Inside Panera And Cava Billionaire Ron Shaich's Search For The Next Big Restaurant Chain

Forbes

2 days ago

Courtesy Act III
Ron Shaich looks relaxed. It's partly due to his surroundings—the billionaire restaurateur is reclining in the home office of his vacation pad in Jumby Bay, a private island off the coast of Antigua. The 71-year-old Shaich is also in his element because he's discussing his favorite subject: the 'winner takes all' world of American dining. 'The restaurant business is dirt farming,' he declares. It's mostly muck, but every now and again you can strike gold – if you can dig up something special. 'What I love is when I figure it out before anybody else.'
For more than four decades, Shaich has notched a string of huge wins doing just that. In 1981, he bought a majority stake in a small, three-location bakery cafe chain named Au Bon Pain. Twelve years later, he merged it with a slightly larger (20-store) chain called Saint Louis Bread Co., now known as Panera Bread. Shaich ran Panera as CEO until 2017, when he oversaw its $7.5 billion sale to German conglomerate JAB Holdings, pocketing $300 million after taxes from the transaction. Then he set up Miami-based Act III Holdings (named to represent the third act in his career) and invested around $175 million into the fast-casual Mediterranean chain, Cava.
The gamble on Cava is Shaich's most lucrative to date. The company went public in 2023 at a valuation of nearly $5 billion. Its market cap is now $9.4 billion, making it more valuable than Panera at the time of its sale to JAB, despite Cava having a fifth as many locations. Shaich, who was Cava's largest shareholder when it went public and currently serves as the brand's chairman, became a billionaire in the IPO. Forbes estimates the mogul is now worth $1.3 billion, after selling $640 million worth of stock (pretax) since the public offering and retaining a 4% stake in the fast-growing company.
That type of success may be enough to prompt some people to call for the check. Not Shaich. He says he cashed out a majority of his Cava stake because his position was too concentrated, or as he put it, continuing the 'farmer' analogy: 'I want to harvest my crop when people fall in love with it and the valuations are way up.' (Shaich had good timing, selling more than 60% of his 11.7 million Cava shares in 2024 before the stock fell 30% this year. Analysts blame broader market concerns rather than the company's individual performance.) Now he's now looking to deploy his warchest to back the next winning restaurant concept – and he has a few ideas of what that might be.
A Cava restaurant in the Brooklyn borough of New York, US, on Monday, May 6, 2024.
Shaich got his start in the restaurant business when he was 26. Born into an upper middle class family in Newark, New Jersey, he learned entrepreneurship from his father, an accountant who ran his own firm. (His mother, Pearl, stayed home to raise Shaich and his sister.) After studying politics at Clark University in Worcester, Massachusetts, Shaich, who was divided about whether to go into politics or business, opted for business. He got an MBA from Harvard in 1978 and took a job as a regional manager at The Original Cookie Company, a chain of gourmet cookie shops. He says he was drawn to the restaurant industry because it 'lends itself to entrepreneurs,' in part because of low barriers to entry and the room for creativity.
Two years later, Shaich used $25,000 of personal savings and $75,000 from his father ('an advance' on his $250,000 inheritance) to open The Cookie Jar, a small cookie shop in Cambridge, Massachusetts. To expand his menu he began buying croissants and other baked goods from a local bakery, Au Bon Pain. That's when he spotted an interesting opportunity.
Au Bon Pain had a great product but was poorly managed, often failing to make deliveries on time, according to Shaich. He decided to merge the Cookie Jar, which was generating cash, with the three money-losing Au Bon Pain locations, paying nothing in the merger except agreeing to pick up Au Bon Pain's $3.5 million of debt. He overhauled the company's operations, grew it to around 50 stores, then took the fast-growing chain public in 1991.
It wasn't long after the IPO when Shaich spotted his next target. St. Louis Bread Co., founded by entrepreneur Ken Rosenthal in 1987 in the St. Louis suburb of Kirkwood, was a thriving group of 20 bakery cafes across the Midwest. Shaich liked the selection of breads, homely feel and suburban popularity of the restaurants, which he viewed as a strong complement to Au Bon Pain, a bigger hit in cities. Au Bon Pain acquired the chain for $24 million and renamed it Panera Bread. (Shaich sold off Au Bon Pain in 1999 to focus fully on Panera, though Panera later bought it back then sold it again.) Over the next two decades, Shaich grew Panera at an incredible pace, expanding the soup, salad and sandwich chain to $5 billion in systemwide sales and over 2,000 units by 2017.
'[Ron] had the idea early on of a more relaxed environment where you would gather, where the book club would meet,' recalls Bill Moreton, who joined Panera in 1998 and later became its executive vice chairman. Moreton also served on Cava's board of directors until 2022, when he retired, and occasionally advises Act III. 'He has an incredible natural sense, an innate sense of the consumer and what they're looking for,' Moreton says of Shaich.
Through Panera, Shaich has been credited with pioneering the 'fast casual' model of American dining, which combines elements of fast food (quick service) and finer dining establishments (higher quality food and slightly higher prices). The category, which is echoed by the likes of Chipotle, Shake Shack and Cava, 'didn't exist before,' says Danilo Gargiulo, a senior restaurant analyst at Bernstein. 'I personally think he's done something exceptional [with Panera].'
Shaich says his two children used to joke that "the third child was Mother Bread," referencing the Panera logo.
His tenure wasn't without some controversy, though. In 2017, with Shaich citing the short-term pessimism of public markets and a personal desire to move on to other ventures, he inked the deal to sell publicly traded Panera for $7.5 billion, a 30% premium to its market capitalization. A few months after the sale, a group of Panera investors challenged the sale price in Delaware Chancery Court, arguing Shaich and other Panera leaders had rushed through the deal at a too-low valuation. In 2020, a judge ruled that shareholders had been fairly compensated. Shaich and Panera also traded lawsuits after Shaich scooped up three of the company's technology employees to work for Act III. Panera accused Shaich of trying to steal trade secrets while Shaich argued the company lacked the basis to enforce non-competes against these employees. The parties agreed to drop the battle, per a November 2021 filing. According to Shaich, the cases were settled 'very satisfactorily,' though he said he cannot disclose details because of a non-disclosure agreement. A spokesperson for Panera did not respond to Forbes' request for comment.
There were already a couple of ideas brewing in Shaich's head when he left Panera. The first was to invest in Mediterranean food, which he has described – anecdotally – as 'the number one diet in America.' 'Every time you go to a doctor they're saying Mediterranean. Every time you pick up a magazine it says Mediterranean," he says. 'I didn't know how far it was going to go but I knew Mediterranean had the potential to be as Mexican came before; as soup, salad, sandwich came before; as pizza came before.' That led him to Cava, started in 2006 as a standalone restaurant in Rockville, Maryland by a trio of three childhood friends. Shaich took a small personal stake in the chain in 2015 when he was still leading Panera; Cava had just two restaurants at the time. He set up Act III in 2018, the year after selling Panera, funding it with around $250 million of his own capital. He quickly put about 70% of it into merging the small but promising Cava with Zoe's Kitchen, a rival about five times Cava's size that had fallen on tough times.
Overnight, the business went from 66 locations to more than 260. It's since grown to nearly 400 across the U.S. and plans to reach 1,000 by 2032, all company-owned. Cava—a Chipotle-style, fast-casual chain where customers can build their own custom Mediterranean bowls—has doubled revenue from $470 million in 2022 to $954 million last year, and it became profitable in 2023. It seems to be particularly well insulated against the impacts of Donald Trump's proposed tariffs because it imports only limited ingredients and materials from abroad, including avocados from Mexico and kalamata olives from Greece.
Shaich says he's still bullish on Cava, despite dumping more than seven million shares over the past 21 months. Freeing up the capital has allowed Act III to invest more aggressively in its other businesses, he says. The most promising among them, Tatte, also dates back to Shaich's time at Panera, when he acquired a majority stake in the business on behalf of Panera; Shaich ended up negotiating to take over ownership of Tatte as part of his exit package.
Originally started by the Israeli-born pastry chef Tzurit Or in Boston, Tatte sells a wide-ranging menu of pastries, breakfast and lunch dishes, and artisanal coffees inspired by Israeli, North African and Lebanese cuisine. There are currently 46 Tatte locations, mostly in Massachusetts, and the business is on track to do around $250 million in revenue this year, according to Act III partner and CFO Noah Elbogen, who first met Shaich when he was working for Panera activist investor Luxor Capital Group (the pair started off as adversaries but later became friends). That puts Tatte's per-store sales at about $5 million – nearly double the sales volume of the average franchisee-owned Panera. Act III is pumping a 'meaningful chunk' of its fresh cash into funding the opening of nine new Tatte locations across the Northeast this year, says Elbogen, including its first location in New York City, and ten more next year. The company also recently opened a 20,000-square-foot 'central bakery' in New York, where its artisanal bakers will prepare Tatte's fresh pastries and breads.
Tatte started as a stand at the Copley Square Farmer's Market in Boston, where Or began selling baked goods in 2007. "I was new to the country and Tatte was and is my home and my community as for many others," Or tells Forbes.
Another big Act III investment is Level 99, which operates two interactive playgrounds for adults that challenges visitors to compete in 50 'physical and mental challenges set in artistic environments' such as a Ninja Dojo, an Aztec Temple and a Museum Heist. The company is set to open two more locations this year, as well as one in Disney Springs, a shopping mall in Walt Disney World Resort in Orlando, Florida, though it hasn't revealed the timeline for this opening. In January, Act III also made its first investment in a new restaurant business since the firm was founded. After a year of discussions, the company picked up a stake in Honest Greens, a Barcelona-based eatery selling 'loaded avocado toast,' 'blueberry chia-pudding' and other healthy meals sourced locally to its nine European restaurants. The Act III team views this as an opportunity to grow in the more nascent European fast-casual market.
'Ron is doing four or five things right now but we follow a very similar format,' says Elbogen. 'Each is in its own category, each has the highest sales volume in its category and each one has a competitive landscape we think is very favorable.' It's a playbook that's 'arguably worked now three out of three times,' adds the Act III partner.
Shaich won't say how much he's invested in each of these businesses or how much they're currently worth. However, he notes that Act III does not function as a traditional venture capital firm. 'We're business builders, not investors,' he says, explaining that his fund – which employs around 25 people – typically takes over near total ownership of its portfolio companies after becoming their exclusive backers. Shaich owns 97% of the overall business, which he funds almost exclusively. 'What we say is when we get involved with you, we're going to be the last capital you need… We're the bank.'
Shaich describes the firm as extremely selective about its investments, in part because it's in the rare position of having more money than it knows what to do with. ''The issue for us is using this capital,' he says. 'We only want to do things that are great.'
The Cava chairman insists he's motivated to keep investing not by cash, but by the satisfaction from acting as a 'sherpa' to growing businesses, referring to the skilled Nepalese guides who often help climbers scale Mount Everest. 'I'm maybe not the right person to be saying this but I'm not sure all this income inequality in our country has helped us and I'm not sure it's built a better country,' says Shaich, who in 2010 helped launch No Labels, a centrist political advocacy group focused on ending political extremism. The group tried – and failed – to come up with an alternative candidate for the 2024 election beyond Donald Trump and Kamala Harris.
Shaich's personal theory is that those who focus on making money never do. 'The people that actually do well actually do something better,' says the man behind some of America's most successful restaurants, 'they figure out a better way to do it for some target customer and that's the way the system rewards you.'