In this segment fromtheMotley Fool Money radio show, Chris Hill,Jason Moser, and Simon Erickson share their enthusiasm around the acquisition of Panera Bread (NASDAQ: PNRA), and not for the usual "let's find costs to cut" reasoning behind many big deals. This buyout is for a strong company with improving results, and as part of the JAB Holding portfolio, it should be able to accomplish its long-term goals away without the pressure of quarterly reports and Wall Street estimates.
A full transcript follows the video.
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This video was recorded on April 7, 2017.
Chris Hill: Panera Breadhas been bought byJAB Holding for $7.5 billion. Ifyou're not familiar with JAB Holding,you probably know some of the companiesthey have already purchased, including KeurigGreen Mountain,Krispy Kreme Donuts, Peet's Coffee, andCaribou Coffee. It is the biggest restaurant deal in U.S. history. It caps anincredible run for Panera Bread, Simon. And, of course, for the company's founder, Ron Shaich.
Simon Erickson: Yeah. Youhave to like this acquisition,Chris, because it's so different from most of them that we've seen in foodand restaurants. We have companies go in andtry to aggressively cut costs to boostprofitability. Of course, in3G Capitalgoing afterAnheuser-Busch,Burger King, we'vegotten used to them saying, "Howcan I get the bottom line moreprofitable bytaking as many costsout of the business as possible." I say this isdifferent because Panera is actually investing very heavily in itself. We've seen the Panera 2.0initiative from the last couple of years, wherethey're bringing iPads andkiosks into these restaurants. And it's really working, Chris. You have25 million MyPanera rewards members, and that'sdriving half of the company's transactions. This is a formula that's going to work really well for the company.
Hill: Jason, you think back three, four years ago when Ron Shaich came out and issued the famousmoshpit comment about how --you love to see that from a CEO, saying -- "Ourproduct isn't that great. The experience in the restaurants is not that great. Werecognize that and we have a plan to fix it. But, it's not going to happen in one or two quarters."
Jason Moser: Yeah. Thefirst step is recognizing you have a problem. I think that was really key to the actual turnaround here. And it did turn around. I had been tracking Panera sales and comps going all the way back to the first quarter of 2012. You can see this slow train wreck happening. Theyreally did fall off a cliff until this pointat the beginning of 2014, where westarted to see some green shoots, some signs that maybethis was astrategy that was succeeding. I think,if you just go into a Panera today, you can see, in many cases,like Simon was mentioning with the kiosks, and the way throughput is working now, they're justmuch better restaurant experiences. And I think the food hasalways genuinely been pretty good. To me, this really is more about Ron Shaichwanting to be able to take this company to the next level, and wanting to do it,without having thescrutiny of the public markets. He said as much. He said, "I think,increasingly, in a public company model, it's very tough to focus on the long-term. I thinkcompanies likePanera have run so well whenthey have made the right long-term bets." I think he's right there.Wall Street is known for a lot of things. Patience is not one of them. This is going to give themopportunity to run the business without the scrutiny of the public markets.
Hill: It'sgoing to be interesting to see, to what extent, if any, theserestaurants change now that someone else is running the show. Shaich is going to be there for theforeseeable future. But it will be interesting to see what JAB Holding has in store for them.
Erickson: Youhave to think they're going to continue that technology platform thatPanera has in their stores. 25% of thetransactions are now placed digitally, and paid for digitally. It meansthe only association you have with a human being in the storeis to pick up your food and say "Hey,thank you very much." We all know trafficis the Holy Grail for any restaurant out there. I think they have this figured out.
Moser: Yeah,companies like JAB are not buying this concept to lose money,they're going to try to eke out as much as they can. I think,over the next few years,it will be interesting to see if the quality of the food takes a dive or if the menus change substantially. I think Shaich will be in there for theforeseeable future, but he's going to be answering to someone else.
Hill: Towrap up on the stock, if you're a long-term shareholder of this business, you have beenrewarded quite handsomely. Even if you're a short-term shareholder. In 2017 alone, this stock is up more than 50%. But, going back 20 years, this thebest performing restaurant stock.Better thanStarbucks,better than anyone else in the category. A return of more than 10,000% over 20 years. If that doesn't get youinterested in long-term investment, I don't know what does.
Moser: I was talking to my dad a few days ago about this, because he got into Panera a number of years back. It really worked out well for him. I'd like to think that maybe I've settled the score with him and we're all square nowfrom any trouble I caused growing up. But he's the ideal Foolish member. He can buy stocks and thenjust get on with life. I think that most people who did that with this stock are feelingpretty good about this deal.
Chris Hill owns shares of Starbucks. Jason Moser owns shares of Starbucks. Simon Erickson owns shares of Anheuser-Busch InBev NV and Starbucks. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Starbucks. The Motley Fool owns shares of Panera Bread. The Motley Fool has a disclosure policy.