Bloomberg Audio Studios, Podcasts, radio news. This is Masters in Business with Barry Ritholt 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 Panarabread concept, which now has two 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 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 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, Welcome to Bloomberg.
Thank you Berry. Good.
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.
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.
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.
But let me.
Roll this all the way back, sure to your education. Bachelors from Clark in nineteen seventy six, NBA from Harvard in seventy eight.
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.
I guess I would say to you this, I never really had a career plan. I had a drive to make a difference.
Huh.
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, a business is an election that never ends. A political campaign is a business that has one judgment day, the election day.
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.
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 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 was going to go to law school like you, Barry, and had never you know, I couldn't dance, I couldn't sing.
I just come 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, 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.
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.
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?
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 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 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 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 eighty one was the company I sold for seven point eight billion literally in twenty seventeen.
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.
This is a challenge, yes.
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.
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 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 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 a bone pan something else was Paviliar, a French manufacturer of Pavie Pavier.
Yeah, we got to work on your French bart.
Well I was youkub but not very well if I'm going to parassel bonup.
But uh probably vo front Si.
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.
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 to be clear, they they they essentially thought they could grow this across North America, and they were sort of delusions of grandeur.
They were right, they just said the wrong operator they had.
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.
Of them, So you licensed the spot. How does that lead to eventually purchasing Obonpont.
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
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 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.
So thirty seven years and along the way, you IPO in nineteen ninety one.
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.
You know, Warren Buffett and Jamie Dimon probably your your two competitor summers.
I had a better performance than Warren Buffett my last twenty years as a public company CEO.
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.
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 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. 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 was a French bakery cafe up in Copley Square in Boston.
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.
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 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.
You know.
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. 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 back to that eighties and nineties era. Your choice was McDonald's or Burger King, maybe pizza hot maybe.
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.
And if you had 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 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 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 be the winner, and we went public with Morgan Stanley in an IPO in June of nineteen ninety one.
So after the IPO, you eventually acquire Saint Louis Bread Company later to be renamed Panera Bread. Tell us how that transformed.
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 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 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 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 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 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, 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 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 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, 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 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.
We did it.
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?
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?
No, I don't want to I'm 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.
Huh.
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.
Why would you help your one of your largest competitors catch up to you on the food space.
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 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.
I clearly built.
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.
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, right.
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 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 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.
Crappy loyalty points loyalty points.
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 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 step foot in Starbucks, Obon and Panera on the other hand, And I'm not blowing smoke.
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.
And Garden City's not far from where I live here in Manhattan.
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 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 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 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 profit when you're abusing customers, and it's good profit when you're making a difference in the lives of your guests.
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 BoNT pint to acquiring Panero.
What was that experience like, Well, we didn't acquire Panera.
We acquired a busin Saint Lewis Bread com.
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 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, 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, 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 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 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 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 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.
And ten X did up to two thousand stores. Which how long did that take?
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,
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.
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.
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.
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. 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.
So ninety nine 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. 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, 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. I could feel it.
Huh, that's really fascinating. So twenty seventeen, you sell out to a private company.
Well, whoa, whoa, whoa wait, wait, Barry there, we got a few years, so well get.
About all right, So twenty years and then men, So how do we get from fifteen to twenty seventeen?
Twenty years? Fifteen hundred restaurants and one hundred x in the stock price.
So what was that tell us about those two decades? What was it like growing from you know, fifty stores to fifteen hundred 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 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 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, very high rois, and we ended up, you know, 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. Like, 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, 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 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. 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.
Huh, that's really fascinating. So now, fifteen hundred stores seventeen years later.
Maybe with seventeen hundred stories, but keep going.
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.
I'll take it, well, we have to we have to make one stop along the way.
Okay.
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. 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 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. 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 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 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 personal connection with guests. It called for clean food, free of all artificial chemicals, preservatives, and.
The minimal process, yes, and no little additives of annie if any exactly.
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. 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 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
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, 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 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 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.
So Starbucks comes knocking. Were they offering a stock deal? Was it remotely close to the nearly eight billion that JB came up with.
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 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.
But at the very least it's set a floor for future discussions with whomever.
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.
Wow.
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.
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.
And and this is the big European investment shop they took uh took over.
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, 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. 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.
Oh that's really interesting.
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 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 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
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, 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 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, one of the very largest shareholders, and I became chairman of the company.
And how large is COVID today.
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 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 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 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.
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.
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.
But they got a sixty five year head start, seventy five year head start over.
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.
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.
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, 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 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 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. 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, ten years ago, twenty years ago, and not very effective at figuring out what the consumer of tomorrow wants.
There's a wonderful pull Gram quote that goes all experts are experts in the way the world used to be 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 fifteen billion dollars of valuation on Kava. This thing is four hundred restaurants. I mean, we've had valuations of thirty 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 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.
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?
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. 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 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 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
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 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, 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 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 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 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 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.
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.
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, somebody is going to own the plan forward category. We hope that this is the concept that's the dominant player.
In that And Level ninety nine.
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 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 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.
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?
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 people is always the most fascinating to me. I love people.
Tell us about your mentors, who helped shape your career?
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, 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. 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 name right, but he wrote fast and flow.
Slow, fast and slow economy.
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.
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.
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, and then go do it.
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.
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 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.
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,
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 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 on Bloomberg Radio.