01 Mar 2004
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Ron Shaich’s Café Society

by Susan Young

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037663a71ccda2fab365f11620a6a109 Ron Shaich (MBA ’78) is cofounder, chairman, and CEO of Panera Bread, the fast-growing bakery-café chain with over six hundred locations in mostly suburban markets across the United States. Panera’s ability to deliver high-quality food at reasonable prices in a comfortable atmosphere has caught the attention of consumers on the go, fresh bread fans, and people looking for a place to relax with a cup of coffee in the afternoon. Expected to top $1 billion in sales this year, the publicly held Panera has also satisfied the appetites of its investors.

Your first entrepreneurial endeavor involved cookies?

Fresh out of HBS I opened a cookie shop in downtown Boston. Every morning I watched thousands of people walk by; no one bought cookies before noon. So I added fresh croissants and baguettes, two items that were not in the mainstream back then. That endeavor eventually turned into Au Bon Pain. My partner, Louis Kane, and I incorporated in 1981, went public in 1991, and had 250 stores by 1993.

How did Panera come into the mix?

In 1993 we Au Bon Pain acquired a nineteen-store enterprise called the St. Louis Bread Company. It combined an artisan bread bakery with a café serving sandwiches on its own bread. We spent the next two years traveling the country attempting to understand the changes occurring in our industry and concluded that, like so many others, the food industry was undergoing a transition we called decommodification. It was a reaction to all the consolidations that had taken place between 1950 and 1980. By the 1990s, consumers were seeking products and experiences that made them feel special. We decided to bet on this view of the world and put our beliefs to work at St. Louis Bread Company, which we eventually decided to call Panera Bread outside of St. Louis. Today, the financial analysts are calling this phenomena “quick casual,” but we think of it as specialty food.

How did you make the transition out of Au Bon Pain?

It wasn’t easy, in part because I really loved Au Bon Pain. In many ways it was a first son of sorts. But as a CEO I like to think of myself as a quarterback. I try to figure out where the receiver will be before I release the ball. I knew we had a phenomenal opportunity to build a significant brand in Panera Bread, but years of experience also taught me how difficult it is to build a nationally dominant brand. I believed Panera would not reach its full potential unless it had all the financial and human capital our company could muster. I suggested to our board that we sell all our other businesses and “double down” on Panera Bread. It wasn’t a popular decision but eventually the board agreed, and by May 1999 all of our other businesses were monetized, and we were able to focus exclusively on Panera. As we went through a year and a half of divestitures, our stock sank to a split-adjusted $3 a share. Those were not happy times.

What’s your stock worth now?

It hovers around $40. We have been able to create over $1 billion in shareholder value in the last few years. This value creation is simply a by-product of figuring out what consumers really want and delivering it.

Tell us about Panera.

It’s real food, served by real people in an engaging environment. Everything we do is rooted in our commitment to the traditions of handmade artisan bread. Our bread is made from fresh dough, never frozen. We make it from scratch daily without preservatives and bake it in stone deck ovens. Yes we sell bread, but we also make sandwiches, salads, soups, and pastries. Our bakery-cafés are comfortable. Many have free Wi-Fi. Panera is meant to be the kind of place where people want to hang out, talk, or get some work done, and we encourage them to do so.

What aspect of Panera most excites you?

We’ve gotten all sorts of awards for the quality of our bread. We have also been recognized as having the highest customer satisfaction in the food industry. People love coming to Panera Bread — last week we served four million customers! They get what we’re doing. As I travel the country I find it amazing that people come up and thank me. It feels great making a difference in the lives of others. And yet we are only in 35 states and with modest penetration in many of them. In fact, many analysts believe Panera is only in the second or third inning of its potential growth.

What are some of your challenges?

Generally, the most difficult challenge has been leading in times of change. As we considered transitioning the company in the mid-1990s, I never realized how many team members who believed in me would be hurt financially in the short term. That, plus convincing others of a vision of the future before it is a reality, has created some stressful times. On the home front, I have a wife and two young children. There’s never enough time to be with them and do what I want for the business.

How does Panera avoid the high turnover associated with restaurants?

Our employees are a huge part of our success, so we treat them well. We consider our bakers to be the heroes of our company. We pay them $12 to $15 an hour, much more than other bakeries. People work for people, not companies. About two-thirds of our cafés are operated by franchisees. We have the pleasure of doing business with some of the most experienced and committed food operators in the country.

What’s your favorite item on the Panera menu?

Our three-cheese artisan bread is a big hit in my house. It’s delicious. I’m also a fan of our “You Pick Two” selections for lunch where I can combine two of my favorite menu items — fandango salad or soup and a turkey artichoke panini.

What about marketing?

We spent less than a million dollars on electronic advertising last year, and yet we received Brandweek’s Marketer of the Year award. I’m proud of that. We put our efforts into fueling word of mouth rather than into television and print advertising. We think the best way to advertise is to give customers a superior in-store experience — one that they will want to repeat. When we move into a new location, we try to get the word out by inviting people to sample our products. We also try to be good citizens in our communities. Last year we contributed over $12 million in product and cash.

Are you worried about the low-carb diet craze?

Worried? No. Aware of it? Yes. We have a history of being respectful of our customers’ evolving preferences. We are presently rolling out a wonderful new bistro steak salad and a new steak sandwich. Also look for Panera to develop some lower carb breads, consistent with the traditions and commitments of our artisan-baking heritage, to provide a sandwich alternative for those desiring it.

Susan Young

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Class of MBA 1978, Section H
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