HANNAH BATES: Welcome to HBR On Strategy, case studies and conversations with the world’s top business and management experts—hand-selected to help you unlock new ways of doing business.
For a long time in the restaurant industry, there were two dining categories: fast food or table service. But Ron Shaich, founder and former chairman and CEO of Panera Bread, managed to create an entirely new category in between the two—a category that would set the table for companies like Starbucks, Chipotle, Sweetgreen, and beyond
In this episode, Shaich breaks down his strategies for successful innovation in the restaurant industry: figure out what your customers truly want, create a differentiated offering, execute with excellence, and find the right opportunities to grow. And he argues that they can be used to scale any type of organization.
This episode originally aired on HBR IdeaCast in November 2023. Here it is.
ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard.
Consumers can be extremely fickle. Their needs or wants change all the time, and they move from one fad to another surprisingly fast. Nowhere is that more true than in the restaurant industry, where diners always seem to be craving new tastes and spaces, and the competition is rampant.
But today’s guest is someone who’s managed to not only carve out a niche in this business but also dominated at scale a few times. First, as an entrepreneur, CEO, and more recently, as an investor and advisor. He’s an expert in creating and recreating competitive advantage. Ron Shaich is the founder and former CEO and chairman of Panera Bread. Before that, he ran Au Bon Pain, and he’s currently involved in several other fast-growing restaurant chains. He wrote the book, which HBR published, Know What Matters: Lessons from A Lifetime of Transformations. Ron, welcome to the show.
RON SHAICH: Hey, Alison, good to speak to you today.
ALISON BEARD: I’d love to start from the beginning of your career in this crazy restaurant business. What was the first niche opportunity that you saw with Au Bon Pain, and how did you identify it?
RON SHAICH: I’d say I identified it through experience – seeing and watching consumers and watching how they reacted. I would be in Au Bon Pain, at that time, it was a French bakery selling croissant and bread, and people walk in and say, “Could I have that baguette?” And I’d say, “Sure.” And they’d say, “Slice it.” And I’d slice it the way you slice bread and they say, “No, slice it from top to bottom.” I’d hand them the bread, Alison, and they would open it up, and they’d lay on it some roast beef and some Boursin or some smoked Turkey.
You didn’t have to have a Harvard MBA to understand that the power here was not in the croissant or bread, but the croissant or bread was a platform for what people really wanted, the job they wanted completed, which was to have a sandwich. And that led to the evolution of Au Bon Pain from a bakery to a bakery café. And that was really just from observation and empathy.
I think it starts with an attitude and an understanding that the most powerful thing an entrepreneur does is seize opportunities out in the marketplace. And in fact, what I’m constantly looking for is where is there a need that’s unmet. Or as Clay Christensen would’ve put it, “Where’s there a job that needs to be done that people want to hire somebody to do?” And then, once we identify that job, how do we complete that job truly better than any of the competitive alternatives they have for completing that job? It’s that simple. That’s what matters. But it starts by empathy and listening and hearing what is it that people want, and that requires you to stay present and stay with that consumer and actually try to disaggregate what it is that’s going on in their brain.
ALISON BEARD: Yeah. One line of yours that I really appreciated, not surprisingly, was that most successful entrepreneurs are more editorial than inventive.
RON SHAICH: It’s not about having a better idea. It’s actually not from inside me that it comes. It’s from the skills and the ability to see and understand. Probably, Alison, the thing I’m most credited with is helping create or being the creator of what’s now called fast-casual, which is a hundred to 200 billion segment of the restaurant industry where the greatest growth is. In the early 90s, I would travel the country. The alternatives at that time were fast food and fine dining independent restaurants.
And it was just clear about one out of three consumers walked into a fast food unit, McDonald’s, or went to the drive-through and held their noses. They didn’t feel good about the experience. And we began to look at the generalizations and try to make sense of what was happening. What were the deeper trends? What was the signal, not the noise? And frankly, Alison, what we saw was a drive for specialness occurring in multiple consumer categories. You saw it in beer. Anheuser-Busch and Miller was giving way to craft beer.
You saw it happen in coffee. Folgers and Maxwell House was giving way to Pete’s and specialty coffee. You saw it happen in soft drinks. Coke and Pepsi was yielding to Snapple and Odwalla. It was very clear the same opportunity existed in the food industry. That restaurants, that people had had fast food, processed commercial food, they wanted something better. They wanted to feel special. The currency of fast food is a lot of food for not a lot of money. And we began to say, “If we could provide environments that engage people, food that people respected, served by associates who actually cared, if we were able to do that, the currency would be a sense of greater self-esteem for a bit more money.”
Understanding was at the core of the evolution of fast food, and that took two years. It was the genesis of Panera, which became the poster child for that, Starbucks, later Chipotle, and dozens of chains. And it’s understanding what’s the signal? What’s the deeper trend? You’re seeing specialty concepts within fast-casual.
ALISON BEARD: Yeah, there’s this inherent tension, though, between what you’re talking about, niche, specialty, and scale. So how did you navigate that first as you built Au Bon Pain into a massive national business and then as you built Panera into one?
RON SHAICH: What we’re always searching for is that need that’s unmet, which lends itself to a niche. And then you’re looking for niches that are large enough, substantive enough. The business that I’m most associated with today is Cava, where I’m the chairman and a lead investor. I mean, look, there’s a clear need for new varieties of the way people eat. Mediterranean is a powerful, powerful niche. How do I know that? It’s the number one diet in America. What else do I see? I see the way people eat. Mediterranean is about spice. Spice is about boldness. It’s about flavor. But it’s also about something that’s familiar and feels safe.
That’s why I believe Mediterranean is not just a powerful niche but has scale. What we then go about doing is building the dominant brand in that niche and then seeing how far it goes. But I can tell you we’re looking for both need and enough scale to support an enterprise of materiality.
It is far more important to find and identify a need than assure yourself that it has massive scale. Everything starts with being better at something for somebody. If you’re not better at some job for a consumer, you have no reason to exist. The restaurant industry is dirt farming. It’s a terrible industry unless you can break through and provide something that’s a better competitive alternative. Now, once you do that, once you reach that position of seeing a need, first, you’ve got to have the wherewithal to get it off the ground. Then, you have to have the capabilities of growing it. But you then try to determine is it a large enough need. Is it a large enough niche to support a business of scale? And sometimes it is and sometimes it may be less so.
ALISON BEARD: So let’s talk about the transition that you made from Au Bon Pain to Panera. Au Bon Pain was a very successful business. You had taken it public, and then you decided at one point that it was time to take this corporate entity of yours in a different direction toward what would become Panera. So, on the surface, both are bread-focused, both sold soups and sandwiches. Why did you think this transformation was necessary?
RON SHAICH: So I took Au Bon Pain public in ’91, and by ’93, it was very clear to me that what drove a public company was its multiple of earnings. Its multiple is defined by future growth. And it was very clear to me that Au Bon Pain, as wonderful a business as it was, was limited. It worked particularly well in high-density urban markets like New York, Boston, and Washington.
The whole thesis of the book is, “Discover today what’s going to matter tomorrow.” And as the CEO, it was very clear to me that we didn’t have the growth within Au Bon Pain to support the growth monster. And unlike a lot of public company CEOs who, like lemmings, chase that growth right off the side of the cliff, I decided to backward integrate to expand and look at our core competencies and apply those to other businesses.
I ended up building a manufacturing business because we knew how to do that. I built an international business because Au Bon Pain was the best in the United States at high-density urban feeding. We went abroad. And then lastly, as I was beginning to see the evolution and the potential of fast-casual, I bought a business in St. Louis called St. Louis Bread Company, later renamed Panera Bread, that I saw as a potential gateway to the suburban marketplace and a place to apply that learning.
And so, over the early 90s, I did, and in Panera, I began to apply that learning. And quite frankly, by ’97, ’98, I was running a public company with four divisions, very different. Everybody, as in most public companies, were fighting. The guys in Au Bon Pain were trying to figure out why I was using their cash in Panera Bread. The guys in International couldn’t figure out, never wanted to call home.
The guys in manufacturing were arguing why were they in a retail company. And quite frankly, the guys in Panera didn’t know what was about to hit them, what growth was about. And I was kind of bumming, and I was watching this. And I was feeling like this thing, Panera, which was the third largest of our businesses, not the largest, I could see it had the potential to be a nationally dominant company. You could feel that. It had very high volumes in very stable ranges.
But I was kind of bumming, and I was with a friend, and I was saying, “This is the gem of the whole company, and yet we’re going to screw it up because it’s not going to get enough capital. And the professionals, managers running it aren’t going to know how to deal with the growth, and we’re not going to fulfill its destiny.”
And this friend of mine looked at me and said, “Ron, what would you do if Panera owned Au Bon Pain, Au Bon Pain International, and the manufacturing business?” And I thought about it for a crystal second, and I said, “If I had any guts, I’d monetize every asset, take all that capital, and use it to fulfill Panera’s destiny.” And I’m the kind of guy that I start to think about something, and I think about it some more and then I say, “My God, I can’t live with myself if I don’t go do it.” And I made the decision and actually do it. And by the way, it led to the worst year and a half of my life, but I was focused on the future. The challenge is when you’re going through it’s to have the will and the commitment to get there.
ALISON BEARD: Talk about the importance of what you call concept essence to the success of Panera.
RON SHAICH: Every business we have ever done starts with a concept essence. Concept essence is its go-to-market strategy. It’s strategy for why it will be a better competitive alternative. Think of it as what it is that our guests are going to experience and why we’re a better alternative. And it may cover issues like food and environment and humanity, the people. But brought together, it describes with precision and clarity what it is that this business is going to do.
And it becomes a powerful organizing tool for everybody working on moving that business forward. Because unless you provide that vision for how you’re going to compete, everybody essentially does it as they think best, which means they do it as they did it in their last position. And there’s a reversion to the mean. And the most powerful thing we want to do in a consumer company is keep it sharp and focused on its target niche and differentiated and better.
So you can walk down the streets in Boston today, and you can see many companies we’re involved. You can walk out and see Cava that has a very distinctive appeal and niche, both its food, its aesthetic. You can walk down the street and see Tatte, very different aesthetic, different kinds of food, a different feeling. And then you can see Life Alive, which is positive eating, and it has yet a different feeling in totality. How do you create that? How do you engender that? And most importantly, how do you maintain that over time? Think of it like a north star. If you sail, you sail to a point on the horizon. And when the waves come, and they knock you about, it pushes you forward. It becomes the organizing tool for every operator, every designer, every creative working on a brand.
ALISON BEARD: You start with that north star. But as you grow, how do you make sure that growth is happening in such a disciplined way that everyone’s on the same page, every store manager, every employee so that you’re not diluting the brand and losing some of that essence?
RON SHAICH: Well, you got to think about this as a marathon, not a sprint. And when I think of growth, I’m thinking about it three years of growth ahead. It’s steady that wins the race. I don’t believe it’s first to market. I actually believe it’s solidly growing and taking and building and running a better competitive alternative. That’s the goal. And so growth or expansion is how I bring that to more people. But growth is not an end in and of itself. It’s a byproduct of having a better competitive alternative, a better business that I run, and then I logically build that out.
Part of the role of the CEO is bringing everybody along on that journey. It’s the CEO as parish priest, right. How do you help people understand where they’re coming from? Where we are? And much like a parish priest on Sunday or a rabbi on Friday night, you’re laying out, “Hey, if we choose this course, this is what’s going to happen. If you choose that course, that’s what’s going to happen.” I can’t make you do anything as a CEO or very much. I’ve got to figure out how to get you to connect to the vision and align with that vision because you see it in your personal interest.
ALISON BEARD: And as a business owner, once you’ve had some success, how do you avoid competitors encroaching on this niche that you’ve identified and captured?
RON SHAICH: You don’t. I mean, people are copying you all the time. What I used to love is they’re copying what we did yesterday, and we’re already figured out where we’re going to go tomorrow. The whole thesis of the book is, “Discover today what’s going to matter tomorrow, three years, five and seven, and be there.” And I personally began asking myself every year what it is that matters to me. Where am I trying to get to? What’s going to lead to self-respect? And I began doing this process of envisioning pre-mortem where I wanted to be. And then, I began to write annual objectives for it and projects. And this worked so well I brought it to business.
And what we began to do in every business that we’re involved in is try to say, “Okay, every year, where do we want to be in three years? Where do we want to be with the consumer? How do we deliver on that?” And then we do key initiatives and projects off of that. So what I’m trying to say to you is when people copy me, good luck. All they’re doing is reflecting the mistakes I made last year because I’m already focused on next year. And the thing I say to so many of the folks in my industry is, “Don’t look sidewards at your competitors. Don’t look at what they’re doing. Look at who you are trying to be in the marketplace and how you stand out, how you’re distinctive, how you’re a better competitive alternative.” It’s not complicated. All it means is that your target consumer walks past all the competitive alternatives that exist for you and comes to you.
It’s understanding the difference between means, ends, and byproducts. So I want to tell it to you by way of a story. I have a friend who’s a type 1 diabetic. His goal in life, Alison, is to stay alive as long as you and me. But he can’t make that happen. It’s a byproduct. Any more than we can make happiness in our lives, it’s a byproduct. So what’s the end of my friend? To keep his blood sugar between 80 and 180. He knows if he does that, he’ll have longevity. And the means to that for him is diet, exercise, and insulin control. Same in business. Do I want value creation? Absolutely. But if I focus on value creation, I’ll never get there. So what is it that creates value creation? What’s the end? Being a better competitive alternative. Having a reason consumers choose you. And the means to that is where I spend all of my time. But I strongly believe that we, in running our companies, particularly public companies, have confused the byproduct value creation as if it’s an end. You can make it and of itself.
ALISON BEARD: Yeah.
RON SHAICH: I never – I almost never worried about the stock price. I always worry about being a better competitive alternative.
ALISON BEARD: And how do you find the right balance between change and innovation, but then, also, staying in your lane and continuing to dominate your niche?
RON SHAICH: So I’d say first, stay in your niche, right. Changing how you’re seen, where your authority comes from, why people choose you takes five to 10 years. So you’re not going to change your authority very easily. I’ll give you an example of that. We, Panera, would co-locate next to Starbucks. People walk into Panera and say, “I’ll have a baked good and beverage. Hold the beverage.” They walk into Starbucks and say, “I’ll have a baked good and beverage. Hold the baked good.” We had authority in baked goods and in food. We weren’t doing very well in coffee. Starbucks had authority in coffee. It never has been able to do food very well.
And that’s the reality of it. You’re built around your authority. So stay in your niche, but be the best at your niche. Now, within that, you as the CEO, you as the leader of the business need to be the driver of change. The reality is nobody has the authority to drive that like the CEO. And if the CEO isn’t driving it, it likely isn’t happening. And in most companies, particularly as they get larger and larger, they devolve to where they’re very good at delivery, at execution. They’re very good at being efficient. They’re not very good at being effective. The idea that change for its own sake is good, is wrong. Change is good if it does a better job against your concept essence and makes you a better competitive alternative. If it doesn’t, that change is bad. It’s not good for anybody.
ALISON BEARD: Yeah. There was a point in the 20 teens, though, that you did rework Panera’s concept essence slightly. So how do you know when it’s time to do that kind of change?
RON SHAICH: Well, it was part of a massive transformation. I mean, I went back. I had retired. I was off and came back and wrote a document for myself mostly that spoke to how I would, if I may say so, screw with Panera if I weren’t part of Panera. How I’d compete with Panera if I weren’t part of Panera.
ALISON BEARD: You’re red teaming Panera.
RON SHAICH: Yeah, basically. And in this memo, I called for digital access. Digital didn’t exist in the industry at that time, digital ordering so you could pick it up. It would be made while you’re going to the store, deliver to the table and the like, delivery itself to the house. I also called for loyalty, which was just coming at that point from the UK. Tesco was doing it. Kroger had picked it up. It wasn’t in the industry. I also called for a vision of clean food and evolving what had been our historic credibility in terms of the quality of food. And I called for omnichannel.
I gave this memo to my friend Bill Morton, who had taken over for me. He was our CEO and my long-term CFO, and very dear friend. And Bill said to me, “Ron, would you go work on this?” And a year later, I’m the executive chairman, working 80 hours a week building this prototype and spending 100, 150 million on technology. And as I’m doing this, Bill comes to me and says, along the way, he had a problem. He couldn’t travel. And one thing led to another. And over the course of a year or two, I came back full-time as the CEO. Bill became our executive vice chairman. And I put in place that vision. And as I began to put in place, there were new needs that came out that you needed to transform if Panera was going to be competitive. And it was very clear to me. I can remember the moment I was meeting with an investor. This investor was pushing on me, saying, “We know you have pretty good same store sales, but they’re not as good as they used to be.”
And I gave him some excuse. But as I came back down, I said, “You know, Ron, I knew this was true. He’s right. We’re less differentiated, less competitive.” And I came back, and I said it to the team, I said it to myself, and we set out to really take that concept essence, which at that time was 20 years old, and redefine it in the context of the same goals, the self-esteem, and something that was aspirational, but it ultimately led to what we would call crave-able wellness. We understood if anybody could own and crack that niche, and Panera had a history that allowed it to think it might be able to, if anybody could own it was a powerful niche. And we did. It took a year to write it. But again, I was willing to take on what I needed to take on to be a better competitive alternative.
ALISON BEARD: And in 2016, Panera decided to take a stake in an upstart café chain, Tatte. Some might think of it as like a direct, maybe higher-end competitor. So why the decision to collaborate instead of compete?
RON SHAICH: Well, it’s a great story. So you know we’re the large shareholder in Tatte today. The first store – second store – was two blocks from my house here in Brookline, Massachusetts. And I remember walking out and saying, “My God, this little bakery café opened around the corner.” To my wife. I said, “This thing ain’t going to make it.” They were selling nut boxes, little cakes at that time. I thought nothing of it. And Keith Pascal, who’s one of my partners today and was doing M&A for Panera, came to me and said, “You know, you got to meet this woman Tzurit Or, who’s running Tatte, and she’s got some great perspective and vision.”
And I met her in a park one afternoon. We spent a couple of hours talking, and I could see the potential of this business in a way I hadn’t. And again, trying to listen. And she had already started to grow it and expand it and make it something more than it was. And I could see her creative power. And I made the decision to buy it for Panera, literally, and use it potentially as an alternative in a more upscale version. Much like the Gap at that time owned The Gap, Banana Republic, and Old Navy. That’s how I kind of saw it as different niches. And I converted a couple of Panera to Tatte, and I was blown away by the power of Tatte.
And when I left Panera, I negotiated as part of my contract, the ability to take the Tatte holdings. At that point, I had been advising Tzurit and the team running Tatte, and I think it made good sense. We took it with us when I left Panera, and it became part of the Act III Holdings Enterprise that is now the investment vehicle for all of our work. So I guess the answer to your question, in a nutshell, is I could see it was meeting different needs in different ways. Tatte, to me, had the essence of what I wanted. It had authority in multiple consumer solutions. What do I mean by that? Tatte’s authority is first and foremost as a European, and shall I say Middle Eastern or third-wave bakery. Its bakery is so good I want to expend resources from my nutritional wallet. It’s different. It’s unique, the flavors. We’re doing more volume than the coffee store in the corner. It’s got a real coffee bar, a real coffee business. And then third, it’s got authority in food because we have chefs in every one of our units making and assembling real food from scratch.
ALISON BEARD: You say in the book that, in good times, you were always worried about what could go wrong. And that reminded me of Jensen Huang, the CEO of Nvidia, who recently told our editor-in-chief that, “If you don’t think your company is in peril, you probably have your head in the sand.” It does seem like a tough way to live, though. So how do you stay wary, constantly looking out for risks as well as opportunities without letting it drive you insane?
RON SHAICH: Well, two comments to that. First, I was with a very dear friend, a co-lead investor in Cava, who name is Philippe. He was saying in all of their investments, their companies, what makes a great CEO is that genetic sense of appreciation, apparel of the risks that exist because there really are often risks. It’s not just the risks that are going to come bite you today. It’s doing the things today that are going to make sure that the things that get you tomorrow don’t. I have an expression, Alison. “The time to worry about a heart attack is not in the ambulance on the way to the hospital, right.
The time to worry about it is when you’re younger when you can do something about it, the way you eat, you exercise.” Same in a business. And I want that kind of mentality in our CEOs who are thinking medium and long-term about what they need to do today to prepare themselves to win tomorrow. Because the world is continually changing. You need to be continually thinking about how it’s going to change and how you’re going to be positioned and actually operate in that future. Now, let me tell you something. It ain’t fun to live that way.
ALISON BEARD: I know.
RON SHAICH: Right. It’s the truth. It goes with the territory. I’ve been through it. It’s not bad as long as you can distance yourself from it at the same time that you take it seriously. And I’m never sure I got it right. I can tell you the business owns you. You don’t own the business. And I can tell you that this is not for everybody. It takes a ton of commitment. One of the things that I think is unfortunate in our world is to believe that we can have balance. You can’t.
There are just trade-offs. I think about as a parent. I think about it as a CEO. I think about it as a friend. Along the way, I made choices. I can tell you very frankly, the choices I made were my family and my work. I didn’t always exercise till later. I didn’t always sleep enough. Those are real choices. I did it because I wanted to. But you need to get your head wrapped around that. And you need to, again, as we say, discover today what’s going to matter to you tomorrow. What are you going to respect in your life? And that was the choice I made. And for me it was great.
ALISON BEARD: Yeah. And so, just as a last piece of advice for would be entrepreneurs and business owners, how do you get that distance and make sure that while the business does own you and you’re giving it your all, you’re also protecting your mental health?
RON SHAICH: I think it’s a really tough question. I think, along the way, it’s having things outside of work that matter to you. For me, it was my family. It’s having friends. I’d be very direct, I found therapy helpful because therapy was an opportunity to really step back and look at my own life and how I was doing against the agenda I had for what I would respect in my life.
And some of it was just toughing it through in the tough moments. I mean, really, I had activists twice, and I would wake up at four in the morning for a year and a half, and I can remember those feelings because somebody could take away something I cared so deeply about and really hurt me. And all I can say is you get through it. But nonetheless, it’s hard. And I would not tell anybody there’s an easy path. And I would say to you know what you’re getting into when you get into it.
ALISON BEARD: Terrific. Well, thank you so much. It’s been terrific hearing your stories. The book is great. I really appreciate you coming on the show.
RON SHAICH: Thank you, Alison. Take good care.
HANNAH BATES: That was Ron Shaich in conversation with Alison Beard on HBR IdeaCast. Shaich is the founder and former chairman and CEO of the fast casual restaurant chain Panera Bread.
We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.
And when you’re ready for more podcasts, articles, case studies, books, and videos with the world’s top business and management experts, find it all at HBR.org.
This episode was produced by Mary Dooe, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. And special thanks to Maureen Hoch, Rob Eckhardt, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and you – our listener. See you next week.
Latest in this series
- Get link
- X
- Other Apps
- Get link
- X
- Other Apps
Comments
Post a Comment