For a long time in the restaurant industry, there were two types of dining experiences: 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: fast casual. That innovative idea laid the groundwork for companies like Chipotle, Sweetgreen, and beyond.
In this episode, Shaich breaks down his core strategies for successful innovation in the restaurant industry: pinpoint what your customers truly want, differentiate your offering, execute with excellence, and focus on growth. He argues that these strategies aren’t only relevant for the food industry — they can be used to scale any type of organization.
Key episode topics include: strategy, customer service, entrepreneurship, going public, growth strategy, scaling entrepreneurial ventures, strategy execution, restaurants, fast casual, panera, chipotle, sweetgreen, innovation, disruption.
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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 impor