The birth of Panera

The next year we changed everything. We spent two years consulting with bread developers who helped us increase the quality of our main product. We also redesigned the stores, trashing our signature green tiles. I wanted the place to feel homey, so we added fireplaces and original art.

We changed our name as well, because "St. Louis" didn't resonate outside the Midwest. The Bostonians we surveyed associated St. Louis with Anheuser-Busch (Charts, Fortune 500), so to them the old name suggested fried oysters and beer. (Panera, by the way, roughly means "bread basket" in Latin and Spanish.) Our strategy worked: By the end of 1997 the sales volume had popped to $1.75 million.

At the time, Panera was a small division of Au Bon Pain. I started to think that Panera could become a national chain in its own right, but I was scared that I couldn't effectively manage its potential as a small division of a larger company.

Around Christmas a colleague asked what I would do if Panera owned Au Bon Pain. I said that if I were smart and had the courage, I would liquidate our other assets and concentrate all our resources on Panera. Then it hit me: Why not reorganize the company and make Panera the dominant division?

We had a huge fight with the board - they had signed on with Au Bon Pain, not some tiny, unknown bread company. It became a bet-your-job kind of thing. It took me seven months of debate to win the board over. Over the next year and a half we sold the company's three other divisions, including Au Bon Pain. After we closed those deals, I ended up with about $72 million and some 200 Panera cafés.

Saying goodbye

I was sad and scared to let go of Au Bon Pain - after all, it was my first baby and I respected the employees who went with it (most of them came back after their noncompetes ended). But I also felt relieved that I could finally focus on developing Panera.

From the beginning, we applied lessons learned from growing Au Bon Pain. For example, Au Bon Pain customers wanted both reasonably low cost and high quality - we were expected to be all things to all people. Panera was different: From the beginning, we focused on one group of customers, those who appreciated an inviting environment and were willing to pay for "real" food based on homemade artisan bread.

Panera was also different from Au Bon Pain in that we invested more money upfront to develop Panera's infrastructure. We hired a Seattle design firm that spent about a year redesigning all the stores.

Over the years, we've enlisted bread consultants, two former deans of the Culinary Institute of America, and a staff of 2,500 bakers to ensure the quality of our bread. We only open in community-oriented spots and try to create a place where shoppers, residents, and daytime workers can gather.

Panera has grown to be much bigger than I ever imagined. Sometimes I worry that our stores will feel too chainlike. Size and scale can be risky in a people business like Panera, because ubiquity breeds contempt. Employees want to work for people, not companies - that's why we franchise, to support local entrepreneurs.

Panera's earnings are up, but our Q3 report showed that due to rising food and labor costs, restaurant margins were lower compared with the same quarter in 2006. Investors want to know: Will this weakness be repeated in future years, or is 2007 an anomaly?

I'm not worried about our concept, its appeal to customers, or competitive encroachment. We'll continue to introduce bakery products to help grow sales. Though we are cautious, I'm positive we'll get the job done.

Growing up, I never imagined myself as a businessman. But I've learned that starting a company is one of the most creative things that someone can do. I don't dance. I can't sing. Panera is the closest I've ever come to creating something artistic.

When I get positive feedback from a customer, it's no different from the feeling an artist gets when someone says, "I love that painting." That, to me, is satisfaction. My first taste came from running that little convenience store. And I'm still feeling it 30 years later.  

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