Panera
By going private, Panera will free itself from the quarterly cycle‚ which could allow it to think much bigger and do something really exciting.

Plate

You’ve probably never heard of JAB Holdings International, a Luxembourg-based private investment firm. But you know the brands it owns. There’s Keurig Green Mountain, the world’s biggest single-serve coffee maker. And Krispy Kreme, notorious purveyor of all things glazed. There’s a coffee shop chain based in the Midwest (Caribou Coffee), another based in the West (Peet’s) and a third based, seemingly, mostly in airports (Einstein Bros. Bagels). It also made headlines in 2015 by snapping up two of the world’s most prominent third-wave craft coffee institutions, Portland’s Stumptown Coffee Roasters and Chicago’s Intelligentsia.

It’s quite a portfolio, especially considering that JAB is also a majority stakeholder in Jacobs Douwe Egberts, one of the world’s largest “pure play” coffee companies (meaning it only sells coffee), which operates a global stable of brands from Kenco to Gevalia. But the missing piece may have fallen into place yesterday, as JAB announced its latest acquisition: Panera Bread Company, the largest fast-casual restaurant chain in the United States.

As long as Panera’s shareholders agree to the sale, JAB will pay $7.5 billion—$315 a share, a 30 percent markup—for the right to add the company to its existing $21 billion in assets.

Restaurant sales have remained generally flat, leading to a flurry of takeovers earlier this year as chains try to grow by acquisition.

This may turn out to be a brilliant move, though not necessarily for the reasons you’d expect. Yes, Panera’s doing pretty well—especially considering the competition. Restaurant sales have remained generally flat, leading to a flurry of takeovers earlier this year as chains try to grow by acquisition. McDonald’s, as we recently reported, has continually scaled back growth estimates. Chipotle’s woes are well-known. Panera, meanwhile, is seen on Wall Street as a rare bright spot. That’s thanks to its image makeover as a stop for healthy fare—what the company has called “craveable wellness”—as well as its Panera 2.0 initiative: piloting new, modernized restaurants with digital ordering and pickup kiosks, which have reportedly increased sales.

But JAB may be in it for more than just a thriving business. The New York Times’s Stephanie Strom and Chad Bray suggest that JAB is looking for a high-profile venue for its coffee. There could be truth to that. If you look through JAB’s holdings, a clear theme emerges: coffee, coffee, breakfast, and more coffee. (The firm was rumored to be eyeing a Dunkin’ Donuts acquisition in 2016, according to Eater.) As a bakery-café with 2,000-plus stores in the United States and plentiful breakfast options, Panera would be an attractive venue for some of JAB’s coffee products. And a collaboration could help the restaurant as well: an Intelligentsia slow-brew kiosk in the corner might help bolster Panera’s reputation as a destination for “artisanal” food. JAB has tried cross-marketing before with Coffee & Bagels, a new breakfast concept that mashed up its Einstein Bros. and Caribou brands.

“What is hard for me is the continual pressure on the short term…two-thirds of our investors are thinking literally quarter to quarter. This is going to help us take more market share.”

The temptation to use Panera as a pedestal for existing products might be great, but evidence suggests that’s not the immediate goal. JAB is known for letting its companies operate with relative autonomy, and the company has said as much. “JAB’s investment philosophy with companies it acquires is they operate independently and continue to be managed by their management,” company spokesman Tom Johnson told USA Today. “There’s no plan to integrate with other assets in the portfolio.” Panera’s founder, Ron Shaich, will stay on as CEO, and the company will keep its leadership team intact.

Instead, the biggest impact may end up stemming from the details of the deal itself: getting bought by JAB will take Panera private. In fact, according to Shaich, who wasn’t looking for a buyer, a return to private status is the arrangement’s main appeal.

“What is hard for me is the continual pressure on the short term…two-thirds of our investors are thinking literally quarter to quarter,” Shaich told CNBC. He went on: “This is going to help us take more market share.”

Economists have long argued that publicly-traded companies can suffer from chronic short-termism. The stock market keeps businesses hooked on solutions that turn a quick, easily demonstrable profit. It can also take big ideas and longer plays off the table. Plans to stall growth for a few years, for the sake of larger gains later, are likely to generate shareholder outcry.

Since the company has made its name by pitching itself as a purveyor of a better-for-you food, the obvious thing would be to double down on that message.

By going private, Panera will free itself from the quarterly cycle‚ which could allow it to think much bigger. The company still has to answer to JAB, of course, which will expect a nice return on the many billions it plans to spend. But JAB describes itself as a company “focused on long term investments in companies with premium brands.” It’s the kind of owner, in other words, that can afford to be patient, and will tolerate grand gestures when they’re worth the wait.

So what might Panera try to do? Well, since the company has made its name by pitching itself as a purveyor of a better-for-you food, the obvious thing would be to double down on that message. Though soups and salads are surely healthier than burgers and donuts, for now its efforts have been pretty facile: so far, the main initiative has been to eliminate artificial colors and flavors from their menu. That’s a pretty low bar, one that Chipotle recently mocked in its “Spot the Impostor” promotion; in its view, unlike Chipotle, Panera is still using “natural” varieties of the same food additives they demonize. Whatever. Artificial colors and flavors, and their naturally-derived counterparts, aren’t an especially urgent health issue. Both companies are still engaged in something much more substantive, and worse: using marketing language to give a karmic markup to the same old industrially produced food.

Now, Panera may have an opportunity to do something really exciting. Unlike Chipotle, it might have the leeway to pioneer new purchasing practices. It could build alternative supply chains. It could, without shareholders breathing down its neck, find new ways to serve food that really is better.

Not that going private is everything. Subway is privately owned. Chick Fil-A is, too. Burger King, as of 2010, is owned by 3G Holdings, the multibillion-dollar Brazilian investment firm. If you haven’t noticed, these companies still struggle to reinvent their brands—let alone the entire industry.

Still, Panera’s whole pitch is that it’s different. That it’s modern. That it’s better. It’s finally going to have a chance to go beyond the marketing, and take a shot at the real thing.

 

Joe Fassler bio

Joe Fassler

Joe Fassler is New Food Economy's senior editor. His food safety and public health reporting has been a finalist for the James Beard Foundation Award in Journalism. Follow him @joefassler.