Top execs discuss perks and pitfalls of private vs public ownership
Just a few years ago it seemed that taking a brand public was the ultimate mark of success in the fast casual industry. Noodles & Company took the plunge in 2013, followed by The Habit Burger in 2014 and Shake Shack in 2015, for example. Panera Bread CEO Ron Shaich's decision earlier this year to sell the brand to JAB Holding for $7.5 billion, however, has spurred some to ask, "What impact does being private versus going public have on a company's success?"
A lot, according to Shaich.
"Being private is a point of competitive advantage," he said on CNBC's "Squawk on the Street" earlier this year. "This is going to allow us to do better work. It's going to allow us to stay committed to the 'do the delivery' initiative, to do the 'clean' initiative we're working on. It will enable us in so many different ways."
Although Shaich admitted that he wasn't looking to sell the company when JAB approached him, he found the offer enticing: Being out of the public eye could allow the company to work toward long-term goals without the pressure of having to show results quarter to quarter.
"What is hard for me is the continual pressure on the short term," Shaich said in the interview. "When I started 25 years ago, I will tell you that a third of our investors were looking at this for a year longer. Today, I will tell you two-thirds of our investors are thinking literally quarter to quarter.
"We are taking market share," he said. "This is going to help us take more market share."
A case (or two) for keeping things private
Fazoli's CEO Carl Howard said Shaich's decision will only strengthen an already successful brand.
"Panera's leadership has been admirable and this may further allow their team to set a higher vision for their company. It will be interesting to see their next growth strategy and we are working hard to out-compete them," said Howard, who believes that being privately owned offers a time advantage over being publicly held.
"Senior management does not have to spend time compiling quarterly earning reports, dealing with quarterly audits or having an activist investor trying to change the direction of the organization," he said in an interview with FastCasual. "While we do have very disciplined financial meetings and very structured quarterly board meetings, the amount of time saved by management being privately held is valuable.
"It allows senior management to stay focused on driving better guest results, which is the true mission or the 'North star' for Fazoli's. When Sentinel Capital Partners acquired Fazoli's nearly two years ago, we worked together to create a solid business strategy for the next several years and we are fortunate to have a very synergistic relationship."
That strategy must be working: The brand — which has nearly 220 restaurants in 25 states — also set new records for average unit volume in fiscal 2017, including a record AUV month in March 2017. The chain also set a franchise sales record this year, signing agreements to develop 30 restaurants with 13 franchise groups. Additionally, the company has experienced 16 consecutive quarters of same-store sales growth at its franchise-owned restaurants.
In other words, going public isn't on Howard's radar.
"For the last two years, we've had the opportunity to work directly with Sentinel Capital Partners to execute a solid business strategy," he said. "Sentinel's proven record and access to critical resources combined with our vision for the brand have catapulted Fazoli's success and development across the country. Now and in the future, management will continue to rely on Sentinel's leadership to help our team reach our longer-term milestones and determine the investment future that is best for our brand.
Tropical Smoothie Café is another fast casual brand that is happy with its private status.
"It's working for us and we are seeing results," CEO Mike Rotondo said in an interview with FastCasual. His 600-unit brand is experiencing record-high average unit volumes of more than $662,000, with the top 50 percent achieving more than $846,000.
"We will open over 100 cafes during this our 20th anniversary year," he said in an interview with FastCasual. "Our partnership with BIP Capital allows us the access to capital that many public companies enjoy without the additional scrutiny and more 'cooks in the kitchen' when it comes to decision-making and how to drive for better results for our franchisees. … It allows us to be nimble and respond quickly to market conditions and opportunities we see and capitalize on them quickly — we are not waiting around for the next board meeting to get projects approved."
Public ownership offers lucrative advantages
Going public for The Habit, however, was the right move for the brand, according to CEO Russ Bendel, who said It accomplished a number of things, including:
- Raised almost $100 million that has given the brand the capital it needed to continue to grow.
- Provided a currency to help with long-term incentive plans for key individuals throughout the organization.
- And put the brand on the radar screen of many large national developers.
Another restaurant owner has mixed feelings. Willie Degel — who hosted the Food Network reality TV show, "Restaurant Stakeout" — also owns several private New York City restaurant brands, though he hopes to take them public eventually.
"I have hopes of going public so that my brand can reach more places on the planet that I cannot reach myself," he said. "Being public would help my brand grow faster and stronger, by having the public as a shareholder that cares about the company as well."
Until the time is right to public, however, he's enjoying the benefits of being privately owned.
"When you don't have locations all over and are closer to the smaller end of a brand, it is beneficial to be a privately held company like us," he said. "I am the only boss of my company and have all the say with what goes on."
While going public may work for some brands, it's not a move that should be made too quickly, Rotondo said. And it's not for everyone.
"Every brand and company is different, it's all about what the right ownership fit is in the brand's life cycle to accomplish their stated objectives," he said. "This can change over time, or one structure can work for decades."
Before joining Networld Media Group as director of Editorial, where she oversees Networld Media Group's nine B2B publications, Cherryh Cansler served as Content Specialist at Barkley ad agency in Kansas City. Throughout her 17-year career as a journalist, she's written about a variety of topics, ranging from the restaurant industry and technology to health and fitness. Her byline has appeared in a number of newspapers, magazines and websites, including Forbes, The Kansas City Star and American Fitness magazine. She also serves as the managing editor for FastCasual.com.www