Recounting the first business Ron Shaich founded

RON SHAICH: I had no interest in business. I grew up in the ‘60s, in the anti-war movement. I came from a political family, and I probably would have ended up like you as a lawyer, going to law school and trying to help change the world through that.

JEFF BERMAN: That’s Ron Shaich, pioneer of the fast-casual restaurant concept and former leader of Panera Bread, among others. And yes, I used to be a civil rights lawyer in Washington DC. One of my many lives before coming to the world of business. 

SHAICH: I went to DC. I worked for a congressman before I went to college. And I was a sophomore, and I walked across the street to a local convenience store. And frankly, we were tossed out for shoplifting. We didn’t.

BERMAN: Ron says the shopkeep falsely accused him and his friends of intending to steal.

SHAICH: I walked back to campus, and I was a little inflamed at the moment. And I looked at my friends and said, “My God. Right? What do we need these guys for? Let’s open our own non profit convenience store.”

And I was the treasurer of the student body. So I had some capabilities to create, ultimately, a tax which the student body voted to charge to themselves. It raised enough money to create this store. And now we had this issue. We had the money. There was nobody to build the store.

And I volunteered to stay up there for the summer and build it. 

In Worcester, Massachusetts.

BERMAN: Think we have to call it Worcester.

SHAICH: Worcester, how do you know Worcester?

BERMAN: You know.

SHAICH: Okay, it’s Worcester, right? And then I became the first general manager.

We opened the store. And for a kid who can’t dance, a kid who can’t sing, I found the live performance art of retail and running the store as one of the most creative endeavors of my life.

And I loved it. I love the customers. I love the people who worked with me. And I had more fun than I ever imagined. 

Now I had a problem, Jeff. 

BERMAN: The problem was, well, success. Ron created the store as a not-for-profit to meet basic needs for students. But then…

SHAICH: It started making money. So what do we do? We lower the prices. What happens? We start making more money, right? By the end of the year, I think we’d made something like sixty or seventy thousand dollars, and my idea was, “Hey, let’s take the money, blow it on a hell of a party. We’ll bring the Grateful Dead to the campus green and return it to the student body.” Unfortunately at this point, the administration got interested, and the money ended up in the scholarship fund. 

But that store remained on campus for, I think, three or four decades. And it was a wonderful thing. It allowed me to transition, to come to university thinking the way to change the world was through politics. And to leave, thinking the way to change the world was through running organizations and scaling organizations.

BERMAN: From that campus convenience store, Ron Shaich went on to run several top restaurant chains in the U.S. He is credited as the “father of fast-casual” — restaurants that offer high-quality made-to-order food in a counter-service setting. Panera is perhaps the best-known brand that he’s led. With more than 2100 locations throughout North America, it has risen to lofty heights. 

Ron started his fast-casual scaling career at the bakery chain Au Bon Pain. Through the years, they made acquisitions, including what became Panera Bread. 

Ron stepped away from Panera and started his own investment firm, Act III, leading him to become the Chairman of the Board of Directors at the quick-growing Mediterranean fast-casual chain Cava. 

He’s also the author of a book about his life in business, called “Know What Matters.”

I’m so pleased to have Ron Shaich here to share lessons from his career, as a true master of scale. 

I’m Jeff Berman, your host. 

Once in a while, the stars align, and we get to speak with founders from the same industry, back-to-back. Shortly after our conversation with the co-founders of Sweetgreen, the growing salad chain, we got to sit down with another leader with a related focus on fast-casual dining and fresh ingredients. Ron Shaich built and scaled the franchise Au Bon Pain, and after their acquisition of St. Louis Bread Company, they transformed the company fully into Panera Bread in 1999. The chain — known for sandwiches, salads, soups, and baked goods — has more than 2,000 locations today. It was publically traded for more than two decades before Ron led its sale to a private firm for $7.5 billion dollars in 2017. 

Ron has since invested in and served as chairman at Cava, with more than 250 locations in more than 20 states.

His story in business begins long before anyone even said the words “fast casual.” We will get to the story of how the concept crystallized for him around Panera Bread. But let’s pick up after Ron’s college convenience store, which was a moonlighting effort while he was still in undergrad. He went on to Harvard Business School, and later a career in Washington, DC. While working as a Washington consultant, he struggled to get a lease for a cookie franchise. He wanted a busy, urban location. 

How opening a cookie store led to owning Au Bon Pain

SHAICH: I started with a cookie store in downtown Boston, 400 square feet, and the walkway between Park Street Station and Filene’s. My vision was I’d spend one day a week in Boston, go back to DC to the political consulting firm. Well, you know how it works out. One day became two, became three, and pretty soon I’m back in Boston running the cookie store. I’m there for six months. I got 50,000 people a day going from Park Street Station to Filene’s. Nobody’s buying cookies before 12 noon.

So I decided I had to put in French baked goods, something in the morning. And that’s when I went to this company called Au Bon Pain. And I became their licensee for this one square block. 

Now the interesting thing was I watched consumers come in the door, and they’d walk up and say, “I want that baguette.”

And I’d say, “Sure,” and I’d start to slice it for them. And they’d say, “No, don’t slice it like bread. Slice it from top to bottom.” And I’d hand them a loaf of bread. And they put on luncheon meats, smoked Turkey, brie. And to be honest with you, you didn’t have to have a Harvard MBA to understand that the product was not the croissant and bread.

The product was what you could do with the croissant and bread and make a sandwich. 

BERMAN: Ron took the time to step back and observe. There is a lot you can learn by seeing how customers interact with your products. Whether it’s software, hardware, or baguettes for sandwiches, you crave feedback from the people you serve. In Ron’s case, it helped him realize that his customers wanted sandwiches as much or more than they wanted bread or pastries.

So, he had a product in mind. But he also found his bread and pastry supplier a bit lacking.

SHAICH: Now the fascinating thing, if you’re an operator, you know which of your vendors are any good and which aren’t.

And I must say these guys at Au Bon Pain, who were delivering to me, were the most screwed up vendor I had.

BERMAN: How so?

SHAICH: Sometimes they delivered, sometimes they didn’t. Sometimes they billed me, sometimes they didn’t. To this day, I’m sure I still owe them money. They were that out of control. So I began to say, this is a powerful opportunity, to help them operate their business better.

Now, the interesting thing was at Au Bon Pain, there was a guy who was leading it named Lou Kane, who was an extraordinary human being. He had amazing real estate connections, but he wasn’t an operator. 

They had opened 13 bakeries, closed 10 of them, they had 3 bakeries and a heck of a lot of debt. They were in a lot of trouble. Eventually, I went to Lou. I said, “Let’s put these together.” My little cookie store was the cash cow. They had 3 Au Bon Pains. We put them together. I ended up at that point getting 60 percent of the company in the deal.

BERMAN: Ron, you’ve got the one location. It’s the cash cow. You’ve got this messy, bigger company that’s downsized from 13 to three. And, you’re already worth more than they are. A lot of people would say, “Well, why would I even bother merging with you or acquiring you?”

I’m just compete with you. I’m going to eat your lunch, so to speak. 

SHAICH: Cause they had three great locations. They had an amazing credibility as a French bakery. And Lou Kane, who became my partner of two decades, taught me the world. He taught me what it meant to be a businessman, what it meant to be a stand-up guy. And my role in the business was essentially to make it operate and say no. And we used to have a joke. The joke used to be Louis never saw a deal he wouldn’t do Ron never saw a deal he would do. And somewhere in between that, that dynamic worked particularly well. 

Scaling Au Bon Pain

BERMAN: For Ron, the value of Au Bon Pain was more than its existing bread, brand, or real estate. He saw the potential to partner with someone with different relationships and skills. Together, Ron and Louie grew Au Bon Pain from those first Boston locations in the early 1980s to around 80 locations by 1990. Au Bon Pain became the U.S. prototype for a quick-service, French-inspired, urban bakery and cafe. After its 1991 IPO, the company made a series of acquisitions and innovated on baking technology and customer service, executing sizable expansion. 

Ron saw a trend — not just baked goods, but sandwiches — for lunch and beyond. But trendspotting is a difficult skill to put into action. It means paying close attention to your current customers and products, while staying open to what’s coming next. 

Discovering the fast-casual dining model

Au Bon Pain acquired a chain called St. Louis Bread Company in 1993. It had about 20 locations and a similar concept, but it got the company more deeply into the Midwest and into suburban locations. Ron saw a path to grow the business again – moving beyond big city workers as his core customers.

SHAICH: And I could tell there was something going on in the consumer marketplace. And I spent two years with a couple of my colleagues traveling the country trying to figure it out. And what I discovered is one out of every three consumers would walk into fast food and hold their noses, and nobody had an answer because what were the alternatives at that time: fine dining and fast food.

And I began to think about it. We said, you know, if we began to serve real food, environments that engage people, served by people that actually cared, we could actually change to an experience that elevates your sense of self, your sense of self-esteem for just a little bit more money.

And at that time, it was a radical thought. And that thinking, I never realized that at the time, became the ideology that’s today called fast-casual, and you’d walk in, and you could feel consumers getting it.

They’d line up in the morning. They’d talk about it.

And so, it’s both analytical through the numbers, and it’s emotional through the feeling that people seem to have that this is a better alternative.

That’s fast-casual. 

BERMAN: Ron’s hunch led to the round-the-clock, all-ages hospitality segment known as fast-casual, expected to grow to a 300-billion dollar business in coming years. Ron took the time to test his intuition and to refine his concept. I wanted to know where he thinks that original instinct about this new fast-casual category came from.

BERMAN: Take me back because this does seem to be a superpower that you have, is really being able to feel in that moment what people want. 

So, what is it in your background, in your experience, in your life that you think has given you this kind of golden gift?

SHAICH: I actually think this skill is rooted in listening and empathy. Searching for the generalization or the pattern. The most powerful skills of business are not simply action. Action doesn’t matter if you don’t know what matters.

There’s nothing I find more satisfying than satiating my own curiosity, and listening is a process of trying to make sense of it. The greatest joy to me as a business builder is when I have figured something out the rest of the world hasn’t yet.

How do you figure it out? You listen. And frankly, you look for patterns. Why are people doing what they’re doing? What are the extreme users doing? What are their patterns? What does that say about how it’s gonna play out as it rolls out across the country? What are the deeper trends? You know, one of the things that I am afraid we have evolved to in our society is we’re reacting to the chatter.

The chatter is the noise we hear every day, but 99 percent of it’s irrelevant. It won’t matter in a year and five and ten. And what I view my life’s work as is searching for what really matters. What’s the deeper trends, what’s going to play out. 

BERMAN: More on how Ron Shaich’s investment in fast-casual played out, after the break.

[AD BREAK]

BERMAN: I’m Jeff Berman. We’re back with former Au Bon Pain and Panera chairman and CEO, Ron Shaich. 

Before the break, Au Bon Pain was expanding and reached a major turning point when it took on a bakery and cafe chain in Missouri. 

SHAICH: We had bought a small business in St. Louis called St. Louis Bread Company. We changed the name of it to Panera. We invested all that learning, and essentially, that was the genesis of Panera. It’s the poster child for fast-casual.

BERMAN: Panera offered quick service and a wider menu, with even more attention to customer care and efficiency. Panera grew into not just more but different types of locations, and aimed to reach a broader demographic. As Panera expanded, Ron saw Au Bon Pain losing market share. Something had to change.

BERMAN: When I really sat down and looked at the four divisions of Au Bon Pain Co. Inc. in 1999 and realized that the gem of all four of those divisions was not the one I had started.

Maybe I built it and created it, but it was Panera Bread. And, that was really hard to both recognize and then to recognize the most powerful way to care for that was the sale of every other business and taking all of the capital and all of the human resources and betting it on Panera. That was a really powerfully difficult challenge.

SHAICH: It led to the worst year and a half of my life.

BERMAN: Why, why is that?

SHAICH: Because, because these were people I loved. Au Bon Pain was my first child.

Scaling Panera Bread

BERMAN: In 1999, Ron sold off the majority of Au Bon Pain. He moved to St. Louis to become CEO of Panera Bread. He was 100 percent focused on growing the business around the burgeoning fast-casual market. From the 150-plus locations Panera operated, the company grew quickly, and within 5 years, was in more than 30 states with over a thousand locations. Ron calls the company a “challenger brand,” always looking for an edge that could change the marketplace.

SHAICH: We were among the very first brands to remove trans fats. We were among the very first brands in 2010, to post complete nutritional information. My industry was fighting it through the National Restaurant Association. I thought about it, and I said, “If we’re embarrassed about what we have as the nutritional content of our food, let’s change the food and not pretend to hide it.” And I said, “Let’s put it up there.”

We were among the very first brands to introduce antibiotic-free chicken.

We were among the very first brands to remove our all artificial flavors, sweeteners, preservatives, from our food. All of these are actions on the side of our guest. I then put pressure on the larger companies, the largest, the McDonald’s of the world that they then had to do it. And so we opened up the marketplace. We created enough scale — talk about Masters of Scale — as a top 10 company when we did it.

So I know we made a huge difference in the world through that.

BERMAN: Ron started to feel more of a pull toward civic causes. By 2009, Panera locations had doubled to more than 1,300 across the U.S. and Canada. And in 2010, Ron stepped down as CEO but remained company chairman. He went to work in politics and advocacy. Among other efforts, he created a pay-what-you-can concept called Panera Cares with an underlying mission to feed the hungry.

SHAICH: I just thought it was an intellectually interesting proposition. What would people do? We’ll have no set prices. You can leave a little bit more or a little bit less. And, frankly, we opened that first one the day after I retired. I worked a hundred hours on that counter the week after I retired because I loved trying to figure this out. And, we opened it. It was a powerful experiment. On average, people left 80 percent of the retail price, when they weren’t forced to. And they did pay it forward, and we were able to sustain it.

We ended up opening five of them. We opened in St. Louis. We opened in Chicago. We opened in Boston. We opened in Detroit, and we opened in Portland, Oregon. And they stood open for many years. And over the course of that, we served millions and millions of people. And on average, people are good.

In the end, I personally felt this wasn’t the best way to help because it really reached only a small population. But I think the thesis that we wanted to prove what is the nature of humanity was actually good.

I’ve come to believe that business is one of the most powerful ways for social change. 

Refounding Panera as the CEO once again

BERMAN: While taking on these other missions, Ron kept a close eye on Panera, trying to adopt an outsider’s perspective to see where the company should put its focus next. About a year after he left, Ron wrote a long memo, detailing a strategy to further transform the company. His ideas hit. The memo led to Ron’s return as Panera CEO in 2013. He began an overhaul of the business around digital tools, a loyalty program, and more clean food initiatives.

SHAICH: I came back to Panera with that vision of revitalizing Panera to be a much larger scaled organization. And in any transformation, things get worse before they get better, you know, team members feel the pain, bonuses go down.

Everybody’s blaming everybody else. All that happened during the transformation. And I can remember how much pain I felt because I knew we were doing the right thing. But as Vince Lombardi put it, you know, he never lost the game. He just ran out of time. I didn’t know when I would run out of time.

And in the middle of all of this, I had activist investors attack me, trying to get me to, basically, not invest in that vision for long-term transformation. I’d get up in front of five or ten thousand people, and I’d tell them, we’re going this way.

And as I was speaking, I’d hear myself talk, and I’d say to myself, “Ron, are you full of bologna or not? Is this really going to work?” And I can remember one moment, I went out on Storrow Drive in Boston. And I was just feeling such a sense of responsibility. A responsibility to all these people that believed in me and that were following me.

And I said to myself, it would just be easier if I got hit by a truck. And I’m not telling you it was a desire to commit suicide. At all. It was a sense of responsibility that was so powerful it sat on my shoulders. When you tell yourself the truth, when you actually figure out what matters, and then you get it done. 

This is really hard and difficult. And I wanted to speak about the real pain of it, the real uncertainty along the way.

The reality is that when you’re going through it, there’s no support. It’s not until you’re done, and you’ve won that everybody says, “Oh, it’s so obvious.” When you’re in the middle of it. The challenges are profound. 

BERMAN: By 2016, the process had paid off. Panera sales were up dramatically. A European firm, J.A.B. Holdings, made a successful bid to buy the company and take it private. 

SHAICH: There’s always a time to harvest. I sold the company in the largest U. S. restaurant deal ever done, up until that point. 

BERMAN: To the tune of $7.5 billion. 

The organizing principle of Ron Schaich’s life

Carried by his curiosity and trendspotting, Ron moved on to more adventures in fast-casual food. He became chairman of the board at Cava, a Mediterranean chain. He was encouraged by health studies that advocate for a Mediterranean diet, and Americans’ growing familiarity with the region’s flavors.

SHAICH: It’s the number one diet in America. Why? Because it’s bold flavors that people actually want, but understand and appreciate: tahini, you know, the whole thing.

BERMAN: Feta, hummus, baba ganoush. 

SHAICH: Yeah. Why? Because it’s healthy.

I come from a place that says the time to really figure out what’s going to matter tomorrow is today.

I watched both my mom and dad pass away. And this was 20 and 30 years ago. And when I watched them pass away, I came to realize you have an opportunity to review your life. And you look back on your life and you say, did I do it well, didn’t I, did I make good decisions or not? And that became an organizing principle of my life. Every year, I would sit down and ask myself, literally: where do I want to be in my life in five years relative to my relationship with my body, my relationship with my work, my relationships with my family, and the people that matter to me?

And then I’d figure out, well, how do I get to where I want to get to? And then I’d sit down every quarter, every three months, and I’d examine how I am doing against that path. And the truth of the matter is, I began to apply that in business. And I literally run every company we have with key initiatives, focused on where we’re trying to get to in five years, and what are the things that matter to get there.

The book I just published is called Know What Matters. And part of the organizing principle of it is, if you can actually figure out what matters, and what’s going to matter to you down the road, and then get it done, you have a higher probability of getting where you want to get to, and living a life you respect.

So much about leadership is more akin to being a parish priest or a rabbi. I’m often trying to help people understand something. Where is this organization I’m leading coming from? Where is it today? And where do we want it to be? And based on our actions, where will it end up?

So think of running an organization as not a photograph at a given moment, but think of it rather as a movie.

And my goal is to get everybody in my organization, every constituency, whether it be capital or team members, or suppliers – every one of the stakeholders aligned against the vision of a better future for this organization.

BERMAN: Throughout his career, Ron Shaich has demonstrated that curiosity and listening are among the most important skills to spot oncoming trends with confidence. His practice of regular re-evaluations of his life’s direction and his business priorities have helped him when he faced difficult decisions. 

Remaining honest with yourself and your team when the tough times happen will make the opportunities even more valuable when they come, building a career – and a life – that can truly matter.

I’m Jeff Berman. Thank you for listening.