Panera Bread Founder Ron Shaich on Fast Casual Dining
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio. 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 Panera Bread concept.

which now has 2,000 locations and does about $6.5 billion. He sold the company in 2017 or so for about $7.5 billion. He now runs Act 3, which is a fascinating sort of

Venture Funds, one of their big firms, is Kava, Fast Manor Rating 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...

to Shake Shack, all those people travel 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 En Bopin and Panera Bread, Ron Shake.

Ron Shaik, welcome to Bloomberg. Thank you, Barry. Good to see you. 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&P. Are those data points right? Yes. But to be clear, I sold Panera in 2017.

and have not had anything to do with it since then. But I am today a lead investor and the chairman at Kava. Help take that thing public. We're going to talk about Kava. We're going to talk about Know What Matters, the book you wrote, Lessons from a Lifetime of Transformation. But let me roll this all the way back to your education. Bachelors from Clark in 1976, MBA from Harvard in 78. Don't hold that against me. What was the career plan?

By the way, you are not the first Harvard MBA I've had in the studio. Okay. I guess I would say to you this. I never really had a career plan. I had a drive to make a difference. 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 when I was doing business...

I brought a strategic or political context to it. When I was doing politics or political campaign management, it was a business. Put another way, a business is an election that never ends. A political campaign is a business that has one judgment day, the election day. 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? - I didn't, no. 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 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 these guys our money? Why don't we create our own student-run store? And I was able to tax. Campus Co-op. 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 was going to go to law school, like you, Barry, and had never, you know, I couldn't dance, I couldn't sing. How was your outside shot? 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 involved in. Really? It's live performance art. Yeah. And I love food. I love retail. I love running the place. I love the people. And it became sort of a,

a way I live my life. - That's really fascinating. So that tees up what becomes at least the first part of your career. Tell us about the work you did at a cookie company. - Oh, I started a cookie company. So I got out of business school. I took what I call the third year of the MBA.

I went to learn, I went to work for a company called Cole National and help run a part of their company called The Original Cookie Company. I remember that. Do you? Oh, sure. It was in the malls. Right, that's right. Yeah, 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 U.S. Senate billboard up and I came back and wanted to do political campaigns and I

I couldn't get a job and I decided I was going to try to open my own cookie store and at that point all the 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 entranceway to the downtown and the financial district. I thought, why don't I open a cookie store there? And in fact, I ultimately found the job in political campaign consulting. But while I was down in DC, I was offered a location near Park Street Station. I thought I'd come back one day a week. I ended up

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 Au Bon Pain. And that company, which we created in 1981, was the company I sold for $7.8 billion, literally, in 2017. So let's go back to that acquisition. Yeah.

Again, and I don't remember if I read this in the book or somewhere else,

Nobody buys cookies before noon. This is a challenge, yes. Right? But croissant and baked breads and other goods like that, that's perfect breakfast fare. Was that the obvious, let's combine these two, we'll cover the whole day, as long as we're paying rent for 24 hours? Well, yeah. I mean, I'm running this cookie store for about six months, having to time my life. But as you said, nobody was buying cookies before 12 noon, and I had about 50,000 people a day walking by me. So

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 a French bakery. And there was a number that were actually in that business. I hooked up with a group called Au Bon Pain.

And they had at that point three bakeries. They had at one point opened, I think, 13 of them, close 10 of them. I didn't fully understand they were on the edge of bankruptcy, but I did a deal with them. I became their licensee for this one square block.

So a little background about that. The predecessor of one of the companies, and I don't remember if this was Au Bon Pain or something else, was Pavilion, a French manufacturer of ovens. Pavilion. We got to work on your French, Barry. Well, je pense plus, but not very well. If I'm going to Paris, I'll bone up. Pali vous francais. Un petit peu. Un petit peu. So-

They were setting up bakeries in order to sell their ovens. It sounds like you said, hey, forget the ovens. Let's sell the baked goods. Well, actually, Pavier founded Au Bon Pain. A group bought the company. It was led by the man who became my partner of over two decades, a gentleman named Lou Kane. Lou Kane and his partners bought the—

Au Bon Pain from Pavier. And to be clear, they essentially thought they could grow this

across North America. And they were sort of delusions of grandeur. They were right, they just had the wrong operator. 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 personal real estate. As I said, opening 13 units, of which by the time I came along, they had closed 10 of them. So you licensed the spot. How does that lead to eventually purchasing over...

Au Bon Pas. Well, I'm their licensee for about six months. And I began to become friends with their CEO, a gentleman named Lou Kane, who 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 to work for, I wanted to build. And I went to Lou with an idea.

And the idea was we would merge our two companies. My one cookie store, his three French bakeries and their $3 million in debt. I had the cash cow, they had the three stores. And I really thought I could operate my way out of the business. And what ended up happening is I received 60% of the company,

Lou and his partners kept 40% of the new company. And then we went marching off. That company, Obom Pen Co Inc., was the company I ended up running for nearly 37 years.

So 37 years and along the way you IPO in 1991. 27 years as a public company CEO Barry longer than Cal Ripken played baseball. That's unbelievable. And I'm still standing. That's unbelievable. Weak knees but I'm still standing. You know Warren Buffett and

Jamie Dimon, probably your two competitors. - Well, someone said I had a better performance than Warren Buffett in my last 20 years as a public company CEO. - Well, he's back loaded, so he began strong and then did okay afterwards. But what's really fascinating is how do you go from three or four locations to an IPO in 1991? - Three or four locations that were bleeding. We were 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 2000s.

I would be 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 them. They'd say, no, don't slice it like bread. Slice it from top to bottom. And I'd hand them the baguette and they'd look at me, Barry, and they'd pull out a bag from Stop and Shop.

And they put meat on it, boursin, cheese, smoked turkey. And again, you didn't have to have a Harvard MBA to say, you know, the opportunity is not in the bread or croissant. The opportunity is in what the bread and croissant 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 was a French bakery cafe up in Copley Square in Boston. So that included breakfast, croissants, and I'm assuming other breakfast sandwiches, full lunch, soup, salad, sandwiches. Oh, yes, the whole thing.

And suddenly, it's not just a $2 item. Suddenly, you're selling actual product. 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 Au Bon Pain in the late 80s 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 until he passed away. Lou had tremendous real estate connections all over the East Coast and

And in the Midwest. And we were in every major building. Here we were in New York at Rockefeller Center, World Financial Center, World Trade Center. But at Rock Center, the folks would come down. And this was the only place they could get really food that they respected and respected them. Quality food at a reasonable price, reasonably quickly. Price wasn't even 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 alternatives were fast food or a lengthy lunch at a sit-down restaurant. There was nothing in between. And I'm thinking back to that 80s and 90s era. Yeah.

Your choice was McDonald's or Burger King, maybe Pizza Hut, maybe Taco Bell. Or the pool grill at 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 in between. And if you had 30 minutes for that. This was a white space, wide open. Nobody else was there? Yeah, I would say that was really true. And I think this became very hot.

this whole French bakery cafe category and malls all over the country. 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 France, which has now gone by the wayside. All of these companies 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 1991, we had built this out to probably 100 units,

We had the highest average unit volumes in the category. It was very clear we were going to be the winner. And we went public with Morgan Stanley in an IPO in June of 1991. So after the IPO, you eventually acquire St. Louis Bread Company, later to be renamed Panera Bread.

Tell us how that transformed the entire relationship. The key is the learning. So the first thing I began to realize after the IPO was that the market pays for growth.

And yet, Au Bon Pain's growth at that point was somewhat limited. Au Bon Pain was at its best in these urban locations. It didn't work in the malls in LA. And so we expanded into a number of different other businesses. We built an international business. Au Bon Pain was the best in the United States at high-density 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 across the- Product meaning food or ovens and kitchen equipment? Bake goods, bake goods. Not kitchen equipment, bake goods. And then third, we bought in 19-

a business called St. Louis Bread Company from a wonderful human being named Ken Rosenthal in St. Louis. It was 19 stores 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 going on for the consumer, and I was running around the West Coast for about a year or a year and a half with a guy who's now one of my partners, Dwight Jusin,

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 to develop a, 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 and oligopolies think coffee and, um,

Miller and I think coffee and Folgers and Maxwell House, beer and Iser Bush and Miller. Think soft drinks, Coke and Pepsi. Every one of those in the early 90s had a reaction. You can talk about Starbucks. You can talk about Wafers.

what you see occur with specialty beer. A good friend of mine in Boston, Jim Cook, developed Sam Adams. - Sam Adams, yeah, sure, of course. - Again, a reaction of the mass market. We saw the same thing as Coke and Pepsi lent itself to Advaldo and Snapple and 400 beverages in

And we began to say this was a deeper trend. Consumers rejecting that mass market and wanted specialty goods 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 breads had once been done in stone deck ovens. That had become three lows for 99 cents at supermarkets. And...

Consumers wanted that kind of quality that they had and were 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, this paradigm that's today called fast casual. What it said, what it spoke to was real food, actually people 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 as fast food did. The currencies of fast food were a lot of food for not a lot of money. The currencies of fast casualty is let's do something better for a bit more money. And the result?

That category, that understanding is today a $300 billion category. So let's talk. Just to finish it up. We did it. Howard Schultz came along about that time. Steve Ells a little bit later. But it was a paradigm that informed a whole new category when people said you couldn't do this. Steve Ells is with what? Chipotle. Chipotle. All right. So you mentioned Howard Schultz and Starbucks. Yes.

I think of Starbucks as a coffee shop that serves food. Is that food? No, I don't want to talk about it. Sorry. Well, it's not exactly fresh. I know some of that stuff has to be frozen. No, all of it is. All of it is. Yeah, I mean, these businesses are defined by their systems. 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 worked with him probably two or three times trying to help him think about that question. We were friends. Why would you help one of your largest competitors catch up to you on the food space? I have to ask that.

Well, we were kind of frenemies. It went back for 35 years when he had, you know, four or five stores in Seattle. And he had, you know, we were looking to bring specialty coffee into Au Bon Pain. And ultimately, we chose to go take up ownership position, a company called Coffee Connection in Boston, which was the Starbucks of the East Coast. And he wanted to buy Coffee Connection in Boston.

We went through a process. We had a right of first refusal. We drove up the price. But we had a friendly robbery. And the truth of the matter is, I profoundly respected Howard. Clearly, he's built an amazing business. 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 issues.

and what it meant. And so, you know, we always had this relationship of both competition and mutual respect. Huh, 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. Howard pulled out of Starbucks, I think, three or four times. 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. 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 317 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 the stool was a link, a story in the Wall Street Journal that everybody who preloads their credit card onto the Starbucks apps were

we're essentially giving Starbucks a $3 billion interest-free loan. And I was so morally indignant over the, you're going to take our crappy loyalty points away? Like, they cost you nothing. And you know what? You're bad players.

Refund my 50 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 today, is like McDonald's. It is. 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 hundred years, but I don't step foot into McDonald's and I rarely step foot in Starbucks. Au Bon Pain and Panera, on the other hand, and I'm not blowing smoke. Have you been to our new concept, Tate? I have not. It's 45 restaurants in Boston and D.C. In fact, we're opening...

This week in Ridgewood, New Jersey, we'll be opening in Garden City. - Garden City's not far from where I live. I will definitely check it out. - Here in Manhattan, it's third wave coffee. It's Levant-infused baked goods, Levant, Israel, Turkey. - Really? How interesting. - And North Africa, Lebanon. It's fascinating. And then we have chefs in every unit. We're doing real food.

from the Levant, but, but fascinating real food and doing really significant volumes. Back to your, your story. Yeah. You know, here's the point. Starbucks has been through many waves. Um,

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 you don't make a difference for the guest, you have no right to be in business. And the reality is in my industry,

My industry is the second oldest profession in the world, the food industry. If you don't have a competitive advantage, a reason that customers are walking past your competitors to choose you, all you're going to do is going to get your market share. And when you get 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, its specialness in a way that –

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 profit when you're abusing customers and it's good profit when you're making a difference in the lives of your guests. You know, ETF volumes tend to go up in a crisis situation. You know, when the going gets tough, they get going. Why? Because they are a source of liquidity when other things are not that liquid, which is exactly why the SEC sort of sketched the ETF design out back in 1988 after the Black Monday.

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space. We talked earlier about you being frenemies with Harrod Schultz and Starbucks. Take me through how you go from IPO-ing at Au Bon Pain to acquiring Panera. What was that experience like?

Well, we didn't acquire Panera. We acquired a business. St. Louis Bread Company. We acquired a company called St. 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 Panera.

St. Louis Bread Company as a test laboratory to apply those principles. We changed everything. We took a unit doing a million dollars a year. We added breakfast. That took us to a million 250. We changed the environment in big ways. That took us to a million 750, added a gathering place segment, and by...

1995, I realized the name St. Louis Bread Company was the wrong name to take national, and we changed the name to Panera Bread. And the big and very important step was really in 1998,

I, at that point, was running a public company with four divisions, Au Bon Pain, Au Bon Pain International, Au Bon Pain Manufacturing, and this thing called Panera Bread. Panera was the third largest of them. I have to tell you, 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. It had consistent volumes. And I was struck by the degree to which the folks that were running it

didn't really understand what growth was gonna take and what was gonna hit 'em. And I was deeply worried. And I was down in 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 Au Bon Pain, 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 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'd 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 do it. I brought the idea to my board. They thought I was crazy. They all had hired on to this company called Au Bon Pain 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 of cash, maybe 180 stores. And I moved a new wife down to St. Louis, Missouri. And off we went in running Panera. And 10Xed it up to 2,000 stores, which how long did that take? Well, I will tell you, from that point forward, the stock was up 100 fold. Wow. In the early...

That happened in, I guess, 99, early 2000s. People later would say to me, Ron, why didn't you tell me? And I'd look at them and go, yo. How did I know? I'd look at them and say, yo, a**hole.

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 I was trading at at that point. You could have bought my stock at three bucks a share by the wheelbarrow load.

And what did you have in cash at the time? A couple hundred million. So a buck or so in cash, a share of cash. So you're risking $2. Yeah, you could have bought it split adjusted, but you could have bought it. That stock ultimately, three bucks a share then traded for 315 when we sold the company 17 years later. And that was 7 billion plus. Yeah, 7.8. Wow, that's almost 8 billion. And I'm not sure if this is true-

According to perplexity, Panera is either Latin or Spanish for bread basket. Is that right? Yeah, it was actually an empty vessel where we could put a personality into. So we weren't looking for a name. There's no Joey Panera. It's not my cousin. It was really a vehicle to produce an identity that was rooted in some of you who were around Panera know Mother Bread.

So 99, everything gets sold off. You accumulate all this capital. At what point did you start to get the sense, hey, this is going to work? Did it take you a year or two? I know. I actually knew back then. From day one. You're like, this can't fail. It's not that it can't fail, but I see something. I can feel it. And my definition as an entrepreneur is I'm a risk avoider.

I'm not a risk seeker. But to me, the greatest risk is blowing a powerful idea, is blowing a market niche that I can see and taste. And it's for me, it's beholden 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 fulfill its destiny. I could feel it.

Huh. That's really fascinating. So 2017, you sell out to a private company. Whoa, whoa, whoa, whoa. Wait, wait, Barry. We've got a few years. All right. So how do we get from 99 to 2017? 20 years, 1,500 restaurants, and 100x in the stock price. So what was that? Tell us about those two decades. What was it like growing from...

50 stores to 1500 plus. - 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 guest. 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 20 years, stayed highly disciplined. We were never about liquidity. We were never about trying to sell the company. We were about running a great company for our guests, producing high comp store 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 comp store sales.

very high ROIs, and we ended up building a massive organization. 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. How challenging is that process knowing that, hey, either this is great or it's a disaster, there's almost nothing in the middle?

Yeah, 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 that had to close stores. So I kept trying to say, how do we run 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 advantage is everything. How do we create an experience other people can't do with food other people can't provide, with a culture and an experience when you walk in the store that other people weren't offering? And it was that focus on that that never broke in those 20 years. And I think anybody who worked for me knew that.

Huh, that's really fascinating. So now, 1,500 stores 17 years later...

Maybe it was 1,700 stores, but keep going. Okay. You're missing a few hundred stores. Almost 2,000 stores today. What led you to decide, all right, these guys really want to throw a dumb amount of money at me? I'll take it. Well, we have to make one stop along the way. Okay. So 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 Panera and the way we approached it. I also think that in our civic society, being able to think long-term and come together as a country is powerful. I would often think the Chinese have 20-year plans, and we can't agree on a budget for 20 months, and today we can't agree on tariffs for 20 hours. But the truth of the matter is, back in 2008 and 2009,

I felt this desire to take what I'd learned in running large organizations and apply it in 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, stayed as executive chairman. I created something called Panera Cares, which were these cafes of 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 organization called No Labels, which was about reducing, again, the hyper-partisanship. Oh, I recall No Labels. I didn't realize that. I was one 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 2010, 11, and I sat down at a computer and I wrote a vision for how I would compete with Paneraa.

And that vision essentially called for digital access. None of that existed in 2011. It called for loyalty. Very little of it was in this country. Tesco had formed it in the UK. It had come to Kroger. We call for loyalty. We call for omnichannel. Loyalty meaning like reward system points? Reward system, yes. How do you find a way to build a deeper personal connection with guests?

It calls for clean food, free of all artificial chemicals, preservatives, and the like. - So minimal processing. - Yes. - And very little additives, if any. - If any, exactly. And then an omnichannel approach. And I brought this memo in to my very dear friend, gentleman I love, Bill Morton, who was our CEO. He'd been my CFO for two decades.

I shared it with Bill and he took a look at it and said, "Would you go work on it?" And I said, "You know, I would." And a year later, the executive chairman is working 80, me, I'm working 80 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. Would I come back as CEO?

We fought over it for about a year. I didn't really want to come back and do what I had done as CEO. But he couldn't travel and it was required. So I came back as CEO. I put all that plan in place. It was hard.

Horrific. At Panera? At Panera, oh yeah. And it did not work? No, no, wait. I spent 150 million. The transformation was huge. Okay, so it did work. Well, let me get there. I mean, I had activists along the way. One of my partners in Act Three today was the activist who attacked me. I had a lot of fun with him. I could never tell anybody I actually respected him. Name? Noah Elbogen. 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, those years, 2014, 15, 16, anytime you go through transformation, 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. We 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 until it was 100% of our revenue. And we were committed to this and we did it. By 2016, our comps were pushing double digits again. EBITDA was up 35%. The company was rocking. Starbucks made an approach to us to buy us. That didn't go forward. And in 2017...

the leadership of J.B., which is a European money manager, came calling and they had fallen in love. And frankly, my view of a business is I spend all of my time building it, but when somebody's in love, that always provides the opportunity to harvest. So Starbucks comes knocking. Were they offering a stock deal? Was it remotely close to the nearly $8 billion that J.B. came up with?

If you read my book, you'll read the whole story. But the Starbucks deal was around 240 a share. The J.B. deal was done at 315 a share. Much more aggressive numbers.

months after the Starbucks discussions. And frankly, the Starbucks discussions didn't reach conclusion. It was at that point that Howard was making his own decisions about stepping down and replacing himself with Kevin Johnson. And my sense is 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 go forward. But at the very least, it set a floor for future discussions with whomever. Well, it wasn't public. So we had a- I mean, internally. To be honest with you, we had had these discussions at 240 a share at Starbucks.

It didn't go forward. And when we began with JB, and again, you can read the book, I think it started in the high 200s.

By the time we were done, they were paying 315 for it. Wow. And the book is Know What Matters? Lessons from a Lifetime of Transformations. You know, ETF volumes tend to go up in a crisis situation. You know, when the going gets tough, they get going. Why? Because they are a source of liquidity when other things are not that liquid, which is exactly why the SEC sort of sketched the ETF design out back in 1988 after the Black Mondays.

Hear more about the evolution of ETFs and their growing influence on portfolios. Tune in to PGM's The Outthinking Investor wherever you listen.

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in the shakespearean sense but you launched act three holdings to invest in new brands tell us about the motivations for that well after i i had sold panera i didn't know where i was headed um there was discussion with jb about joining them as a partner

- And this is the big European investment shop that took over Panera. - Yeah, but it wasn't for me. And I was doing a bunch of speaking about the pervasive short-termism in our capital markets and how I thought it had been, it had an untoward impact, frankly, on innovation and GDP growth. And one of my now partners, who'd been my chief concept officer at Panera,

was a gentleman named Keith Paschal, and he said, why don't you take some of your money? You've made all this money. Why don't you take some of it and invest it in the long term with a long-term focus? And I thought about it, and I had been out of Panera about two months at this point, and I actually had an idea. 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. - Huh, that's really interesting. - Oh, it's obvious. I mean, it was the number one diet in America, Mediterranean. Every time you 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 in Chicago.

which was down in DC, called Cava when it was two restaurants, I knew them. And I had another restaurant company as I left Panera approached me called Zoe's, asked me if I would join their board. They'd give me warrants of 10% 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, the guys at Kava had asked me if I'd join their board. And I thought to myself, you know, this is an industry, the food industry, in which you

In every major category, winner takes all. You can talk McDonald's and Burger King, Panera and Corner Bakery. You can talk Chipotle and Qdoba. And I said, somebody's going to win in Mediterranean. And there is a powerful potential to take Zoe's, to buy this company Zoe's, which was about 250 restaurants.

take the culinary skills of Kava, merge them together, and end up with the clearly 10x dominant player in the Mediterranean category. And I thought I might do this. Well, Kava had asked me to join their board. I went to their CEO, Brett Schulman,

with this idea and he said, "You 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 deal or at least half of the capital they needed, about $150 million I put into it. I became one of their very largest shareholders and I became chairman of the company.

And how large is Kava today? Well, it went public about 18 months ago. Stock was up as high as 7x since the IPO. It's now up 5x. It's a $10 billion market cap company. It traded as high as $16 billion. It's perceived by the market, frankly, as...

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. 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's seems to have gotten kind of old and stale. And along comes Shake Shack and a dozen other Five Guys and down there. And it suddenly seems like in the burger space, as an example, there's increasing competition and it's no longer –

Mickey D's as the only winner. Is that just what happens eventually? Or what's your perspective on that? Well, first, let me share with you something. Danny Meyer, who's the chairman, very dear friend of Shake Shack. He's a dear friend, but my son actually works at Shake Shack in operations. And so I have great affinity for those guys. But here's the truth.

McDonald's is worth what, 75 billion, 100 billion? I mean, 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. But they got a 65-year head start, 75-year head start over Shake Shack. 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. Right.

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. I'm looking at a lot of the big winners of the past, and I know they're all different industries, whether it's

General Electric or Sears or retailers. Barry, you're a great investor and a smart man, but you're confusing two things. Yeah. One, dominance of a category. And then what happens to businesses as they lose their competitive advantage. Exactly. So let me share with you a principle that was very clear to me.

When businesses form, 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 the capital. When a business starts to get some success because it's actually worked successfully,

Capital comes in. And as capital comes in, people begin 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 ultimately happens is you bring in what we would call delivery people. Delivery people are about improving the margins, about purchasing, about financial planning. And often in companies, and particularly in my industry, is they approach a billion dollars marginally.

The discovery people and the delivery people, they ultimately do well together at the beginning. The margins get better. But ultimately there's conflict and friction. 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. 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 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, 10 years ago, 20 years ago, and not very effective at figuring out what the consumer of tomorrow wants. There's a wonderful Paul Graham quote that goes, all experts are experts in the way the world used to be. Exactly. Exactly.

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 $15 billion valuation on kava, this thing is 400 restaurants.

And we've had valuations of $30 to $40 million a restaurant. What is the market paying for? They're paying for the future. They're paying for an expectation that this business will take form as one of the great companies in this country. The question, that's dominance of a category.

Now, the challenge to the team at Kava is staying on that edge, staying 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, it isn't going to happen. Huh. That's really interesting. Yeah.

So I want to talk about some of the companies that Act III has invested in, but let's get a little broader view. Tell us about Act III. What are you doing? What's the philosophy here? So after we helped form the modern CAVA and invested in that, I had also had a company I had bought for Panera called Tate, which a large stake in it with its founder, Zeridor,

When I left Panera, I took with me Panera's interest in Tate. And we decided to take our own money. I took roughly a quarter of a billion dollars of my own money. And a number of people who decided to join me, they co-invested. And we decided to put that money to work investing money.

in growth companies with a couple of very simple principles. The number one principle was founder-friendly capital. We think that in growth concepts, the last thing they need to do is do fundraising as if it's an annual life cycle event, literally. The last thing that needs to happen is money raising needs to be an annual event. So we come along

And we make an investment, hopefully at a reasonable valuation. But we then take a right of first refusal with a pre-agreed to valuation multiple on all follow-on rounds. And we've never turned that down. Wow. So all of our investments know that they essentially never have to raise money again. Don't have to worry about it. So all the money's there. It's already pre-negotiated. It also allows us to consolidate up our position. That's principle one.

It's common stock and no dilutive, no pref terms. Number two, we practice what we call 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 25 people, only one of them is financially driven.

As I said, Noah Elbogen, our former activist. Everybody else are senior C-suite executives. I've got a guy who's opened 5,000 retail stores. I've got another guy who's my partner, Dwight Jusin, who...

was with us for 20 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, Chuck Chapman, who's extraordinary, was with Darden, was with Berkshire Hathaway and Dairy Queen, was with Brugger's, was president, was on my board, was the CEO of 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 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.

Business is tougher than climbing Mount Everest. Very few people ever do it. Nobody goes up Mount Everest without a Sherpa. Why don't you understand that you will be well served if you have a Sherpa as you build a nationally dominant company? When 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.

companies in these core categories. And then last Barry, the last principle, as I told you when we began talking, we believe deeply in competitive advantage. We only invest where we have competitive advantage. What Act Three is really good at is we have 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 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.

That's really fascinating. Let's talk quickly about two of the companies that you've invested in besides Kava. One is Life Alive and the other is Level 99. Tell us about those. Sure. So Life Alive is positive eating. Look, 40% 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 nurtured it, cared for it, watched it grow. Very high volume today. Somebody's gonna own the plant forward category. We hope that this is the concept that's the dominant player in that. - And level 99? - Level nine's another interesting one. This is immersive social entertainment.

It's 40,000 square feet of challenges. It was created, it's 40,000 square feet of challenges with a farm to table restaurant and a brewery in the middle of it.

It was created by a gentleman named Matt DiPlessi. We met Matt before he opened one of them. He's out of MIT, Harvard Business School, and spent 20 years working with Disney and their folks. Very experienced in entertainment. He had the vision for this business. We put up the capital. We're partners in it with him. And

It is stunning to go to one of these. We're in Natick, Massachusetts. We're in Providence, Rhode Island. We're opening in Disney World. We're opening in Tyson's Corner. And this summer, you'll see us in locations across America. This is kind of busy. We'll have 3,000 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. 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, 30 seconds each, starting with...

What's keeping you entertained these days? What are you streaming or watching or listening to? Well, what's keeping me entertained is my kids. I have a 26-year-old and a 21-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 people is always the most fascinating to me. I love people. Tell us about your mentors who helped shape your career.

I don't know if anybody helped shape me, but I would say Lou Cain, who was 25 years my senior and my partner many years, taught me what it meant to be a stand-up guy. I loved this man. He was a huge influence. I also would say my dad, who was a CPA, but again, knew how to deal with people, talk to people, care about people. And I respected him as a business person.

What about books? What are some of your favorites? What are you reading right now? Oh, goodness. 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 tend – you know, I just reread –

Daniel Kahneman passed away. I think I'm pronouncing his name right. But he wrote Fast and Slow. Thinking Fast and Slow, Dan Kahneman. I had read it years ago. I just reread it. Again, I love it. It's behavioral economics, behavioral finance. It's about how people work. And to me, my life, probably if there's one thing that's a central organizing principle, is trying to figure out what makes people tick. Really interesting. Our final two questions are,

What sort of advice would you give to a recent college grad interested in a career in food service or franchising?

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 action's 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, and then go do it. And our final question, what do you know about the world of technology?

building a restaurant, for lack of a better word, empire today that might have been useful back in the late 80s. Trust yourself. Really? You know, I think some guys like me, I don't know, I always, you know, you second guess, you wondered, you listened to every advisor. And one of the things you gain with a little more age is

is a perspective that I actually knew what I was doing, staying focused on that customer, staying focused on the end of delivering a better guest experience and understanding the byproduct would be financial success. It wasn't the end. Thanks, Ron, for being so generous with your time. We have been speaking with Ron Shaik. He is the former CEO and chairman of Panera Bread and Au Bourpas and all those other companies.

If you enjoy this conversation, check out any of the 550 we've done over the past 11 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, or wherever you find your favorite podcasts. Be sure to check out my new bestselling book, How Not to Invest, The Ideas, Numbers, and Behaviors That Destroy Wealth Online.

and how to avoid them, how not to invest wherever you find your favorite books. I would be remiss if I did not thank the crack team that helps put these conversations together each week. John Wasserman is my audio engineer. Sean Russo is my researcher. Anna Luke is my producer. Sage Bauman is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business.

on Bloomberg Radio. The data that matters for your investments. The entire auto sector is higher today. And analysis on the companies making news on Wall Street. Tesla's been a stock that's been in focus. Shares have really been all over the map this morning. Listen to the Stock Movers Report from Bloomberg. Let's talk.

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