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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholt on Bloomberg Radio.

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Speaker 2: This week on the podcast What Can I Say? Ron

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Speaker 2: Shake is a legend in the fast casual dining space.

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Speaker 2: He began with a single restaurant, a single cookie store,

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Speaker 2: and eventually parlayed that into a series of acquisitions, mergers, expansions,

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Speaker 2: ultimately leading to the Panarabread concept, which now has two

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Speaker 2: thousand locations and does about six and a half billion dollars.

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Speaker 2: He sold the company in twenty seventeen or so for

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Speaker 2: about seven and a half billion dollars. He now runs

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Speaker 2: Act three, which is a fascinating sort of venture fon.

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Speaker 2: One of their big firms is Kava Fast Men are

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Speaker 2: written Cuisine. What can I tell you? The guy is

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Speaker 2: a brilliant operator, one of the best performing publicly traded

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Speaker 2: CEOs in history, at least in the food and consumer

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Speaker 2: services sector. He knows everybody, from the head of Starbucks

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Speaker 2: to Sam Adams to Shake Shack. All those people travel

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Speaker 2: in the same circles. He has carved out his own

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Speaker 2: unique identity in space. And I just thought this conversation

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Speaker 2: was fascinating, And I think you will also so with

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Speaker 2: no further ado, my discussion with the former chairman and

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Speaker 2: CEO of Ombalpint and Panera Bread, Ron Shake, Ron Shake,

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Speaker 2: Welcome to Bloomberg.

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Speaker 3: Thank you Berry. Good.

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Speaker 2: So those numbers are astonishing, and I also recall reading

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Speaker 2: Panera was the best performing restaurant stock in the last decade,

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Speaker 2: you were CEO, second best consumer stock on the S

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Speaker 2: and P.

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Speaker 3: Are those data points right? Yes, But to be clear,

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Speaker 3: I sold Panera in twenty seventeen and have not had

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Speaker 3: anything to do with it since then. But I am

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Speaker 3: today a lead investor and the chairman at kVA helped

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Speaker 3: take that thing public.

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Speaker 2: We're going to talk about Cava. We're going to talk

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Speaker 2: about know what matters. The book you wrote, lessons from

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Speaker 2: a Lifetime of Transformation.

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Speaker 3: But let me.

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Speaker 2: Roll this all the way back, sure to your education.

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Speaker 2: Bachelors from Clark in nineteen seventy six, NBA from Harvard

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Speaker 2: in seventy eight.

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Speaker 3: Don't hold that against me.

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Speaker 2: What was the career plan? By the way, you are

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Speaker 2: not the first Harvard MBA I've had in the studio.

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Speaker 3: I guess I would say to you this, I never

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Speaker 3: really had a career plan. I had a drive to

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Speaker 3: make a difference.

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Speaker 2: Huh.

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Speaker 3: And the challenge for me was whether that was going

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Speaker 3: to take form as politics, which was a love of mine,

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Speaker 3: or business. And I found over the years that that

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Speaker 3: when I was doing business, I brought a strategy for

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Speaker 3: political context to it. When I was doing politics or

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Speaker 3: political campaign management, it was a business. Put another way,

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Speaker 3: a business is an election that never ends. A political

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Speaker 3: campaign is a business that has one judgment day, the

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Speaker 3: election day.

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Speaker 2: Huh. That's fascinating. So there was a quote from you,

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Speaker 2: maybe this was from the book you go to business school.

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Speaker 2: You didn't know what an investment banker was.

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Speaker 3: I didn't know, you know, I actually never set out

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Speaker 3: to do business. I had been the treasurer of the

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Speaker 3: student council at Clark and I was tossed out with

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Speaker 3: a couple of friends from a local convenience store. They'd

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Speaker 3: suggested we were shoplifting. We weren't, but it was just

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Speaker 3: a heavy security presence. And I came back to campus

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Speaker 3: and I said, you know what, why are we giving

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Speaker 3: these guys our money? Why don't we create our own

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Speaker 3: student run store. And I was able to text, yeah,

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Speaker 3: I taxed the student body. They agreed to it, and

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Speaker 3: there was nobody else there to essentially build the store.

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Speaker 3: I built it. There was nobody to run it. I

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Speaker 3: ran it. And as a kid who really thought he

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Speaker 3: was going to go to law school like you, Barry,

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Speaker 3: and had never you know, I couldn't dance, I couldn't sing.

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Speaker 2: I just come outside shot.

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Speaker 3: My outside shot is better than how I dance, you know.

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Speaker 3: But I have to tell you, yeah, I have to

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Speaker 3: tell you that I had more fun. It was the

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Speaker 3: most creative endeavor I had ever been, involving a live

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Speaker 3: performance art. And I love food, I love retail, I

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Speaker 3: love running the place. I loved the people, and it

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Speaker 3: became sort of a way I lived my life.

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Speaker 2: That's really fascinating. So that tease up what becomes at

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Speaker 2: least the first part of your career. Tell us about

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Speaker 2: the work you did at a cookie company.

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Speaker 3: Oh, I started a cookie company. So I got out

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Speaker 3: of business school. I took what I call the third

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Speaker 3: year of the NBA. I went to learn. I went

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Speaker 3: to work for a company called Coal National and help

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Speaker 3: run a part of their company called the original Cookie Company.

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Speaker 3: I remember that, do you in the malls? Yeah?

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Speaker 2: Right, that's right.

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Speaker 1: Yeah.

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Speaker 3: I was a district manager. I was running stores. I

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Speaker 3: came back dan Quayle. I remember I was in Indiana

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Speaker 3: and there was a dan Quayle for the US sent

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Speaker 3: a billboard up and I came back and wanted to

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Speaker 3: do political campaigns, and I couldn't get a job, and

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Speaker 3: I decided I was going to try to open my

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Speaker 3: own cookie store. And and at that point, all the

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Speaker 3: cookie stores were in malls. I said, let's open it

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Speaker 3: where there were lots of people. In Boston. There's a

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Speaker 3: place called Park Street Station. It's the entrance way to

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Speaker 3: the downtown and the financial district. I thought wanted to

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Speaker 3: open a cookie store there, And in fact I ultimately

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Speaker 3: found the job in political campaign consulting, but I was

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Speaker 3: while I was down in I was offered a location

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Speaker 3: near Park Street Station. I thought I'd come back one

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Speaker 3: day a week. I ended up creating this cookie store

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Speaker 3: that was a two day a week, three day a

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Speaker 3: week endeavor. I never went back to d C to

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Speaker 3: run campaigns. And that cookie store later was merged with

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Speaker 3: Obom Penn and that company which we created in nineteen

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Speaker 3: eighty one was the company I sold for seven point

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Speaker 3: eight billion literally in twenty seventeen.

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Speaker 2: So let's go back to that acquisition again. And I

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Speaker 2: don't remember if I read this in the book or

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Speaker 2: somewhere else. Nobody buys cookies before noon.

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Speaker 3: This is a challenge, yes.

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Speaker 2: But croissant and baked breads and other goods like that,

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Speaker 2: that's perfect breakfast. Fair was that the obvious. Let's combine

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Speaker 2: these two. We'll cover the whole day as long as

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Speaker 2: we're paying rent for twenty four hours.

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Speaker 3: Yeah, I mean, I'm running this cookie store for about

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Speaker 3: six months, having the time my life. But as as

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Speaker 3: you said, nobody was buying cookies before twelve noon. I

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Speaker 3: had about fifty thousand people a day walking by me.

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Speaker 3: So I said, what can I put in here that

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Speaker 3: could represent a product that would appeal to people in

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Speaker 3: the morning. And I decided to become a licensee of

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Speaker 3: a French bakery. And there was a number that were

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Speaker 3: actually in that business. I hooked up with a group

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Speaker 3: called O Boon Pen and they had at that point

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Speaker 3: three bakeries. They had at one point opened I think

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Speaker 3: thirteen of them, close ten of them. I didn't fully

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Speaker 3: understand they were on the edge of bankruptcy, but I

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Speaker 3: did a deal with them. I became their licensee for

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Speaker 3: this one square block.

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Speaker 2: So a little background about that. The predecessor of one

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Speaker 2: of the companies, and I don't remember if this was

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Speaker 2: a bone pan something else was Paviliar, a French manufacturer

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Speaker 2: of Pavie Pavier.

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Speaker 3: Yeah, we got to work on your French bart.

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Speaker 2: Well I was youkub but not very well if I'm

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Speaker 2: going to parassel bonup.

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Speaker 3: But uh probably vo front Si.

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Speaker 2: So they were setting up bakeries in order to sell

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Speaker 2: their ovens. It sounds like you said, hey, you forget

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Speaker 2: the ovens, let's sell the bakeots.

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Speaker 3: Well. Actually, actually Pavier founded open a group bought the company.

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Speaker 3: It was led by the man who became my partner

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Speaker 3: of over two decades, a gentleman named Lucane. Lucane and

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Speaker 3: his partners bought the O Boon pen from Pavier, and

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Speaker 3: to be clear, they they they essentially thought they could

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Speaker 3: grow this across North America, and they were sort of

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Speaker 3: delusions of grandeur.

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Speaker 2: They were right, they just said the wrong operator they had.

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Speaker 3: They had the wrong operator, They had probably the wrong concept,

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Speaker 3: and that's what led them to borrowing a great deal

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Speaker 3: of money against their own person of real estate, as

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Speaker 3: I said, opening thirteen units of which by the time

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Speaker 3: I came along, they had closed ten.

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Speaker 2: Of them, So you licensed the spot. How does that

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Speaker 2: lead to eventually purchasing Obonpont.

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Speaker 3: Well, I'm I'm their licensee for about six months, and

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Speaker 3: I begin to become friends with their CEO, a gentleman

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Speaker 3: named lu Kane, who had essentially was running the company,

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Speaker 3: and it was very clear to me the trouble they

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Speaker 3: were in, and I began to say, this was a

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Speaker 3: powerful opportunity to apply what I knew about running food

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Speaker 3: businesses and actually create the kind of company I wanted

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Speaker 3: to work for. I wanted to build, and I went

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Speaker 3: to Lieu with an idea, and the idea was we

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Speaker 3: would merge our two companies, my one cookie store, his

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Speaker 3: three French bakeries, and their three million dollars in debt.

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Speaker 3: I hit the cash cow, they hit the three stores,

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Speaker 3: and I really thought I could operate my way out

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Speaker 3: of the business. Then what ended up happening is I

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Speaker 3: received sixty percent of the company, Lou and his partners

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Speaker 3: kept forty of the new company, and then we went

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Speaker 3: marching off that company. O Bumpen CoInc. Was the company

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Speaker 3: I ended up running for nearly thirty seven years.

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Speaker 2: So thirty seven years and along the way, you IPO

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Speaker 2: in nineteen ninety one.

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Speaker 3: Twenty seven years is a public company ceo Berry longer

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Speaker 3: than cal rip can play baseball. That's unbelievable. And I'm

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Speaker 3: still standing that's weak lease, But I'm still staying.

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Speaker 2: You know, Warren Buffett and Jamie Dimon probably your your

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Speaker 2: two competitor summers.

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Speaker 3: I had a better performance than Warren Buffett my last

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Speaker 3: twenty years as a public company CEO.

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Speaker 2: Well he's backloaded, so he began strong and then did

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Speaker 2: okay afterwards. But but what's really fascinating is how do

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Speaker 2: you go from you know, three or four locations to

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Speaker 2: an IPO in nineteen ninety one.

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Speaker 3: Three and four three to four, three or four location

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Speaker 3: that we're bleeding, we're losing money. You know, I'm always

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Speaker 3: trying to learn, and probably the most powerful thing in

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Speaker 3: my life is not the success. It's the learning and

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Speaker 3: then the action one takes from the learning. And I

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Speaker 3: had a revelation in the early eighties. I would be

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Speaker 3: working in one of these French bakeries and people walk

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Speaker 3: in and say, you know what I want that baguette,

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Speaker 3: and I'd start to slice it for him. They say, oh,

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Speaker 3: I don't slice it like bread, slice it from top

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Speaker 3: to bottom. And I'd hand them the baguette and they

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Speaker 3: look at me, berry and they and they pull out

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Speaker 3: a bag from stopping shop and they put yeah, they

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Speaker 3: put meat on it, bison, you know, cheese, smoke, turkey.

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Speaker 3: And again you didn't have to have a Harvard MBA

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Speaker 3: to say, you know, the opportunity is not in the

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Speaker 3: bread recroissant. The opportunity is and what the bread incroissant

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Speaker 3: can allow the consumer to do. So we said, instead

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Speaker 3: of selling the bread and croissant, let's sell the product

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Speaker 3: they want, which was the sandwich. That allowed us to

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Speaker 3: create the first of what became many many units, which

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Speaker 3: was a French bakery cafe up in Copley Square in Boston.

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Speaker 2: So that included breakfast quassaws and I'm assuming other breakfast sandwiches,

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Speaker 2: full launch soup, salad sandwiches, and suddenly it's not just

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Speaker 2: a two dollars item. Suddenly you're selling actual product.

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Speaker 3: And again I'm always looking for what job am I

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Speaker 3: doing for people? What's the need I'm meeting? And we

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Speaker 3: were really the first concept at O Bumppen in the

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Speaker 3: late eighties that was serving white collar folk food that

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Speaker 3: they wanted with quick service. And so Lou, my partner,

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Speaker 3: was an extraordinary human being. We worked together till they

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Speaker 3: passed away. Lou had tremendous real estate connections all over

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Speaker 3: the East Coast and in the Midwest, and we were

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Speaker 3: in every major building were here. We were in New

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Speaker 3: York at Rockefell Center, World Financial Center, World Trade Center,

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Speaker 3: but it rocks.

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Speaker 2: You know.

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Speaker 3: The folks would come down and this was the only

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Speaker 3: place they could get really food that they respected and respected.

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Speaker 2: Them quality food at a reasonable price. Reasonable price wasn't

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Speaker 2: even the the the reason for existence. Our reason for

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Speaker 2: existence was this was food people really wanted and they

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Speaker 2: were willing to pay for it. They were willing to

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Speaker 2: pay more than they could get. When the all terms

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Speaker 2: were fast food or a lengthy lunch at at a

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Speaker 2: sit down, there was nothing in between. And I'm thinking

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Speaker 2: back to that eighties and nineties era. Your choice was

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Speaker 2: McDonald's or Burger King, maybe pizza hot maybe.

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Speaker 3: The pool grill, the four seasons, you know, I mean right,

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Speaker 3: I mean it was you know back then it was

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Speaker 3: fast food or fine dining, nothing in between, nothing between.

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Speaker 2: And if you had this was a white space, wide open.

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Speaker 2: Nobody else was there.

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Speaker 3: Yeah, I would say that was really true, and I

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Speaker 3: think this became very hot, this whole French bakery cafe

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Speaker 3: category and walls all over the Andrew We had everybody

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Speaker 3: come after us. Pepsi came after us. This was going

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Speaker 3: to be the third leg of Pepsi food service. Sarah

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Speaker 3: Lee came after us, a company called Vita Front which

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Speaker 3: has now gone by the wayside. All of these companies

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Speaker 3: were larger, had more capital, But the truth was we

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Speaker 3: ended up running rings around them. We cared more, our

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Speaker 3: folks were more dedicated, We worked harder, and by nineteen

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Speaker 3: ninety one we had built this out to probably one

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Speaker 3: hundred units. We had the highest average unit volumes in

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Speaker 3: the category. It was very clear we were going to

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Speaker 3: be the winner, and we went public with Morgan Stanley

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Speaker 3: in an IPO in June of nineteen ninety one.

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Speaker 2: So after the IPO, you eventually acquire Saint Louis Bread

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Speaker 2: Company later to be renamed Panera Bread. Tell us how

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Speaker 2: that transformed.

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Speaker 3: The key is the learning. So the first thing I

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Speaker 3: began to realize after the IPO, oh, was that the

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Speaker 3: market pays for growth, and yet old Boone Penn's growth

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Speaker 3: at that point was somewhat limited. Obone pen was at

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Speaker 3: its best in these urban locations. It didn't work in

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Speaker 3: the malls in LA and so we expanded into a

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Speaker 3: number of different other businesses. We built an international business.

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Speaker 3: If the old bone Pen was the best United States

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Speaker 3: at I denity urban feeding, there were more locations outside America.

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Speaker 3: We built a manufacturing business. We were manufacturing all of

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Speaker 3: our product and we were selling it also in supermarkets

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Speaker 3: product meaning food or ovens, bakers, bakecoods, not not kitchen

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Speaker 3: quin bacoods. And then third we bought in nineteen ninety

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Speaker 3: three a business called Saint Louis Bread Company from a

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Speaker 3: wonderful human being named Ken Rosenthal and Saint Louis. It

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Speaker 3: was nineteen stories at that point, and I thought this

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Speaker 3: would be the gateway to the suburban marketplace. At the

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Speaker 3: same time, I was trying to figure out what was

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Speaker 3: going on for the consumer, and I was running around

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Speaker 3: the West coast for about a year or year and

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Speaker 3: a half with a guy who's now one of my partners,

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Speaker 3: Dwight Juson, a guy named Scott Davis who was our

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Speaker 3: concept officer, and we were trying to figure out what

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Speaker 3: was the themes that were impacting consumers, and we began

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Speaker 3: to develop a belief that the really important signal that

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Speaker 3: needed to be read the deeper trend, was that consumers

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Speaker 3: were rejecting the mass market and they wanted to feel

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Speaker 3: special in a world which had increasingly become consolidated in oligopolies.

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Speaker 3: Think Coffee and Miller and I think coffee and Folgers

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Speaker 3: and Maxwell House beer and I was a Bush and Miller.

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Speaker 3: Think soft drinks, Coke and Pepsi. Every one of those

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Speaker 3: in the early nineties had a reaction. You can talk

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Speaker 3: about Starbucks, you can talk about out what you see

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Speaker 3: occur with specialty beer. A good friend of mine in Boston,

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Speaker 3: Jim Cook, developed Adams. Yeah, of course, again a reaction

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Speaker 3: of the mass market. We saw the same thing as

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Speaker 3: Cokinpepsi lent itself, doud Waldo and Snapple and four hundred

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Speaker 3: beverages in seven to eleven, and we began to say

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Speaker 3: this was a deeper trend. Consumers rejecting that mass market

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Speaker 3: and want of specialty goods built made the way their

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Speaker 3: grandparents made it, without chemicals, without preservers, And we said

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Speaker 3: the same thing was going to happen in the food industry,

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Speaker 3: and in fact, the same thing was happening in the

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Speaker 3: bakery industry. Baked bread had once been done in stone

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Speaker 3: deck ovens that had become three lows for a ninety

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Speaker 3: ninth sense, as supermarkets and consumers wanted that kind of

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Speaker 3: quality that they hadn't had, and we're willing to pay

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Speaker 3: for it. And we began to say there was a

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Speaker 3: powerful opportunity in specialty food, specialty restaurants, much like there

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Speaker 3: was this powerful opportunity in specialty coffee, specialty beer, specialty beverages.

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Speaker 3: And that was the genesis for what became this ideology,

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Speaker 3: this paradigm that's today called fast casual What it said,

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Speaker 3: what it spoke to was real food, actually people that

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Speaker 3: that engaged you, served in environments that excited you, and

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Speaker 3: ultimately left your sense of self esteem, what you felt

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Speaker 3: about yourself. It elevated it as opposed to depleting it

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Speaker 3: as fast food did. The currencies of fast food were

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Speaker 3: a lot of food for not a lot of money.

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Speaker 3: The currencies of fast casualties let's do something better for

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Speaker 3: a bit more money. And the result that category, that

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Speaker 3: that that understanding is today three hundred billion dollar category.

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Speaker 3: So let's look just to finish it up.

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Speaker 2: We did it.

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Speaker 3: Howard Schultz came along about that time. Steve El's a

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Speaker 3: little bit later, but it was a paradigm that informed

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Speaker 3: a whole new category. When people said you couldn't do this.

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Speaker 3: Steve Els is with what Chipotle?

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Speaker 2: Chipotle? All right, So let's you mentioned Howard Schultzon's Starbucks.

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Speaker 2: I think of Starbucks as a coffee shop that serves food.

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Speaker 2: I think is that food?

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Speaker 3: No, I don't want to I'm sorry.

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Speaker 2: Well, it's not exactly fresh. I know some of that

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Speaker 2: stuff has to be frozen.

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Speaker 3: No, all of it is.

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Speaker 2: All of it is.

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Speaker 3: Yeah. I mean these businesses are defined by their systems.

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Speaker 1: Huh.

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Speaker 3: So when we look at Starbucks and they tried many

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Speaker 3: times to improve the quality of food, Howard got it.

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Speaker 3: And in fact we actually I work with them probably

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Speaker 3: two or three times trying to help them. Think about

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Speaker 3: that question. We were friends.

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Speaker 2: Why would you help your one of your largest competitors

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Speaker 2: catch up to you on the food space.

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Speaker 3: I have to ask that, Well, we were kind of

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Speaker 3: frind of me. It went back for thirty five years

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Speaker 3: when he had had you know, four or five stores

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Speaker 3: in Seattle, and he had you know, we were looking

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Speaker 3: to bring specialty coffee into O Bom Penn And ultimately

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Speaker 3: we chose to go take a ownership position a company

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Speaker 3: called Coffee Connection in Boston, which was the Starbucks of

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Speaker 3: the East Coast. And and he wanted to buy star

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Speaker 3: Coffee Connection, and we went through a process. We had

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Speaker 3: to write a first refusal. We drove up the price,

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Speaker 3: but we had a friendly robbery. And the truth of

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Speaker 3: the matter is I profoundly respected Howard.

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Speaker 2: I clearly built.

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Speaker 3: I respected not just the size of the business, but

365
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Speaker 3: he shared with us the same values about really doing

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Speaker 3: something that delighted customers, that made a difference. He broke

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Speaker 3: through on design and environment and and and what it

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Speaker 3: meant and and so you know, we always had this

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Speaker 3: relationship of both competition and mutual respect.

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Speaker 2: That's really fascinating. I'm going to share a Starbucks story

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Speaker 2: that I bet you haven't heard. I'm curious as to

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Speaker 2: your thoughts. And I believe Howard Schultz was gone when

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Speaker 2: this happened, because I can't imagine.

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Speaker 3: Howard pulled out of Starbucks I think three or four times, right.

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Speaker 2: So during the pandemic, I get two emails on the

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Speaker 2: same day. The first one is from Delta. Hey, we

377
00:21:23,400 --> 00:21:26,840
Speaker 2: know that you've worked hard to achieve your Platinum Medallion

378
00:21:26,960 --> 00:21:31,760
Speaker 2: status and the pandemic is a disaster. Don't worry. We're

379
00:21:31,800 --> 00:21:34,919
Speaker 2: going to roll your status over next year, when hopefully

380
00:21:35,000 --> 00:21:38,440
Speaker 2: things will be back to normal and you'll be flying again.

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Speaker 2: I'm like, gee, you know, Delta really has their act together.

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00:21:42,119 --> 00:21:46,960
Speaker 2: How thoughtful. The same day, I get an email from Starbucks. Hey,

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Speaker 2: you've accumulated three hundred and seventeen Starbucks points because you're

384
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Speaker 2: here all the time, but unfortunately, due to the pandemic,

385
00:21:55,640 --> 00:22:01,040
Speaker 2: these will expire next month. And the third leg of

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00:22:01,119 --> 00:22:03,600
Speaker 2: the stool was a link a story in the Wall

387
00:22:03,640 --> 00:22:07,640
Speaker 2: Street Journal that everybody who preloads their credit card onto

388
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Speaker 2: the Starbucks apps, we're essentially giving Starbucks a three billion

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Speaker 2: dollar interest free loan. Sure, And I was so morally

390
00:22:16,880 --> 00:22:19,880
Speaker 2: indignant over the You're gonna take our.

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Speaker 3: Crappy loyalty points loyalty points.

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00:22:22,760 --> 00:22:26,800
Speaker 2: Away like it cost you nothing, and you know what,

393
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Speaker 2: you're bad players. Get refund my my fifty bucks that's

394
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Speaker 2: on the app. I'm deleting the app. Thanks Starbucks for

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Speaker 2: the past few years. I'm not boycotting you. But you're

396
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Speaker 2: like something I'll put up with. And Starbucks to me

397
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Speaker 2: today is like McDonald's. I worked at McDonald's for two

398
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Speaker 2: days in high school. Have never gone back since. It's

399
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Speaker 2: a horrific source of you know, junk food. And I

400
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Speaker 2: don't know what they've done in the ensuing one hundred years,

401
00:23:02,200 --> 00:23:05,280
Speaker 2: but I don't step foot into McDonald's and I rarely

402
00:23:06,240 --> 00:23:09,680
Speaker 2: step foot in Starbucks, Obon and Panera on the other hand,

403
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Speaker 2: And I'm not blowing smoke.

404
00:23:12,760 --> 00:23:15,280
Speaker 3: Have you been to our new concept tat I have not.

405
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Speaker 3: It's so it's forty five restaurants in Boston and d C.

406
00:23:19,240 --> 00:23:23,879
Speaker 3: It's effect. We're opening this week in Ridgewood, New Jersey,

407
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Speaker 3: will be opening in Garden City.

408
00:23:25,880 --> 00:23:28,719
Speaker 2: And Garden City's not far from where I live here

409
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Speaker 2: in Manhattan.

410
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Speaker 3: It's it's it's it's third wave coffee, It's it's Levon

411
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Speaker 3: infused bakeods Levon Israel, Turkey, really in North Africa, Lebanon.

412
00:23:42,720 --> 00:23:45,040
Speaker 3: It's fascinating. And then we have chefs in every unit.

413
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Speaker 3: We're doing real food again from the levant, but fascinating

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Speaker 3: real food and doing really significant volumes. Back to your

415
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Speaker 3: your story, you know, here's the point Starbucks has been

416
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Speaker 3: through many waves. Brian Nichols friend, very good guy. He's

417
00:24:02,760 --> 00:24:05,200
Speaker 3: doing the right stuff. He's doing what Howard did when

418
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Speaker 3: that business was formed, which is focusing on a competitive

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00:24:09,600 --> 00:24:13,399
Speaker 3: advantage as doing a better job for the guest. If

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Speaker 3: you don't make a difference for the guests, you have

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Speaker 3: no right to be in business. And the reality is

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Speaker 3: in my industry, my industry is the second oldest profession

423
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Speaker 3: of the world, of the food industry. If you don't

424
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Speaker 3: have a competitive advantage or reason, the customers are walking

425
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Speaker 3: past your competitors to choose you. All you're gonna do

426
00:24:32,760 --> 00:24:34,800
Speaker 3: is gonna get your market share. And when you get

427
00:24:34,880 --> 00:24:38,280
Speaker 3: your market share, this is dirt farming. And that's ultimately

428
00:24:38,400 --> 00:24:41,960
Speaker 3: what happened to Starbucks. And what Brian is trying to

429
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Speaker 3: do is reassert its points of difference. It's specialness in

430
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Speaker 3: a way that delights guests and gets them to come back.

431
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Speaker 3: And when you tell your story of Starbucks, it speaks

432
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Speaker 3: to how Starbucks was actually diminished by management. It's bad

433
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Speaker 3: profit when you're abusing customers, and it's good profit when

434
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Speaker 3: you're making a difference in the lives of your guests.

435
00:25:05,880 --> 00:25:09,480
Speaker 2: You have such a fascinating background, and you've dealt with

436
00:25:09,680 --> 00:25:16,280
Speaker 2: so many really interesting people in competitive space. We talked

437
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Speaker 2: earlier about you being frenemies with Hoard Schultz and Starbucks.

438
00:25:21,359 --> 00:25:27,919
Speaker 2: Take me through how you go from ipoing at oh

439
00:25:28,040 --> 00:25:30,280
Speaker 2: BoNT pint to acquiring Panero.

440
00:25:30,400 --> 00:25:34,240
Speaker 3: What was that experience like, Well, we didn't acquire Panera.

441
00:25:34,320 --> 00:25:36,359
Speaker 2: We acquired a busin Saint Lewis Bread com.

442
00:25:36,440 --> 00:25:39,000
Speaker 3: We acquired a company called Saint Louis Bread Company. We

443
00:25:39,480 --> 00:25:43,720
Speaker 3: recognized the ideology and power of what would later be

444
00:25:43,840 --> 00:25:48,600
Speaker 3: called fast casual, real food for real people. We ended

445
00:25:48,680 --> 00:25:52,919
Speaker 3: up using Saint Louis Bread Company as a test laboratory

446
00:25:53,040 --> 00:25:56,680
Speaker 3: to apply those principles. We changed everything. We took a

447
00:25:56,800 --> 00:25:59,159
Speaker 3: unit doing a million dollars a year. We had a

448
00:25:59,240 --> 00:26:01,960
Speaker 3: breakfast that took us to a million two fifty. We

449
00:26:02,480 --> 00:26:05,600
Speaker 3: changed the environment in big ways that took us to

450
00:26:05,680 --> 00:26:08,719
Speaker 3: a million seven to fifty, added a gathering place segment,

451
00:26:09,280 --> 00:26:14,760
Speaker 3: and by nineteen ninety five I realized the name Saint

452
00:26:14,800 --> 00:26:17,280
Speaker 3: Louis Bread Company was the wrong name to take national,

453
00:26:17,840 --> 00:26:20,480
Speaker 3: and we changed the name to Panera Bread And the

454
00:26:20,880 --> 00:26:25,040
Speaker 3: big and very important step was really in nineteen ninety eight.

455
00:26:26,400 --> 00:26:28,440
Speaker 3: I at that point was running a public company with

456
00:26:28,560 --> 00:26:32,360
Speaker 3: four divisions, Oh Bompenn, oh Bon Penn International, Oh Boon

457
00:26:32,440 --> 00:26:36,080
Speaker 3: Pen Manufacturing, and this thing called Panera Bread. Panera was

458
00:26:36,160 --> 00:26:39,359
Speaker 3: the third largest of them. I have to tell you,

459
00:26:39,960 --> 00:26:42,280
Speaker 3: I would look at Panera and say, this brand has

460
00:26:42,359 --> 00:26:45,679
Speaker 3: the potential to be nationally dominant. And it wasn't at

461
00:26:45,720 --> 00:26:48,600
Speaker 3: that point, but it had It had consistent volumes, and

462
00:26:48,720 --> 00:26:51,920
Speaker 3: I was I was struck by the degree to which

463
00:26:52,000 --> 00:26:54,960
Speaker 3: the folks that were running it didn't really understand what

464
00:26:55,160 --> 00:26:57,359
Speaker 3: growth was going to take and what was going to

465
00:26:57,440 --> 00:26:59,879
Speaker 3: hit them. And I was deeply worried. And I was

466
00:27:00,160 --> 00:27:04,160
Speaker 3: down to the Caribbean with a friend and I was lamenting.

467
00:27:04,200 --> 00:27:06,320
Speaker 3: I was kind of bummed about it. And she looked

468
00:27:06,320 --> 00:27:08,320
Speaker 3: at me and she said, Ron, what would you do

469
00:27:09,080 --> 00:27:12,840
Speaker 3: if Panera owned Oh Boon Penn the company. The name

470
00:27:12,840 --> 00:27:14,880
Speaker 3: of the company was Panera, and it owned all those

471
00:27:14,920 --> 00:27:18,320
Speaker 3: other divisions. And I looked at her and I said,

472
00:27:18,359 --> 00:27:21,840
Speaker 3: you know what, if I had any guts, I'd monetize

473
00:27:21,960 --> 00:27:25,160
Speaker 3: every asset we have. Panera is the gem. It could

474
00:27:25,320 --> 00:27:28,720
Speaker 3: be a nationally dominant company. I would take all the

475
00:27:28,840 --> 00:27:32,800
Speaker 3: capital from those other businesses. I'd go down there myself

476
00:27:32,880 --> 00:27:35,320
Speaker 3: and make it work. And I bring the best human

477
00:27:35,400 --> 00:27:38,040
Speaker 3: capital we have. And I'm this kind of person. If

478
00:27:38,080 --> 00:27:40,080
Speaker 3: I think about something long enough and I say I'm

479
00:27:40,080 --> 00:27:41,680
Speaker 3: going to go do it, I go do it. It

480
00:27:41,800 --> 00:27:43,879
Speaker 3: took me three months. I made the decision to go

481
00:27:44,000 --> 00:27:45,679
Speaker 3: do it. I brought the idea on my board. They

482
00:27:45,720 --> 00:27:48,560
Speaker 3: thought I was crazy. They all had hired on this

483
00:27:48,720 --> 00:27:52,600
Speaker 3: company called Oh Boon Penn and not Panera. But eventually

484
00:27:52,720 --> 00:27:54,200
Speaker 3: they gave me the room to do it. It was

485
00:27:54,240 --> 00:27:57,600
Speaker 3: a bet your job kind of proposition. And over the

486
00:27:57,640 --> 00:27:59,679
Speaker 3: next year and a half we sold every other business

487
00:28:00,040 --> 00:28:06,040
Speaker 3: but Panera, and I ended up with Panera a bunch

488
00:28:06,119 --> 00:28:09,000
Speaker 3: of cash, maybe one hundred and eighty stores, and I

489
00:28:09,119 --> 00:28:11,760
Speaker 3: moved a new wife down to Saint Louis, Missouri, and

490
00:28:12,600 --> 00:28:14,320
Speaker 3: off we went and running Panera.

491
00:28:14,040 --> 00:28:17,040
Speaker 2: And ten X did up to two thousand stores. Which

492
00:28:17,320 --> 00:28:18,120
Speaker 2: how long did that take?

493
00:28:18,160 --> 00:28:21,280
Speaker 3: Well, I will tell you from that point forward the

494
00:28:21,400 --> 00:28:26,440
Speaker 3: stock was up one hundredfold. Wow in the early that

495
00:28:26,600 --> 00:28:31,280
Speaker 3: happened in I guess ninety nine, early two thousands. You know,

496
00:28:33,000 --> 00:28:35,360
Speaker 3: you know, people would later would say to me, Ron,

497
00:28:35,520 --> 00:28:37,760
Speaker 3: why didn't you tell me? And I'd look at him

498
00:28:37,800 --> 00:28:40,000
Speaker 3: and go, yeah, I know, I look at him, say yo,

499
00:28:40,760 --> 00:28:44,200
Speaker 3: I was telling you, nobody wanted to listen. And the

500
00:28:44,280 --> 00:28:46,600
Speaker 3: truth of the matter is, for at least a year,

501
00:28:47,000 --> 00:28:49,640
Speaker 3: you could have bought my stock at three bucks a share,

502
00:28:49,960 --> 00:28:51,560
Speaker 3: which is what it was trading at at that point.

503
00:28:51,880 --> 00:28:53,560
Speaker 3: You could have bought my stock at three bucks a

504
00:28:53,600 --> 00:28:55,400
Speaker 3: share by the wheelbarrow load.

505
00:28:56,320 --> 00:28:57,840
Speaker 2: And what did you have in cash at the time.

506
00:28:58,560 --> 00:29:02,120
Speaker 2: A couple hundred million, so a buck or so and cash. Yeah,

507
00:29:02,520 --> 00:29:04,000
Speaker 2: so you're risking two dollars.

508
00:29:04,160 --> 00:29:06,440
Speaker 3: Yeah, you could have bought it, you know, split adjusted,

509
00:29:06,720 --> 00:29:09,680
Speaker 3: but you could have bought it. That stock Ultimately three

510
00:29:09,760 --> 00:29:12,360
Speaker 3: bucks a share then traded for three point fifteen when

511
00:29:12,400 --> 00:29:14,600
Speaker 3: we sold the company seventeen years and that was seven

512
00:29:14,680 --> 00:29:18,160
Speaker 3: billion plus yeah seven point eight. Wow, that's almost eight billion.

513
00:29:18,320 --> 00:29:21,760
Speaker 2: And I'm not sure if this is true. According to perplexity,

514
00:29:22,000 --> 00:29:25,120
Speaker 2: Panera is either Latin or Spanish for bread basket, Is

515
00:29:25,160 --> 00:29:25,520
Speaker 2: that right?

516
00:29:26,120 --> 00:29:28,920
Speaker 3: Yeah? It was actually an empty vessel where we could

517
00:29:28,960 --> 00:29:32,280
Speaker 3: put a personality into. Okay, so we weren't looking for

518
00:29:32,440 --> 00:29:35,200
Speaker 3: a name. You know, there's no Joey Panera. It's not

519
00:29:35,360 --> 00:29:40,120
Speaker 3: my cousin right there. It was really a vehicle to

520
00:29:40,680 --> 00:29:43,320
Speaker 3: produce an identity that was rooted in some of you

521
00:29:43,680 --> 00:29:45,480
Speaker 3: who were around Panera, no mother Bread.

522
00:29:46,400 --> 00:29:49,800
Speaker 2: So ninety nine everything gets sold off. You accumulate all

523
00:29:49,920 --> 00:29:53,760
Speaker 2: this capital. At what point did you start to get

524
00:29:53,840 --> 00:29:54,640
Speaker 2: the sense.

525
00:29:54,520 --> 00:29:58,640
Speaker 3: Hey, this is going to work. I know, I actually

526
00:29:58,720 --> 00:30:02,800
Speaker 3: knew back then from day No. You know, it's not

527
00:30:02,880 --> 00:30:06,120
Speaker 3: that it can't fail. But I see something, I can

528
00:30:06,200 --> 00:30:09,760
Speaker 3: feel it. And you know, my definition as an entrepreneur

529
00:30:10,400 --> 00:30:13,600
Speaker 3: is I'm I'm a risk avoid I'm not a risk seeker.

530
00:30:14,000 --> 00:30:17,040
Speaker 3: But to me, the greatest risk is blowing a powerful idea,

531
00:30:17,520 --> 00:30:21,240
Speaker 3: is blowing a market niche that I can see and taste,

532
00:30:21,880 --> 00:30:24,680
Speaker 3: and it's for me. It's beholding on me to fulfill that.

533
00:30:24,920 --> 00:30:28,960
Speaker 3: And I can literally remember understanding what we had with

534
00:30:29,080 --> 00:30:33,240
Speaker 3: Panera back then, and knowing what it could become, and

535
00:30:33,400 --> 00:30:37,800
Speaker 3: knowing we had this obligation to help it fulfills its destiny.

536
00:30:37,840 --> 00:30:38,440
Speaker 3: I could feel it.

537
00:30:39,320 --> 00:30:43,800
Speaker 2: Huh, that's really fascinating. So twenty seventeen, you sell out

538
00:30:44,000 --> 00:30:46,479
Speaker 2: to a private company.

539
00:30:46,720 --> 00:30:49,160
Speaker 3: Well, whoa, whoa, whoa wait, wait, Barry there, we got

540
00:30:49,200 --> 00:30:50,120
Speaker 3: a few years, so well get.

541
00:30:50,000 --> 00:30:52,240
Speaker 2: About all right, So twenty years and then men, So

542
00:30:52,320 --> 00:30:54,600
Speaker 2: how do we get from fifteen to twenty seventeen?

543
00:30:54,760 --> 00:30:59,800
Speaker 3: Twenty years? Fifteen hundred restaurants and one hundred x in

544
00:30:59,800 --> 00:31:00,600
Speaker 3: the stock price.

545
00:31:01,320 --> 00:31:03,720
Speaker 2: So what was that tell us about those two decades?

546
00:31:03,840 --> 00:31:08,479
Speaker 2: What was it like growing from you know, fifty stores

547
00:31:08,520 --> 00:31:09,720
Speaker 2: to fifteen hundred plus.

548
00:31:11,560 --> 00:31:13,080
Speaker 3: It was a lot of work and a lot of

549
00:31:13,120 --> 00:31:16,720
Speaker 3: fun and wonderful people who shared it, who believed in

550
00:31:16,840 --> 00:31:19,400
Speaker 3: it deeply, who cared about it. It was a focus

551
00:31:19,520 --> 00:31:23,040
Speaker 3: on the guests. It was a focus on something we

552
00:31:23,160 --> 00:31:28,120
Speaker 3: call concept essence, this brand's role in the world. And

553
00:31:29,040 --> 00:31:35,680
Speaker 3: quite frankly, we really over those roughly twenty years, stayed

554
00:31:35,880 --> 00:31:39,600
Speaker 3: highly disciplined. We were never about liquidity, We were never

555
00:31:40,040 --> 00:31:43,960
Speaker 3: about trying to sell any sell the company. We were

556
00:31:43,960 --> 00:31:47,080
Speaker 3: about running a great company for our guests, producing high

557
00:31:47,200 --> 00:31:51,960
Speaker 3: compstore sales through good days, through the Great Recession, going

558
00:31:52,040 --> 00:31:54,800
Speaker 3: through all those ups and downs, and we stayed true

559
00:31:54,800 --> 00:31:57,680
Speaker 3: to that. We ended up having very strong compstore sales,

560
00:31:58,360 --> 00:32:02,160
Speaker 3: very high rois, and we ended up, you know, building

561
00:32:02,480 --> 00:32:03,640
Speaker 3: a massive organization.

562
00:32:03,920 --> 00:32:08,000
Speaker 2: What was the biggest challenge during that ramp up? Because

563
00:32:08,080 --> 00:32:12,920
Speaker 2: we have all seen companies either over expand or expand

564
00:32:12,960 --> 00:32:17,360
Speaker 2: into the wrong food categories or the wrong geographies. Like,

565
00:32:17,520 --> 00:32:22,200
Speaker 2: how challenging is that process? Knowing that, hey, either this

566
00:32:22,360 --> 00:32:24,600
Speaker 2: is great or it's a disaster, there's almost nothing in

567
00:32:24,680 --> 00:32:25,040
Speaker 2: the middle.

568
00:32:25,920 --> 00:32:30,400
Speaker 3: Yeah, I know. It's really funny to me. Running a company,

569
00:32:30,640 --> 00:32:33,520
Speaker 3: a small or a very large company is all about

570
00:32:33,560 --> 00:32:36,880
Speaker 3: discipline and not getting ahead of your skis. I never

571
00:32:37,000 --> 00:32:39,840
Speaker 3: wanted to be a company that had to go through layoffs.

572
00:32:39,880 --> 00:32:42,080
Speaker 3: I never wanted to be a company ahead of closed stores.

573
00:32:43,120 --> 00:32:47,320
Speaker 3: So I kept trying to say, how do we run

574
00:32:47,400 --> 00:32:52,200
Speaker 3: this thing with discipline on what matters, that is satisfying

575
00:32:52,240 --> 00:32:54,360
Speaker 3: the guests in a way none of our competitors could.

576
00:32:54,720 --> 00:32:59,040
Speaker 3: How do we create differentiation, competitive advantages everything? How do

577
00:32:59,120 --> 00:33:01,840
Speaker 3: we create an experience and other people can't do with food?

578
00:33:01,920 --> 00:33:07,320
Speaker 3: Other people can't provide with a culture and an experience

579
00:33:07,360 --> 00:33:10,080
Speaker 3: when you walk into the store that other people weren't offering.

580
00:33:10,560 --> 00:33:13,680
Speaker 3: And it was that that focus on that that never

581
00:33:13,800 --> 00:33:16,280
Speaker 3: broke in those twenty years. And I think anybody who

582
00:33:16,320 --> 00:33:17,160
Speaker 3: worked for me knew that.

583
00:33:17,680 --> 00:33:22,800
Speaker 2: Huh, that's really fascinating. So now, fifteen hundred stores seventeen

584
00:33:22,880 --> 00:33:23,720
Speaker 2: years later.

585
00:33:24,400 --> 00:33:26,400
Speaker 3: Maybe with seventeen hundred stories, but keep going.

586
00:33:26,720 --> 00:33:32,120
Speaker 2: Okay, almost two thousand stores today, what led you just

587
00:33:32,320 --> 00:33:35,560
Speaker 2: to decide, all right, these guys really want to throw

588
00:33:35,600 --> 00:33:36,760
Speaker 2: a dumb amount of money at me.

589
00:33:37,320 --> 00:33:38,800
Speaker 3: I'll take it, well, we have to we have to

590
00:33:38,920 --> 00:33:40,240
Speaker 3: make one stop along the way.

591
00:33:40,240 --> 00:33:40,520
Speaker 2: Okay.

592
00:33:40,880 --> 00:33:42,200
Speaker 3: So I you know, as I told you, I have

593
00:33:42,280 --> 00:33:44,920
Speaker 3: this other love politics and trying to fix the world.

594
00:33:45,480 --> 00:33:50,200
Speaker 3: And I fundamentally believe, as in business, the ability to

595
00:33:50,280 --> 00:33:52,280
Speaker 3: think long term is what was the key to up

596
00:33:52,680 --> 00:33:55,120
Speaker 3: an Era and the way we approached it. I also

597
00:33:55,240 --> 00:33:59,040
Speaker 3: think that in our civic society, being able to think

598
00:33:59,160 --> 00:34:02,680
Speaker 3: long term had come together as a country as powerful.

599
00:34:03,320 --> 00:34:06,000
Speaker 3: I would often think that Chinese have twenty year plans,

600
00:34:06,120 --> 00:34:08,200
Speaker 3: and you know, we can't agree on a budget for

601
00:34:08,280 --> 00:34:11,080
Speaker 3: twenty months, and today we can't agree on taris for

602
00:34:11,480 --> 00:34:15,040
Speaker 3: twenty hours. But the truth in the matter is back

603
00:34:15,400 --> 00:34:19,279
Speaker 3: in eighth nine, I felt this desire to take what

604
00:34:19,360 --> 00:34:23,279
Speaker 3: I'd learned in running large organizations and apply it in

605
00:34:23,360 --> 00:34:28,080
Speaker 3: civic society, and I had some discussions with the Obama administration.

606
00:34:28,320 --> 00:34:31,200
Speaker 3: I couldn't step down to do that because of my

607
00:34:31,280 --> 00:34:33,520
Speaker 3: commitment to Panera, and I made the decision I wanted

608
00:34:33,560 --> 00:34:36,120
Speaker 3: to step down, jump off the high diving board and

609
00:34:36,239 --> 00:34:41,160
Speaker 3: see what it felt like applying myself elsewhere. I made

610
00:34:41,200 --> 00:34:44,760
Speaker 3: that decision. I stepped down as CEO, staate as executive chairman.

611
00:34:45,200 --> 00:34:49,200
Speaker 3: I created something called Paneric Cares, which were these cafes,

612
00:34:50,000 --> 00:34:53,799
Speaker 3: cafes have shared responsibility, no set prices. It was quite

613
00:34:53,800 --> 00:34:56,600
Speaker 3: an interesting experiment in humanity. We opened five of them.

614
00:34:57,120 --> 00:35:00,280
Speaker 3: I also went off and helped co form an organation

615
00:35:00,400 --> 00:35:03,640
Speaker 3: called No Labels, which was about reducing again the hyper

616
00:35:03,719 --> 00:35:06,480
Speaker 3: partisan I ever called No Labels, yet I was one

617
00:35:06,520 --> 00:35:09,520
Speaker 3: of the folks that were really the founders of that.

618
00:35:10,320 --> 00:35:13,480
Speaker 3: And I'm out as executive chair for about a year

619
00:35:13,560 --> 00:35:16,440
Speaker 3: or two, and I was still doing acquisitions. I was

620
00:35:16,480 --> 00:35:19,480
Speaker 3: still the largest shareholder and doing some consumer work. And

621
00:35:19,560 --> 00:35:23,680
Speaker 3: I came back one weekend around twoy ten eleven and

622
00:35:23,800 --> 00:35:25,440
Speaker 3: I sat down at a computer and I wrote a

623
00:35:25,560 --> 00:35:28,200
Speaker 3: vision for how I would compete with Pinera. And that

624
00:35:28,400 --> 00:35:31,480
Speaker 3: vision essentially called for digital access. None of that existed

625
00:35:31,880 --> 00:35:35,080
Speaker 3: in twenty eleven. It called for loyalty. Very little of

626
00:35:35,080 --> 00:35:37,800
Speaker 3: that was in this country. Tesco it formed it in

627
00:35:37,920 --> 00:35:40,880
Speaker 3: the UK had come to Kroger. We called for loyalty.

628
00:35:41,160 --> 00:35:45,399
Speaker 3: We called for omlilety meaning like system, the reward system. Yes,

629
00:35:45,800 --> 00:35:48,360
Speaker 3: how do you find a way to build a deeper

630
00:35:48,480 --> 00:35:53,120
Speaker 3: personal connection with guests. It called for clean food, free

631
00:35:53,160 --> 00:35:57,279
Speaker 3: of all artificial chemicals, preservatives, and.

632
00:35:57,360 --> 00:36:01,160
Speaker 2: The minimal process, yes, and no little additives of annie

633
00:36:01,239 --> 00:36:02,120
Speaker 2: if any exactly.

634
00:36:02,200 --> 00:36:05,400
Speaker 3: And then I'm the channel approach. And I brought this

635
00:36:05,880 --> 00:36:09,359
Speaker 3: this memo into my very dear friend, gentleman. I love

636
00:36:09,480 --> 00:36:13,480
Speaker 3: Bill Morton, who was our CEO. He'd been my CFO

637
00:36:13,640 --> 00:36:17,160
Speaker 3: for two decades. And I shared it with Bill and

638
00:36:17,239 --> 00:36:18,400
Speaker 3: he took a look at and said, would you go

639
00:36:18,520 --> 00:36:20,719
Speaker 3: work on it? And I said, you know I would.

640
00:36:21,400 --> 00:36:26,160
Speaker 3: And a year later, the executive chairman is working eighty me.

641
00:36:26,480 --> 00:36:28,560
Speaker 3: I'm working eighty hours a week, having the time of

642
00:36:28,640 --> 00:36:33,720
Speaker 3: my life building up a prototype for technology and digital

643
00:36:33,800 --> 00:36:37,759
Speaker 3: access and clean food. And Bill comes to me and

644
00:36:37,840 --> 00:36:40,400
Speaker 3: says he can't travel when I come back as CEO.

645
00:36:41,320 --> 00:36:43,719
Speaker 3: We fought over for about a year. I didn't really

646
00:36:43,800 --> 00:36:46,960
Speaker 3: want to come back and do what I had done

647
00:36:46,960 --> 00:36:51,200
Speaker 3: as CEO, but he couldn't travel and it was required.

648
00:36:51,640 --> 00:36:53,520
Speaker 3: So I came back a CEO. I put all that

649
00:36:53,640 --> 00:36:58,600
Speaker 3: plan in place. It was horrific at paneroh yeah, and

650
00:36:58,680 --> 00:37:01,799
Speaker 3: it did not work. I spent one hundred and fifteen million.

651
00:37:01,800 --> 00:37:05,600
Speaker 3: It was that the transformation was huge. Okay, so well

652
00:37:05,680 --> 00:37:08,160
Speaker 3: let me get there. I mean I had activists along

653
00:37:08,239 --> 00:37:10,120
Speaker 3: the way. One of my partners in Act three today

654
00:37:10,200 --> 00:37:13,279
Speaker 3: was the activist who attack me. I had a lot

655
00:37:13,360 --> 00:37:15,320
Speaker 3: of fun with him. I could never tell anybody actually

656
00:37:15,400 --> 00:37:19,680
Speaker 3: respected him. Name Noah Elbogin, okay, but I couldn't tell

657
00:37:19,719 --> 00:37:21,920
Speaker 3: anybody that. But I actually grew to like him and

658
00:37:22,040 --> 00:37:25,440
Speaker 3: today he works with me. But at any rate, So

659
00:37:25,920 --> 00:37:30,879
Speaker 3: those years twenty fourteen, fifteen sixteen, anytime you go through transformation,

660
00:37:31,440 --> 00:37:34,200
Speaker 3: anytime you change something, and this was probably the largest

661
00:37:34,239 --> 00:37:38,520
Speaker 3: transformation in a large public restaurant company. It was difficult.

662
00:37:38,560 --> 00:37:41,759
Speaker 3: I remember when we were driving technology. Were the first

663
00:37:41,880 --> 00:37:47,440
Speaker 3: real restaurant technology in an integrated way. Again, I used

664
00:37:47,440 --> 00:37:50,440
Speaker 3: to call technology the social security of Panera. It was

665
00:37:50,520 --> 00:37:52,360
Speaker 3: only a matter of time till it was one hundred

666
00:37:52,360 --> 00:37:56,040
Speaker 3: percent of our revenue, and we were committed to this

667
00:37:56,200 --> 00:37:59,719
Speaker 3: and we did it. By twenty sixteen, our comps were

668
00:38:00,080 --> 00:38:04,120
Speaker 3: pushing double digits again. Ibadah was up thirty five percent.

669
00:38:04,280 --> 00:38:08,000
Speaker 3: The company was rocking. Starbucks made an approached us to

670
00:38:08,120 --> 00:38:12,720
Speaker 3: buy us. That didn't. We go forward and in twenty

671
00:38:12,920 --> 00:38:18,440
Speaker 3: seventeen the leadership of JB which was a European money manager,

672
00:38:20,280 --> 00:38:25,240
Speaker 3: came calling and they had fallen in love. And frankly,

673
00:38:26,080 --> 00:38:27,880
Speaker 3: my view of a business is I spent all of

674
00:38:27,960 --> 00:38:32,400
Speaker 3: my time building it. But when somebody's in love, that

675
00:38:32,560 --> 00:38:34,480
Speaker 3: always provides the opportunity to harvest.

676
00:38:34,760 --> 00:38:38,919
Speaker 2: So Starbucks comes knocking. Were they offering a stock deal?

677
00:38:39,200 --> 00:38:42,239
Speaker 2: Was it remotely close to the nearly eight billion that

678
00:38:42,400 --> 00:38:43,279
Speaker 2: JB came up with.

679
00:38:44,840 --> 00:38:46,760
Speaker 3: If you read my book, you read the whole story,

680
00:38:47,840 --> 00:38:52,360
Speaker 3: But I think the Starbucks deal was around two forty

681
00:38:52,400 --> 00:38:55,960
Speaker 3: a share. The JB deal was done at three fifteen,

682
00:38:56,120 --> 00:39:01,160
Speaker 3: much more ass six months after the Starbucks discussion, and frankly,

683
00:39:01,239 --> 00:39:06,960
Speaker 3: the Starbucks discussions didn't reach conclusion. It was at that

684
00:39:07,080 --> 00:39:10,800
Speaker 3: point that Howard was making his own decisions about stepping

685
00:39:10,880 --> 00:39:16,440
Speaker 3: down and replacing himself with Kevin Johnson and my senses,

686
00:39:16,560 --> 00:39:18,920
Speaker 3: they did not want to take on an acquisition like

687
00:39:19,560 --> 00:39:22,760
Speaker 3: Panera at that moment, so our stock price got ahead

688
00:39:22,760 --> 00:39:25,160
Speaker 3: of itself. They couldn't do the deal. So the Starbucks

689
00:39:25,200 --> 00:39:26,760
Speaker 3: deal didn't didn't go forward.

690
00:39:26,680 --> 00:39:29,080
Speaker 2: But at the very least it's set a floor for

691
00:39:29,480 --> 00:39:31,080
Speaker 2: future discussions with whomever.

692
00:39:31,320 --> 00:39:33,880
Speaker 3: Well, it wasn't public, so we had we I mean

693
00:39:33,920 --> 00:39:36,920
Speaker 3: to be honest with you, we had had this these

694
00:39:37,000 --> 00:39:41,280
Speaker 3: discussions that two forty a share with Starbucks. It didn't

695
00:39:41,320 --> 00:39:44,560
Speaker 3: go forward, and when we began with JB. And again

696
00:39:44,680 --> 00:39:47,080
Speaker 3: you can read the book it. You know, I think

697
00:39:47,360 --> 00:39:51,000
Speaker 3: it started in the high two hundreds. By the time

698
00:39:51,040 --> 00:39:53,320
Speaker 3: we were done, they were paying three fifteen for it.

699
00:39:53,440 --> 00:39:53,680
Speaker 1: Wow.

700
00:39:53,880 --> 00:39:56,960
Speaker 2: And the book is know what matters, lessons from a

701
00:39:57,120 --> 00:40:01,479
Speaker 2: lifetime of transformations. All right, So let's talk about Act three,

702
00:40:01,920 --> 00:40:05,360
Speaker 2: which I don't mean that in the Shakespearean sense, but

703
00:40:05,920 --> 00:40:09,560
Speaker 2: you launched Act three Holdings to invest in new brands.

704
00:40:09,640 --> 00:40:11,320
Speaker 2: Tell us about the motivations for that.

705
00:40:11,600 --> 00:40:14,320
Speaker 3: Well, after I I had sold Paneria, I didn't know

706
00:40:14,440 --> 00:40:17,880
Speaker 3: where I was headed. There was a discussion with JB

707
00:40:18,000 --> 00:40:19,640
Speaker 3: about joining them as a partner.

708
00:40:21,080 --> 00:40:24,160
Speaker 2: And and this is the big European investment shop they

709
00:40:24,640 --> 00:40:25,560
Speaker 2: took uh took over.

710
00:40:26,160 --> 00:40:28,920
Speaker 3: Yeah, but I it wasn't for me. And and I

711
00:40:29,120 --> 00:40:31,839
Speaker 3: was doing a bunch of speaking about the pervasive short

712
00:40:31,960 --> 00:40:35,279
Speaker 3: termism in our capital markets and and how I thought

713
00:40:35,360 --> 00:40:39,160
Speaker 3: it had been it had an untoward impact frankly on

714
00:40:39,280 --> 00:40:44,640
Speaker 3: innovation and GDP growth. And and one of my now

715
00:40:44,760 --> 00:40:47,720
Speaker 3: partners and who've been my chief concert officer of Panera,

716
00:40:48,440 --> 00:40:51,000
Speaker 3: was a gentleman named Keith Pascal, And he said, why

717
00:40:51,040 --> 00:40:52,680
Speaker 3: why don't you take some of your money? You made

718
00:40:52,680 --> 00:40:54,600
Speaker 3: all this money, Why don't you take some of it,

719
00:40:54,760 --> 00:40:59,560
Speaker 3: and and and and and invest it in the long term, uh,

720
00:41:00,080 --> 00:41:03,040
Speaker 3: with a long term focus. And I thought about it,

721
00:41:03,320 --> 00:41:05,880
Speaker 3: and that I had been out of Panera about two

722
00:41:05,920 --> 00:41:09,120
Speaker 3: months at this point, and I actually had an idea.

723
00:41:09,560 --> 00:41:14,880
Speaker 3: And the idea I had it was a company. I

724
00:41:15,480 --> 00:41:20,759
Speaker 3: basically had had deep belief that the Mediterranean category had

725
00:41:20,800 --> 00:41:23,680
Speaker 3: the potential to be the next major culinary category.

726
00:41:23,800 --> 00:41:24,880
Speaker 2: Oh that's really interesting.

727
00:41:25,000 --> 00:41:26,560
Speaker 3: Oh it's obvious. I mean it was the number one

728
00:41:26,640 --> 00:41:29,840
Speaker 3: diet in America, Mediterranean. Every time I went to the doctor,

729
00:41:29,880 --> 00:41:33,520
Speaker 3: they were doing a commercial for Mediterranean. It's bold flavors,

730
00:41:33,760 --> 00:41:37,760
Speaker 3: but it's flavors that feel safe. It's also craveable wellness.

731
00:41:37,800 --> 00:41:40,960
Speaker 3: It's healthy, it's good for you, and it tastes good.

732
00:41:41,200 --> 00:41:44,080
Speaker 3: And it was very clear this category had power. And

733
00:41:44,360 --> 00:41:48,280
Speaker 3: I had made an investment in a very small company

734
00:41:48,400 --> 00:41:56,360
Speaker 3: in the DVM DMV, which was down in DC Calcava

735
00:41:56,440 --> 00:41:59,320
Speaker 3: when it was two restaurants. I knew them, and I

736
00:41:59,480 --> 00:42:03,880
Speaker 3: had a restaurant company. As I had left, Panera approached

737
00:42:03,880 --> 00:42:06,320
Speaker 3: me called Zoways, asked me if I would join their board,

738
00:42:06,719 --> 00:42:08,880
Speaker 3: that'd give me warrants of, you know, in ten percent

739
00:42:08,920 --> 00:42:10,960
Speaker 3: of the company or something to see if I could

740
00:42:11,040 --> 00:42:16,080
Speaker 3: help them compete. And I looked at them and I

741
00:42:16,160 --> 00:42:19,239
Speaker 3: thought to myself, wow, And at the same time Cave

742
00:42:19,640 --> 00:42:21,399
Speaker 3: the guys at COVID asked me if I joined their board.

743
00:42:21,800 --> 00:42:25,160
Speaker 3: I thought to myself, you know, this is an industry,

744
00:42:25,239 --> 00:42:31,040
Speaker 3: the food industry, in which in every major category winner

745
00:42:31,160 --> 00:42:34,320
Speaker 3: takes all. You know, you can talk McDonald's and Burking,

746
00:42:35,160 --> 00:42:39,120
Speaker 3: Panera and Corner Bakery, you can talk Chipotle and Quadoba.

747
00:42:39,360 --> 00:42:41,600
Speaker 3: And I said, somebody is going to win a Mediterranean

748
00:42:42,000 --> 00:42:46,840
Speaker 3: and there is a powerful potential to take Zoe's. To

749
00:42:46,920 --> 00:42:51,080
Speaker 3: buy this company, Zoe's, which was about two and fifty restaurants,

750
00:42:51,680 --> 00:42:55,440
Speaker 3: take the culinary skills of Kava, merge them together, and

751
00:42:55,680 --> 00:42:59,840
Speaker 3: end up with the you know, clearly ten x dominant

752
00:43:00,239 --> 00:43:02,360
Speaker 3: in the Mediterranean category. And I thought I might do

753
00:43:02,480 --> 00:43:05,160
Speaker 3: this well. COVID asked me to join their board. I

754
00:43:06,760 --> 00:43:10,440
Speaker 3: went to their CEO, Brett Schulman, with this idea and

755
00:43:11,200 --> 00:43:12,840
Speaker 3: I said, and he said, before you you know, you

756
00:43:12,960 --> 00:43:14,520
Speaker 3: better talk to my board about it. I went to

757
00:43:14,560 --> 00:43:16,759
Speaker 3: a meeting with the board. I pitched them on the

758
00:43:16,880 --> 00:43:20,560
Speaker 3: idea of buying a company five times larger and then

759
00:43:20,640 --> 00:43:23,400
Speaker 3: merging with them. Ultimately, they asked they wanted to do

760
00:43:23,520 --> 00:43:27,319
Speaker 3: the acquisition. I agreed to finance the dealer at least

761
00:43:27,640 --> 00:43:30,080
Speaker 3: half of the capital they needed, about one hundred and

762
00:43:30,160 --> 00:43:33,759
Speaker 3: fifty million I put into it, and I became, you know,

763
00:43:34,040 --> 00:43:37,120
Speaker 3: one of the very largest shareholders, and I became chairman

764
00:43:37,160 --> 00:43:37,680
Speaker 3: of the company.

765
00:43:38,000 --> 00:43:40,239
Speaker 2: And how large is COVID today.

766
00:43:40,440 --> 00:43:46,960
Speaker 3: Well, it went public about eighteen months ago. It stock

767
00:43:48,280 --> 00:43:51,800
Speaker 3: was up as high as seven x since the IPO,

768
00:43:52,000 --> 00:43:55,680
Speaker 3: it's now up five x. It's a it was, it's

769
00:43:55,719 --> 00:43:59,640
Speaker 3: a ten billion dollar market cap company. It treated as

770
00:43:59,680 --> 00:44:04,120
Speaker 3: highest sixteen billion. It's perceived by the market, frankly as

771
00:44:05,640 --> 00:44:09,200
Speaker 3: has the potential to be the next Chipotle, the next Panera.

772
00:44:09,640 --> 00:44:13,120
Speaker 3: It's a powerful brand with an amazing management team led

773
00:44:13,160 --> 00:44:15,600
Speaker 3: by Brett Schulman. And I'm pleased to say we've been

774
00:44:15,640 --> 00:44:18,680
Speaker 3: able to help them along the way, know what they

775
00:44:18,800 --> 00:44:21,680
Speaker 3: needed to do to become the kind of great company

776
00:44:21,760 --> 00:44:22,320
Speaker 3: it is today.

777
00:44:22,840 --> 00:44:25,279
Speaker 2: Let me push back a little bit on Winner Take All,

778
00:44:25,760 --> 00:44:30,040
Speaker 2: even though I'm a big believer in that as a reality.

779
00:44:30,840 --> 00:44:34,720
Speaker 2: But McDonald seems to have gotten kind of old and stale.

780
00:44:35,320 --> 00:44:40,840
Speaker 2: And along comes Shakeshack and a dozen other five guys

781
00:44:40,920 --> 00:44:43,360
Speaker 2: and down the round and it suddenly seems like in

782
00:44:43,520 --> 00:44:49,239
Speaker 2: the burger space as an example, there's increasing competition and

783
00:44:49,320 --> 00:44:55,320
Speaker 2: it's no longer Mickey dies as the only winner. Is

784
00:44:55,440 --> 00:44:58,680
Speaker 2: that just what happens eventually or what's your perspective.

785
00:44:58,200 --> 00:44:59,960
Speaker 3: On Well, first, let me let me share with you something.

786
00:45:00,480 --> 00:45:04,080
Speaker 3: Danny Meyer, who is the brilliant a chairman, very dear friend,

787
00:45:04,520 --> 00:45:08,040
Speaker 3: chairman really of Shakeshack. He's a dear friend. But my

788
00:45:08,239 --> 00:45:13,719
Speaker 3: son actually works at Shakeshack in operations, and so I

789
00:45:13,840 --> 00:45:16,359
Speaker 3: have great affinity for those guys. But here's the truth.

790
00:45:17,520 --> 00:45:20,800
Speaker 3: McDonald's is worth what seventy five billion, one hundred billion.

791
00:45:21,239 --> 00:45:24,759
Speaker 3: I mean, it's it's got a huge market cap. There

792
00:45:24,840 --> 00:45:29,800
Speaker 3: isn't another hamburger business that's got a market cap anywhere

793
00:45:29,880 --> 00:45:31,520
Speaker 3: near that, and that's what we're talking about.

794
00:45:31,600 --> 00:45:34,720
Speaker 2: But they got a sixty five year head start, seventy

795
00:45:34,760 --> 00:45:35,879
Speaker 2: five year head start over.

796
00:45:36,200 --> 00:45:38,400
Speaker 3: Yeah, that's what I mean. Winner takes all. When you

797
00:45:38,560 --> 00:45:41,440
Speaker 3: have a position of dominance in a category, you win.

798
00:45:41,719 --> 00:45:44,279
Speaker 3: Now you can be niched, and niches come along and

799
00:45:44,320 --> 00:45:48,480
Speaker 3: they redefine themselves and they can in themselves become a category.

800
00:45:48,880 --> 00:45:53,240
Speaker 3: But ultimately, this is an industry in which scale matters.

801
00:45:53,400 --> 00:45:55,880
Speaker 3: It matters as you spread the overhead, and it's a

802
00:45:55,920 --> 00:45:57,040
Speaker 3: winner take all industry.

803
00:45:57,640 --> 00:46:01,160
Speaker 2: I'm looking at a lot of the winners of the past,

804
00:46:01,400 --> 00:46:03,480
Speaker 2: and I know they are all different industries, whether it's

805
00:46:04,000 --> 00:46:06,720
Speaker 2: general electric, or seers.

806
00:46:06,600 --> 00:46:12,040
Speaker 3: Or or retail. You're a great investor and a smart man,

807
00:46:12,560 --> 00:46:16,600
Speaker 3: but you're confusing two things. One dominance of a category

808
00:46:17,160 --> 00:46:21,120
Speaker 3: and then what happens to businesses as they lose their

809
00:46:21,160 --> 00:46:24,160
Speaker 3: competitive event exactly, So, let me share with you a

810
00:46:24,239 --> 00:46:27,799
Speaker 3: principle that was very clear to me. When businesses form,

811
00:46:28,400 --> 00:46:33,800
Speaker 3: it requires a powerful, powerful effort by somebody to discover

812
00:46:33,880 --> 00:46:36,880
Speaker 3: a better alternative. Because you have no scale, You've got

813
00:46:36,920 --> 00:46:39,719
Speaker 3: to get customers to walk across the street, you have

814
00:46:39,880 --> 00:46:43,520
Speaker 3: no purchasing, no ability to access to capital. When a

815
00:46:43,600 --> 00:46:47,000
Speaker 3: business starts to get some success because it's actually worked,

816
00:46:48,120 --> 00:46:51,919
Speaker 3: capital comes in. And as capital comes in, people began

817
00:46:52,040 --> 00:46:55,160
Speaker 3: to say, you know, we know you've discovered something better,

818
00:46:55,680 --> 00:46:58,080
Speaker 3: but we need to figure out how to be more efficient,

819
00:46:58,200 --> 00:47:00,880
Speaker 3: how to run it better. And what old happens is

820
00:47:00,960 --> 00:47:05,000
Speaker 3: you bring in what we would call discover delivery people.

821
00:47:05,239 --> 00:47:08,719
Speaker 3: Delivery people are about improving the margins, about purchasing, about

822
00:47:08,760 --> 00:47:12,759
Speaker 3: financial planning, and often in companies and particularly in my

823
00:47:12,840 --> 00:47:16,799
Speaker 3: industry as they approach a billion dollars, the discovery people

824
00:47:16,880 --> 00:47:21,560
Speaker 3: and the delivery people, they ultimately do well together. At

825
00:47:21,600 --> 00:47:24,920
Speaker 3: the beginning, the margins get better, but ultimately there's conflict

826
00:47:25,000 --> 00:47:28,040
Speaker 3: in friction. Sure, the language of discovery is the language

827
00:47:28,080 --> 00:47:31,399
Speaker 3: of could you imagine, let's try this, what would happen

828
00:47:31,440 --> 00:47:35,640
Speaker 3: if it's poetry. The language of delivery is financial planning.

829
00:47:35,880 --> 00:47:37,760
Speaker 3: Prove it to me. I want to see the numbers.

830
00:47:38,239 --> 00:47:42,640
Speaker 3: I don't believe it, logistics numbers. It's got to be proven.

831
00:47:43,040 --> 00:47:46,880
Speaker 3: And what ends up happening is the delivery capabilities of

832
00:47:47,000 --> 00:47:51,000
Speaker 3: most companies drive out the discovery capabilities, and companies that

833
00:47:51,080 --> 00:47:55,920
Speaker 3: were once very effective they become more and more reliant

834
00:47:55,960 --> 00:48:00,279
Speaker 3: on efficiency. And what happens typically in many companies is

835
00:48:00,320 --> 00:48:03,880
Speaker 3: they get very good, very efficient at doing what the

836
00:48:04,000 --> 00:48:08,399
Speaker 3: marketplace wanted from them five years ago, ten years ago,

837
00:48:08,480 --> 00:48:12,400
Speaker 3: twenty years ago, and not very effective at figuring out

838
00:48:12,440 --> 00:48:14,000
Speaker 3: what the consumer of tomorrow wants.

839
00:48:14,560 --> 00:48:19,480
Speaker 2: There's a wonderful pull Gram quote that goes all experts

840
00:48:19,560 --> 00:48:22,560
Speaker 2: are experts in the way the world used to be exactly.

841
00:48:23,360 --> 00:48:28,360
Speaker 3: And so my point to you is, once we define

842
00:48:28,400 --> 00:48:33,440
Speaker 3: the categories dominance matters, somebody will own. The reason the

843
00:48:33,800 --> 00:48:37,719
Speaker 3: market is paying upwards of has been paying upwards of

844
00:48:37,840 --> 00:48:41,440
Speaker 3: fifteen billion dollars of valuation on Kava. This thing is

845
00:48:41,800 --> 00:48:45,520
Speaker 3: four hundred restaurants. I mean, we've had valuations of thirty

846
00:48:45,560 --> 00:48:48,120
Speaker 3: to forty million dollars a restaurant. What is the market

847
00:48:48,160 --> 00:48:50,800
Speaker 3: paying for. They're paying for the future. They're paying for

848
00:48:50,880 --> 00:48:54,239
Speaker 3: an expectation that this business will will will take form

849
00:48:54,320 --> 00:48:57,600
Speaker 3: as one of the great companies in this country. The

850
00:48:57,760 --> 00:49:02,400
Speaker 3: question that's dominant of a category now. The challenge to

851
00:49:02,520 --> 00:49:06,200
Speaker 3: the team at Kava is staying on that edge, staying

852
00:49:06,239 --> 00:49:09,680
Speaker 3: on that wave, is continuing to discover, which is why

853
00:49:09,960 --> 00:49:13,759
Speaker 3: the role of CEO in so many companies in my view,

854
00:49:14,160 --> 00:49:17,000
Speaker 3: is to be the innovator in chief and lead that discovery,

855
00:49:17,280 --> 00:49:20,520
Speaker 3: because if the CEO isn't doing it isn't going to happen. Huh.

856
00:49:20,680 --> 00:49:23,080
Speaker 2: That's really interesting. So I want to talk about some

857
00:49:23,160 --> 00:49:25,600
Speaker 2: of the companies that AC three has invested in, but

858
00:49:26,360 --> 00:49:30,439
Speaker 2: let's get a little broader view. Tell us about ACT three,

859
00:49:30,560 --> 00:49:32,120
Speaker 2: What are you doing? What's the philosophy here?

860
00:49:32,200 --> 00:49:35,960
Speaker 3: So after we we we helped form the modern Kava

861
00:49:36,520 --> 00:49:40,320
Speaker 3: and invested in that. I had also had had a

862
00:49:40,560 --> 00:49:44,919
Speaker 3: company I'd bought four Panera called TAT, which a large

863
00:49:44,920 --> 00:49:48,160
Speaker 3: stake in it with its founder a zerid Or when

864
00:49:48,239 --> 00:49:51,239
Speaker 3: I when I left Panera, I took with me Panera's

865
00:49:51,400 --> 00:49:58,520
Speaker 3: interest in TAT and we decided to take our own money.

866
00:49:58,680 --> 00:50:02,200
Speaker 3: I took, you know, roughly a quarter of a billion

867
00:50:02,280 --> 00:50:07,080
Speaker 3: dollars of my own money and number of people who

868
00:50:07,239 --> 00:50:10,880
Speaker 3: decided to join me. They co invested, and we decided

869
00:50:10,920 --> 00:50:16,240
Speaker 3: to put that money to work investing in growth companies

870
00:50:16,320 --> 00:50:19,680
Speaker 3: with a couple of very simple principles. The number one

871
00:50:19,800 --> 00:50:25,880
Speaker 3: principle was founder friendly capital. We think that in growth concepts,

872
00:50:26,239 --> 00:50:28,440
Speaker 3: the last thing they need to do is do fundraising.

873
00:50:28,600 --> 00:50:31,920
Speaker 3: Is if it's an annual life cycle event. You know, literally,

874
00:50:32,680 --> 00:50:36,040
Speaker 3: the last thing that needs to happen is money raising

875
00:50:36,080 --> 00:50:39,000
Speaker 3: needs to an annual event. So we come along and

876
00:50:39,320 --> 00:50:43,000
Speaker 3: we make an investment, hopefully at a reasonable valuation, but

877
00:50:43,120 --> 00:50:45,640
Speaker 3: we then take a write a first refusal with a

878
00:50:45,760 --> 00:50:50,240
Speaker 3: pre agreed to valuation multiple at all follow on rounds,

879
00:50:50,440 --> 00:50:53,239
Speaker 3: and we've never turned that down. So all of our

880
00:50:53,320 --> 00:50:56,839
Speaker 3: investments know that they essentially never have to raise money

881
00:50:56,880 --> 00:50:59,239
Speaker 3: again to worry about it. So all the money is there,

882
00:50:59,280 --> 00:51:03,080
Speaker 3: it's already negotiated It also allows us to consolidate up

883
00:51:03,120 --> 00:51:07,080
Speaker 3: our position. That's principal one. It's common stock and no

884
00:51:07,239 --> 00:51:11,000
Speaker 3: dilute of no pref terms. Number two we practice will

885
00:51:11,000 --> 00:51:14,080
Speaker 3: be called Sherpa management. So almost every private equity firm

886
00:51:14,200 --> 00:51:17,520
Speaker 3: that makes investments, their people are financial. They're in the

887
00:51:17,560 --> 00:51:21,560
Speaker 3: boardroom often asking what the next liquidity event is. Of

888
00:51:21,640 --> 00:51:25,000
Speaker 3: our twenty five people, only one of them is financially driven.

889
00:51:25,640 --> 00:51:29,839
Speaker 3: As I said, Noah Elbogan, our former activist. Everybody else

890
00:51:29,920 --> 00:51:32,640
Speaker 3: our senior C suite executives. I've got a guy who's

891
00:51:32,640 --> 00:51:36,359
Speaker 3: opened five thousand retail stores. I've got another guy who's

892
00:51:36,400 --> 00:51:41,440
Speaker 3: my partner, Dwight Juson, who was with us for twenty

893
00:51:41,520 --> 00:51:45,160
Speaker 3: years and really invented fast casual. My joke with him

894
00:51:45,280 --> 00:51:48,160
Speaker 3: is from his brain to my lips. I make the speech,

895
00:51:48,239 --> 00:51:51,840
Speaker 3: he's the one who does the thinking. We have another partner,

896
00:51:51,960 --> 00:51:56,360
Speaker 3: Chuck Chapman, who's extraordinary. Was with Darden, was with Berkshire,

897
00:51:56,400 --> 00:52:00,480
Speaker 3: Hathaway and Dairy Queen, was with Bruger's, Isn't it was

898
00:52:00,920 --> 00:52:04,200
Speaker 3: on my board, was the CEO at Panera. He's great

899
00:52:04,280 --> 00:52:08,480
Speaker 3: at scaling and building these businesses. I've got a major

900
00:52:08,560 --> 00:52:14,560
Speaker 3: technology group that has the capability of knowing what's going

901
00:52:14,640 --> 00:52:16,920
Speaker 3: to work in three years at any rate. When we're

902
00:52:17,040 --> 00:52:21,600
Speaker 3: sitting in a boardroom, we're there as a sherpa, and

903
00:52:21,960 --> 00:52:25,480
Speaker 3: I have a simple expression. Building a nationally dominant business

904
00:52:26,040 --> 00:52:28,480
Speaker 3: is tougher than climbing Mount Everest. Very few people ever

905
00:52:28,640 --> 00:52:31,920
Speaker 3: do it. Nobody goes up Mount Everest without a sharpa.

906
00:52:32,360 --> 00:52:35,520
Speaker 3: Why don't you understand that you will be well served

907
00:52:35,560 --> 00:52:37,480
Speaker 3: if you have a shurpa as you build a nationally

908
00:52:37,560 --> 00:52:41,400
Speaker 3: dominant company. We're in that boardroom, we're talking to management

909
00:52:41,480 --> 00:52:43,279
Speaker 3: about how to make sure they don't fall off the

910
00:52:43,320 --> 00:52:45,839
Speaker 3: side of the mountain, how they don't make sure they

911
00:52:45,880 --> 00:52:49,839
Speaker 3: don't trip up and fall. And frankly, we've been very

912
00:52:49,920 --> 00:52:54,759
Speaker 3: successful in helping build these dominant companies in these core categories.

913
00:52:55,560 --> 00:52:59,080
Speaker 3: And then the last Barry, the last principle is I

914
00:52:59,160 --> 00:53:01,480
Speaker 3: told you when we began and talking, we believe deeply

915
00:53:01,560 --> 00:53:06,080
Speaker 3: in competitive advantage. We only invest where we have competitive advantage.

916
00:53:06,280 --> 00:53:08,920
Speaker 3: What AC three is really good at is we have

917
00:53:09,080 --> 00:53:11,960
Speaker 3: one hundreds of years of pattern recognition in this industry.

918
00:53:13,160 --> 00:53:17,239
Speaker 3: We know what categories are going to have a wind

919
00:53:17,320 --> 00:53:19,879
Speaker 3: at their back, and we know how to help these

920
00:53:19,960 --> 00:53:23,200
Speaker 3: companies build the dominant position in that category. And frankly,

921
00:53:23,320 --> 00:53:26,960
Speaker 3: we now are involved with seven companies. We've yet to

922
00:53:27,080 --> 00:53:29,680
Speaker 3: have anything other than a huge success.

923
00:53:30,520 --> 00:53:34,120
Speaker 2: Huh. That's really fascinating. Let's talk quickly about two of

924
00:53:34,200 --> 00:53:38,480
Speaker 2: the companies that you've invested in besides Cava. One is

925
00:53:38,600 --> 00:53:40,879
Speaker 2: Life Alive and the other is Level ninety nine.

926
00:53:41,000 --> 00:53:45,280
Speaker 3: Tell us about those. Sure, so, Life Alive is positive eating.

927
00:53:46,560 --> 00:53:49,040
Speaker 3: Look at forty percent of America is trying to eat better.

928
00:53:50,360 --> 00:53:52,000
Speaker 3: The question is where do you go to do that?

929
00:53:52,120 --> 00:53:55,239
Speaker 3: How do you do it? This is mostly vegetables. It's

930
00:53:55,680 --> 00:53:59,320
Speaker 3: really good. We've owned it for seven or eight years.

931
00:53:59,440 --> 00:54:03,600
Speaker 3: We've nursed, they cared for watch the grow very high volume. Today,

932
00:54:04,680 --> 00:54:07,239
Speaker 3: somebody is going to own the plan forward category. We

933
00:54:07,360 --> 00:54:10,320
Speaker 3: hope that this is the concept that's the dominant player.

934
00:54:10,120 --> 00:54:11,600
Speaker 2: In that And Level ninety nine.

935
00:54:11,800 --> 00:54:17,640
Speaker 3: Elevin nine is another interesting one. This is immersive social entertainment.

936
00:54:18,280 --> 00:54:22,200
Speaker 3: It's forty thousand square feet of challenges. It was created.

937
00:54:22,719 --> 00:54:25,640
Speaker 3: It's forty thousand square feet of challenges with a farm,

938
00:54:25,760 --> 00:54:28,480
Speaker 3: the table, restaurant, and a brewery in the middle of it.

939
00:54:29,000 --> 00:54:31,240
Speaker 3: It was created by a gentleman named Matt de Plessi.

940
00:54:31,560 --> 00:54:33,799
Speaker 3: We met Matt before he opened one of them. He's

941
00:54:34,239 --> 00:54:37,600
Speaker 3: out of out of Mit Harvard Business School and spent

942
00:54:37,640 --> 00:54:42,760
Speaker 3: twenty years working with Disney and their folks. Very experienced

943
00:54:42,800 --> 00:54:45,400
Speaker 3: in entertainment. He had the vision for this business. We

944
00:54:45,560 --> 00:54:48,480
Speaker 3: put up the capitol. We're partners in it with him,

945
00:54:49,160 --> 00:54:54,120
Speaker 3: and it is stunning to go to one of these.

946
00:54:54,160 --> 00:54:57,520
Speaker 3: Where in Natick, Massachusetts. We're in Providence, Rhode Island. We're

947
00:54:57,560 --> 00:55:01,480
Speaker 3: opening in Disney World. We're opening in Tyson's Corner, and

948
00:55:01,680 --> 00:55:06,640
Speaker 3: this summer you'll see us in locations across America. This

949
00:55:07,040 --> 00:55:10,040
Speaker 3: is a kind of busy. We'll have three thousand people

950
00:55:10,080 --> 00:55:14,200
Speaker 3: on a Saturday night. It's an unbelievable experience and with

951
00:55:14,680 --> 00:55:17,400
Speaker 3: extraordinary margins, it may be one of the best businesses

952
00:55:17,440 --> 00:55:18,480
Speaker 3: I've ever been involved in.

953
00:55:18,680 --> 00:55:20,719
Speaker 2: Wow, that's amazing. All Right, I only have you for

954
00:55:20,760 --> 00:55:23,479
Speaker 2: a few moments, so let's jump to our speed round.

955
00:55:24,000 --> 00:55:28,879
Speaker 2: Five quick questions thirty seconds each, starting with what's keeping

956
00:55:28,960 --> 00:55:31,840
Speaker 2: you entertain these days? What are you streaming or watching

957
00:55:32,200 --> 00:55:32,759
Speaker 2: or listening to?

958
00:55:32,840 --> 00:55:35,320
Speaker 3: Well, what's keeping me entertained is my kids. Yeah, I

959
00:55:35,400 --> 00:55:37,520
Speaker 3: have a twenty six year old and a twenty one

960
00:55:37,600 --> 00:55:39,640
Speaker 3: year old. But what I'm watching? The thing I just

961
00:55:39,719 --> 00:55:43,000
Speaker 3: finished was watching White Lotus with my son. I loved it.

962
00:55:43,280 --> 00:55:46,120
Speaker 3: I mean, we have a house on an island called

963
00:55:46,239 --> 00:55:49,920
Speaker 3: Jumbie Bay off of Antigua, and it reminds us of

964
00:55:50,000 --> 00:55:53,000
Speaker 3: where we live and just what really goes on between

965
00:55:53,040 --> 00:55:55,640
Speaker 3: people is always the most fascinating to me. I love people.

966
00:55:55,960 --> 00:55:58,760
Speaker 2: Tell us about your mentors, who helped shape your career?

967
00:56:00,000 --> 00:56:03,040
Speaker 3: If anybody helped shape me, but I would say lu Caine,

968
00:56:03,239 --> 00:56:05,640
Speaker 3: who was twenty five years my senior and my partner

969
00:56:05,680 --> 00:56:08,520
Speaker 3: in many years, taught me what it meant to be

970
00:56:08,600 --> 00:56:11,800
Speaker 3: a stand up guy. I love this man. He was

971
00:56:12,080 --> 00:56:15,040
Speaker 3: a huge influence. I also say my dad, who was

972
00:56:16,480 --> 00:56:20,200
Speaker 3: a CPA, but again, knew how to deal with people,

973
00:56:20,360 --> 00:56:24,279
Speaker 3: talk to people, care about people, and I respected him

974
00:56:24,280 --> 00:56:25,160
Speaker 3: as a business person.

975
00:56:25,840 --> 00:56:27,720
Speaker 2: What about books? What are some of your favorites?

976
00:56:27,760 --> 00:56:31,200
Speaker 3: What are you reading right now? Oh goodness. The last

977
00:56:31,239 --> 00:56:33,879
Speaker 3: night I was reading a book on Australia. I'm going

978
00:56:33,920 --> 00:56:36,480
Speaker 3: to Australia with my daughter in two weeks, so I

979
00:56:37,160 --> 00:56:43,719
Speaker 3: skim read that. But I ten, you know, I just

980
00:56:43,840 --> 00:56:48,719
Speaker 3: reread Daniel Caineman passed away. I think I'm pronouncing his

981
00:56:48,840 --> 00:56:52,280
Speaker 3: name right, but he wrote fast and flow.

982
00:56:52,440 --> 00:56:54,040
Speaker 2: Slow, fast and slow economy.

983
00:56:54,200 --> 00:56:57,200
Speaker 3: I had read it years ago. I just reread it again.

984
00:56:57,320 --> 00:57:00,920
Speaker 3: I love it. It's behavioral economics, behavioral findance. It's about

985
00:57:00,960 --> 00:57:04,719
Speaker 3: how people work, and to me, my life probably if

986
00:57:04,760 --> 00:57:08,600
Speaker 3: there's one thing that that's a central organizing principle is

987
00:57:08,680 --> 00:57:10,560
Speaker 3: trying to figure out what makes people tick.

988
00:57:10,840 --> 00:57:14,200
Speaker 2: H really interesting. Our final two questions what sort of

989
00:57:14,320 --> 00:57:17,760
Speaker 2: advice would you give to a recent college grad interested

990
00:57:18,320 --> 00:57:21,480
Speaker 2: in a career in food service or franchising.

991
00:57:22,520 --> 00:57:26,840
Speaker 3: I'd say, I'd say, get out and understand what it

992
00:57:26,960 --> 00:57:28,920
Speaker 3: is to be an operator. Understand what it is to

993
00:57:29,040 --> 00:57:31,920
Speaker 3: run a business. The action isn't in the office, it's

994
00:57:31,960 --> 00:57:34,120
Speaker 3: not in the support center. The actions in the field,

995
00:57:34,200 --> 00:57:37,240
Speaker 3: it's in the stores. And most importantly, my advice to

996
00:57:37,320 --> 00:57:40,920
Speaker 3: you is figure out not the right career path, but

997
00:57:41,080 --> 00:57:44,480
Speaker 3: figure out what you care about, what you can do well,

998
00:57:44,920 --> 00:57:45,680
Speaker 3: and then go do it.

999
00:57:46,160 --> 00:57:48,640
Speaker 2: And our final question, what do you know about the

1000
00:57:48,800 --> 00:57:54,240
Speaker 2: world of building a restaurant? For lack of a better word,

1001
00:57:54,360 --> 00:57:58,280
Speaker 2: empire today that might have been useful back in the

1002
00:57:58,400 --> 00:57:59,000
Speaker 2: late eighties.

1003
00:57:59,320 --> 00:58:02,160
Speaker 3: Trust yourself, really, you know, I think some of you know.

1004
00:58:02,240 --> 00:58:06,000
Speaker 3: Guys like me, I don't know. I always you know.

1005
00:58:06,160 --> 00:58:09,040
Speaker 3: Your second guest, you wonder you listen to every advisor,

1006
00:58:09,520 --> 00:58:11,800
Speaker 3: and one of the things you gain with a little

1007
00:58:11,840 --> 00:58:15,880
Speaker 3: more age is a perspective that I actually knew what

1008
00:58:16,040 --> 00:58:19,640
Speaker 3: I was doing, staying focused on that customer, staying focused

1009
00:58:19,680 --> 00:58:23,280
Speaker 3: on on the on the end of delivering a better

1010
00:58:23,320 --> 00:58:27,000
Speaker 3: guest experience, and understanding the byproduct would be financial success.

1011
00:58:27,360 --> 00:58:28,120
Speaker 3: It wasn't the end.

1012
00:58:29,200 --> 00:58:32,000
Speaker 2: Thanks Ron for being so generous with your time. We

1013
00:58:32,160 --> 00:58:35,240
Speaker 2: have been speaking with Ron Shake. He is the former

1014
00:58:35,520 --> 00:58:39,680
Speaker 2: CEO and chairman of Panera, Bread and Obo Pah and

1015
00:58:39,880 --> 00:58:44,400
Speaker 2: all those other companies. If you enjoy this conversation, check

1016
00:58:44,480 --> 00:58:47,120
Speaker 2: out any of the five hundred and fifty we've done

1017
00:58:47,680 --> 00:58:54,320
Speaker 2: over the past eleven years. You can find those at iTunes, Spotify, YouTube, Bloomberg,

1018
00:58:54,880 --> 00:58:58,760
Speaker 2: or wherever you find your favorite podcasts. Be sure to

1019
00:58:58,880 --> 00:59:02,720
Speaker 2: check out my new best selling book, How Not to

1020
00:59:02,920 --> 00:59:07,840
Speaker 2: Invest The Ideas, numbers, and behaviors that destroy wealth and

1021
00:59:08,000 --> 00:59:11,400
Speaker 2: how to avoid them How Not to Invest wherever you

1022
00:59:11,600 --> 00:59:14,920
Speaker 2: find your favorite books. I would be remiss if I

1023
00:59:15,000 --> 00:59:17,200
Speaker 2: did not thank the Cracked team that helps put these

1024
00:59:17,320 --> 00:59:21,840
Speaker 2: conversations together each week. John Wasserman is my audio engineer.

1025
00:59:22,280 --> 00:59:26,640
Speaker 2: Jean Russo is my researcher. Anna Luke is my producer

1026
00:59:26,920 --> 00:59:30,240
Speaker 2: Sage Bauman is the head of podcasts here at Bloomberg.

1027
00:59:30,880 --> 00:59:34,800
Speaker 2: I'm Barry Retoltz. You've been listening to Masters in Business

1028
00:59:35,560 --> 00:59:36,760
Speaker 2: on Bloomberg Radio.