Panera Bread Founder Ron Shaich on why the 'new normal' won't be any different

Ron Shaich, Act III Holdings Managing Partner and Panera Bread Founder, joins Yahoo Finance to discuss the COVID-19 impact on the overall restaurant industry and more. Shaich believes there are three phases toward recovery with the furthest phase being 'the new normal.'

Video Transcript

BRIAN SOZZI: Now, the restaurant industry is taking a major hit after states closed all non-essential businesses night due to the COVID-19 crisis. Joining us now to discuss that and more is Ron Schaich. He's managing partner of Act III holdings and the founder of Panera Bread.

Ron, I just tweeted a photo out earlier. Last time I think I saw you, we were inside a Panera Bread, inside a restaurant. Obviously, a totally different situation right now in the restaurant industry. But, first and foremost, how are your restaurants?

RON SCHAICH: I'm not sure I agree with that, but keep going.

BRIAN SOZZI: [LAUGHS] How are your restaurants holding up right now? You're far from retired. You have stakes in Tatte, Life Alive, Cava, Zoe's Kitchen. Just take us through your portfolio right now.

RON SCHAICH: Yeah, [INAUDIBLE] you know, Act III is a $300 million evergreen fund. It essentially has founder friendly capital. We invest and we take on all follow-on rounds.

Our modus operandi is what we call Sherpa management, which means we're there with our investments. 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.

And then, third, we're focused only on the restaurant industry. We have what I would call the house [INAUDIBLE] when it comes to this Industry, we have a very clear understanding after 40 years in it of what works and what doesn't. And I and my 15 associates bring a range of really core skills, technology, concept services, customer insights, [? all-premises, ?] we bring in all of the package of supporting our companies. So it's a playbook and a growth model to support entrepreneurs and founders. And it's--

ALEXIS CHRISTOFOROUS: And Ron--

RON SCHAICH: Go ahead, I'm sorry, Alexis.

ALEXIS CHRISTOFOROUS: Well, I was going to say, they need that support, now more than ever, with this unprecedented pandemic. And we've see that the restaurant and hospitality industry has really been hit hard, sort of in an outsized way versus some other industries. How are you--

I mean, I'd imagine you're thinking along with the restaurants in your portfolio about how to get back to some kind of normal on the road to recovery here. How do you see the restaurant industry changed, possibly forever, you know, post-pandemic on?

RON SCHAICH: Alexis and Brian, let me take a minute and just bring you through this. I've spent at least half my time over the last four weeks meeting with epidemiologists, meeting with economists, and trying to understand globally what's happening, where are the lines, and then to apply that into our investments. And I'd start and say, I think there are three phases.

The furthest out phase is what I would call the new normal. It's going to occur when there is either herd immunity or we have a vaccine. Assume that's going to occur in '21, maybe into the beginnings of '22. But it's going to happen. That's phase three.

Phase one, which is the phase we're in now, I'd like to call the Wild West. It's essentially occurring when you have most states under stay-at-home ordinances. And this phase one will occur through stay at home.

And then that middle phase, phase two, which you might call the step function back to growth, is between the time the stay-at-homes are released and we've returned to new normal. Now, let me take each phase for you.

Phase three, the new normal, all the way out there in '21 and '22. I don't believe the new normal is going to be any different than the old normal. The reality is that the restaurant industry, feeding food, is the oldest profession. Many people have claimed it's something else. But, truly, food is the oldest profession, feeding each other.

And I think you may see delivery up a little bit. But, if delivery grows from 3% to 4% of the industry, that's a third-- that's a 33% growth for delivery, it's still a modest impact. And I think you're going to see restaurants in the future take form, as they always have, as a form of community. The question is when we get there.

I think that phase two is the really key one. As we leave the stay at home, the battle for share that is occurring in phase one, we're really going to see a step function re-energizing the economy and re-energizing of the industry. And it may play out over 12 to 18 months. It's going to be driven by a number of things.

It's going to be driven by, first, the degree to which people feel safe to eat in, the degree to which they feel that. That safety is going to be driven by the degree in which there are therapies in place that reduce the mortality of this. I don't mind getting sick and being in bed for two weeks.

But I'm 65. I worry greatly about ending up on a vent. And I think that's what a lot of people feel. And, as those modalities and therapies come to bear in the next 8 to 16 weeks, that's going to affect us.

I also think you're going to see a move to what I would call a reversal of what is today horizontal isolation, which means everybody being isolated to what we might call vertical isolation. You might find that our 80-year-old parents are still isolated, those with immune compromised systems isolated. On the other hand, my 21-year-old son likely doesn't need to be isolated at this point.

And there are different implications of that. And you're going to see different groups being isolated. And that gets into serological testing and the ability to have an immunity passport. And so phase two is where the game is.

And then what we're in is phase one, where there's a battle for sales channels. It used to be 50% of restaurant dollars were away from home, 50% in home. Today, it's 100% in home.

And the reality is that everybody else is battling to capture back some of that distribution. The truth is-- and I'll give you a little tidbit from our five companies looking at it a lot-- sales are continuing to increase in the sense of being less negative every day. And I think you're going to see that step function play out between the end of phase one, the battle post the stay-at-home ordinance, all the way back up to the new normal.

BRIAN SOZZI: Ron, I've joked with you in the past. I think I called you in the past the godfather of mobile ordering in the restaurant industry. And what is the next iteration of that? Is it what we're seeing with Domino's, where they-- is it contactless delivery, where they leave a pizza on your front doorstep, wave goodbye, and get back in the car?

RON SCHAICH: I'd go further. I think it's contactless transactions of all forms. So, right now, to go, which takes form as digital. It can be telephone-enabled. It can be digitally enabled. It could be in-person.

But it's to go. That business is growing-- has grown up 50% or greater since the stay-at-home ordinances. That's one business.

You also have delivery. Delivery has grown maybe a third, you know, over this time period. And what has completely collapsed to zero is eat in. And so you have those three channels.

And the question is, as we go out of stay at home, how do you bring up that third channel, which is really eat at home, while protecting the other two? And I think different companies will take different forms of it. But I think one prevailing concept that extends across all channels is contactless interaction.

I don't if you've ever gone in. There are certain large restaurant systems where you have the sign the screen. I'm not so happy about signing a screen today, let alone putting my credit card in one of their readers. And I think you're going to find take out itself, even for eat in, moves to contactless interaction.

BRIAN SOZZI: Always well said. Ron Schaich, Act III Holdings managing partner and Panera Bread founder, always good to talk with you. And, of course, please do stay safe out there.

RON SCHAICH: Brian, you take good care of yourself. We love your show.

BRIAN SOZZI: Thank you--

[INTERPOSING VOICES]

BRIAN SOZZI: Appreciate it.