WEBVTT - Panera Bread Founder Ron Shaich on Fast Casual Dining 0:00:02.560 --> 0:00:11.920 Bloomberg Audio Studios, Podcasts, radio news. This is Masters in 0:00:12.000 --> 0:00:15.840 Business with Barry Ritholt on Bloomberg Radio. 0:00:16.320 --> 0:00:19.239 This week on the podcast What Can I Say? Ron 0:00:19.320 --> 0:00:23.239 Shake is a legend in the fast casual dining space. 0:00:24.200 --> 0:00:28.000 He began with a single restaurant, a single cookie store, 0:00:28.520 --> 0:00:35.000 and eventually parlayed that into a series of acquisitions, mergers, expansions, 0:00:35.720 --> 0:00:41.440 ultimately leading to the Panarabread concept, which now has two 0:00:41.479 --> 0:00:46.199 thousand locations and does about six and a half billion dollars. 0:00:46.640 --> 0:00:50.680 He sold the company in twenty seventeen or so for 0:00:50.760 --> 0:00:54.440 about seven and a half billion dollars. He now runs 0:00:54.600 --> 0:00:59.800 Act three, which is a fascinating sort of venture fon. 0:01:00.320 --> 0:01:03.760 One of their big firms is Kava Fast Men are 0:01:03.760 --> 0:01:06.520 written Cuisine. What can I tell you? The guy is 0:01:06.560 --> 0:01:10.440 a brilliant operator, one of the best performing publicly traded 0:01:10.560 --> 0:01:16.560 CEOs in history, at least in the food and consumer 0:01:16.640 --> 0:01:22.080 services sector. He knows everybody, from the head of Starbucks 0:01:22.120 --> 0:01:26.800 to Sam Adams to Shake Shack. All those people travel 0:01:26.800 --> 0:01:30.000 in the same circles. He has carved out his own 0:01:30.120 --> 0:01:34.039 unique identity in space. And I just thought this conversation 0:01:34.200 --> 0:01:36.960 was fascinating, And I think you will also so with 0:01:37.000 --> 0:01:41.400 no further ado, my discussion with the former chairman and 0:01:41.520 --> 0:01:47.319 CEO of Ombalpint and Panera Bread, Ron Shake, Ron Shake, 0:01:47.720 --> 0:01:49.120 Welcome to Bloomberg. 0:01:49.240 --> 0:01:50.040 Thank you Berry. Good. 0:01:50.200 --> 0:01:53.920 So those numbers are astonishing, and I also recall reading 0:01:54.640 --> 0:01:59.960 Panera was the best performing restaurant stock in the last decade, 0:02:00.000 --> 0:02:03.400 you were CEO, second best consumer stock on the S 0:02:03.480 --> 0:02:03.720 and P. 0:02:04.560 --> 0:02:07.680 Are those data points right? Yes, But to be clear, 0:02:07.840 --> 0:02:12.320 I sold Panera in twenty seventeen and have not had 0:02:12.360 --> 0:02:14.399 anything to do with it since then. But I am 0:02:14.480 --> 0:02:19.160 today a lead investor and the chairman at kVA helped 0:02:19.200 --> 0:02:20.280 take that thing public. 0:02:20.560 --> 0:02:22.399 We're going to talk about Cava. We're going to talk 0:02:22.440 --> 0:02:25.520 about know what matters. The book you wrote, lessons from 0:02:25.560 --> 0:02:26.880 a Lifetime of Transformation. 0:02:27.520 --> 0:02:28.440 But let me. 0:02:28.480 --> 0:02:31.760 Roll this all the way back, sure to your education. 0:02:32.560 --> 0:02:36.360 Bachelors from Clark in nineteen seventy six, NBA from Harvard 0:02:36.360 --> 0:02:37.160 in seventy eight. 0:02:37.440 --> 0:02:38.480 Don't hold that against me. 0:02:38.800 --> 0:02:41.639 What was the career plan? By the way, you are 0:02:41.639 --> 0:02:44.000 not the first Harvard MBA I've had in the studio. 0:02:45.480 --> 0:02:47.920 I guess I would say to you this, I never 0:02:48.040 --> 0:02:51.440 really had a career plan. I had a drive to 0:02:51.480 --> 0:02:52.200 make a difference. 0:02:52.639 --> 0:02:52.880 Huh. 0:02:52.880 --> 0:02:55.639 And the challenge for me was whether that was going 0:02:55.680 --> 0:02:58.400 to take form as politics, which was a love of mine, 0:02:58.880 --> 0:03:02.600 or business. And I found over the years that that 0:03:02.840 --> 0:03:05.840 when I was doing business, I brought a strategy for 0:03:06.000 --> 0:03:09.560 political context to it. When I was doing politics or 0:03:09.600 --> 0:03:12.960 political campaign management, it was a business. Put another way, 0:03:13.320 --> 0:03:17.040 a business is an election that never ends. A political 0:03:17.080 --> 0:03:22.200 campaign is a business that has one judgment day, the 0:03:22.240 --> 0:03:22.919 election day. 0:03:23.080 --> 0:03:26.800 Huh. That's fascinating. So there was a quote from you, 0:03:26.840 --> 0:03:30.760 maybe this was from the book you go to business school. 0:03:30.880 --> 0:03:32.720 You didn't know what an investment banker was. 0:03:33.280 --> 0:03:37.000 I didn't know, you know, I actually never set out 0:03:37.000 --> 0:03:39.440 to do business. I had been the treasurer of the 0:03:39.440 --> 0:03:43.560 student council at Clark and I was tossed out with 0:03:43.600 --> 0:03:46.440 a couple of friends from a local convenience store. They'd 0:03:46.440 --> 0:03:48.880 suggested we were shoplifting. We weren't, but it was just 0:03:48.920 --> 0:03:51.840 a heavy security presence. And I came back to campus 0:03:51.880 --> 0:03:53.840 and I said, you know what, why are we giving 0:03:53.880 --> 0:03:56.480 these guys our money? Why don't we create our own 0:03:56.680 --> 0:04:00.640 student run store. And I was able to text, yeah, 0:04:00.760 --> 0:04:04.080 I taxed the student body. They agreed to it, and 0:04:04.200 --> 0:04:08.080 there was nobody else there to essentially build the store. 0:04:08.640 --> 0:04:10.640 I built it. There was nobody to run it. I 0:04:10.760 --> 0:04:14.240 ran it. And as a kid who really thought he 0:04:14.320 --> 0:04:16.320 was going to go to law school like you, Barry, 0:04:16.360 --> 0:04:19.440 and had never you know, I couldn't dance, I couldn't sing. 0:04:20.120 --> 0:04:22.200 I just come outside shot. 0:04:22.720 --> 0:04:25.200 My outside shot is better than how I dance, you know. 0:04:25.400 --> 0:04:28.080 But I have to tell you, yeah, I have to 0:04:28.120 --> 0:04:30.919 tell you that I had more fun. It was the 0:04:30.920 --> 0:04:33.400 most creative endeavor I had ever been, involving a live 0:04:33.480 --> 0:04:37.440 performance art. And I love food, I love retail, I 0:04:37.480 --> 0:04:40.160 love running the place. I loved the people, and it 0:04:40.200 --> 0:04:43.200 became sort of a way I lived my life. 0:04:43.520 --> 0:04:47.400 That's really fascinating. So that tease up what becomes at 0:04:47.480 --> 0:04:50.760 least the first part of your career. Tell us about 0:04:50.960 --> 0:04:53.400 the work you did at a cookie company. 0:04:53.880 --> 0:04:57.080 Oh, I started a cookie company. So I got out 0:04:57.120 --> 0:04:59.039 of business school. I took what I call the third 0:04:59.160 --> 0:05:03.599 year of the NBA. I went to learn. I went 0:05:03.640 --> 0:05:06.200 to work for a company called Coal National and help 0:05:06.320 --> 0:05:09.320 run a part of their company called the original Cookie Company. 0:05:09.880 --> 0:05:12.760 I remember that, do you in the malls? Yeah? 0:05:12.880 --> 0:05:13.560 Right, that's right. 0:05:13.640 --> 0:05:13.839 Yeah. 0:05:13.839 --> 0:05:17.240 I was a district manager. I was running stores. I 0:05:18.279 --> 0:05:21.520 came back dan Quayle. I remember I was in Indiana 0:05:21.520 --> 0:05:23.280 and there was a dan Quayle for the US sent 0:05:23.360 --> 0:05:26.440 a billboard up and I came back and wanted to 0:05:26.440 --> 0:05:30.920 do political campaigns, and I couldn't get a job, and 0:05:31.000 --> 0:05:33.080 I decided I was going to try to open my 0:05:33.160 --> 0:05:37.760 own cookie store. And and at that point, all the 0:05:37.800 --> 0:05:39.839 cookie stores were in malls. I said, let's open it 0:05:40.040 --> 0:05:44.120 where there were lots of people. In Boston. There's a 0:05:44.120 --> 0:05:47.039 place called Park Street Station. It's the entrance way to 0:05:47.080 --> 0:05:50.040 the downtown and the financial district. I thought wanted to 0:05:50.120 --> 0:05:54.000 open a cookie store there, And in fact I ultimately 0:05:54.680 --> 0:05:58.720 found the job in political campaign consulting, but I was 0:05:59.120 --> 0:06:02.560 while I was down in I was offered a location 0:06:02.760 --> 0:06:06.160 near Park Street Station. I thought I'd come back one 0:06:06.240 --> 0:06:09.800 day a week. I ended up creating this cookie store 0:06:10.240 --> 0:06:12.240 that was a two day a week, three day a 0:06:12.240 --> 0:06:14.320 week endeavor. I never went back to d C to 0:06:14.400 --> 0:06:18.279 run campaigns. And that cookie store later was merged with 0:06:18.360 --> 0:06:22.560 Obom Penn and that company which we created in nineteen 0:06:23.440 --> 0:06:27.720 eighty one was the company I sold for seven point 0:06:27.760 --> 0:06:31.760 eight billion literally in twenty seventeen. 0:06:32.120 --> 0:06:36.800 So let's go back to that acquisition again. And I 0:06:36.839 --> 0:06:38.599 don't remember if I read this in the book or 0:06:38.600 --> 0:06:41.800 somewhere else. Nobody buys cookies before noon. 0:06:42.160 --> 0:06:43.360 This is a challenge, yes. 0:06:44.000 --> 0:06:48.400 But croissant and baked breads and other goods like that, 0:06:48.400 --> 0:06:52.320 that's perfect breakfast. Fair was that the obvious. Let's combine 0:06:52.320 --> 0:06:54.320 these two. We'll cover the whole day as long as 0:06:54.320 --> 0:06:55.760 we're paying rent for twenty four hours. 0:06:55.839 --> 0:06:58.200 Yeah, I mean, I'm running this cookie store for about 0:06:58.279 --> 0:07:01.520 six months, having the time my life. But as as 0:07:01.760 --> 0:07:04.720 you said, nobody was buying cookies before twelve noon. I 0:07:04.760 --> 0:07:07.400 had about fifty thousand people a day walking by me. 0:07:07.839 --> 0:07:09.840 So I said, what can I put in here that 0:07:09.920 --> 0:07:12.800 could represent a product that would appeal to people in 0:07:12.800 --> 0:07:15.800 the morning. And I decided to become a licensee of 0:07:15.840 --> 0:07:19.239 a French bakery. And there was a number that were 0:07:19.360 --> 0:07:21.600 actually in that business. I hooked up with a group 0:07:21.640 --> 0:07:26.800 called O Boon Pen and they had at that point 0:07:26.800 --> 0:07:31.560 three bakeries. They had at one point opened I think 0:07:31.640 --> 0:07:34.400 thirteen of them, close ten of them. I didn't fully 0:07:34.480 --> 0:07:37.800 understand they were on the edge of bankruptcy, but I 0:07:37.840 --> 0:07:41.000 did a deal with them. I became their licensee for 0:07:41.080 --> 0:07:42.440 this one square block. 0:07:42.840 --> 0:07:47.720 So a little background about that. The predecessor of one 0:07:47.760 --> 0:07:49.560 of the companies, and I don't remember if this was 0:07:49.560 --> 0:07:53.560 a bone pan something else was Paviliar, a French manufacturer 0:07:53.600 --> 0:07:54.560 of Pavie Pavier. 0:07:54.680 --> 0:07:56.280 Yeah, we got to work on your French bart. 0:07:56.320 --> 0:08:00.320 Well I was youkub but not very well if I'm 0:08:00.360 --> 0:08:01.520 going to parassel bonup. 0:08:01.560 --> 0:08:02.960 But uh probably vo front Si. 0:08:05.840 --> 0:08:09.320 So they were setting up bakeries in order to sell 0:08:09.360 --> 0:08:12.880 their ovens. It sounds like you said, hey, you forget 0:08:12.880 --> 0:08:14.560 the ovens, let's sell the bakeots. 0:08:14.920 --> 0:08:21.840 Well. Actually, actually Pavier founded open a group bought the company. 0:08:23.000 --> 0:08:25.840 It was led by the man who became my partner 0:08:25.920 --> 0:08:29.880 of over two decades, a gentleman named Lucane. Lucane and 0:08:30.000 --> 0:08:34.800 his partners bought the O Boon pen from Pavier, and 0:08:35.240 --> 0:08:38.440 to be clear, they they they essentially thought they could 0:08:41.000 --> 0:08:44.760 grow this across North America, and they were sort of 0:08:44.840 --> 0:08:45.920 delusions of grandeur. 0:08:46.480 --> 0:08:49.120 They were right, they just said the wrong operator they had. 0:08:49.240 --> 0:08:52.040 They had the wrong operator, They had probably the wrong concept, 0:08:52.720 --> 0:08:56.160 and that's what led them to borrowing a great deal 0:08:56.240 --> 0:08:59.160 of money against their own person of real estate, as 0:08:59.240 --> 0:09:03.160 I said, opening thirteen units of which by the time 0:09:03.240 --> 0:09:04.640 I came along, they had closed ten. 0:09:04.600 --> 0:09:07.520 Of them, So you licensed the spot. How does that 0:09:08.280 --> 0:09:11.319 lead to eventually purchasing Obonpont. 0:09:11.520 --> 0:09:14.520 Well, I'm I'm their licensee for about six months, and 0:09:15.160 --> 0:09:17.400 I begin to become friends with their CEO, a gentleman 0:09:17.440 --> 0:09:20.560 named lu Kane, who had essentially was running the company, 0:09:21.000 --> 0:09:22.920 and it was very clear to me the trouble they 0:09:23.000 --> 0:09:25.559 were in, and I began to say, this was a 0:09:25.880 --> 0:09:29.480 powerful opportunity to apply what I knew about running food 0:09:29.559 --> 0:09:32.760 businesses and actually create the kind of company I wanted 0:09:32.840 --> 0:09:35.839 to work for. I wanted to build, and I went 0:09:36.080 --> 0:09:38.839 to Lieu with an idea, and the idea was we 0:09:38.840 --> 0:09:42.640 would merge our two companies, my one cookie store, his 0:09:42.880 --> 0:09:48.120 three French bakeries, and their three million dollars in debt. 0:09:48.520 --> 0:09:50.760 I hit the cash cow, they hit the three stores, 0:09:51.160 --> 0:09:53.520 and I really thought I could operate my way out 0:09:53.559 --> 0:09:56.040 of the business. Then what ended up happening is I 0:09:56.280 --> 0:09:59.679 received sixty percent of the company, Lou and his partners 0:09:59.760 --> 0:10:04.360 kept forty of the new company, and then we went 0:10:04.600 --> 0:10:08.280 marching off that company. O Bumpen CoInc. Was the company 0:10:08.320 --> 0:10:12.000 I ended up running for nearly thirty seven years. 0:10:12.640 --> 0:10:17.199 So thirty seven years and along the way, you IPO 0:10:17.400 --> 0:10:18.720 in nineteen ninety one. 0:10:18.760 --> 0:10:21.959 Twenty seven years is a public company ceo Berry longer 0:10:22.040 --> 0:10:24.839 than cal rip can play baseball. That's unbelievable. And I'm 0:10:24.880 --> 0:10:27.439 still standing that's weak lease, But I'm still staying. 0:10:27.480 --> 0:10:31.000 You know, Warren Buffett and Jamie Dimon probably your your 0:10:31.040 --> 0:10:31.920 two competitor summers. 0:10:32.080 --> 0:10:34.920 I had a better performance than Warren Buffett my last 0:10:34.960 --> 0:10:36.760 twenty years as a public company CEO. 0:10:37.040 --> 0:10:40.520 Well he's backloaded, so he began strong and then did 0:10:40.600 --> 0:10:45.360 okay afterwards. But but what's really fascinating is how do 0:10:45.400 --> 0:10:50.439 you go from you know, three or four locations to 0:10:51.240 --> 0:10:52.920 an IPO in nineteen ninety one. 0:10:54.000 --> 0:10:56.240 Three and four three to four, three or four location 0:10:56.360 --> 0:11:01.520 that we're bleeding, we're losing money. You know, I'm always 0:11:01.640 --> 0:11:04.760 trying to learn, and probably the most powerful thing in 0:11:04.840 --> 0:11:08.120 my life is not the success. It's the learning and 0:11:08.200 --> 0:11:11.360 then the action one takes from the learning. And I 0:11:11.480 --> 0:11:18.400 had a revelation in the early eighties. I would be 0:11:18.679 --> 0:11:21.160 working in one of these French bakeries and people walk 0:11:21.240 --> 0:11:23.559 in and say, you know what I want that baguette, 0:11:23.640 --> 0:11:25.440 and I'd start to slice it for him. They say, oh, 0:11:25.480 --> 0:11:27.480 I don't slice it like bread, slice it from top 0:11:27.559 --> 0:11:29.880 to bottom. And I'd hand them the baguette and they 0:11:29.960 --> 0:11:32.360 look at me, berry and they and they pull out 0:11:32.360 --> 0:11:35.560 a bag from stopping shop and they put yeah, they 0:11:35.679 --> 0:11:39.520 put meat on it, bison, you know, cheese, smoke, turkey. 0:11:40.040 --> 0:11:43.000 And again you didn't have to have a Harvard MBA 0:11:43.080 --> 0:11:45.559 to say, you know, the opportunity is not in the 0:11:45.600 --> 0:11:49.239 bread recroissant. The opportunity is and what the bread incroissant 0:11:49.320 --> 0:11:52.360 can allow the consumer to do. So we said, instead 0:11:52.360 --> 0:11:54.920 of selling the bread and croissant, let's sell the product 0:11:54.960 --> 0:11:57.760 they want, which was the sandwich. That allowed us to 0:11:57.840 --> 0:12:02.120 create the first of what became many many units, which 0:12:02.240 --> 0:12:05.120 was a French bakery cafe up in Copley Square in Boston. 0:12:05.200 --> 0:12:10.640 So that included breakfast quassaws and I'm assuming other breakfast sandwiches, 0:12:11.160 --> 0:12:16.839 full launch soup, salad sandwiches, and suddenly it's not just 0:12:16.960 --> 0:12:20.240 a two dollars item. Suddenly you're selling actual product. 0:12:20.440 --> 0:12:23.000 And again I'm always looking for what job am I 0:12:23.160 --> 0:12:26.599 doing for people? What's the need I'm meeting? And we 0:12:26.760 --> 0:12:31.640 were really the first concept at O Bumppen in the 0:12:32.080 --> 0:12:36.160 late eighties that was serving white collar folk food that 0:12:36.240 --> 0:12:40.240 they wanted with quick service. And so Lou, my partner, 0:12:40.400 --> 0:12:43.720 was an extraordinary human being. We worked together till they 0:12:43.760 --> 0:12:48.480 passed away. Lou had tremendous real estate connections all over 0:12:49.160 --> 0:12:53.199 the East Coast and in the Midwest, and we were 0:12:53.240 --> 0:12:55.920 in every major building were here. We were in New 0:12:56.000 --> 0:12:58.960 York at Rockefell Center, World Financial Center, World Trade Center, 0:12:59.320 --> 0:12:59.840 but it rocks. 0:13:00.720 --> 0:13:00.880 You know. 0:13:00.960 --> 0:13:03.000 The folks would come down and this was the only 0:13:03.080 --> 0:13:07.800 place they could get really food that they respected and respected. 0:13:07.320 --> 0:13:10.960 Them quality food at a reasonable price. Reasonable price wasn't 0:13:10.960 --> 0:13:15.079 even the the the reason for existence. Our reason for 0:13:15.160 --> 0:13:18.000 existence was this was food people really wanted and they 0:13:18.040 --> 0:13:19.480 were willing to pay for it. They were willing to 0:13:19.520 --> 0:13:21.880 pay more than they could get. When the all terms 0:13:21.920 --> 0:13:25.240 were fast food or a lengthy lunch at at a 0:13:25.320 --> 0:13:27.720 sit down, there was nothing in between. And I'm thinking 0:13:27.880 --> 0:13:32.520 back to that eighties and nineties era. Your choice was 0:13:32.640 --> 0:13:37.119 McDonald's or Burger King, maybe pizza hot maybe. 0:13:37.360 --> 0:13:41.280 The pool grill, the four seasons, you know, I mean right, 0:13:41.440 --> 0:13:44.040 I mean it was you know back then it was 0:13:44.160 --> 0:13:47.480 fast food or fine dining, nothing in between, nothing between. 0:13:47.480 --> 0:13:50.640 And if you had this was a white space, wide open. 0:13:50.840 --> 0:13:51.640 Nobody else was there. 0:13:51.920 --> 0:13:54.640 Yeah, I would say that was really true, and I 0:13:54.720 --> 0:13:58.079 think this became very hot, this whole French bakery cafe 0:13:58.240 --> 0:14:00.920 category and walls all over the Andrew We had everybody 0:14:01.000 --> 0:14:03.760 come after us. Pepsi came after us. This was going 0:14:03.840 --> 0:14:06.520 to be the third leg of Pepsi food service. Sarah 0:14:06.600 --> 0:14:09.600 Lee came after us, a company called Vita Front which 0:14:09.640 --> 0:14:13.120 has now gone by the wayside. All of these companies 0:14:14.320 --> 0:14:18.559 were larger, had more capital, But the truth was we 0:14:18.800 --> 0:14:21.640 ended up running rings around them. We cared more, our 0:14:21.680 --> 0:14:24.920 folks were more dedicated, We worked harder, and by nineteen 0:14:25.000 --> 0:14:28.600 ninety one we had built this out to probably one 0:14:28.680 --> 0:14:33.160 hundred units. We had the highest average unit volumes in 0:14:33.280 --> 0:14:36.240 the category. It was very clear we were going to 0:14:36.280 --> 0:14:39.760 be the winner, and we went public with Morgan Stanley 0:14:39.840 --> 0:14:43.480 in an IPO in June of nineteen ninety one. 0:14:44.080 --> 0:14:48.320 So after the IPO, you eventually acquire Saint Louis Bread 0:14:48.400 --> 0:14:53.920 Company later to be renamed Panera Bread. Tell us how 0:14:54.000 --> 0:14:54.800 that transformed. 0:14:55.520 --> 0:14:57.880 The key is the learning. So the first thing I 0:14:58.000 --> 0:15:00.920 began to realize after the IPO, oh, was that the 0:15:01.040 --> 0:15:05.240 market pays for growth, and yet old Boone Penn's growth 0:15:05.320 --> 0:15:07.960 at that point was somewhat limited. Obone pen was at 0:15:08.000 --> 0:15:10.680 its best in these urban locations. It didn't work in 0:15:10.800 --> 0:15:16.760 the malls in LA and so we expanded into a 0:15:16.880 --> 0:15:21.040 number of different other businesses. We built an international business. 0:15:21.120 --> 0:15:22.920 If the old bone Pen was the best United States 0:15:22.960 --> 0:15:26.640 at I denity urban feeding, there were more locations outside America. 0:15:27.120 --> 0:15:31.480 We built a manufacturing business. We were manufacturing all of 0:15:31.520 --> 0:15:35.000 our product and we were selling it also in supermarkets 0:15:35.120 --> 0:15:39.320 product meaning food or ovens, bakers, bakecoods, not not kitchen 0:15:39.440 --> 0:15:46.080 quin bacoods. And then third we bought in nineteen ninety 0:15:46.160 --> 0:15:49.320 three a business called Saint Louis Bread Company from a 0:15:49.400 --> 0:15:53.240 wonderful human being named Ken Rosenthal and Saint Louis. It 0:15:53.360 --> 0:15:55.600 was nineteen stories at that point, and I thought this 0:15:55.680 --> 0:15:58.720 would be the gateway to the suburban marketplace. At the 0:15:58.840 --> 0:16:02.840 same time, I was trying to figure out what was 0:16:02.880 --> 0:16:05.160 going on for the consumer, and I was running around 0:16:06.440 --> 0:16:08.440 the West coast for about a year or year and 0:16:08.520 --> 0:16:10.960 a half with a guy who's now one of my partners, 0:16:11.040 --> 0:16:16.720 Dwight Juson, a guy named Scott Davis who was our 0:16:17.160 --> 0:16:21.040 concept officer, and we were trying to figure out what 0:16:21.640 --> 0:16:24.480 was the themes that were impacting consumers, and we began 0:16:24.640 --> 0:16:30.360 to develop a belief that the really important signal that 0:16:30.520 --> 0:16:34.200 needed to be read the deeper trend, was that consumers 0:16:34.280 --> 0:16:37.480 were rejecting the mass market and they wanted to feel 0:16:37.520 --> 0:16:42.320 special in a world which had increasingly become consolidated in oligopolies. 0:16:42.720 --> 0:16:47.240 Think Coffee and Miller and I think coffee and Folgers 0:16:47.320 --> 0:16:50.560 and Maxwell House beer and I was a Bush and Miller. 0:16:51.160 --> 0:16:54.280 Think soft drinks, Coke and Pepsi. Every one of those 0:16:54.320 --> 0:16:58.120 in the early nineties had a reaction. You can talk 0:16:58.160 --> 0:17:02.120 about Starbucks, you can talk about out what you see 0:17:02.960 --> 0:17:07.400 occur with specialty beer. A good friend of mine in Boston, 0:17:07.480 --> 0:17:11.439 Jim Cook, developed Adams. Yeah, of course, again a reaction 0:17:11.600 --> 0:17:14.959 of the mass market. We saw the same thing as 0:17:15.320 --> 0:17:20.080 Cokinpepsi lent itself, doud Waldo and Snapple and four hundred 0:17:20.119 --> 0:17:24.280 beverages in seven to eleven, and we began to say 0:17:24.480 --> 0:17:27.680 this was a deeper trend. Consumers rejecting that mass market 0:17:27.800 --> 0:17:30.679 and want of specialty goods built made the way their 0:17:30.720 --> 0:17:34.640 grandparents made it, without chemicals, without preservers, And we said 0:17:34.640 --> 0:17:36.760 the same thing was going to happen in the food industry, 0:17:37.200 --> 0:17:38.960 and in fact, the same thing was happening in the 0:17:39.000 --> 0:17:43.800 bakery industry. Baked bread had once been done in stone 0:17:43.840 --> 0:17:45.880 deck ovens that had become three lows for a ninety 0:17:45.920 --> 0:17:51.159 ninth sense, as supermarkets and consumers wanted that kind of 0:17:51.320 --> 0:17:53.200 quality that they hadn't had, and we're willing to pay 0:17:53.240 --> 0:17:55.840 for it. And we began to say there was a 0:17:56.040 --> 0:18:03.000 powerful opportunity in specialty food, specialty restaurants, much like there 0:18:03.119 --> 0:18:09.200 was this powerful opportunity in specialty coffee, specialty beer, specialty beverages. 0:18:09.640 --> 0:18:13.119 And that was the genesis for what became this ideology, 0:18:13.760 --> 0:18:17.320 this paradigm that's today called fast casual What it said, 0:18:17.480 --> 0:18:22.159 what it spoke to was real food, actually people that 0:18:22.400 --> 0:18:27.840 that engaged you, served in environments that excited you, and 0:18:28.119 --> 0:18:31.080 ultimately left your sense of self esteem, what you felt 0:18:31.080 --> 0:18:35.000 about yourself. It elevated it as opposed to depleting it 0:18:35.080 --> 0:18:38.000 as fast food did. The currencies of fast food were 0:18:38.000 --> 0:18:39.600 a lot of food for not a lot of money. 0:18:40.119 --> 0:18:43.399 The currencies of fast casualties let's do something better for 0:18:43.480 --> 0:18:47.359 a bit more money. And the result that category, that 0:18:47.560 --> 0:18:51.560 that that understanding is today three hundred billion dollar category. 0:18:51.760 --> 0:18:53.639 So let's look just to finish it up. 0:18:53.840 --> 0:18:54.280 We did it. 0:18:55.560 --> 0:18:59.240 Howard Schultz came along about that time. Steve El's a 0:18:59.280 --> 0:19:02.480 little bit later, but it was a paradigm that informed 0:19:02.520 --> 0:19:04.680 a whole new category. When people said you couldn't do this. 0:19:05.040 --> 0:19:07.160 Steve Els is with what Chipotle? 0:19:07.480 --> 0:19:11.280 Chipotle? All right, So let's you mentioned Howard Schultzon's Starbucks. 0:19:12.080 --> 0:19:15.560 I think of Starbucks as a coffee shop that serves food. 0:19:16.160 --> 0:19:17.200 I think is that food? 0:19:17.400 --> 0:19:19.040 No, I don't want to I'm sorry. 0:19:20.480 --> 0:19:24.680 Well, it's not exactly fresh. I know some of that 0:19:24.760 --> 0:19:26.160 stuff has to be frozen. 0:19:26.480 --> 0:19:27.359 No, all of it is. 0:19:27.600 --> 0:19:28.080 All of it is. 0:19:28.200 --> 0:19:32.639 Yeah. I mean these businesses are defined by their systems. 0:19:33.119 --> 0:19:33.280 Huh. 0:19:33.400 --> 0:19:36.440 So when we look at Starbucks and they tried many 0:19:36.560 --> 0:19:39.280 times to improve the quality of food, Howard got it. 0:19:40.520 --> 0:19:44.119 And in fact we actually I work with them probably 0:19:44.160 --> 0:19:46.560 two or three times trying to help them. Think about 0:19:46.560 --> 0:19:48.240 that question. We were friends. 0:19:49.040 --> 0:19:51.960 Why would you help your one of your largest competitors 0:19:52.320 --> 0:19:54.040 catch up to you on the food space. 0:19:54.119 --> 0:19:56.520 I have to ask that, Well, we were kind of 0:19:56.560 --> 0:19:59.280 frind of me. It went back for thirty five years 0:19:59.359 --> 0:20:03.359 when he had had you know, four or five stores 0:20:03.400 --> 0:20:07.200 in Seattle, and he had you know, we were looking 0:20:07.280 --> 0:20:10.640 to bring specialty coffee into O Bom Penn And ultimately 0:20:10.720 --> 0:20:15.040 we chose to go take a ownership position a company 0:20:15.040 --> 0:20:18.280 called Coffee Connection in Boston, which was the Starbucks of 0:20:18.320 --> 0:20:20.960 the East Coast. And and he wanted to buy star 0:20:21.480 --> 0:20:25.479 Coffee Connection, and we went through a process. We had 0:20:25.520 --> 0:20:27.680 to write a first refusal. We drove up the price, 0:20:28.320 --> 0:20:30.480 but we had a friendly robbery. And the truth of 0:20:30.520 --> 0:20:32.639 the matter is I profoundly respected Howard. 0:20:33.560 --> 0:20:34.720 I clearly built. 0:20:35.800 --> 0:20:38.639 I respected not just the size of the business, but 0:20:38.840 --> 0:20:42.160 he shared with us the same values about really doing 0:20:42.280 --> 0:20:46.040 something that delighted customers, that made a difference. He broke 0:20:46.160 --> 0:20:50.680 through on design and environment and and and what it 0:20:50.800 --> 0:20:54.000 meant and and so you know, we always had this 0:20:54.160 --> 0:20:58.760 relationship of both competition and mutual respect. 0:21:00.000 --> 0:21:03.600 That's really fascinating. I'm going to share a Starbucks story 0:21:03.680 --> 0:21:05.720 that I bet you haven't heard. I'm curious as to 0:21:05.800 --> 0:21:09.520 your thoughts. And I believe Howard Schultz was gone when 0:21:09.600 --> 0:21:11.880 this happened, because I can't imagine. 0:21:11.560 --> 0:21:14.919 Howard pulled out of Starbucks I think three or four times, right. 0:21:15.040 --> 0:21:19.119 So during the pandemic, I get two emails on the 0:21:19.240 --> 0:21:23.159 same day. The first one is from Delta. Hey, we 0:21:23.400 --> 0:21:26.840 know that you've worked hard to achieve your Platinum Medallion 0:21:26.960 --> 0:21:31.760 status and the pandemic is a disaster. Don't worry. We're 0:21:31.800 --> 0:21:34.919 going to roll your status over next year, when hopefully 0:21:35.000 --> 0:21:38.440 things will be back to normal and you'll be flying again. 0:21:38.520 --> 0:21:42.000 I'm like, gee, you know, Delta really has their act together. 0:21:42.119 --> 0:21:46.960 How thoughtful. The same day, I get an email from Starbucks. Hey, 0:21:47.119 --> 0:21:51.360 you've accumulated three hundred and seventeen Starbucks points because you're 0:21:51.800 --> 0:21:55.480 here all the time, but unfortunately, due to the pandemic, 0:21:55.640 --> 0:22:01.040 these will expire next month. And the third leg of 0:22:01.119 --> 0:22:03.600 the stool was a link a story in the Wall 0:22:03.640 --> 0:22:07.640 Street Journal that everybody who preloads their credit card onto 0:22:07.640 --> 0:22:11.800 the Starbucks apps, we're essentially giving Starbucks a three billion 0:22:11.920 --> 0:22:15.560 dollar interest free loan. Sure, And I was so morally 0:22:16.880 --> 0:22:19.880 indignant over the You're gonna take our. 0:22:20.000 --> 0:22:23.000 Crappy loyalty points loyalty points. 0:22:22.760 --> 0:22:26.800 Away like it cost you nothing, and you know what, 0:22:27.520 --> 0:22:32.440 you're bad players. Get refund my my fifty bucks that's 0:22:32.480 --> 0:22:36.040 on the app. I'm deleting the app. Thanks Starbucks for 0:22:36.080 --> 0:22:39.960 the past few years. I'm not boycotting you. But you're 0:22:40.440 --> 0:22:43.920 like something I'll put up with. And Starbucks to me 0:22:44.200 --> 0:22:49.360 today is like McDonald's. I worked at McDonald's for two 0:22:49.520 --> 0:22:53.680 days in high school. Have never gone back since. It's 0:22:53.720 --> 0:22:58.720 a horrific source of you know, junk food. And I 0:22:58.760 --> 0:23:01.760 don't know what they've done in the ensuing one hundred years, 0:23:02.200 --> 0:23:05.280