May 22, 2025 • 59 mins
Barry speaks with Ron Shaich, co-founder of Au Bon Pain and founder and former chairman and CEO of Panera Bread. A key part of building that brand, today Shaich is a lead investor in Cava, Tatte, Life Alive and Level99, continuing a long and extensive career in the restaurant and fast casual business. He’s credited with defining the fast causal segment. Shaich makes his investments through Act III Holdings, a more than $1 billion evergreen investment vehicle. Shaich has twice been recognized as an Ernst & Young Entrepreneur of the Year, selected as the 2018 Restaurant Leader of the Year and was presented the prestigious Nation’s Restaurant News Pioneer Award as one of the most significant contributors in the history of the restaurant business.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Business with Barry Ritholt on Bloomberg Radio.
Speaker 2 (00:16):
This week on the podcast What Can I Say? Ron
Shake is a legend in the fast casual dining space.
He began with a single restaurant, a single cookie store,
and eventually parlayed that into a series of acquisitions, mergers, expansions,
ultimately leading to the Panarabread concept, which now has two
(00:41):
thousand locations and does about six and a half billion dollars.
He sold the company in twenty seventeen or so for
about seven and a half billion dollars. He now runs
Act three, which is a fascinating sort of venture fon.
One of their big firms is Kava Fast Men are
(01:03):
written Cuisine. What can I tell you? The guy is
a brilliant operator, one of the best performing publicly traded
CEOs in history, at least in the food and consumer
services sector. He knows everybody, from the head of Starbucks
to Sam Adams to Shake Shack. All those people travel
(01:26):
in the same circles. He has carved out his own
unique identity in space. And I just thought this conversation
was fascinating, And I think you will also so with
no further ado, my discussion with the former chairman and
CEO of Ombalpint and Panera Bread, Ron Shake, Ron Shake,
(01:47):
Welcome to Bloomberg.
Speaker 3 (01:49):
Thank you Berry. Good.
Speaker 2 (01:50):
So those numbers are astonishing, and I also recall reading
Panera was the best performing restaurant stock in the last decade,
you were CEO, second best consumer stock on the S
and P.
Speaker 3 (02:04):
Are those data points right? Yes, But to be clear,
I sold Panera in twenty seventeen and have not had
anything to do with it since then. But I am
today a lead investor and the chairman at kVA helped
take that thing public.
Speaker 2 (02:20):
We're going to talk about Cava. We're going to talk
about know what matters. The book you wrote, lessons from
a Lifetime of Transformation.
Speaker 3 (02:27):
But let me.
Speaker 2 (02:28):
Roll this all the way back, sure to your education.
Bachelors from Clark in nineteen seventy six, NBA from Harvard
in seventy eight.
Speaker 3 (02:37):
Don't hold that against me.
Speaker 2 (02:38):
What was the career plan? By the way, you are
not the first Harvard MBA I've had in the studio.
Speaker 3 (02:45):
I guess I would say to you this, I never
really had a career plan. I had a drive to
make a difference.
Speaker 2 (02:52):
Huh.
Speaker 3 (02:52):
And the challenge for me was whether that was going
to take form as politics, which was a love of mine,
or business. And I found over the years that that
when I was doing business, I brought a strategy for
political context to it. When I was doing politics or
political campaign management, it was a business. Put another way,
(03:13):
a business is an election that never ends. A political
campaign is a business that has one judgment day, the
election day.
Speaker 2 (03:23):
Huh. That's fascinating. So there was a quote from you,
maybe this was from the book you go to business school.
You didn't know what an investment banker was.
Speaker 3 (03:33):
I didn't know, you know, I actually never set out
to do business. I had been the treasurer of the
student council at Clark and I was tossed out with
a couple of friends from a local convenience store. They'd
suggested we were shoplifting. We weren't, but it was just
a heavy security presence. And I came back to campus
and I said, you know what, why are we giving
(03:53):
these guys our money? Why don't we create our own
student run store. And I was able to text, yeah,
I taxed the student body. They agreed to it, and
there was nobody else there to essentially build the store.
I built it. There was nobody to run it. I
ran it. And as a kid who really thought he
(04:14):
was going to go to law school like you, Barry,
and had never you know, I couldn't dance, I couldn't sing.
Speaker 2 (04:20):
I just come outside shot.
Speaker 3 (04:22):
My outside shot is better than how I dance, you know.
But I have to tell you, yeah, I have to
tell you that I had more fun. It was the
most creative endeavor I had ever been, involving a live
performance art. And I love food, I love retail, I
love running the place. I loved the people, and it
became sort of a way I lived my life.
Speaker 2 (04:43):
That's really fascinating. So that tease up what becomes at
least the first part of your career. Tell us about
the work you did at a cookie company.
Speaker 3 (04:53):
Oh, I started a cookie company. So I got out
of business school. I took what I call the third
year of the NBA. I went to learn. I went
to work for a company called Coal National and help
run a part of their company called the original Cookie Company.
I remember that, do you in the malls? Yeah?
Speaker 2 (05:12):
Right, that's right.
Speaker 1 (05:13):
Yeah.
Speaker 3 (05:13):
I was a district manager. I was running stores. I
came back dan Quayle. I remember I was in Indiana
and there was a dan Quayle for the US sent
a billboard up and I came back and wanted to
do political campaigns, and I couldn't get a job, and
I decided I was going to try to open my
own cookie store. And and at that point, all the
(05:37):
cookie stores were in malls. I said, let's open it
where there were lots of people. In Boston. There's a
place called Park Street Station. It's the entrance way to
the downtown and the financial district. I thought wanted to
open a cookie store there, And in fact I ultimately
found the job in political campaign consulting, but I was
(05:59):
while I was down in I was offered a location
near Park Street Station. I thought I'd come back one
day a week. I ended up creating this cookie store
that was a two day a week, three day a
week endeavor. I never went back to d C to
run campaigns. And that cookie store later was merged with
Obom Penn and that company which we created in nineteen
(06:23):
eighty one was the company I sold for seven point
eight billion literally in twenty seventeen.
Speaker 2 (06:32):
So let's go back to that acquisition again. And I
don't remember if I read this in the book or
somewhere else. Nobody buys cookies before noon.
Speaker 3 (06:42):
This is a challenge, yes.
Speaker 2 (06:44):
But croissant and baked breads and other goods like that,
that's perfect breakfast. Fair was that the obvious. Let's combine
these two. We'll cover the whole day as long as
we're paying rent for twenty four hours.
Speaker 3 (06:55):
Yeah, I mean, I'm running this cookie store for about
six months, having the time my life. But as as
you said, nobody was buying cookies before twelve noon. I
had about fifty thousand people a day walking by me.
So I said, what can I put in here that
could represent a product that would appeal to people in
the morning. And I decided to become a licensee of
(07:15):
a French bakery. And there was a number that were
actually in that business. I hooked up with a group
called O Boon Pen and they had at that point
three bakeries. They had at one point opened I think
thirteen of them, close ten of them. I didn't fully
understand they were on the edge of bankruptcy, but I
(07:37):
did a deal with them. I became their licensee for
this one square block.
Speaker 2 (07:42):
So a little background about that. The predecessor of one
of the companies, and I don't remember if this was
a bone pan something else was Paviliar, a French manufacturer
of Pavie Pavier.
Speaker 3 (07:54):
Yeah, we got to work on your French bart.
Speaker 2 (07:56):
Well I was youkub but not very well if I'm
going to parassel bonup.
Speaker 3 (08:01):
But uh probably vo front Si.
Speaker 2 (08:05):
So they were setting up bakeries in order to sell
their ovens. It sounds like you said, hey, you forget
the ovens, let's sell the bakeots.
Speaker 3 (08:14):
Well. Actually, actually Pavier founded open a group bought the company.
It was led by the man who became my partner
of over two decades, a gentleman named Lucane. Lucane and
his partners bought the O Boon pen from Pavier, and
(08:35):
to be clear, they they they essentially thought they could
grow this across North America, and they were sort of
delusions of grandeur.
Speaker 2 (08:46):
They were right, they just said the wrong operator they had.
Speaker 3 (08:49):
They had the wrong operator, They had probably the wrong concept,
and that's what led them to borrowing a great deal
of money against their own person of real estate, as
I said, opening thirteen units of which by the time
I came along, they had closed ten.
Speaker 2 (09:04):
Of them, So you licensed the spot. How does that
lead to eventually purchasing Obonpont.
Speaker 3 (09:11):
Well, I'm I'm their licensee for about six months, and
I begin to become friends with their CEO, a gentleman
named lu Kane, who had essentially was running the company,
and it was very clear to me the trouble they
were in, and I began to say, this was a
powerful opportunity to apply what I knew about running food
businesses and actually create the kind of company I wanted
(09:32):
to work for. I wanted to build, and I went
to Lieu with an idea, and the idea was we
would merge our two companies, my one cookie store, his
three French bakeries, and their three million dollars in debt.
I hit the cash cow, they hit the three stores,
and I really thought I could operate my way out
(09:53):
of the business. Then what ended up happening is I
received sixty percent of the company, Lou and his partners
kept forty of the new company, and then we went
marching off that company. O Bumpen CoInc. Was the company
I ended up running for nearly thirty seven years.
Speaker 2 (10:12):
So thirty seven years and along the way, you IPO
in nineteen ninety one.
Speaker 3 (10:18):
Twenty seven years is a public company ceo Berry longer
than cal rip can play baseball. That's unbelievable. And I'm
still standing that's weak lease, But I'm still staying.
Speaker 2 (10:27):
You know, Warren Buffett and Jamie Dimon probably your your
two competitor summers.
Speaker 3 (10:32):
I had a better performance than Warren Buffett my last
twenty years as a public company CEO.
Speaker 2 (10:37):
Well he's backloaded, so he began strong and then did
okay afterwards. But but what's really fascinating is how do
you go from you know, three or four locations to
an IPO in nineteen ninety one.
Speaker 3 (10:54):
Three and four three to four, three or four location
that we're bleeding, we're losing money. You know, I'm always
trying to learn, and probably the most powerful thing in
my life is not the success. It's the learning and
then the action one takes from the learning. And I
had a revelation in the early eighties. I would be
(11:18):
working in one of these French bakeries and people walk
in and say, you know what I want that baguette,
and I'd start to slice it for him. They say, oh,
I don't slice it like bread, slice it from top
to bottom. And I'd hand them the baguette and they
look at me, berry and they and they pull out
a bag from stopping shop and they put yeah, they
put meat on it, bison, you know, cheese, smoke, turkey.
(11:40):
And again you didn't have to have a Harvard MBA
to say, you know, the opportunity is not in the
bread recroissant. The opportunity is and what the bread incroissant
can allow the consumer to do. So we said, instead
of selling the bread and croissant, let's sell the product
they want, which was the sandwich. That allowed us to
create the first of what became many many units, which
(12:02):
was a French bakery cafe up in Copley Square in Boston.
Speaker 2 (12:05):
So that included breakfast quassaws and I'm assuming other breakfast sandwiches,
full launch soup, salad sandwiches, and suddenly it's not just
a two dollars item. Suddenly you're selling actual product.
Speaker 3 (12:20):
And again I'm always looking for what job am I
doing for people? What's the need I'm meeting? And we
were really the first concept at O Bumppen in the
late eighties that was serving white collar folk food that
they wanted with quick service. And so Lou, my partner,
was an extraordinary human being. We worked together till they
(12:43):
passed away. Lou had tremendous real estate connections all over
the East Coast and in the Midwest, and we were
in every major building were here. We were in New
York at Rockefell Center, World Financial Center, World Trade Center,
but it rocks.
Speaker 2 (13:00):
You know.
Speaker 3 (13:00):
The folks would come down and this was the only
place they could get really food that they respected and respected.
Speaker 2 (13:07):
Them quality food at a reasonable price. Reasonable price wasn't
even the the the reason for existence. Our reason for
existence was this was food people really wanted and they
were willing to pay for it. They were willing to
pay more than they could get. When the all terms
were fast food or a lengthy lunch at at a
sit down, there was nothing in between. And I'm thinking
(13:27):
back to that eighties and nineties era. Your choice was
McDonald's or Burger King, maybe pizza hot maybe.
Speaker 3 (13:37):
The pool grill, the four seasons, you know, I mean right,
I mean it was you know back then it was
fast food or fine dining, nothing in between, nothing between.
Speaker 2 (13:47):
And if you had this was a white space, wide open.
Nobody else was there.
Speaker 3 (13:51):
Yeah, I would say that was really true, and I
think this became very hot, this whole French bakery cafe
category and walls all over the Andrew We had everybody
come after us. Pepsi came after us. This was going
to be the third leg of Pepsi food service. Sarah
Lee came after us, a company called Vita Front which
has now gone by the wayside. All of these companies
(14:14):
were larger, had more capital, But the truth was we
ended up running rings around them. We cared more, our
folks were more dedicated, We worked harder, and by nineteen
ninety one we had built this out to probably one
hundred units. We had the highest average unit volumes in
the category. It was very clear we were going to
(14:36):
be the winner, and we went public with Morgan Stanley
in an IPO in June of nineteen ninety one.
Speaker 2 (14:44):
So after the IPO, you eventually acquire Saint Louis Bread
Company later to be renamed Panera Bread. Tell us how
that transformed.
Speaker 3 (14:55):
The key is the learning. So the first thing I
began to realize after the IPO, oh, was that the
market pays for growth, and yet old Boone Penn's growth
at that point was somewhat limited. Obone pen was at
its best in these urban locations. It didn't work in
the malls in LA and so we expanded into a
(15:16):
number of different other businesses. We built an international business.
If the old bone Pen was the best United States
at I denity urban feeding, there were more locations outside America.
We built a manufacturing business. We were manufacturing all of
our product and we were selling it also in supermarkets
product meaning food or ovens, bakers, bakecoods, not not kitchen
(15:39):
quin bacoods. And then third we bought in nineteen ninety
three a business called Saint Louis Bread Company from a
wonderful human being named Ken Rosenthal and Saint Louis. It
was nineteen stories at that point, and I thought this
would be the gateway to the suburban marketplace. At the
same time, I was trying to figure out what was
(16:02):
going on for the consumer, and I was running around
the West coast for about a year or year and
a half with a guy who's now one of my partners,
Dwight Juson, a guy named Scott Davis who was our
concept officer, and we were trying to figure out what
was the themes that were impacting consumers, and we began
(16:24):
to develop a belief that the really important signal that
needed to be read the deeper trend, was that consumers
were rejecting the mass market and they wanted to feel
special in a world which had increasingly become consolidated in oligopolies.
Think Coffee and Miller and I think coffee and Folgers
(16:47):
and Maxwell House beer and I was a Bush and Miller.
Think soft drinks, Coke and Pepsi. Every one of those
in the early nineties had a reaction. You can talk
about Starbucks, you can talk about out what you see
occur with specialty beer. A good friend of mine in Boston,
(17:07):
Jim Cook, developed Adams. Yeah, of course, again a reaction
of the mass market. We saw the same thing as
Cokinpepsi lent itself, doud Waldo and Snapple and four hundred
beverages in seven to eleven, and we began to say
this was a deeper trend. Consumers rejecting that mass market
(17:27):
and want of specialty goods built made the way their
grandparents made it, without chemicals, without preservers, And we said
the same thing was going to happen in the food industry,
and in fact, the same thing was happening in the
bakery industry. Baked bread had once been done in stone
deck ovens that had become three lows for a ninety
ninth sense, as supermarkets and consumers wanted that kind of
(17:51):
quality that they hadn't had, and we're willing to pay
for it. And we began to say there was a
powerful opportunity in specialty food, specialty restaurants, much like there
was this powerful opportunity in specialty coffee, specialty beer, specialty beverages.
And that was the genesis for what became this ideology,
(18:13):
this paradigm that's today called fast casual What it said,
what it spoke to was real food, actually people that
that engaged you, served in environments that excited you, and
ultimately left your sense of self esteem, what you felt
about yourself. It elevated it as opposed to depleting it
(18:35):
as fast food did. The currencies of fast food were
a lot of food for not a lot of money.
The currencies of fast casualties let's do something better for
a bit more money. And the result that category, that
that that understanding is today three hundred billion dollar category.
So let's look just to finish it up.
Speaker 2 (18:53):
We did it.
Speaker 3 (18:55):
Howard Schultz came along about that time. Steve El's a
little bit later, but it was a paradigm that informed
a whole new category. When people said you couldn't do this.
Steve Els is with what Chipotle?
Speaker 2 (19:07):
Chipotle? All right, So let's you mentioned Howard Schultzon's Starbucks.
I think of Starbucks as a coffee shop that serves food.
I think is that food?
Speaker 3 (19:17):
No, I don't want to I'm sorry.
Speaker 2 (19:20):
Well, it's not exactly fresh. I know some of that
stuff has to be frozen.
Speaker 3 (19:26):
No, all of it is.
Speaker 2 (19:27):
All of it is.
Speaker 3 (19:28):
Yeah. I mean these businesses are defined by their systems.
Speaker 1 (19:33):
Huh.
Speaker 3 (19:33):
So when we look at Starbucks and they tried many
times to improve the quality of food, Howard got it.
And in fact we actually I work with them probably
two or three times trying to help them. Think about
that question. We were friends.
Speaker 2 (19:49):
Why would you help your one of your largest competitors
catch up to you on the food space.
Speaker 3 (19:54):
I have to ask that, Well, we were kind of
frind of me. It went back for thirty five years
when he had had you know, four or five stores
in Seattle, and he had you know, we were looking
to bring specialty coffee into O Bom Penn And ultimately
we chose to go take a ownership position a company
(20:15):
called Coffee Connection in Boston, which was the Starbucks of
the East Coast. And and he wanted to buy star
Coffee Connection, and we went through a process. We had
to write a first refusal. We drove up the price,
but we had a friendly robbery. And the truth of
the matter is I profoundly respected Howard.
Speaker 2 (20:33):
I clearly built.
Speaker 3 (20:35):
I respected not just the size of the business, but
he shared with us the same values about really doing
something that delighted customers, that made a difference. He broke
through on design and environment and and and what it
meant and and so you know, we always had this
relationship of both competition and mutual respect.
Speaker 2 (21:00):
That's really fascinating. I'm going to share a Starbucks story
that I bet you haven't heard. I'm curious as to
your thoughts. And I believe Howard Schultz was gone when
this happened, because I can't imagine.
Speaker 3 (21:11):
Howard pulled out of Starbucks I think three or four times, right.
Speaker 2 (21:15):
So during the pandemic, I get two emails on the
same day. The first one is from Delta. Hey, we
know that you've worked hard to achieve your Platinum Medallion
status and the pandemic is a disaster. Don't worry. We're
going to roll your status over next year, when hopefully
things will be back to normal and you'll be flying again.
(21:38):
I'm like, gee, you know, Delta really has their act together.
How thoughtful. The same day, I get an email from Starbucks. Hey,
you've accumulated three hundred and seventeen Starbucks points because you're
here all the time, but unfortunately, due to the pandemic,
these will expire next month. And the third leg of
(22:01):
the stool was a link a story in the Wall
Street Journal that everybody who preloads their credit card onto
the Starbucks apps, we're essentially giving Starbucks a three billion
dollar interest free loan. Sure, And I was so morally
indignant over the You're gonna take our.
Speaker 3 (22:20):
Crappy loyalty points loyalty points.
Speaker 2 (22:22):
Away like it cost you nothing, and you know what,
you're bad players. Get refund my my fifty bucks that's
on the app. I'm deleting the app. Thanks Starbucks for
the past few years. I'm not boycotting you. But you're
like something I'll put up with. And Starbucks to me
(22:44):
today is like McDonald's. I worked at McDonald's for two
days in high school. Have never gone back since. It's
a horrific source of you know, junk food. And I
don't know what they've done in the ensuing one hundred years,
but I don't step foot into McDonald's and I rarely
(23:06):
step foot in Starbucks, Obon and Panera on the other hand,
And I'm not blowing smoke.
Speaker 3 (23:12):
Have you been to our new concept tat I have not.
It's so it's forty five restaurants in Boston and d C.
It's effect. We're opening this week in Ridgewood, New Jersey,
will be opening in Garden City.
Speaker 2 (23:25):
And Garden City's not far from where I live here
in Manhattan.
Speaker 3 (23:29):
It's it's it's it's third wave coffee, It's it's Levon
infused bakeods Levon Israel, Turkey, really in North Africa, Lebanon.
It's fascinating. And then we have chefs in every unit.
We're doing real food again from the levant, but fascinating
real food and doing really significant volumes. Back to your
(23:52):
your story, you know, here's the point Starbucks has been
through many waves. Brian Nichols friend, very good guy. He's
doing the right stuff. He's doing what Howard did when
that business was formed, which is focusing on a competitive
advantage as doing a better job for the guest. If
(24:13):
you don't make a difference for the guests, you have
no right to be in business. And the reality is
in my industry, my industry is the second oldest profession
of the world, of the food industry. If you don't
have a competitive advantage or reason, the customers are walking
past your competitors to choose you. All you're gonna do
is gonna get your market share. And when you get
(24:34):
your market share, this is dirt farming. And that's ultimately
what happened to Starbucks. And what Brian is trying to
do is reassert its points of difference. It's specialness in
a way that delights guests and gets them to come back.
And when you tell your story of Starbucks, it speaks
to how Starbucks was actually diminished by management. It's bad
(24:59):
profit when you're abusing customers, and it's good profit when
you're making a difference in the lives of your guests.
Speaker 2 (25:05):
You have such a fascinating background, and you've dealt with
so many really interesting people in competitive space. We talked
earlier about you being frenemies with Hoard Schultz and Starbucks.
Take me through how you go from ipoing at oh
(25:28):
BoNT pint to acquiring Panero.
Speaker 3 (25:30):
What was that experience like, Well, we didn't acquire Panera.
Speaker 2 (25:34):
We acquired a busin Saint Lewis Bread com.
Speaker 3 (25:36):
We acquired a company called Saint Louis Bread Company. We
recognized the ideology and power of what would later be
called fast casual, real food for real people. We ended
up using Saint Louis Bread Company as a test laboratory
to apply those principles. We changed everything. We took a
(25:56):
unit doing a million dollars a year. We had a
breakfast that took us to a million two fifty. We
changed the environment in big ways that took us to
a million seven to fifty, added a gathering place segment,
and by nineteen ninety five I realized the name Saint
Louis Bread Company was the wrong name to take national,
(26:17):
and we changed the name to Panera Bread And the
big and very important step was really in nineteen ninety eight.
I at that point was running a public company with
four divisions, Oh Bompenn, oh Bon Penn International, Oh Boon
Pen Manufacturing, and this thing called Panera Bread. Panera was
the third largest of them. I have to tell you,
(26:39):
I would look at Panera and say, this brand has
the potential to be nationally dominant. And it wasn't at
that point, but it had It had consistent volumes, and
I was I was struck by the degree to which
the folks that were running it didn't really understand what
growth was going to take and what was going to
hit them. And I was deeply worried. And I was
(27:00):
down to the Caribbean with a friend and I was lamenting.
I was kind of bummed about it. And she looked
at me and she said, Ron, what would you do
if Panera owned Oh Boon Penn the company. The name
of the company was Panera, and it owned all those
other divisions. And I looked at her and I said,
you know what, if I had any guts, I'd monetize
(27:21):
every asset we have. Panera is the gem. It could
be a nationally dominant company. I would take all the
capital from those other businesses. I'd go down there myself
and make it work. And I bring the best human
capital we have. And I'm this kind of person. If
I think about something long enough and I say I'm
going to go do it, I go do it. It
took me three months. I made the decision to go
(27:44):
do it. I brought the idea on my board. They
thought I was crazy. They all had hired on this
company called Oh Boon Penn and not Panera. But eventually
they gave me the room to do it. It was
a bet your job kind of proposition. And over the
next year and a half we sold every other business
but Panera, and I ended up with Panera a bunch
(28:06):
of cash, maybe one hundred and eighty stores, and I
moved a new wife down to Saint Louis, Missouri, and
off we went and running Panera.
Speaker 2 (28:14):
And ten X did up to two thousand stores. Which
how long did that take?
Speaker 3 (28:18):
Well, I will tell you from that point forward the
stock was up one hundredfold. Wow in the early that
happened in I guess ninety nine, early two thousands. You know,
you know, people would later would say to me, Ron,
why didn't you tell me? And I'd look at him
and go, yeah, I know, I look at him, say yo,
(28:40):
I was telling you, nobody wanted to listen. And the
truth of the matter is, for at least a year,
you could have bought my stock at three bucks a share,
which is what it was trading at at that point.
You could have bought my stock at three bucks a
share by the wheelbarrow load.
Speaker 2 (28:56):
And what did you have in cash at the time.
A couple hundred million, so a buck or so and cash. Yeah,
so you're risking two dollars.
Speaker 3 (29:04):
Yeah, you could have bought it, you know, split adjusted,
but you could have bought it. That stock Ultimately three
bucks a share then traded for three point fifteen when
we sold the company seventeen years and that was seven
billion plus yeah seven point eight. Wow, that's almost eight billion.
Speaker 2 (29:18):
And I'm not sure if this is true. According to perplexity,
Panera is either Latin or Spanish for bread basket, Is
that right?
Speaker 3 (29:26):
Yeah? It was actually an empty vessel where we could
put a personality into. Okay, so we weren't looking for
a name. You know, there's no Joey Panera. It's not
my cousin right there. It was really a vehicle to
produce an identity that was rooted in some of you
who were around Panera, no mother Bread.
Speaker 2 (29:46):
So ninety nine everything gets sold off. You accumulate all
this capital. At what point did you start to get
the sense.
Speaker 3 (29:54):
Hey, this is going to work. I know, I actually
knew back then from day No. You know, it's not
that it can't fail. But I see something, I can
feel it. And you know, my definition as an entrepreneur
is I'm I'm a risk avoid I'm not a risk seeker.
But to me, the greatest risk is blowing a powerful idea,
(30:17):
is blowing a market niche that I can see and taste,
and it's for me. It's beholding on me to fulfill that.
And I can literally remember understanding what we had with
Panera back then, and knowing what it could become, and
knowing we had this obligation to help it fulfills its destiny.
(30:37):
I could feel it.
Speaker 2 (30:39):
Huh, that's really fascinating. So twenty seventeen, you sell out
to a private company.
Speaker 3 (30:46):
Well, whoa, whoa, whoa wait, wait, Barry there, we got
a few years, so well get.
Speaker 2 (30:50):
About all right, So twenty years and then men, So
how do we get from fifteen to twenty seventeen?
Speaker 3 (30:54):
Twenty years? Fifteen hundred restaurants and one hundred x in
the stock price.
Speaker 2 (31:01):
So what was that tell us about those two decades?
What was it like growing from you know, fifty stores
to fifteen hundred plus.
Speaker 3 (31:11):
It was a lot of work and a lot of
fun and wonderful people who shared it, who believed in
it deeply, who cared about it. It was a focus
on the guests. It was a focus on something we
call concept essence, this brand's role in the world. And
quite frankly, we really over those roughly twenty years, stayed
(31:35):
highly disciplined. We were never about liquidity, We were never
about trying to sell any sell the company. We were
about running a great company for our guests, producing high
compstore sales through good days, through the Great Recession, going
through all those ups and downs, and we stayed true
to that. We ended up having very strong compstore sales,
(31:58):
very high rois, and we ended up, you know, building
a massive organization.
Speaker 2 (32:03):
What was the biggest challenge during that ramp up? Because
we have all seen companies either over expand or expand
into the wrong food categories or the wrong geographies. Like,
how challenging is that process? Knowing that, hey, either this
is great or it's a disaster, there's almost nothing in
(32:24):
the middle.
Speaker 3 (32:25):
Yeah, I know. It's really funny to me. Running a company,
a small or a very large company is all about
discipline and not getting ahead of your skis. I never
wanted to be a company that had to go through layoffs.
I never wanted to be a company ahead of closed stores.
So I kept trying to say, how do we run
(32:47):
this thing with discipline on what matters, that is satisfying
the guests in a way none of our competitors could.
How do we create differentiation, competitive advantages everything? How do
we create an experience and other people can't do with food?
Other people can't provide with a culture and an experience
when you walk into the store that other people weren't offering.
(33:10):
And it was that that focus on that that never
broke in those twenty years. And I think anybody who
worked for me knew that.
Speaker 2 (33:17):
Huh, that's really fascinating. So now, fifteen hundred stores seventeen
years later.
Speaker 3 (33:24):
Maybe with seventeen hundred stories, but keep going.
Speaker 2 (33:26):
Okay, almost two thousand stores today, what led you just
to decide, all right, these guys really want to throw
a dumb amount of money at me.
Speaker 3 (33:37):
I'll take it, well, we have to we have to
make one stop along the way.
Speaker 2 (33:40):
Okay.
Speaker 3 (33:40):
So I you know, as I told you, I have
this other love politics and trying to fix the world.
And I fundamentally believe, as in business, the ability to
think long term is what was the key to up
an Era and the way we approached it. I also
think that in our civic society, being able to think
long term had come together as a country as powerful.
(34:03):
I would often think that Chinese have twenty year plans,
and you know, we can't agree on a budget for
twenty months, and today we can't agree on taris for
twenty hours. But the truth in the matter is back
in eighth nine, I felt this desire to take what
I'd learned in running large organizations and apply it in
(34:23):
civic society, and I had some discussions with the Obama administration.
I couldn't step down to do that because of my
commitment to Panera, and I made the decision I wanted
to step down, jump off the high diving board and
see what it felt like applying myself elsewhere. I made
that decision. I stepped down as CEO, staate as executive chairman.
(34:45):
I created something called Paneric Cares, which were these cafes,
cafes have shared responsibility, no set prices. It was quite
an interesting experiment in humanity. We opened five of them.
I also went off and helped co form an organation
called No Labels, which was about reducing again the hyper
partisan I ever called No Labels, yet I was one
(35:06):
of the folks that were really the founders of that.
And I'm out as executive chair for about a year
or two, and I was still doing acquisitions. I was
still the largest shareholder and doing some consumer work. And
I came back one weekend around twoy ten eleven and
I sat down at a computer and I wrote a
vision for how I would compete with Pinera. And that
(35:28):
vision essentially called for digital access. None of that existed
in twenty eleven. It called for loyalty. Very little of
that was in this country. Tesco it formed it in
the UK had come to Kroger. We called for loyalty.
We called for omlilety meaning like system, the reward system. Yes,
how do you find a way to build a deeper
(35:48):
personal connection with guests. It called for clean food, free
of all artificial chemicals, preservatives, and.
Speaker 2 (35:57):
The minimal process, yes, and no little additives of annie
if any exactly.
Speaker 3 (36:02):
And then I'm the channel approach. And I brought this
this memo into my very dear friend, gentleman. I love
Bill Morton, who was our CEO. He'd been my CFO
for two decades. And I shared it with Bill and
he took a look at and said, would you go
work on it? And I said, you know I would.
And a year later, the executive chairman is working eighty me.
(36:26):
I'm working eighty hours a week, having the time of
my life building up a prototype for technology and digital
access and clean food. And Bill comes to me and
says he can't travel when I come back as CEO.
We fought over for about a year. I didn't really
want to come back and do what I had done
(36:46):
as CEO, but he couldn't travel and it was required.
So I came back a CEO. I put all that
plan in place. It was horrific at paneroh yeah, and
it did not work. I spent one hundred and fifteen million.
It was that the transformation was huge. Okay, so well
let me get there. I mean I had activists along
(37:08):
the way. One of my partners in Act three today
was the activist who attack me. I had a lot
of fun with him. I could never tell anybody actually
respected him. Name Noah Elbogin, okay, but I couldn't tell
anybody that. But I actually grew to like him and
today he works with me. But at any rate, So
those years twenty fourteen, fifteen sixteen, anytime you go through transformation,
(37:31):
anytime you change something, and this was probably the largest
transformation in a large public restaurant company. It was difficult.
I remember when we were driving technology. Were the first
real restaurant technology in an integrated way. Again, I used
to call technology the social security of Panera. It was
only a matter of time till it was one hundred
(37:52):
percent of our revenue, and we were committed to this
and we did it. By twenty sixteen, our comps were
pushing double digits again. Ibadah was up thirty five percent.
The company was rocking. Starbucks made an approached us to
buy us. That didn't. We go forward and in twenty
(38:12):
seventeen the leadership of JB which was a European money manager,
came calling and they had fallen in love. And frankly,
my view of a business is I spent all of
my time building it. But when somebody's in love, that
always provides the opportunity to harvest.
Speaker 2 (38:34):
So Starbucks comes knocking. Were they offering a stock deal?
Was it remotely close to the nearly eight billion that
JB came up with.
Speaker 3 (38:44):
If you read my book, you read the whole story,
But I think the Starbucks deal was around two forty
a share. The JB deal was done at three fifteen,
much more ass six months after the Starbucks discussion, and frankly,
the Starbucks discussions didn't reach conclusion. It was at that
(39:07):
point that Howard was making his own decisions about stepping
down and replacing himself with Kevin Johnson and my senses,
they did not want to take on an acquisition like
Panera at that moment, so our stock price got ahead
of itself. They couldn't do the deal. So the Starbucks
deal didn't didn't go forward.
Speaker 2 (39:26):
But at the very least it's set a floor for
future discussions with whomever.
Speaker 3 (39:31):
Well, it wasn't public, so we had we I mean
to be honest with you, we had had this these
discussions that two forty a share with Starbucks. It didn't
go forward, and when we began with JB. And again
you can read the book it. You know, I think
it started in the high two hundreds. By the time
we were done, they were paying three fifteen for it.
Speaker 1 (39:53):
Wow.
Speaker 2 (39:53):
And the book is know what matters, lessons from a
lifetime of transformations. All right, So let's talk about Act three,
which I don't mean that in the Shakespearean sense, but
you launched Act three Holdings to invest in new brands.
Tell us about the motivations for that.
Speaker 3 (40:11):
Well, after I I had sold Paneria, I didn't know
where I was headed. There was a discussion with JB
about joining them as a partner.
Speaker 2 (40:21):
And and this is the big European investment shop they
took uh took over.
Speaker 3 (40:26):
Yeah, but I it wasn't for me. And and I
was doing a bunch of speaking about the pervasive short
termism in our capital markets and and how I thought
it had been it had an untoward impact frankly on
innovation and GDP growth. And and one of my now
partners and who've been my chief concert officer of Panera,
(40:48):
was a gentleman named Keith Pascal, And he said, why
why don't you take some of your money? You made
all this money, Why don't you take some of it,
and and and and and invest it in the long term, uh,
with a long term focus. And I thought about it,
and that I had been out of Panera about two
months at this point, and I actually had an idea.
(41:09):
And the idea I had it was a company. I
basically had had deep belief that the Mediterranean category had
the potential to be the next major culinary category.
Speaker 2 (41:23):
Oh that's really interesting.
Speaker 3 (41:25):
Oh it's obvious. I mean it was the number one
diet in America, Mediterranean. Every time I went to the doctor,
they were doing a commercial for Mediterranean. It's bold flavors,
but it's flavors that feel safe. It's also craveable wellness.
It's healthy, it's good for you, and it tastes good.
And it was very clear this category had power. And
I had made an investment in a very small company
(41:48):
in the DVM DMV, which was down in DC Calcava
when it was two restaurants. I knew them, and I
had a restaurant company. As I had left, Panera approached
me called Zoways, asked me if I would join their board,
that'd give me warrants of, you know, in ten percent
(42:08):
of the company or something to see if I could
help them compete. And I looked at them and I
thought to myself, wow, And at the same time Cave
the guys at COVID asked me if I joined their board.
I thought to myself, you know, this is an industry,
the food industry, in which in every major category winner
(42:31):
takes all. You know, you can talk McDonald's and Burking,
Panera and Corner Bakery, you can talk Chipotle and Quadoba.
And I said, somebody is going to win a Mediterranean
and there is a powerful potential to take Zoe's. To
buy this company, Zoe's, which was about two and fifty restaurants,
(42:51):
take the culinary skills of Kava, merge them together, and
end up with the you know, clearly ten x dominant
in the Mediterranean category. And I thought I might do
this well. COVID asked me to join their board. I
went to their CEO, Brett Schulman, with this idea and
I said, and he said, before you you know, you
(43:12):
better talk to my board about it. I went to
a meeting with the board. I pitched them on the
idea of buying a company five times larger and then
merging with them. Ultimately, they asked they wanted to do
the acquisition. I agreed to finance the dealer at least
half of the capital they needed, about one hundred and
fifty million I put into it, and I became, you know,
(43:34):
one of the very largest shareholders, and I became chairman
of the company.
Speaker 2 (43:38):
And how large is COVID today.
Speaker 3 (43:40):
Well, it went public about eighteen months ago. It stock
was up as high as seven x since the IPO,
it's now up five x. It's a it was, it's
a ten billion dollar market cap company. It treated as
highest sixteen billion. It's perceived by the market, frankly as
(44:05):
has the potential to be the next Chipotle, the next Panera.
It's a powerful brand with an amazing management team led
by Brett Schulman. And I'm pleased to say we've been
able to help them along the way, know what they
needed to do to become the kind of great company
it is today.
Speaker 2 (44:22):
Let me push back a little bit on Winner Take All,
even though I'm a big believer in that as a reality.
But McDonald seems to have gotten kind of old and stale.
And along comes Shakeshack and a dozen other five guys
and down the round and it suddenly seems like in
(44:43):
the burger space as an example, there's increasing competition and
it's no longer Mickey dies as the only winner. Is
that just what happens eventually or what's your perspective.
Speaker 3 (44:58):
On Well, first, let me let me share with you something.
Danny Meyer, who is the brilliant a chairman, very dear friend,
chairman really of Shakeshack. He's a dear friend. But my
son actually works at Shakeshack in operations, and so I
have great affinity for those guys. But here's the truth.
McDonald's is worth what seventy five billion, one hundred billion.
(45:21):
I mean, it's it's got a huge market cap. There
isn't another hamburger business that's got a market cap anywhere
near that, and that's what we're talking about.
Speaker 2 (45:31):
But they got a sixty five year head start, seventy
five year head start over.
Speaker 3 (45:36):
Yeah, that's what I mean. Winner takes all. When you
have a position of dominance in a category, you win.
Now you can be niched, and niches come along and
they redefine themselves and they can in themselves become a category.
But ultimately, this is an industry in which scale matters.
It matters as you spread the overhead, and it's a
winner take all industry.
Speaker 2 (45:57):
I'm looking at a lot of the winners of the past,
and I know they are all different industries, whether it's
general electric, or seers.
Speaker 3 (46:06):
Or or retail. You're a great investor and a smart man,
but you're confusing two things. One dominance of a category
and then what happens to businesses as they lose their
competitive event exactly, So, let me share with you a
principle that was very clear to me. When businesses form,
(46:28):
it requires a powerful, powerful effort by somebody to discover
a better alternative. Because you have no scale, You've got
to get customers to walk across the street, you have
no purchasing, no ability to access to capital. When a
business starts to get some success because it's actually worked,
capital comes in. And as capital comes in, people began
(46:52):
to say, you know, we know you've discovered something better,
but we need to figure out how to be more efficient,
how to run it better. And what old happens is
you bring in what we would call discover delivery people.
Delivery people are about improving the margins, about purchasing, about
financial planning, and often in companies and particularly in my
(47:12):
industry as they approach a billion dollars, the discovery people
and the delivery people, they ultimately do well together. At
the beginning, the margins get better, but ultimately there's conflict
in friction. Sure, the language of discovery is the language
of could you imagine, let's try this, what would happen
if it's poetry. The language of delivery is financial planning.
(47:35):
Prove it to me. I want to see the numbers.
I don't believe it, logistics numbers. It's got to be proven.
And what ends up happening is the delivery capabilities of
most companies drive out the discovery capabilities, and companies that
were once very effective they become more and more reliant
(47:55):
on efficiency. And what happens typically in many companies is
they get very good, very efficient at doing what the
marketplace wanted from them five years ago, ten years ago,
twenty years ago, and not very effective at figuring out
what the consumer of tomorrow wants.
Speaker 2 (48:14):
There's a wonderful pull Gram quote that goes all experts
are experts in the way the world used to be exactly.
Speaker 3 (48:23):
And so my point to you is, once we define
the categories dominance matters, somebody will own. The reason the
market is paying upwards of has been paying upwards of
fifteen billion dollars of valuation on Kava. This thing is
four hundred restaurants. I mean, we've had valuations of thirty
(48:45):
to forty million dollars a restaurant. What is the market
paying for. They're paying for the future. They're paying for
an expectation that this business will will will take form
as one of the great companies in this country. The
question that's dominant of a category now. The challenge to
the team at Kava is staying on that edge, staying
(49:06):
on that wave, is continuing to discover, which is why
the role of CEO in so many companies in my view,
is to be the innovator in chief and lead that discovery,
because if the CEO isn't doing it isn't going to happen. Huh.
Speaker 2 (49:20):
That's really interesting. So I want to talk about some
of the companies that AC three has invested in, but
let's get a little broader view. Tell us about ACT three,
What are you doing? What's the philosophy here?
Speaker 3 (49:32):
So after we we we helped form the modern Kava
and invested in that. I had also had had a
company I'd bought four Panera called TAT, which a large
stake in it with its founder a zerid Or when
I when I left Panera, I took with me Panera's
interest in TAT and we decided to take our own money.
(49:58):
I took, you know, roughly a quarter of a billion
dollars of my own money and number of people who
decided to join me. They co invested, and we decided
to put that money to work investing in growth companies
with a couple of very simple principles. The number one
(50:19):
principle was founder friendly capital. We think that in growth concepts,
the last thing they need to do is do fundraising.
Is if it's an annual life cycle event. You know, literally,
the last thing that needs to happen is money raising
needs to an annual event. So we come along and
we make an investment, hopefully at a reasonable valuation, but
(50:43):
we then take a write a first refusal with a
pre agreed to valuation multiple at all follow on rounds,
and we've never turned that down. So all of our
investments know that they essentially never have to raise money
again to worry about it. So all the money is there,
it's already negotiated It also allows us to consolidate up
our position. That's principal one. It's common stock and no
(51:07):
dilute of no pref terms. Number two we practice will
be called Sherpa management. So almost every private equity firm
that makes investments, their people are financial. They're in the
boardroom often asking what the next liquidity event is. Of
our twenty five people, only one of them is financially driven.
As I said, Noah Elbogan, our former activist. Everybody else
(51:29):
our senior C suite executives. I've got a guy who's
opened five thousand retail stores. I've got another guy who's
my partner, Dwight Juson, who was with us for twenty
years and really invented fast casual. My joke with him
is from his brain to my lips. I make the speech,
he's the one who does the thinking. We have another partner,
(51:51):
Chuck Chapman, who's extraordinary. Was with Darden, was with Berkshire,
Hathaway and Dairy Queen, was with Bruger's, Isn't it was
on my board, was the CEO at Panera. He's great
at scaling and building these businesses. I've got a major
technology group that has the capability of knowing what's going
(52:14):
to work in three years at any rate. When we're
sitting in a boardroom, we're there as a sherpa, and
I have a simple expression. Building a nationally dominant business
is tougher than climbing Mount Everest. Very few people ever
do it. Nobody goes up Mount Everest without a sharpa.
Why don't you understand that you will be well served
(52:35):
if you have a shurpa as you build a nationally
dominant company. We're in that boardroom, we're talking to management
about how to make sure they don't fall off the
side of the mountain, how they don't make sure they
don't trip up and fall. And frankly, we've been very
successful in helping build these dominant companies in these core categories.
And then the last Barry, the last principle is I
(52:59):
told you when we began and talking, we believe deeply
in competitive advantage. We only invest where we have competitive advantage.
What AC three is really good at is we have
one hundreds of years of pattern recognition in this industry.
We know what categories are going to have a wind
at their back, and we know how to help these
(53:19):
companies build the dominant position in that category. And frankly,
we now are involved with seven companies. We've yet to
have anything other than a huge success.
Speaker 2 (53:30):
Huh. That's really fascinating. Let's talk quickly about two of
the companies that you've invested in besides Cava. One is
Life Alive and the other is Level ninety nine.
Speaker 3 (53:41):
Tell us about those. Sure, so, Life Alive is positive eating.
Look at forty percent of America is trying to eat better.
The question is where do you go to do that?
How do you do it? This is mostly vegetables. It's
really good. We've owned it for seven or eight years.
We've nursed, they cared for watch the grow very high volume. Today,
(54:04):
somebody is going to own the plan forward category. We
hope that this is the concept that's the dominant player.
Speaker 2 (54:10):
In that And Level ninety nine.
Speaker 3 (54:11):
Elevin nine is another interesting one. This is immersive social entertainment.
It's forty thousand square feet of challenges. It was created.
It's forty thousand square feet of challenges with a farm,
the table, restaurant, and a brewery in the middle of it.
It was created by a gentleman named Matt de Plessi.
We met Matt before he opened one of them. He's
(54:34):
out of out of Mit Harvard Business School and spent
twenty years working with Disney and their folks. Very experienced
in entertainment. He had the vision for this business. We
put up the capitol. We're partners in it with him,
and it is stunning to go to one of these.
Where in Natick, Massachusetts. We're in Providence, Rhode Island. We're
(54:57):
opening in Disney World. We're opening in Tyson's Corner, and
this summer you'll see us in locations across America. This
is a kind of busy. We'll have three thousand people
on a Saturday night. It's an unbelievable experience and with
extraordinary margins, it may be one of the best businesses
I've ever been involved in.
Speaker 2 (55:18):
Wow, that's amazing. All Right, I only have you for
a few moments, so let's jump to our speed round.
Five quick questions thirty seconds each, starting with what's keeping
you entertain these days? What are you streaming or watching
or listening to?
Speaker 3 (55:32):
Well, what's keeping me entertained is my kids. Yeah, I
have a twenty six year old and a twenty one
year old. But what I'm watching? The thing I just
finished was watching White Lotus with my son. I loved it.
I mean, we have a house on an island called
Jumbie Bay off of Antigua, and it reminds us of
where we live and just what really goes on between
(55:53):
people is always the most fascinating to me. I love people.
Speaker 2 (55:55):
Tell us about your mentors, who helped shape your career?
Speaker 3 (56:00):
If anybody helped shape me, but I would say lu Caine,
who was twenty five years my senior and my partner
in many years, taught me what it meant to be
a stand up guy. I love this man. He was
a huge influence. I also say my dad, who was
a CPA, but again, knew how to deal with people,
(56:20):
talk to people, care about people, and I respected him
as a business person.
Speaker 2 (56:25):
What about books? What are some of your favorites?
Speaker 3 (56:27):
What are you reading right now? Oh goodness. The last
night I was reading a book on Australia. I'm going
to Australia with my daughter in two weeks, so I
skim read that. But I ten, you know, I just
reread Daniel Caineman passed away. I think I'm pronouncing his
(56:48):
name right, but he wrote fast and flow.
Speaker 2 (56:52):
Slow, fast and slow economy.
Speaker 3 (56:54):
I had read it years ago. I just reread it again.
I love it. It's behavioral economics, behavioral findance. It's about
how people work, and to me, my life probably if
there's one thing that that's a central organizing principle is
trying to figure out what makes people tick.
Speaker 2 (57:10):
H really interesting. Our final two questions what sort of
advice would you give to a recent college grad interested
in a career in food service or franchising.
Speaker 3 (57:22):
I'd say, I'd say, get out and understand what it
is to be an operator. Understand what it is to
run a business. The action isn't in the office, it's
not in the support center. The actions in the field,
it's in the stores. And most importantly, my advice to
you is figure out not the right career path, but
figure out what you care about, what you can do well,
(57:44):
and then go do it.
Speaker 2 (57:46):
And our final question, what do you know about the
world of building a restaurant? For lack of a better word,
empire today that might have been useful back in the
late eighties.
Speaker 3 (57:59):
Trust yourself, really, you know, I think some of you know.
Guys like me, I don't know. I always you know.
Your second guest, you wonder you listen to every advisor,
and one of the things you gain with a little
more age is a perspective that I actually knew what
I was doing, staying focused on that customer, staying focused
(58:19):
on on the on the end of delivering a better
guest experience, and understanding the byproduct would be financial success.
It wasn't the end.
Speaker 2 (58:29):
Thanks Ron for being so generous with your time. We
have been speaking with Ron Shake. He is the former
CEO and chairman of Panera, Bread and Obo Pah and
all those other companies. If you enjoy this conversation, check
out any of the five hundred and fifty we've done
over the past eleven years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
(58:54):
or wherever you find your favorite podcasts. Be sure to
check out my new best selling book, How Not to
Invest The Ideas, numbers, and behaviors that destroy wealth and
how to avoid them How Not to Invest wherever you
find your favorite books. I would be remiss if I
(59:15):
did not thank the Cracked team that helps put these
conversations together each week. John Wasserman is my audio engineer.
Jean Russo is my researcher. Anna Luke is my producer
Sage Bauman is the head of podcasts here at Bloomberg.
I'm Barry Retoltz. You've been listening to Masters in Business
(59:35):
on Bloomberg Radio.
Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Business with Barry Ritholt on Bloomberg Radio.
Speaker 2 (00:16):
This week on the podcast What Can I Say? Ron
Shake is a legend in the fast casual dining space.
He began with a single restaurant, a single cookie store,
and eventually parlayed that into a series of acquisitions, mergers, expansions,
ultimately leading to the Panarabread concept, which now has two
(00:41):
thousand locations and does about six and a half billion dollars.
He sold the company in twenty seventeen or so for
about seven and a half billion dollars. He now runs
Act three, which is a fascinating sort of venture fon.
One of their big firms is Kava Fast Men are
(01:03):
written Cuisine. What can I tell you? The guy is
a brilliant operator, one of the best performing publicly traded
CEOs in history, at least in the food and consumer
services sector. He knows everybody, from the head of Starbucks
to Sam Adams to Shake Shack. All those people travel
(01:26):
in the same circles. He has carved out his own
unique identity in space. And I just thought this conversation
was fascinating, And I think you will also so with
no further ado, my discussion with the former chairman and
CEO of Ombalpint and Panera Bread, Ron Shake, Ron Shake,
(01:47):
Welcome to Bloomberg.
Speaker 3 (01:49):
Thank you Berry. Good.
Speaker 2 (01:50):
So those numbers are astonishing, and I also recall reading
Panera was the best performing restaurant stock in the last decade,
you were CEO, second best consumer stock on the S
and P.
Speaker 3 (02:04):
Are those data points right? Yes, But to be clear,
I sold Panera in twenty seventeen and have not had
anything to do with it since then. But I am
today a lead investor and the chairman at kVA helped
take that thing public.
Speaker 2 (02:20):
We're going to talk about Cava. We're going to talk
about know what matters. The book you wrote, lessons from
a Lifetime of Transformation.
Speaker 3 (02:27):
But let me.
Speaker 2 (02:28):
Roll this all the way back, sure to your education.
Bachelors from Clark in nineteen seventy six, NBA from Harvard
in seventy eight.
Speaker 3 (02:37):
Don't hold that against me.
Speaker 2 (02:38):
What was the career plan? By the way, you are
not the first Harvard MBA I've had in the studio.
Speaker 3 (02:45):
I guess I would say to you this, I never
really had a career plan. I had a drive to
make a difference.
Speaker 2 (02:52):
Huh.
Speaker 3 (02:52):
And the challenge for me was whether that was going
to take form as politics, which was a love of mine,
or business. And I found over the years that that
when I was doing business, I brought a strategy for
political context to it. When I was doing politics or
political campaign management, it was a business. Put another way,
(03:13):
a business is an election that never ends. A political
campaign is a business that has one judgment day, the
election day.
Speaker 2 (03:23):
Huh. That's fascinating. So there was a quote from you,
maybe this was from the book you go to business school.
You didn't know what an investment banker was.
Speaker 3 (03:33):
I didn't know, you know, I actually never set out
to do business. I had been the treasurer of the
student council at Clark and I was tossed out with
a couple of friends from a local convenience store. They'd
suggested we were shoplifting. We weren't, but it was just
a heavy security presence. And I came back to campus
and I said, you know what, why are we giving
(03:53):
these guys our money? Why don't we create our own
student run store. And I was able to text, yeah,
I taxed the student body. They agreed to it, and
there was nobody else there to essentially build the store.
I built it. There was nobody to run it. I
ran it. And as a kid who really thought he
(04:14):
was going to go to law school like you, Barry,
and had never you know, I couldn't dance, I couldn't sing.
Speaker 2 (04:20):
I just come outside shot.
Speaker 3 (04:22):
My outside shot is better than how I dance, you know.
But I have to tell you, yeah, I have to
tell you that I had more fun. It was the
most creative endeavor I had ever been, involving a live
performance art. And I love food, I love retail, I
love running the place. I loved the people, and it
became sort of a way I lived my life.
Speaker 2 (04:43):
That's really fascinating. So that tease up what becomes at
least the first part of your career. Tell us about
the work you did at a cookie company.
Speaker 3 (04:53):
Oh, I started a cookie company. So I got out
of business school. I took what I call the third
year of the NBA. I went to learn. I went
to work for a company called Coal National and help
run a part of their company called the original Cookie Company.
I remember that, do you in the malls? Yeah?
Speaker 2 (05:12):
Right, that's right.
Speaker 1 (05:13):
Yeah.
Speaker 3 (05:13):
I was a district manager. I was running stores. I
came back dan Quayle. I remember I was in Indiana
and there was a dan Quayle for the US sent
a billboard up and I came back and wanted to
do political campaigns, and I couldn't get a job, and
I decided I was going to try to open my
own cookie store. And and at that point, all the
(05:37):
cookie stores were in malls. I said, let's open it
where there were lots of people. In Boston. There's a
place called Park Street Station. It's the entrance way to
the downtown and the financial district. I thought wanted to
open a cookie store there, And in fact I ultimately
found the job in political campaign consulting, but I was
(05:59):
while I was down in I was offered a location
near Park Street Station. I thought I'd come back one
day a week. I ended up creating this cookie store
that was a two day a week, three day a
week endeavor. I never went back to d C to
run campaigns. And that cookie store later was merged with
Obom Penn and that company which we created in nineteen
(06:23):
eighty one was the company I sold for seven point
eight billion literally in twenty seventeen.
Speaker 2 (06:32):
So let's go back to that acquisition again. And I
don't remember if I read this in the book or
somewhere else. Nobody buys cookies before noon.
Speaker 3 (06:42):
This is a challenge, yes.
Speaker 2 (06:44):
But croissant and baked breads and other goods like that,
that's perfect breakfast. Fair was that the obvious. Let's combine
these two. We'll cover the whole day as long as
we're paying rent for twenty four hours.
Speaker 3 (06:55):
Yeah, I mean, I'm running this cookie store for about
six months, having the time my life. But as as
you said, nobody was buying cookies before twelve noon. I
had about fifty thousand people a day walking by me.
So I said, what can I put in here that
could represent a product that would appeal to people in
the morning. And I decided to become a licensee of
(07:15):
a French bakery. And there was a number that were
actually in that business. I hooked up with a group
called O Boon Pen and they had at that point
three bakeries. They had at one point opened I think
thirteen of them, close ten of them. I didn't fully
understand they were on the edge of bankruptcy, but I
(07:37):
did a deal with them. I became their licensee for
this one square block.
Speaker 2 (07:42):
So a little background about that. The predecessor of one
of the companies, and I don't remember if this was
a bone pan something else was Paviliar, a French manufacturer
of Pavie Pavier.
Speaker 3 (07:54):
Yeah, we got to work on your French bart.
Speaker 2 (07:56):
Well I was youkub but not very well if I'm
going to parassel bonup.
Speaker 3 (08:01):
But uh probably vo front Si.
Speaker 2 (08:05):
So they were setting up bakeries in order to sell
their ovens. It sounds like you said, hey, you forget
the ovens, let's sell the bakeots.
Speaker 3 (08:14):
Well. Actually, actually Pavier founded open a group bought the company.
It was led by the man who became my partner
of over two decades, a gentleman named Lucane. Lucane and
his partners bought the O Boon pen from Pavier, and
(08:35):
to be clear, they they they essentially thought they could
grow this across North America, and they were sort of
delusions of grandeur.
Speaker 2 (08:46):
They were right, they just said the wrong operator they had.
Speaker 3 (08:49):
They had the wrong operator, They had probably the wrong concept,
and that's what led them to borrowing a great deal
of money against their own person of real estate, as
I said, opening thirteen units of which by the time
I came along, they had closed ten.
Speaker 2 (09:04):
Of them, So you licensed the spot. How does that
lead to eventually purchasing Obonpont.
Speaker 3 (09:11):
Well, I'm I'm their licensee for about six months, and
I begin to become friends with their CEO, a gentleman
named lu Kane, who had essentially was running the company,
and it was very clear to me the trouble they
were in, and I began to say, this was a
powerful opportunity to apply what I knew about running food
businesses and actually create the kind of company I wanted
(09:32):
to work for. I wanted to build, and I went
to Lieu with an idea, and the idea was we
would merge our two companies, my one cookie store, his
three French bakeries, and their three million dollars in debt.
I hit the cash cow, they hit the three stores,
and I really thought I could operate my way out
(09:53):
of the business. Then what ended up happening is I
received sixty percent of the company, Lou and his partners
kept forty of the new company, and then we went
marching off that company. O Bumpen CoInc. Was the company
I ended up running for nearly thirty seven years.
Speaker 2 (10:12):
So thirty seven years and along the way, you IPO
in nineteen ninety one.
Speaker 3 (10:18):
Twenty seven years is a public company ceo Berry longer
than cal rip can play baseball. That's unbelievable. And I'm
still standing that's weak lease, But I'm still staying.
Speaker 2 (10:27):
You know, Warren Buffett and Jamie Dimon probably your your
two competitor summers.
Speaker 3 (10:32):
I had a better performance than Warren Buffett my last
twenty years as a public company CEO.
Speaker 2 (10:37):
Well he's backloaded, so he began strong and then did
okay afterwards. But but what's really fascinating is how do
you go from you know, three or four locations to
an IPO in nineteen ninety one.
Speaker 3 (10:54):
Three and four three to four, three or four location
that we're bleeding, we're losing money. You know, I'm always
trying to learn, and probably the most powerful thing in
my life is not the success. It's the learning and
then the action one takes from the learning. And I
had a revelation in the early eighties. I would be
(11:18):
working in one of these French bakeries and people walk
in and say, you know what I want that baguette,
and I'd start to slice it for him. They say, oh,
I don't slice it like bread, slice it from top
to bottom. And I'd hand them the baguette and they
look at me, berry and they and they pull out
a bag from stopping shop and they put yeah, they
put meat on it, bison, you know, cheese, smoke, turkey.
(11:40):
And again you didn't have to have a Harvard MBA
to say, you know, the opportunity is not in the
bread recroissant. The opportunity is and what the bread incroissant
can allow the consumer to do. So we said, instead
of selling the bread and croissant, let's sell the product
they want, which was the sandwich. That allowed us to
create the first of what became many many units, which
(12:02):
was a French bakery cafe up in Copley Square in Boston.
Speaker 2 (12:05):
So that included breakfast quassaws and I'm assuming other breakfast sandwiches,
full launch soup, salad sandwiches, and suddenly it's not just
a two dollars item. Suddenly you're selling actual product.
Speaker 3 (12:20):
And again I'm always looking for what job am I
doing for people? What's the need I'm meeting? And we
were really the first concept at O Bumppen in the
late eighties that was serving white collar folk food that
they wanted with quick service. And so Lou, my partner,
was an extraordinary human being. We worked together till they
(12:43):
passed away. Lou had tremendous real estate connections all over
the East Coast and in the Midwest, and we were
in every major building were here. We were in New
York at Rockefell Center, World Financial Center, World Trade Center,
but it rocks.
Speaker 2 (13:00):
You know.
Speaker 3 (13:00):
The folks would come down and this was the only
place they could get really food that they respected and respected.
Speaker 2 (13:07):
Them quality food at a reasonable price. Reasonable price wasn't
even the the the reason for existence. Our reason for
existence was this was food people really wanted and they
were willing to pay for it. They were willing to
pay more than they could get. When the all terms
were fast food or a lengthy lunch at at a
sit down, there was nothing in between. And I'm thinking
(13:27):
back to that eighties and nineties era. Your choice was
McDonald's or Burger King, maybe pizza hot maybe.
Speaker 3 (13:37):
The pool grill, the four seasons, you know, I mean right,
I mean it was you know back then it was
fast food or fine dining, nothing in between, nothing between.
Speaker 2 (13:47):
And if you had this was a white space, wide open.
Nobody else was there.
Speaker 3 (13:51):
Yeah, I would say that was really true, and I
think this became very hot, this whole French bakery cafe
category and walls all over the Andrew We had everybody
come after us. Pepsi came after us. This was going
to be the third leg of Pepsi food service. Sarah
Lee came after us, a company called Vita Front which
has now gone by the wayside. All of these companies
(14:14):
were larger, had more capital, But the truth was we
ended up running rings around them. We cared more, our
folks were more dedicated, We worked harder, and by nineteen
ninety one we had built this out to probably one
hundred units. We had the highest average unit volumes in
the category. It was very clear we were going to
(14:36):
be the winner, and we went public with Morgan Stanley
in an IPO in June of nineteen ninety one.
Speaker 2 (14:44):
So after the IPO, you eventually acquire Saint Louis Bread
Company later to be renamed Panera Bread. Tell us how
that transformed.
Speaker 3 (14:55):
The key is the learning. So the first thing I
began to realize after the IPO, oh, was that the
market pays for growth, and yet old Boone Penn's growth
at that point was somewhat limited. Obone pen was at
its best in these urban locations. It didn't work in
the malls in LA and so we expanded into a
(15:16):
number of different other businesses. We built an international business.
If the old bone Pen was the best United States
at I denity urban feeding, there were more locations outside America.
We built a manufacturing business. We were manufacturing all of
our product and we were selling it also in supermarkets
product meaning food or ovens, bakers, bakecoods, not not kitchen
(15:39):
quin bacoods. And then third we bought in nineteen ninety
three a business called Saint Louis Bread Company from a
wonderful human being named Ken Rosenthal and Saint Louis. It
was nineteen stories at that point, and I thought this
would be the gateway to the suburban marketplace. At the
same time, I was trying to figure out what was
(16:02):
going on for the consumer, and I was running around
the West coast for about a year or year and
a half with a guy who's now one of my partners,
Dwight Juson, a guy named Scott Davis who was our
concept officer, and we were trying to figure out what
was the themes that were impacting consumers, and we began
(16:24):
to develop a belief that the really important signal that
needed to be read the deeper trend, was that consumers
were rejecting the mass market and they wanted to feel
special in a world which had increasingly become consolidated in oligopolies.
Think Coffee and Miller and I think coffee and Folgers
(16:47):
and Maxwell House beer and I was a Bush and Miller.
Think soft drinks, Coke and Pepsi. Every one of those
in the early nineties had a reaction. You can talk
about Starbucks, you can talk about out what you see
occur with specialty beer. A good friend of mine in Boston,
(17:07):
Jim Cook, developed Adams. Yeah, of course, again a reaction
of the mass market. We saw the same thing as
Cokinpepsi lent itself, doud Waldo and Snapple and four hundred
beverages in seven to eleven, and we began to say
this was a deeper trend. Consumers rejecting that mass market
(17:27):
and want of specialty goods built made the way their
grandparents made it, without chemicals, without preservers, And we said
the same thing was going to happen in the food industry,
and in fact, the same thing was happening in the
bakery industry. Baked bread had once been done in stone
deck ovens that had become three lows for a ninety
ninth sense, as supermarkets and consumers wanted that kind of
(17:51):
quality that they hadn't had, and we're willing to pay
for it. And we began to say there was a
powerful opportunity in specialty food, specialty restaurants, much like there
was this powerful opportunity in specialty coffee, specialty beer, specialty beverages.
And that was the genesis for what became this ideology,
(18:13):
this paradigm that's today called fast casual What it said,
what it spoke to was real food, actually people that
that engaged you, served in environments that excited you, and
ultimately left your sense of self esteem, what you felt
about yourself. It elevated it as opposed to depleting it
(18:35):
as fast food did. The currencies of fast food were
a lot of food for not a lot of money.
The currencies of fast casualties let's do something better for
a bit more money. And the result that category, that
that that understanding is today three hundred billion dollar category.
So let's look just to finish it up.
Speaker 2 (18:53):
We did it.
Speaker 3 (18:55):
Howard Schultz came along about that time. Steve El's a
little bit later, but it was a paradigm that informed
a whole new category. When people said you couldn't do this.
Steve Els is with what Chipotle?
Speaker 2 (19:07):
Chipotle? All right, So let's you mentioned Howard Schultzon's Starbucks.
I think of Starbucks as a coffee shop that serves food.
I think is that food?
Speaker 3 (19:17):
No, I don't want to I'm sorry.
Speaker 2 (19:20):
Well, it's not exactly fresh. I know some of that
stuff has to be frozen.
Speaker 3 (19:26):
No, all of it is.
Speaker 2 (19:27):
All of it is.
Speaker 3 (19:28):
Yeah. I mean these businesses are defined by their systems.
Speaker 1 (19:33):
Huh.
Speaker 3 (19:33):
So when we look at Starbucks and they tried many
times to improve the quality of food, Howard got it.
And in fact we actually I work with them probably
two or three times trying to help them. Think about
that question. We were friends.
Speaker 2 (19:49):
Why would you help your one of your largest competitors
catch up to you on the food space.
Speaker 3 (19:54):
I have to ask that, Well, we were kind of
frind of me. It went back for thirty five years
when he had had you know, four or five stores
in Seattle, and he had you know, we were looking
to bring specialty coffee into O Bom Penn And ultimately
we chose to go take a ownership position a company
(20:15):
called Coffee Connection in Boston, which was the Starbucks of
the East Coast. And and he wanted to buy star
Coffee Connection, and we went through a process. We had
to write a first refusal. We drove up the price,
but we had a friendly robbery. And the truth of
the matter is I profoundly respected Howard.
Speaker 2 (20:33):
I clearly built.
Speaker 3 (20:35):
I respected not just the size of the business, but
he shared with us the same values about really doing
something that delighted customers, that made a difference. He broke
through on design and environment and and and what it
meant and and so you know, we always had this
relationship of both competition and mutual respect.
Speaker 2 (21:00):
That's really fascinating. I'm going to share a Starbucks story
that I bet you haven't heard. I'm curious as to
your thoughts. And I believe Howard Schultz was gone when
this happened, because I can't imagine.
Speaker 3 (21:11):
Howard pulled out of Starbucks I think three or four times, right.
Speaker 2 (21:15):
So during the pandemic, I get two emails on the
same day. The first one is from Delta. Hey, we
know that you've worked hard to achieve your Platinum Medallion
status and the pandemic is a disaster. Don't worry. We're
going to roll your status over next year, when hopefully
things will be back to normal and you'll be flying again.
(21:38):
I'm like, gee, you know, Delta really has their act together.
How thoughtful. The same day, I get an email from Starbucks. Hey,
you've accumulated three hundred and seventeen Starbucks points because you're
here all the time, but unfortunately, due to the pandemic,
these will expire next month. And the third leg of
(22:01):
the stool was a link a story in the Wall
Street Journal that everybody who preloads their credit card onto
the Starbucks apps, we're essentially giving Starbucks a three billion
dollar interest free loan. Sure, And I was so morally
indignant over the You're gonna take our.
Speaker 3 (22:20):
Crappy loyalty points loyalty points.
Speaker 2 (22:22):
Away like it cost you nothing, and you know what,
you're bad players. Get refund my my fifty bucks that's
on the app. I'm deleting the app. Thanks Starbucks for
the past few years. I'm not boycotting you. But you're
like something I'll put up with. And Starbucks to me
(22:44):
today is like McDonald's. I worked at McDonald's for two
days in high school. Have never gone back since. It's
a horrific source of you know, junk food. And I
don't know what they've done in the ensuing one hundred years,
but I don't step foot into McDonald's and I rarely
(23:06):
step foot in Starbucks, Obon and Panera on the other hand,
And I'm not blowing smoke.
Speaker 3 (23:12):
Have you been to our new concept tat I have not.
It's so it's forty five restaurants in Boston and d C.
It's effect. We're opening this week in Ridgewood, New Jersey,
will be opening in Garden City.
Speaker 2 (23:25):
And Garden City's not far from where I live here
in Manhattan.
Speaker 3 (23:29):
It's it's it's it's third wave coffee, It's it's Levon
infused bakeods Levon Israel, Turkey, really in North Africa, Lebanon.
It's fascinating. And then we have chefs in every unit.
We're doing real food again from the levant, but fascinating
real food and doing really significant volumes. Back to your
(23:52):
your story, you know, here's the point Starbucks has been
through many waves. Brian Nichols friend, very good guy. He's
doing the right stuff. He's doing what Howard did when
that business was formed, which is focusing on a competitive
advantage as doing a better job for the guest. If
(24:13):
you don't make a difference for the guests, you have
no right to be in business. And the reality is
in my industry, my industry is the second oldest profession
of the world, of the food industry. If you don't
have a competitive advantage or reason, the customers are walking
past your competitors to choose you. All you're gonna do
is gonna get your market share. And when you get
(24:34):
your market share, this is dirt farming. And that's ultimately
what happened to Starbucks. And what Brian is trying to
do is reassert its points of difference. It's specialness in
a way that delights guests and gets them to come back.
And when you tell your story of Starbucks, it speaks
to how Starbucks was actually diminished by management. It's bad
(24:59):
profit when you're abusing customers, and it's good profit when
you're making a difference in the lives of your guests.
Speaker 2 (25:05):
You have such a fascinating background, and you've dealt with
so many really interesting people in competitive space. We talked
earlier about you being frenemies with Hoard Schultz and Starbucks.
Take me through how you go from ipoing at oh
(25:28):
BoNT pint to acquiring Panero.
Speaker 3 (25:30):
What was that experience like, Well, we didn't acquire Panera.
Speaker 2 (25:34):
We acquired a busin Saint Lewis Bread com.
Speaker 3 (25:36):
We acquired a company called Saint Louis Bread Company. We
recognized the ideology and power of what would later be
called fast casual, real food for real people. We ended
up using Saint Louis Bread Company as a test laboratory
to apply those principles. We changed everything. We took a
(25:56):
unit doing a million dollars a year. We had a
breakfast that took us to a million two fifty. We
changed the environment in big ways that took us to
a million seven to fifty, added a gathering place segment,
and by nineteen ninety five I realized the name Saint
Louis Bread Company was the wrong name to take national,
(26:17):
and we changed the name to Panera Bread And the
big and very important step was really in nineteen ninety eight.
I at that point was running a public company with
four divisions, Oh Bompenn, oh Bon Penn International, Oh Boon
Pen Manufacturing, and this thing called Panera Bread. Panera was
the third largest of them. I have to tell you,
(26:39):
I would look at Panera and say, this brand has
the potential to be nationally dominant. And it wasn't at
that point, but it had It had consistent volumes, and
I was I was struck by the degree to which
the folks that were running it didn't really understand what
growth was going to take and what was going to
hit them. And I was deeply worried. And I was
(27:00):
down to the Caribbean with a friend and I was lamenting.
I was kind of bummed about it. And she looked
at me and she said, Ron, what would you do
if Panera owned Oh Boon Penn the company. The name
of the company was Panera, and it owned all those
other divisions. And I looked at her and I said,
you know what, if I had any guts, I'd monetize
(27:21):
every asset we have. Panera is the gem. It could
be a nationally dominant company. I would take all the
capital from those other businesses. I'd go down there myself
and make it work. And I bring the best human
capital we have. And I'm this kind of person. If
I think about something long enough and I say I'm
going to go do it, I go do it. It
took me three months. I made the decision to go
(27:44):
do it. I brought the idea on my board. They
thought I was crazy. They all had hired on this
company called Oh Boon Penn and not Panera. But eventually
they gave me the room to do it. It was
a bet your job kind of proposition. And over the
next year and a half we sold every other business
but Panera, and I ended up with Panera a bunch
(28:06):
of cash, maybe one hundred and eighty stores, and I
moved a new wife down to Saint Louis, Missouri, and
off we went and running Panera.
Speaker 2 (28:14):
And ten X did up to two thousand stores. Which
how long did that take?
Speaker 3 (28:18):
Well, I will tell you from that point forward the
stock was up one hundredfold. Wow in the early that
happened in I guess ninety nine, early two thousands. You know,
you know, people would later would say to me, Ron,
why didn't you tell me? And I'd look at him
and go, yeah, I know, I look at him, say yo,
(28:40):
I was telling you, nobody wanted to listen. And the
truth of the matter is, for at least a year,
you could have bought my stock at three bucks a share,
which is what it was trading at at that point.
You could have bought my stock at three bucks a
share by the wheelbarrow load.
Speaker 2 (28:56):
And what did you have in cash at the time.
A couple hundred million, so a buck or so and cash. Yeah,
so you're risking two dollars.
Speaker 3 (29:04):
Yeah, you could have bought it, you know, split adjusted,
but you could have bought it. That stock Ultimately three
bucks a share then traded for three point fifteen when
we sold the company seventeen years and that was seven
billion plus yeah seven point eight. Wow, that's almost eight billion.
Speaker 2 (29:18):
And I'm not sure if this is true. According to perplexity,
Panera is either Latin or Spanish for bread basket, Is
that right?
Speaker 3 (29:26):
Yeah? It was actually an empty vessel where we could
put a personality into. Okay, so we weren't looking for
a name. You know, there's no Joey Panera. It's not
my cousin right there. It was really a vehicle to
produce an identity that was rooted in some of you
who were around Panera, no mother Bread.
Speaker 2 (29:46):
So ninety nine everything gets sold off. You accumulate all
this capital. At what point did you start to get
the sense.
Speaker 3 (29:54):
Hey, this is going to work. I know, I actually
knew back then from day No. You know, it's not
that it can't fail. But I see something, I can
feel it. And you know, my definition as an entrepreneur
is I'm I'm a risk avoid I'm not a risk seeker.
But to me, the greatest risk is blowing a powerful idea,
(30:17):
is blowing a market niche that I can see and taste,
and it's for me. It's beholding on me to fulfill that.
And I can literally remember understanding what we had with
Panera back then, and knowing what it could become, and
knowing we had this obligation to help it fulfills its destiny.
(30:37):
I could feel it.
Speaker 2 (30:39):
Huh, that's really fascinating. So twenty seventeen, you sell out
to a private company.
Speaker 3 (30:46):
Well, whoa, whoa, whoa wait, wait, Barry there, we got
a few years, so well get.
Speaker 2 (30:50):
About all right, So twenty years and then men, So
how do we get from fifteen to twenty seventeen?
Speaker 3 (30:54):
Twenty years? Fifteen hundred restaurants and one hundred x in
the stock price.
Speaker 2 (31:01):
So what was that tell us about those two decades?
What was it like growing from you know, fifty stores
to fifteen hundred plus.
Speaker 3 (31:11):
It was a lot of work and a lot of
fun and wonderful people who shared it, who believed in
it deeply, who cared about it. It was a focus
on the guests. It was a focus on something we
call concept essence, this brand's role in the world. And
quite frankly, we really over those roughly twenty years, stayed
(31:35):
highly disciplined. We were never about liquidity, We were never
about trying to sell any sell the company. We were
about running a great company for our guests, producing high
compstore sales through good days, through the Great Recession, going
through all those ups and downs, and we stayed true
to that. We ended up having very strong compstore sales,
(31:58):
very high rois, and we ended up, you know, building
a massive organization.
Speaker 2 (32:03):
What was the biggest challenge during that ramp up? Because
we have all seen companies either over expand or expand
into the wrong food categories or the wrong geographies. Like,
how challenging is that process? Knowing that, hey, either this
is great or it's a disaster, there's almost nothing in
(32:24):
the middle.
Speaker 3 (32:25):
Yeah, I know. It's really funny to me. Running a company,
a small or a very large company is all about
discipline and not getting ahead of your skis. I never
wanted to be a company that had to go through layoffs.
I never wanted to be a company ahead of closed stores.
So I kept trying to say, how do we run
(32:47):
this thing with discipline on what matters, that is satisfying
the guests in a way none of our competitors could.
How do we create differentiation, competitive advantages everything? How do
we create an experience and other people can't do with food?
Other people can't provide with a culture and an experience
when you walk into the store that other people weren't offering.
(33:10):
And it was that that focus on that that never
broke in those twenty years. And I think anybody who
worked for me knew that.
Speaker 2 (33:17):
Huh, that's really fascinating. So now, fifteen hundred stores seventeen
years later.
Speaker 3 (33:24):
Maybe with seventeen hundred stories, but keep going.
Speaker 2 (33:26):
Okay, almost two thousand stores today, what led you just
to decide, all right, these guys really want to throw
a dumb amount of money at me.
Speaker 3 (33:37):
I'll take it, well, we have to we have to
make one stop along the way.
Speaker 2 (33:40):
Okay.
Speaker 3 (33:40):
So I you know, as I told you, I have
this other love politics and trying to fix the world.
And I fundamentally believe, as in business, the ability to
think long term is what was the key to up
an Era and the way we approached it. I also
think that in our civic society, being able to think
long term had come together as a country as powerful.
(34:03):
I would often think that Chinese have twenty year plans,
and you know, we can't agree on a budget for
twenty months, and today we can't agree on taris for
twenty hours. But the truth in the matter is back
in eighth nine, I felt this desire to take what
I'd learned in running large organizations and apply it in
(34:23):
civic society, and I had some discussions with the Obama administration.
I couldn't step down to do that because of my
commitment to Panera, and I made the decision I wanted
to step down, jump off the high diving board and
see what it felt like applying myself elsewhere. I made
that decision. I stepped down as CEO, staate as executive chairman.
(34:45):
I created something called Paneric Cares, which were these cafes,
cafes have shared responsibility, no set prices. It was quite
an interesting experiment in humanity. We opened five of them.
I also went off and helped co form an organation
called No Labels, which was about reducing again the hyper
partisan I ever called No Labels, yet I was one
(35:06):
of the folks that were really the founders of that.
And I'm out as executive chair for about a year
or two, and I was still doing acquisitions. I was
still the largest shareholder and doing some consumer work. And
I came back one weekend around twoy ten eleven and
I sat down at a computer and I wrote a
vision for how I would compete with Pinera. And that
(35:28):
vision essentially called for digital access. None of that existed
in twenty eleven. It called for loyalty. Very little of
that was in this country. Tesco it formed it in
the UK had come to Kroger. We called for loyalty.
We called for omlilety meaning like system, the reward system. Yes,
how do you find a way to build a deeper
(35:48):
personal connection with guests. It called for clean food, free
of all artificial chemicals, preservatives, and.
Speaker 2 (35:57):
The minimal process, yes, and no little additives of annie
if any exactly.
Speaker 3 (36:02):
And then I'm the channel approach. And I brought this
this memo into my very dear friend, gentleman. I love
Bill Morton, who was our CEO. He'd been my CFO
for two decades. And I shared it with Bill and
he took a look at and said, would you go
work on it? And I said, you know I would.
And a year later, the executive chairman is working eighty me.
(36:26):
I'm working eighty hours a week, having the time of
my life building up a prototype for technology and digital
access and clean food. And Bill comes to me and
says he can't travel when I come back as CEO.
We fought over for about a year. I didn't really
want to come back and do what I had done
(36:46):
as CEO, but he couldn't travel and it was required.
So I came back a CEO. I put all that
plan in place. It was horrific at paneroh yeah, and
it did not work. I spent one hundred and fifteen million.
It was that the transformation was huge. Okay, so well
let me get there. I mean I had activists along
(37:08):
the way. One of my partners in Act three today
was the activist who attack me. I had a lot
of fun with him. I could never tell anybody actually
respected him. Name Noah Elbogin, okay, but I couldn't tell
anybody that. But I actually grew to like him and
today he works with me. But at any rate, So
those years twenty fourteen, fifteen sixteen, anytime you go through transformation,
(37:31):
anytime you change something, and this was probably the largest
transformation in a large public restaurant company. It was difficult.
I remember when we were driving technology. Were the first
real restaurant technology in an integrated way. Again, I used
to call technology the social security of Panera. It was
only a matter of time till it was one hundred
(37:52):
percent of our revenue, and we were committed to this
and we did it. By twenty sixteen, our comps were
pushing double digits again. Ibadah was up thirty five percent.
The company was rocking. Starbucks made an approached us to
buy us. That didn't. We go forward and in twenty
(38:12):
seventeen the leadership of JB which was a European money manager,
came calling and they had fallen in love. And frankly,
my view of a business is I spent all of
my time building it. But when somebody's in love, that
always provides the opportunity to harvest.
Speaker 2 (38:34):
So Starbucks comes knocking. Were they offering a stock deal?
Was it remotely close to the nearly eight billion that
JB came up with.
Speaker 3 (38:44):
If you read my book, you read the whole story,
But I think the Starbucks deal was around two forty
a share. The JB deal was done at three fifteen,
much more ass six months after the Starbucks discussion, and frankly,
the Starbucks discussions didn't reach conclusion. It was at that
(39:07):
point that Howard was making his own decisions about stepping
down and replacing himself with Kevin Johnson and my senses,
they did not want to take on an acquisition like
Panera at that moment, so our stock price got ahead
of itself. They couldn't do the deal. So the Starbucks
deal didn't didn't go forward.
Speaker 2 (39:26):
But at the very least it's set a floor for
future discussions with whomever.
Speaker 3 (39:31):
Well, it wasn't public, so we had we I mean
to be honest with you, we had had this these
discussions that two forty a share with Starbucks. It didn't
go forward, and when we began with JB. And again
you can read the book it. You know, I think
it started in the high two hundreds. By the time
we were done, they were paying three fifteen for it.
Speaker 1 (39:53):
Wow.
Speaker 2 (39:53):
And the book is know what matters, lessons from a
lifetime of transformations. All right, So let's talk about Act three,
which I don't mean that in the Shakespearean sense, but
you launched Act three Holdings to invest in new brands.
Tell us about the motivations for that.
Speaker 3 (40:11):
Well, after I I had sold Paneria, I didn't know
where I was headed. There was a discussion with JB
about joining them as a partner.
Speaker 2 (40:21):
And and this is the big European investment shop they
took uh took over.
Speaker 3 (40:26):
Yeah, but I it wasn't for me. And and I
was doing a bunch of speaking about the pervasive short
termism in our capital markets and and how I thought
it had been it had an untoward impact frankly on
innovation and GDP growth. And and one of my now
partners and who've been my chief concert officer of Panera,
(40:48):
was a gentleman named Keith Pascal, And he said, why
why don't you take some of your money? You made
all this money, Why don't you take some of it,
and and and and and invest it in the long term, uh,
with a long term focus. And I thought about it,
and that I had been out of Panera about two
months at this point, and I actually had an idea.
(41:09):
And the idea I had it was a company. I
basically had had deep belief that the Mediterranean category had
the potential to be the next major culinary category.
Speaker 2 (41:23):
Oh that's really interesting.
Speaker 3 (41:25):
Oh it's obvious. I mean it was the number one
diet in America, Mediterranean. Every time I went to the doctor,
they were doing a commercial for Mediterranean. It's bold flavors,
but it's flavors that feel safe. It's also craveable wellness.
It's healthy, it's good for you, and it tastes good.
And it was very clear this category had power. And
I had made an investment in a very small company
(41:48):
in the DVM DMV, which was down in DC Calcava
when it was two restaurants. I knew them, and I
had a restaurant company. As I had left, Panera approached
me called Zoways, asked me if I would join their board,
that'd give me warrants of, you know, in ten percent
(42:08):
of the company or something to see if I could
help them compete. And I looked at them and I
thought to myself, wow, And at the same time Cave
the guys at COVID asked me if I joined their board.
I thought to myself, you know, this is an industry,
the food industry, in which in every major category winner
(42:31):
takes all. You know, you can talk McDonald's and Burking,
Panera and Corner Bakery, you can talk Chipotle and Quadoba.
And I said, somebody is going to win a Mediterranean
and there is a powerful potential to take Zoe's. To
buy this company, Zoe's, which was about two and fifty restaurants,
(42:51):
take the culinary skills of Kava, merge them together, and
end up with the you know, clearly ten x dominant
in the Mediterranean category. And I thought I might do
this well. COVID asked me to join their board. I
went to their CEO, Brett Schulman, with this idea and
I said, and he said, before you you know, you
(43:12):
better talk to my board about it. I went to
a meeting with the board. I pitched them on the
idea of buying a company five times larger and then
merging with them. Ultimately, they asked they wanted to do
the acquisition. I agreed to finance the dealer at least
half of the capital they needed, about one hundred and
fifty million I put into it, and I became, you know,
(43:34):
one of the very largest shareholders, and I became chairman
of the company.
Speaker 2 (43:38):
And how large is COVID today.
Speaker 3 (43:40):
Well, it went public about eighteen months ago. It stock
was up as high as seven x since the IPO,
it's now up five x. It's a it was, it's
a ten billion dollar market cap company. It treated as
highest sixteen billion. It's perceived by the market, frankly as
(44:05):
has the potential to be the next Chipotle, the next Panera.
It's a powerful brand with an amazing management team led
by Brett Schulman. And I'm pleased to say we've been
able to help them along the way, know what they
needed to do to become the kind of great company
it is today.
Speaker 2 (44:22):
Let me push back a little bit on Winner Take All,
even though I'm a big believer in that as a reality.
But McDonald seems to have gotten kind of old and stale.
And along comes Shakeshack and a dozen other five guys
and down the round and it suddenly seems like in
(44:43):
the burger space as an example, there's increasing competition and
it's no longer Mickey dies as the only winner. Is
that just what happens eventually or what's your perspective.
Speaker 3 (44:58):
On Well, first, let me let me share with you something.
Danny Meyer, who is the brilliant a chairman, very dear friend,
chairman really of Shakeshack. He's a dear friend. But my
son actually works at Shakeshack in operations, and so I
have great affinity for those guys. But here's the truth.
McDonald's is worth what seventy five billion, one hundred billion.
(45:21):
I mean, it's it's got a huge market cap. There
isn't another hamburger business that's got a market cap anywhere
near that, and that's what we're talking about.
Speaker 2 (45:31):
But they got a sixty five year head start, seventy
five year head start over.
Speaker 3 (45:36):
Yeah, that's what I mean. Winner takes all. When you
have a position of dominance in a category, you win.
Now you can be niched, and niches come along and
they redefine themselves and they can in themselves become a category.
But ultimately, this is an industry in which scale matters.
It matters as you spread the overhead, and it's a
winner take all industry.
Speaker 2 (45:57):
I'm looking at a lot of the winners of the past,
and I know they are all different industries, whether it's
general electric, or seers.
Speaker 3 (46:06):
Or or retail. You're a great investor and a smart man,
but you're confusing two things. One dominance of a category
and then what happens to businesses as they lose their
competitive event exactly, So, let me share with you a
principle that was very clear to me. When businesses form,
(46:28):
it requires a powerful, powerful effort by somebody to discover
a better alternative. Because you have no scale, You've got
to get customers to walk across the street, you have
no purchasing, no ability to access to capital. When a
business starts to get some success because it's actually worked,
capital comes in. And as capital comes in, people began
(46:52):
to say, you know, we know you've discovered something better,
but we need to figure out how to be more efficient,
how to run it better. And what old happens is
you bring in what we would call discover delivery people.
Delivery people are about improving the margins, about purchasing, about
financial planning, and often in companies and particularly in my
(47:12):
industry as they approach a billion dollars, the discovery people
and the delivery people, they ultimately do well together. At
the beginning, the margins get better, but ultimately there's conflict
in friction. Sure, the language of discovery is the language
of could you imagine, let's try this, what would happen
if it's poetry. The language of delivery is financial planning.
(47:35):
Prove it to me. I want to see the numbers.
I don't believe it, logistics numbers. It's got to be proven.
And what ends up happening is the delivery capabilities of
most companies drive out the discovery capabilities, and companies that
were once very effective they become more and more reliant
(47:55):
on efficiency. And what happens typically in many companies is
they get very good, very efficient at doing what the
marketplace wanted from them five years ago, ten years ago,
twenty years ago, and not very effective at figuring out
what the consumer of tomorrow wants.
Speaker 2 (48:14):
There's a wonderful pull Gram quote that goes all experts
are experts in the way the world used to be exactly.
Speaker 3 (48:23):
And so my point to you is, once we define
the categories dominance matters, somebody will own. The reason the
market is paying upwards of has been paying upwards of
fifteen billion dollars of valuation on Kava. This thing is
four hundred restaurants. I mean, we've had valuations of thirty
(48:45):
to forty million dollars a restaurant. What is the market
paying for. They're paying for the future. They're paying for
an expectation that this business will will will take form
as one of the great companies in this country. The
question that's dominant of a category now. The challenge to
the team at Kava is staying on that edge, staying
(49:06):
on that wave, is continuing to discover, which is why
the role of CEO in so many companies in my view,
is to be the innovator in chief and lead that discovery,
because if the CEO isn't doing it isn't going to happen. Huh.
Speaker 2 (49:20):
That's really interesting. So I want to talk about some
of the companies that AC three has invested in, but
let's get a little broader view. Tell us about ACT three,
What are you doing? What's the philosophy here?
Speaker 3 (49:32):
So after we we we helped form the modern Kava
and invested in that. I had also had had a
company I'd bought four Panera called TAT, which a large
stake in it with its founder a zerid Or when
I when I left Panera, I took with me Panera's
interest in TAT and we decided to take our own money.
(49:58):
I took, you know, roughly a quarter of a billion
dollars of my own money and number of people who
decided to join me. They co invested, and we decided
to put that money to work investing in growth companies
with a couple of very simple principles. The number one
(50:19):
principle was founder friendly capital. We think that in growth concepts,
the last thing they need to do is do fundraising.
Is if it's an annual life cycle event. You know, literally,
the last thing that needs to happen is money raising
needs to an annual event. So we come along and
we make an investment, hopefully at a reasonable valuation, but
(50:43):
we then take a write a first refusal with a
pre agreed to valuation multiple at all follow on rounds,
and we've never turned that down. So all of our
investments know that they essentially never have to raise money
again to worry about it. So all the money is there,
it's already negotiated It also allows us to consolidate up
our position. That's principal one. It's common stock and no
(51:07):
dilute of no pref terms. Number two we practice will
be called Sherpa management. So almost every private equity firm
that makes investments, their people are financial. They're in the
boardroom often asking what the next liquidity event is. Of
our twenty five people, only one of them is financially driven.
As I said, Noah Elbogan, our former activist. Everybody else
(51:29):
our senior C suite executives. I've got a guy who's
opened five thousand retail stores. I've got another guy who's
my partner, Dwight Juson, who was with us for twenty
years and really invented fast casual. My joke with him
is from his brain to my lips. I make the speech,
he's the one who does the thinking. We have another partner,
(51:51):
Chuck Chapman, who's extraordinary. Was with Darden, was with Berkshire,
Hathaway and Dairy Queen, was with Bruger's, Isn't it was
on my board, was the CEO at Panera. He's great
at scaling and building these businesses. I've got a major
technology group that has the capability of knowing what's going
(52:14):
to work in three years at any rate. When we're
sitting in a boardroom, we're there as a sherpa, and
I have a simple expression. Building a nationally dominant business
is tougher than climbing Mount Everest. Very few people ever
do it. Nobody goes up Mount Everest without a sharpa.
Why don't you understand that you will be well served
(52:35):
if you have a shurpa as you build a nationally
dominant company. We're in that boardroom, we're talking to management
about how to make sure they don't fall off the
side of the mountain, how they don't make sure they
don't trip up and fall. And frankly, we've been very
successful in helping build these dominant companies in these core categories.
And then the last Barry, the last principle is I
(52:59):
told you when we began and talking, we believe deeply
in competitive advantage. We only invest where we have competitive advantage.
What AC three is really good at is we have
one hundreds of years of pattern recognition in this industry.
We know what categories are going to have a wind
at their back, and we know how to help these
(53:19):
companies build the dominant position in that category. And frankly,
we now are involved with seven companies. We've yet to
have anything other than a huge success.
Speaker 2 (53:30):
Huh. That's really fascinating. Let's talk quickly about two of
the companies that you've invested in besides Cava. One is
Life Alive and the other is Level ninety nine.
Speaker 3 (53:41):
Tell us about those. Sure, so, Life Alive is positive eating.
Look at forty percent of America is trying to eat better.
The question is where do you go to do that?
How do you do it? This is mostly vegetables. It's
really good. We've owned it for seven or eight years.
We've nursed, they cared for watch the grow very high volume. Today,
(54:04):
somebody is going to own the plan forward category. We
hope that this is the concept that's the dominant player.
Speaker 2 (54:10):
In that And Level ninety nine.
Speaker 3 (54:11):
Elevin nine is another interesting one. This is immersive social entertainment.
It's forty thousand square feet of challenges. It was created.
It's forty thousand square feet of challenges with a farm,
the table, restaurant, and a brewery in the middle of it.
It was created by a gentleman named Matt de Plessi.
We met Matt before he opened one of them. He's
(54:34):
out of out of Mit Harvard Business School and spent
twenty years working with Disney and their folks. Very experienced
in entertainment. He had the vision for this business. We
put up the capitol. We're partners in it with him,
and it is stunning to go to one of these.
Where in Natick, Massachusetts. We're in Providence, Rhode Island. We're
(54:57):
opening in Disney World. We're opening in Tyson's Corner, and
this summer you'll see us in locations across America. This
is a kind of busy. We'll have three thousand people
on a Saturday night. It's an unbelievable experience and with
extraordinary margins, it may be one of the best businesses
I've ever been involved in.
Speaker 2 (55:18):
Wow, that's amazing. All Right, I only have you for
a few moments, so let's jump to our speed round.
Five quick questions thirty seconds each, starting with what's keeping
you entertain these days? What are you streaming or watching
or listening to?
Speaker 3 (55:32):
Well, what's keeping me entertained is my kids. Yeah, I
have a twenty six year old and a twenty one
year old. But what I'm watching? The thing I just
finished was watching White Lotus with my son. I loved it.
I mean, we have a house on an island called
Jumbie Bay off of Antigua, and it reminds us of
where we live and just what really goes on between
(55:53):
people is always the most fascinating to me. I love people.
Speaker 2 (55:55):
Tell us about your mentors, who helped shape your career?
Speaker 3 (56:00):
If anybody helped shape me, but I would say lu Caine,
who was twenty five years my senior and my partner
in many years, taught me what it meant to be
a stand up guy. I love this man. He was
a huge influence. I also say my dad, who was
a CPA, but again, knew how to deal with people,
(56:20):
talk to people, care about people, and I respected him
as a business person.
Speaker 2 (56:25):
What about books? What are some of your favorites?
Speaker 3 (56:27):
What are you reading right now? Oh goodness. The last
night I was reading a book on Australia. I'm going
to Australia with my daughter in two weeks, so I
skim read that. But I ten, you know, I just
reread Daniel Caineman passed away. I think I'm pronouncing his
(56:48):
name right, but he wrote fast and flow.
Speaker 2 (56:52):
Slow, fast and slow economy.
Speaker 3 (56:54):
I had read it years ago. I just reread it again.
I love it. It's behavioral economics, behavioral findance. It's about
how people work, and to me, my life probably if
there's one thing that that's a central organizing principle is
trying to figure out what makes people tick.
Speaker 2 (57:10):
H really interesting. Our final two questions what sort of
advice would you give to a recent college grad interested
in a career in food service or franchising.
Speaker 3 (57:22):
I'd say, I'd say, get out and understand what it
is to be an operator. Understand what it is to
run a business. The action isn't in the office, it's
not in the support center. The actions in the field,
it's in the stores. And most importantly, my advice to
you is figure out not the right career path, but
figure out what you care about, what you can do well,
(57:44):
and then go do it.
Speaker 2 (57:46):
And our final question, what do you know about the
world of building a restaurant? For lack of a better word,
empire today that might have been useful back in the
late eighties.
Speaker 3 (57:59):
Trust yourself, really, you know, I think some of you know.
Guys like me, I don't know. I always you know.
Your second guest, you wonder you listen to every advisor,
and one of the things you gain with a little
more age is a perspective that I actually knew what
I was doing, staying focused on that customer, staying focused
(58:19):
on on the on the end of delivering a better
guest experience, and understanding the byproduct would be financial success.
It wasn't the end.
Speaker 2 (58:29):
Thanks Ron for being so generous with your time. We
have been speaking with Ron Shake. He is the former
CEO and chairman of Panera, Bread and Obo Pah and
all those other companies. If you enjoy this conversation, check
out any of the five hundred and fifty we've done
over the past eleven years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
(58:54):
or wherever you find your favorite podcasts. Be sure to
check out my new best selling book, How Not to
Invest The Ideas, numbers, and behaviors that destroy wealth and
how to avoid them How Not to Invest wherever you
find your favorite books. I would be remiss if I
(59:15):
did not thank the Cracked team that helps put these
conversations together each week. John Wasserman is my audio engineer.
Jean Russo is my researcher. Anna Luke is my producer
Sage Bauman is the head of podcasts here at Bloomberg.
I'm Barry Retoltz. You've been listening to Masters in Business
(59:35):
on Bloomberg Radio.
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Introducing… Aubrey O’Day Diddy’s former protege, television personality, platinum selling music artist, Danity Kane alum Aubrey O’Day joins veteran journalists Amy Robach and TJ Holmes to provide a unique perspective on the trial that has captivated the attention of the nation. Join them throughout the trial as they discuss, debate, and dissect every detail, every aspect of the proceedings. Aubrey will offer her opinions and expertise, as only she is qualified to do given her first-hand knowledge. From her days on Making the Band, as she emerged as the breakout star, the truth of the situation would be the opposite of the glitz and glamour. Listen throughout every minute of the trial, for this exclusive coverage. Amy Robach and TJ Holmes present Aubrey O’Day, Covering the Diddy Trial, an iHeartRadio podcast.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
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