 3: Tell us about those. Sure, so, Life Alive is positive eating.
53:46
Speaker 3: Look at forty percent of America is trying to eat better.
53:50
Speaker 3: The question is where do you go to do that?
53:52
Speaker 3: How do you do it? This is mostly vegetables. It's
53:55
Speaker 3: really good. We've owned it for seven or eight years.
53:59
Speaker 3: We've nursed, they cared for watch the grow very high volume. Today,
54:04
Speaker 3: somebody is going to own the plan forward category. We
54:07
Speaker 3: hope that this is the concept that's the dominant player.
54:10
Speaker 2: In that And Level ninety nine.
54:11
Speaker 3: Elevin nine is another interesting one. This is immersive social entertainment.
54:18
Speaker 3: It's forty thousand square feet of challenges. It was created.
54:22
Speaker 3: It's forty thousand square feet of challenges with a farm,
54:25
Speaker 3: the table, restaurant, and a brewery in the middle of it.
54:29
Speaker 3: It was created by a gentleman named Matt de Plessi.
54:31
Speaker 3: We met Matt before he opened one of them. He's
54:34
Speaker 3: out of out of Mit Harvard Business School and spent
54:37
Speaker 3: twenty years working with Disney and their folks. Very experienced
54:42
Speaker 3: in entertainment. He had the vision for this business. We
54:45
Speaker 3: put up the capitol. We're partners in it with him,
54:49
Speaker 3: and it is stunning to go to one of these.
54:54
Speaker 3: Where in Natick, Massachusetts. We're in Providence, Rhode Island. We're
54:57
Speaker 3: opening in Disney World. We're opening in Tyson's Corner, and
55:01
Speaker 3: this summer you'll see us in locations across America. This
55:07
Speaker 3: is a kind of busy. We'll have three thousand people
55:10
Speaker 3: on a Saturday night. It's an unbelievable experience and with
55:14
Speaker 3: extraordinary margins, it may be one of the best businesses
55:17
Speaker 3: I've ever been involved in.
55:18
Speaker 2: Wow, that's amazing. All Right, I only have you for
55:20
Speaker 2: a few moments, so let's jump to our speed round.
55:24
Speaker 2: Five quick questions thirty seconds each, starting with what's keeping
55:28
Speaker 2: you entertain these days? What are you streaming or watching
55:32
Speaker 2: or listening to?
55:32
Speaker 3: Well, what's keeping me entertained is my kids. Yeah, I
55:35
Speaker 3: have a twenty six year old and a twenty one
55:37
Speaker 3: year old. But what I'm watching? The thing I just
55:39
Speaker 3: finished was watching White Lotus with my son. I loved it.
55:43
Speaker 3: I mean, we have a house on an island called
55:46
Speaker 3: Jumbie Bay off of Antigua, and it reminds us of
55:50
Speaker 3: where we live and just what really goes on between
55:53
Speaker 3: people is always the most fascinating to me. I love people.
55:55
Speaker 2: Tell us about your mentors, who helped shape your career?
56:00
Speaker 3: If anybody helped shape me, but I would say lu Caine,
56:03
Speaker 3: who was twenty five years my senior and my partner
56:05
Speaker 3: in many years, taught me what it meant to be
56:08
Speaker 3: a stand up guy. I love this man. He was
56:12
Speaker 3: a huge influence. I also say my dad, who was
56:16
Speaker 3: a CPA, but again, knew how to deal with people,
56:20
Speaker 3: talk to people, care about people, and I respected him
56:24
Speaker 3: as a business person.
56:25
Speaker 2: What about books? What are some of your favorites?
56:27
Speaker 3: What are you reading right now? Oh goodness. The last
56:31
Speaker 3: night I was reading a book on Australia. I'm going
56:33
Speaker 3: to Australia with my daughter in two weeks, so I
56:37
Speaker 3: skim read that. But I ten, you know, I just
56:43
Speaker 3: reread Daniel Caineman passed away. I think I'm pronouncing his
56:48
Speaker 3: name right, but he wrote fast and flow.
56:52
Speaker 2: Slow, fast and slow economy.
56:54
Speaker 3: I had read it years ago. I just reread it again.
56:57
Speaker 3: I love it. It's behavioral economics, behavioral findance. It's about
57:00
Speaker 3: how people work, and to me, my life probably if
57:04
Speaker 3: there's one thing that that's a central organizing principle is
57:08
Speaker 3: trying to figure out what makes people tick.
57:10
Speaker 2: H really interesting. Our final two questions what sort of
57:14
Speaker 2: advice would you give to a recent college grad interested
57:18
Speaker 2: in a career in food service or franchising.
57:22
Speaker 3: I'd say, I'd say, get out and understand what it
57:26
Speaker 3: is to be an operator. Understand what it is to
57:29
Speaker 3: run a business. The action isn't in the office, it's
57:31
Speaker 3: not in the support center. The actions in the field,
57:34
Speaker 3: it's in the stores. And most importantly, my advice to
57:37
Speaker 3: you is figure out not the right career path, but
57:41
Speaker 3: figure out what you care about, what you can do well,
57:44
Speaker 3: and then go do it.
57:46
Speaker 2: And our final question, what do you know about the
57:48
Speaker 2: world of building a restaurant? For lack of a better word,
57:54
Speaker 2: empire today that might have been useful back in the
57:58
Speaker 2: late eighties.
57:59
Speaker 3: Trust yourself, really, you know, I think some of you know.
58:02
Speaker 3: Guys like me, I don't know. I always you know.
58:06
Speaker 3: Your second guest, you wonder you listen to every advisor,
58:09
Speaker 3: and one of the things you gain with a little
58:11
Speaker 3: more age is a perspective that I actually knew what
58:16
Speaker 3: I was doing, staying focused on that customer, staying focused
58:19
Speaker 3: on on the on the end of delivering a better
58:23
Speaker 3: guest experience, and understanding the byproduct would be financial success.
58:27
Speaker 3: It wasn't the end.
58:29
Speaker 2: Thanks Ron for being so generous with your time. We
58:32
Speaker 2: have been speaking with Ron Shake. He is the former
58:35
Speaker 2: CEO and chairman of Panera, Bread and Obo Pah and
58:39
Speaker 2: all those other companies. If you enjoy this conversation, check
58:44
Speaker 2: out any of the five hundred and fifty we've done
58:47
Speaker 2: over the past eleven years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
58:54
Speaker 2: or wherever you find your favorite podcasts. Be sure to
58:58
Speaker 2: check out my new best selling book, How Not to
59:02
Speaker 2: Invest The Ideas, numbers, and behaviors that destroy wealth and
59:08
Speaker 2: how to avoid them How Not to Invest wherever you
59:11
Speaker 2: find your favorite books. I would be remiss if I
59:15
Speaker 2: did not thank the Cracked team that helps put these
59:17
Speaker 2: conversations together each week. John Wasserman is my audio engineer.
59:22
Speaker 2: Jean Russo is my researcher. Anna Luke is my producer
59:26
Speaker 2: Sage Bauman is the head of podcasts here at Bloomberg.
59:30
Speaker 2: I'm Barry Retoltz. You've been listening to Masters in Business
59:35
Speaker 2: on Bloomberg Radio.