The Cava IPO had a secret ingredient
Call it the Ron Shaich premium.
On Thursday, shares of fast-casual restaurant chain Cava exploded 99% on their first day of trading on the New York Stock Exchange. The stock gave up some of its gains Friday, but it's clear investors can envision Cava as the next great restaurant investment in the mold of burrito king Chipotle.
Indeed there is a lot to like about Cava's business model.
For starters, it sells pricey Mediterranean-themed bowls and wraps in higher-income urban markets. Those better-for-you bowls and wraps are very tasty and come out fast, as this New York City-based writer could attest. Barring an economic downturn, the loss-making Cava will probably reach profitability faster than the naysayers believe.
Secondarily, the company has a clear path to going from 263 restaurants today to 1,000 by 2032 as its S-1 filing suggests. Why? Good restaurant locations still exist for good concepts, and Cava fits the bill — plus it now has a war chest of IPO cash.
But buried in Cava's S-1 is arguably a secret ingredient that didn't get enough attention on IPO day (or maybe it did by those who actually read the S-1 and bought stock in the company): Cava chairman and early investor Ron Shaich.
Search for Shaich (pronounced 'shake'), 69, and you will find a decorated entrepreneurial past in the restaurant industry.
At age 27, just a few years out of Harvard Business School, Shaich opened a cookie store in Boston dubbed the Cookie Jar in 1980. In the process of baking up cookies, Shaich began ordering baguettes and croissants for his store from a nearby Au Bon Pain.
That came from Shaich's observation that many people weren't buying cookies before noon. Why not sell a complete menu, right?
Sensing an opportunity in the business of sandwiches, Shaich approached venture capitalist Louis Kane, who was running Au Bon Pain at the time.
The two entrepreneurs formed a partnership in 1981. By 1993, Au Bon Pain was a public company (since 1991) with sandwich-and-soup-serving restaurants across the country.
Panera Bread Founder: Here's why we are now labeling soda fountains with sugar counts https://t.co/N8IWZFaYOF $PNRA pic.twitter.com/cCiSsLm0FO
— Brian Sozzi (@BrianSozzi) March 31, 2017
Au Bon Pain then purchased St. Louis Bread, a regional restaurant chain known for its fresh ingredients.
Shaich pressed Au Bon Pain leaders to shift more attention toward St. Louis Bread, and the pressure led to a board fight, which Shaich won. Au Bon Pain was then sold to a private equity firm in 1999.
Shaich took over as CEO of St. Louis Bread and changed its name to Panera, which is Latin for "bread basket" or "bread bowl.'
The rest is restaurant history.
Shaich led an aggressive roll-out of Panera Bread restaurants in the US, cooking up everything from soup to loaves of bread to salads.
In 2010, Shaich chose to step aside as CEO but retained the role of executive chairman so he could pursue philanthropic interests.
But Shaich returned to Panera as chairman and CEO in 2013.
From 2013 to the time of its sale to JAB Holdings in 2017 for $7.5 billion, Shaich was at the leading edge of digital ordering and fast-casual restaurant rewards programs. In his second stint as Panera CEO, he also launched a clean ingredient menu list — which has since become standard operating procedure for many fast-casual chains.
Not known as one to take it easy (based on my experience reporting on Shaich), the restless Shaich launched an investment fund dubbed Act III Holdings soon after the Panera sale with initial capital of $300 million. Shaich also found more time to rail against the activist investor industry he isn't too keen on (Panera twice had to fight off activists).
In 2018, Shaich announced a significant investment in Cava to finance its acquisition of Zoe's Kitchen.
By the end of this year, the rebranding of all Zoe's Kitchens under Cava will be complete. And today, Shaich's Act III Holdings has an investment portfolio that also includes restaurants Tatte, Life Alive, and BJ's Restaurants.
"Our modus operandi is what we call sherpa management, which means we're there with our investments," Shaich told Yahoo Finance Live in an April 2020 interview. "We've been through this. It's tougher to build a national company today than climb Mt. Everest. And our role is to help our investments get through that process."
"It's a playbook and a growth model to support entrepreneurs and founders," Shaich added.
Bottom line: In the case of Cava, it's good that it sells tasty food, but it's even better that its corporate governance includes a chairman that has seen and done it all in the restaurant industry — and has made a ton of money in the process.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com
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