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- [00:00]
Barry Ritholtz
You're listening to an iHeart podcast.
- [00:06]
Ron Shaikh
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- [00:36]
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- [01:08]
Ron Shaikh
Bloomberg Audio Studios Podcasts Radio News this is Masters in Business with Barry Ritholtz on Bloomberg Radio this week.
- [01:22]
On the podcast what can I say? Ron Shaikh 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 six and a half billion dollars. He sold the company in 2017 or so for about seven and a half billion dollars. He now runs Act 3, which is a fascinating sort of venture fund. One of their big firms is cava, Fast Mediterranean 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 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 Bon Pain and Panera Bread, Ron Shaikh. Ron Shaik, welcome to Bloomberg.
- [02:55]
Barry Ritholtz
Thank you Barry, Good to see you.
- [02:56]
Ron Shaikh
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 sp. Are those data points right?
- [03:11]
Barry Ritholtz
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 Cava helped take that thing public.
- [03:26]
Ron Shaikh
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 to your education. Bachelor's from Clark in 1976. MBA from Harvard in 78.
- [03:43]
Barry Ritholtz
Don't hold that against me.
- [03:44]
Ron Shaikh
What was the career plan, by the way? You are not the first Harvard MBA I've had in the studio.
- [03:50]
Barry Ritholtz
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.
- [04:29]
Ron Shaikh
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?
- [04:39]
Barry Ritholtz
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'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 tax 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 gonna go to law school like you, Barry, and had never, you know, I couldn't dance, I couldn't sing. I just.
- [05:27]
Ron Shaikh
How's your outside shot?
- [05:28]
Barry Ritholtz
My outside shot's 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. And I love food, I love retail, I love running the place. I love the people.
- [05:45]
Talkspace
And.
- [05:45]
Barry Ritholtz
And it became sort of a way I lived my life.
- [05:49]
Ron Shaikh
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.
- [05:59]
Barry Ritholtz
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 helped run a part of their company called the Original Cookie Company.
- [06:15]
Ron Shaikh
I remember that.
- [06:16]
Barry Ritholtz
Do you remember that? Oh, sure. The malls. Yeah, right.
- [06:19]
Ron Shaikh
That's right.
- [06:19]
Barry Ritholtz
Yeah. I learned 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 Senate billboard up. And I came back, I 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 at that point, all the cookie stores were in malls. I said, let's open a. 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, why don't open a cookie store there? And in fact, I ultimately found the job in political campaign consulting. But while I was down in D.C. 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 Au Bon Pen. And that company, which we created in 1981, was the company I sold for 7.8 billion, literally in 2017.
- [07:38]
Ron Shaikh
So, so let's, 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.
- [07:48]
Barry Ritholtz
This is a challenge.
- [07:48]
Ron Shaikh
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.
- [08:01]
Barry Ritholtz
Well, yeah, I mean, I'm running this cookie store for about six months, having a 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 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, closed, 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.
- [08:48]
Ron Shaikh
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 Pavillier, a French manufacturer of.
- [08:59]
Barry Ritholtz
Pavier. Pavier. We gotta work on your French, Barrett.
- [09:02]
Ron Shaikh
Well, je pain pou, but not very well. If I'm going to Paris, I'll.
- [09:09]
Barry Ritholtz
Une petite.
- [09:09]
Ron Shaikh
Une petite 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.
- [09:20]
Barry Ritholtz
Well, actually, Pavier founded Au Bon Pen, 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 Pen from Pavier. And to be clear, they essentially thought they could grow this across North America. And there were sort of delusions of grandeur.
- [09:52]
Ron Shaikh
They were right. They just had the wrong operator.
- [09:54]
Barry Ritholtz
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 and, as I said, opening 13 units of which, by the time I came along, they had closed 10 of them.
- [10:11]
Ron Shaikh
So you licensed the spot. How does that lead to eventually purchasing Au Bon Pas?
- [10:17]
Barry Ritholtz
Well, I'm their licensee for about six months. And I began to become friends with their CEO, a gentleman named Luke 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, Oban Penco Inc. Was the company I ended up running for nearly 37 years.
- [11:18]
Ron Shaikh
So. 37 years. And along the way, you IPO in.
- [11:23]
Barry Ritholtz
1991, 27 years as a public company. CEO Barry longer than Cal Ripken, played baseball.
- [11:29]
Ron Shaikh
That's unbelievable.
- [11:30]
Barry Ritholtz
And I'm still standing weekly, but I'm.
- [11:32]
Ron Shaikh
Still standing, you know, Warren Buffett and Jamie Dimon, probably your. Your two competitors.
- [11:37]
Barry Ritholtz
I had a better performance than Warren Buffett in my last 20 years as a public company CEO.
- [11:42]
Ron Shaikh
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 1991?
- [11:59]
Barry Ritholtz
Three and four. Three to four. Three or four locations that were 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 80s. 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 say, no, don't slice it like bread. Slice it from top to bottom. And I'd hand them the baguette and they look at me, Barry, and they pull out a bag from Stop and Shop and they put. Yeah, they put meat on it. 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.
- [13:11]
Ron Shaikh
So that included breakfast, croissants and I'm assuming other breakfast sandwiches, full lunch, soup, salad, sandwiches, the whole thing. And suddenly it's not just a $2 item. Suddenly you're selling actual product.
- [13:26]
Barry Ritholtz
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 old Bump Pen 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 till he passed away. Lou had tremendous real estate connections all over the east coast 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, folks would come down and this was the only place they could get really food that they respected and respected them.
- [14:13]
Ron Shaikh
Quality food at a reasonable Price reasonably quickly.
- [14:16]
Barry Ritholtz
The 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.
- [14:31]
Ron Shaikh
Restaurant, there was nothing in between. And I'm thinking back to that 80s and 90s era. Your choice was McDonald's or Burger King, maybe Pizza Hut, maybe with a pool grill.
- [14:44]
Barry Ritholtz
Go back to Four Seasons, you know, I mean, right. I mean it was, you know, back then it was fast food or fine dining.
- [14:51]
Ron Shaikh
Nothing in between.
- [14:52]
Barry Ritholtz
Nothing in between. And if you had 30 minutes, this.
- [14:55]
Ron Shaikh
Was a white space, wide open. Nobody else was there.
- [14:57]
Barry Ritholtz
Yeah, I would say that was really true. And I think this became very hot, this whole French bakery cafe category. In 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. Sara Lee came after us. A company called vitafrance, 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.
- [15:50]
Ron Shaikh
So after the IPO, you eventually acquire St. Louis Bread Company, later to be renamed Panera Bread. Tell us how that transformed.
- [16:00]
Barry Ritholtz
Well, 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 Pen's growth at that point was somewhat limited. Au Bon 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 Penh was the best 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.
- [16:41]
Ron Shaikh
Product meaning food or ovens and bakery.
- [16:44]
Barry Ritholtz
Not kitchen equipment, bake goods. And then third, we bought in 1993 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, a year and a half with a guy who's now one of my partners, Dwight Jussen, 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 think coffee and Folgers and Maxwell House beer, Anheuser Busch 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 what you see occur with specialty beer. A good friend of mine in Boston, Jim Cook, developed Sam Adam Adams. Yeah, sure, of course, again, a reaction of the mass market. We saw the same thing as Coke and Pepsi lent itself to Odo and Snapple and 400 beverages in 7 11. 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 loaves for 99 cents at supermarkets. And consumers wanted that kind of quality that they hadn't 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 casualties, let's do something better for a bit more money. And the result, that category, that understanding is today a $300 billion category. 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.
- [20:10]
Ron Shaikh
Steve Ells is with what? Chipotle, Chipotle all Right. So let's. You mentioned Howard Schultz and Starbucks. I think of Starbucks as a coffee shop that serves food. I think, is that food?
- [20:23]
Barry Ritholtz
No, I don't want to. Sorry. Excuse me.
- [20:26]
Ron Shaikh
Well, it's not exactly fresh. I know some of that stuff has to be frozen.
- [20:32]
Barry Ritholtz
No, all of it is.
- [20:33]
Ron Shaikh
All of it is, Yeah.
- [20:34]
Barry Ritholtz
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.
- [20:54]
Ron Shaikh
Why would you help one of your largest competitors catch up to you on the food space? I have to ask that.
- [21:01]
Barry Ritholtz
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 Penh, 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 a buy star coffee connection. And 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.
- [21:39]
Ron Shaikh
Clearly, he's built an amazing business.
- [21:41]
Barry Ritholtz
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 what it meant. And so, you know, we always had this relationship of both competition and mutual respect.
- [22:05]
Ron Shaikh
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 happens, because I can't imagine Howard.
- [22:18]
Barry Ritholtz
You know, pulled out of Starbucks, I think, three or four times. So.
- [22:21]
Ron Shaikh
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. 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. We're essentially giving Starbucks a $3 billion interest free loan.
- [23:19]
Barry Ritholtz
Sure.
- [23:20]
Ron Shaikh
And I was so morally indignant over the. You're gonna take our crappy loyalty points. 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.
- [23:52]
Barry Ritholtz
It is McDonald's.
- [23:53]
Ron Shaikh
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.
- [24:18]
Barry Ritholtz
Have you been to our new concept, Tate?
- [24:20]
Ron Shaikh
I have not.
- [24:21]
Barry Ritholtz
It's. It's 45 restaurants in Boston and D.C. it's perfect. We're opening this week in rich. Ridgewood, N.J. will be opening in Garden City.
- [24:31]
Ron Shaikh
And Garden City's not far from where I live. I will definitely here in Manhattan.
- [24:36]
Barry Ritholtz
It's third wave coffee. It's Levant infused baked goods. Levant, Israel, Turkey.
- [24:45]
Ron Shaikh
Really?
- [24:46]
Barry Ritholtz
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 story.
- [24:59]
Ron Shaikh
Yeah.
- [24:59]
Barry Ritholtz
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 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 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, its 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.
- [26:11]
PGIM
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- [26:30]
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- [26:41]
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- [27:12]
Ron Shaikh
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 Howard Schultz and Starbucks. Take me through how you go from ipoing at Au Bonpa to acquiring Panera. What was, what was that experience like?
- [27:39]
Barry Ritholtz
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 St. Louis Bread Co. 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 1 million 250. We changed the environment in big ways that took us to 1 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 Pen, Au Bon Pen International, Au Bon Penh 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 going to take and what was going to hit them. 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 Penh, 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. I brought the idea to my board. They thought I was crazy. They all had hired on to this company called Hautbon Pen 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.
- [30:19]
Ron Shaikh
Went and running Panera and 10X did up to 2,000 stores, which. How long did that take?
- [30:24]
Barry Ritholtz
Well, I will tell you, from that point forward, the stock was up a hundredfold.
- [30:29]
Ron Shaikh
Wow.
- [30:30]
Barry Ritholtz
In the early. That happened In, I guess, 99, early 2000s, you know, people would later would say to me, ron, why didn't you tell me? And I'd look at him and go.
- [30:44]
Ron Shaikh
How did I know?
- [30:45]
Barry Ritholtz
I look at him and 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 3 bucks a share by the wheelbarrow load.
- [31:02]
Ron Shaikh
And what did you have in cash at the time?
- [31:04]
Barry Ritholtz
A couple hundred million.
- [31:05]
Ron Shaikh
So a buck or so in cash, a share of cash. So you're risking two.
- [31:10]
Barry Ritholtz
Yeah, you could have bought it, you know, split adjusted, but you could have bought it. That stock, ultimately, 3 bucks a share, then traded for 315 when we sold the company 17 years ago.
- [31:20]
Ron Shaikh
And that was 7 billion plus.
- [31:21]
Barry Ritholtz
Yeah, 7.8.
- [31:22]
Ron Shaikh
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 breadbasket. Is that right?
- [31:32]
Barry Ritholtz
Yeah. It was actually an empty vessel where we could put a personality in to. 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.
- [31:52]
Ron Shaikh
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.
- [32:03]
Barry Ritholtz
I know. I actually knew back then, from day.
- [32:06]
Ron Shaikh
One, this can be.
- [32:08]
Barry Ritholtz
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.
- [32:45]
Ron Shaikh
That's really fascinating. So 2017, you sell out to a private company.
- [32:52]
Barry Ritholtz
Whoa, whoa, whoa, whoa. Wait, wait, Barry. We got a few years.
- [32:56]
Ron Shaikh
All right, so how.
- [32:56]
Barry Ritholtz
20 years.
- [32:57]
Ron Shaikh
And so how do we get from.
- [32:59]
Barry Ritholtz
99 to 2017, 20 years, 1500 restaurants, and 100x in the stock price.
- [33:07]
Ron Shaikh
So what was that? Tell us about those two decades. What was it like growing from, you know, 50 stores to 1500 plus?
- [33:17]
Barry Ritholtz
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 any. 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.
- [34:09]
Ron Shaikh
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.
- [34:31]
Barry Ritholtz
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 guest 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.
- [35:24]
Ron Shaikh
That's really fascinating. So now 1500 stores, 17 years later.
- [35:30]
Barry Ritholtz
Maybe we're 1700 stores, but keep going.
- [35:32]
Ron Shaikh
Okay, you're missing a few. Almost 2,000 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?
- [35:44]
Barry Ritholtz
Well, we have to, we have to make one stop along the way.
- [35:46]
Ron Shaikh
Okay.
- [35:47]
Barry Ritholtz
So I, you know, as I told you, I have this other love, politics and trying to fix the world. And I, 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, 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 you know, we can't agree on a budget for 20 months and today we can't agree on tariffs for 20 hours. But, but, but the truth of the matter is back in, in 08 and 09, 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.
- [37:10]
Ron Shaikh
I recall no Labels.
- [37:11]
Barry Ritholtz
I didn't realize 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 Panera. 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.
- [37:48]
Ron Shaikh
Meaning like reward system.
- [37:50]
Barry Ritholtz
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.
- [38:02]
Ron Shaikh
So minimal processing.
- [38:04]
Barry Ritholtz
Yes.
- [38:05]
Ron Shaikh
And very little additives, if any.
- [38:07]
Barry Ritholtz
If any. Exactly. And then an omnichannel approach. And I brought 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 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 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 horrific.
- [39:03]
Ron Shaikh
At Panera.
- [39:03]
Barry Ritholtz
At Panera. Oh yeah.
- [39:04]
Ron Shaikh
And it did not work.
- [39:05]
Barry Ritholtz
No, no, wait. I spent 150 million. It was that. The transformation was huge.
- [39:09]
Ron Shaikh
Okay, so it did work.
- [39:11]
Barry Ritholtz
Oh, wow. Let me get there. I mean, I had activists along the way. One of my partners in Act 3 today was the activist who attacked me. I had a lot of fun with him. I could never tell anybody. I actually respected him.
- [39:22]
Ron Shaikh
Name?
- [39:22]
Barry Ritholtz
Noah Elbogin.
- [39:23]
Ron Shaikh
Okay.
- [39:24]
Barry Ritholtz
But I couldn't tell anybody that. But I actually grew to like him. And today he was works with me. But. But at any rate, so 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're 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 100% of our revenue. And we were committed to this, and we did it. By 2016, our comps were pushing double digits again.
- [40:07]
Ron Shaikh
Wow.
- [40:08]
Barry Ritholtz
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 JB, 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.
- [40:40]
Ron Shaikh
So Starbucks comes knocking. Were they offering a stock deal? Was it remotely close to the nearly 8 billion that JB came up with?
- [40:50]
Barry Ritholtz
If you read my book, you'll read the whole story. But the Starbucks deal was around 240 a share. The JB deal was done at 315 a share.
- [41:02]
Ron Shaikh
Much more aggressive.
- [41:03]
Barry Ritholtz
Six 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. Didn't go forward.
- [41:32]
Ron Shaikh
Right. But at the very least, it set a floor for future discussions with whomever.
- [41:37]
Barry Ritholtz
Well, it wasn't public, so we had. We. I mean, to be honest with you.
- [41:41]
Ron Shaikh
Yeah, we.
- [41:41]
Barry Ritholtz
We had had this, these discussions at $2.40 a share at 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. In the high two hundreds. By the time we were done, they were paying 315 for it.
- [41:59]
Ron Shaikh
Wow. And the book is Know what Matters? Lessons from a Lifetime of Transformations.
- [42:05]
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- [43:05]
Ron Shaikh
All right, so let's talk about Act 3, which I don't mean that in the Shakespearean sense, But you launched Act 3 Holdings to invest in new brands. Tell us about the motivations for that.
- [43:17]
Barry Ritholtz
Well, after I had sold Panera, I didn't know where I was headed. There was discussion with JB about joining them as a partner.
- [43:27]
Ron Shaikh
And this is the big European investment shop that took over Panera.
- [43:32]
Barry Ritholtz
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 an untoward impact frankly on innovation and GDP growth. And one of my now partners and who'd been my chief concept officer at Panera was a gentleman named Keith Pascal. 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, I basically had deep belief that the Mediterranean category had the potential to be the next major culinary category.
- [44:30]
Ron Shaikh
Huh, that's really interesting.
- [44:31]
Barry Ritholtz
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 the DVM, DMV, which was down in D.C. called Cava when it was two restaurants, I knew them and I had another restaurant company as I left Panera approach me called Zoe's, asked me if I would join their board. They'd give me warrants of, you know, 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 Kavett asked me if I'd join their board. I thought to myself, you know, this is an industry, the food industry, in which in every major category, winner takes all.
- [45:38]
Ron Shaikh
Yep.
- [45:38]
Barry Ritholtz
You know, 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 Cava, merge them together, and end up with the, you know, clearly 10x dominant player 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 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 deal, or at least half of the capital they needed. About 150 million I put into it, and I became one of their very largest shareholders, and I became chairman of the company.
- [46:44]
Ron Shaikh
And how large is Cava today?
- [46:46]
Barry Ritholtz
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 Shulman. 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.
- [47:28]
Ron Shaikh
Let. 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. Seems like in the burger space, as an example, there is increasing com 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 it?
- [48:04]
Barry Ritholtz
Well, first, let me. Let me share with you something. Danny Meyer, who's the brilliant chairman, very dear friend. Oh, really? 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, 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.
- [48:37]
Ron Shaikh
But they got a 65 year head start. 75 year head start over.
- [48:42]
Barry Ritholtz
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.
- [49:03]
Ron Shaikh
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.
- [49:16]
Barry Ritholtz
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 advantage.
- [49:28]
Ron Shaikh
Exactly.
- [49:29]
Barry Ritholtz
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 got to get customers to walk across the street. You have no purchasing, no ability, 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, 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, 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 and 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.
- [50:45]
Ron Shaikh
Logistics, numbers.
- [50:47]
Barry Ritholtz
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.
- [51:20]
Ron Shaikh
There's a wonderful Paul Graham quote that goes, all experts are experts in the way the world used to be.
- [51:28]
Barry Ritholtz
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 Cava. This thing is 400 restaurants. 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 ACAVA 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.
- [52:26]
Ron Shaikh
Huh, that's really interesting. So I want to talk about some of the companies that Act 3 has invested in, but let's get a little broader view. Tell us about Act 3. What are you doing? What's the philosophy here?
- [52:38]
Barry Ritholtz
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 Ziridor. When I left Panera, I took with me Panera's interest in Tate 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 as 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 right of first referral refusal with a pre agreed to valuation multiple on 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.
- [54:03]
Ron Shaikh
Again, don't have to worry about it.
- [54:04]
Barry Ritholtz
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 Elbogin, our former activist. Everybody else, our 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 Jusan, who was. 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 Brugers, was president, was my. 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 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 and fall. And frankly, we've been very successful in helping build these dominant 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 3 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. Huh.
- [56:37]
Ron Shaikh
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.
- [56:48]
Barry Ritholtz
Sure. So life alive is positive eating. Look at 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 going to own the plant forward category. We hope that this is the concept that's the dominant player in that. And level 99, level 9 is 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 du Plessis. We met Matt before he opened one of them. He's out of Harvard, out of MIT. Harvard Business School inspector, spent 20 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. 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 the kind of business 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.
- [58:24]
Ron Shaikh
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?
- [58:39]
Barry Ritholtz
Well, what's keeping me entertained is my kids. Yeah, 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 Jumby 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.
- [59:02]
Ron Shaikh
Tell us about your mentors who helped shape your career.
- [59:05]
Barry Ritholtz
I don't know if anybody helped shape me, but. But I would say Luke Hayne, who was 25 years My senior and my partner many years taught me what it meant to, to be a standup guy. I love 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.
- [59:32]
Ron Shaikh
What about books? What are some of your favorites? What are you reading right now?
- [59:35]
Barry Ritholtz
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, but I tend, you know, I just reread Daniel Kaneman passed away. I think I'm pronouncing his name right, but he wrote Fast and Slow Thinking Fast and Slow.
- [59:59]
Ron Shaikh
Danny Kahneman.
- [60:00]
Barry Ritholtz
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.
- [60:17]
Ron Shaikh
Really interesting. Our final two questions. What sort of advice would you give to a recent college graduation? Interested in a career in food service or franchising?
- [60:28]
Barry Ritholtz
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 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.
- [60:52]
Ron Shaikh
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 80s?
- [61:05]
Barry Ritholtz
Trust yourself.
- [61:06]
Ron Shaikh
Really.
- [61:07]
Barry Ritholtz
You know, I think some, you know, 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, 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 the end of delivering a better guest experience and understanding the byproduct would be financial success. It wasn't the end.
- [61:35]
Ron Shaikh
Thanks Ron for being so generous with your time. We have been speaking with Ron Shaikh. He is the former CEO and chairman of Panera Bread and AU Bourpin 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 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 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 Podcast here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.
- [63:01]
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- [64:01]
Ron Shaikh
The data that matters for your investment. Single stock volumes really surge and analysis on the companies making news on Wall Street.
- [64:09]
Super Micro is catching our eyes. Take a quick look at crypto stocks.
- [64:12]
Listen to the Stock Movers Report from Bloomberg.
- [64:15]
Barry Ritholtz
A big bounce in the market today.
- [64:17]
Ron Shaikh
We're on a brutal three day stretch.
- [64:19]
It's your short audio report on the day Today's winners and losers in the stock market.
- [64:23]
Talkspace
The highest intraday jump since 2020.
- [64:25]
Ron Shaikh
Subscribe to the Stock Movers Report on Apple Podcasts, Spotify or wherever you listen.
- [64:31]
Barry Ritholtz
You're listening to an iHeart podcast.