Transcript

Rapid Response: How Covid lessons get tested by inflation, w/Shake Shack founder Danny Meyer

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I've never seen this before. I've never seen this So many stacked up issues at the same time.

And the economy. In politics. in people's health. And people's willingness or unwilling to Come back to work.

Entrepreneurs need Problems in the same way that surfers need waves. So when have we ever had more problems to solve? Right idea. the right passion and the right leadership skills.

Entrepreneurs. Are actually Facing what could be a golden age right now. Mm. That's world renowned restaurateur Danny Meyer, founder and executive chair of the Union Square Hospitality Group, and founder and board chair of Shake Shack.

This is the fifth time we've welcomed Danny onto Rapid Response as we continue to chronicle his company's pandemic era journey. Under the weight of inflation and in the shadow of COVID nineteen, the hospitality industry remains a telling barometer of evolving business challenges and opportunities. I'm Bob Safian. Former editor of Fast Company, founder of the Flux Group, and host of Masters of Scale Rapid Response. I wanted to talk with Danny again to explore both the latest twists and the lasting implications of our unprecedented times.

When we first spoke in early pandemic days. Danny shared the painful decision to lay off eighty percent of the Union Square hospitality team. In later episodes, we talked about restaurant closures, vaccines, mask mandates, and the stress of running a business in an unending crisis. Now with Union Square hospitality back to its pre pandemic size, and Danny reflects on the lessons we've learned and the uncertainty still ahead.

He recently handed off his CEO role there, he explains, to focus on new strategic opportunities that he enthusiastically shares with us. He's also mindful of the ongoing obstacles confronting all businesses, including rapid cost increases that he says defy anything he's seen in thirty seven years as an entrepreneur. He's not ready to be triumphant about what he's enabled for Union Square Hospitality and Shake Shack. But he is optimistic again about how business can address the problems of the future. If we're willing to make the right tough choices.

And keep focused on an aspirational North Star. I'm Bob Safian and I'm here with restaurateur Danny Meyer. Founder of Union Square Hospitality Group and Shake Shack. Danny, thanks for coming back on Rapid Response.

Well, you promised that this story that we've been weaving for Many, many, many months. Would have Hopefully a happy ending. So we'll see. We'll see just how happy it is or isn't right now.

I mean, this is your fifth appearance. The first one was right at the start of lockdown. When Union Square restaurants were shuttered in New York and you just had to lay off most of your employees Now The last time we talked was a year ago and there's been a lot of ups and downs over that year. Do you feel like it's a

Triumphant moment Or has the journey been so So arduous that it's hard to know how to categorize it. I think triumphant is not the word I would use. I would say that we're in a much more stable period right now. It does not appear

Yeah. We're gonna have to close again, so that's a really good thing. And and a year ago Лет'среме, що інкатерин. Delta. We muddled our way through But then we got Omicron and we actually did have to close

Because We couldn't field enough People on our team. We just didn't have enough who were healthy on any given night. Those closures were

during the busiest weeks of the year, Christmas, New Year's, and that that would be like asking an accountant to Shut their shop on april first, leading up to april fifteenth. So Here we are a year later, and the vast majority of people understand that. You're probably not gonna die from covet. People are still dying from it, which

Is of course tragic, but It's not preventing people from going out. It's not preventing people from Working. We're all trying to figure out Right now

What actually did change? What changed about people's habits of working? What changed about when they dine out, why they dine out? People learned how to order digitally. Firm. Ту і на хаф єс. They could eat.

Found anywhere anytime. We're all just trying to get used to the new new right now and We are emerging, which feels really good to be able to say. And in the midst of all this, you know, we've had this change in inflation and costs going up that

If it hadn't been for COVID, it would have been its own Challenge to deal with in a business like yours. There's an expression that I've heard used at Passover. Which is Dainu. And the expression means it would have been enough.

And I think you're absolutely right. It would have been enough if all we're dealing with was inflation right now. It would have been enough If all we were dealing with was A war There would have been enough. If we had supply chain issues where it takes forever to get anything.

Made and shipped and delivered. So all these things add up. Everyone's ready to say Put that damn pandemic in my rear view mirror. I'm ready to live my life. But

We still don't have any idea. How to calculate the emotional impact. Now you recently announced that your Stepping into an executive

Chairman role at Union Square Hospitality, handing off the CEO title. To Chip Wade. I know that Succession had been planned at been discussed before the pandemic. But I I wonder how the stress of the last couple years may have impacted

The timing. It was exhausting and and yet this industry's always been exhausting. My license to grow as a leader has always been the degree to which I can delegate things that I used to do to people who could do those things as well or better than I can, and then increasingly do fewer things. But

Make sure that those things are things that uniquely Coincide with my gifts. For the last five to ten years. I've been conscious about Saying wouldn't it be great

to have a CEO in the company So that Rather than my being responsible for the day to day operations, spending more of my time outside of The business. Getting ideas.

bringing back the creativity so that our restaurants can continue to innovate and improve. having had a amazing leader Chip Wade, who's been the president and Чеф оперативно офіцер в Аркані флес триж. It became evident to me that he was the guy.

You know, there's not even a crack of space between the two of us in terms of how we Approach. Workplace culture. Hospitality. He happens to be way more experienced and gifted than I am at running large organizations.

He also acknowledges that I should still continue to focus on. Who are the chefs gonna be? What's the wine gonna be? How do we represent ourselves?

to the public in terms of everything from graphics to design. So We flirted with a whole lot of different Titles for me and finally I I don't need a title at this point. I'm happy to just say Danny Meyer, but

My official title is Founder. That's the great thing about founder is a title. You can never get fired from that one. And executive chairman. I had a journalist recently say so Does this mean you're stepping down?

Or Stepping aside. And I said, Actually I'm stepping up because what I wanna do Is to get higher up into the trees so I can see a lot more of what's going on. In the company.

And use thirty seven years of of experience to Hopefully make some more strategic observations. And it sounds a little bit like Maybe this would have happened sooner if the

Stress as the pandemic hadn't happened. That's right. I didn't want to abandon The role of CEO. Or ask anyone else to take that on while we were struggling to get to the other side. And so it's not that I'm doing it'cause I'm exhausted, it's that

I'm doing something that I wish I could have done probably Two or three years sooner. It was certainly Fatiging. To get

This company to the other side. I don't have the stomach, by the way. to go back and listen to any of the previous conversations we've had. So there is some

post traumatic stress disorder. There truly is. We were talking just before the recording started about how the previo interviews we've done, you were in a different space. uh physical space and I asked you whether you you know does that room give you f like bad flashbacks and you said Well there's some stuff that's bad and there's some stuff that's good.

So the space you're talking about Was where my family and I were quarantining. In my little den. With a You know the wooden

Pinewood walls. Almost no light. And I was making a ton of decisions in there. So a friend shared this Amazing insight with me once that

And it helps me almost every single day of my life. And he said, No matter what your title is, it should really just be Chief problem solver. And you know what the great thing is? There's only two kinds of problems in the world. The same way you've got two front pockets to your pants.

You got one pocket. for the problems that are genuinely Tough to figure out. Then you got a second pocket. For the problems we already know the answer.

But it's just too damn unpleasant to deal with. So you you put it in that pocket. And When that right pocket starts to get Full you are not doing your job because those problems They only get more unpleasant as time goes by.

So when I think about that room, Bob. I think about Both pockets. I think about really, really difficult to figure out things. How do we actually survive? Without having to lay people off.

And then about the second pocket which is How unpleasant it was for everybody. To deal with those tough issues. I think about Sitting in that office. When George Floyd was murdered.

And thinking about How do we handle that as a company? Having all day to talk about The racial inequities. that exists in our society and in our industry.

And in our company. But I also think about the good stuff, and the good stuff is that We did have to empty that right pocket. We had to deal With a lot of Decisions.

That were unpleasant. But having done so I think I definitely feel a lot better. I think back to that

March, April twenty twenty and You'd make this really Torture decision for you to do as many layoffs

As you did, but you had this belief. That it was what was required. to get the business to the other side and to be able to be hiring people again and Unisquare Hospitality Group is almost the same size that it was at the beginning. When you look back at these decisions

Are there ones that you feel particularly proud of? Are there ones that you Regret. Or Do you not go back at all'cause it's

There's just too much sort of Torture to go back into those places. You're right, Bob. We're actually back up to full strength in terms of our employee numbers. We had twenty four hundred employees when we started Talking in March of twenty twenty.

Then we went all the way down to forty five employees. over the course of three different cuts. I wanted to do it all at once, but I The goalposts kept getting moved. It's kind of amazing because Seventy percent

Of our twenty four hundred employees today. were not part of our company two and a half years ago. The decision that I'm proudest about was We hired someone by the name of Doctor James Pogue.

To help us. become A company that would really not only face up to Our responsibility to be a diverse employer.

But to actually be really good at it. And he worked very, very intensively with us as individuals, as a group. But He said. You Danny.

Need to be the chief diversity officer. I understand the chip weighed. Your president and COO Is black. But you need to be the chief diversity officer because

Until your organization knows that it's important to you. It's just not gonna happen. Or it's gonna be hollow. So I'm proud of the decision to make sure that when we did rebuild our team.

We'd be able to repaint The canvas. The way we should have done in the first place. And We now post all of our

diversity statistics job by job on our website. Not so much because I think that you or any one of our perspective Customers in our restaurants.

We want to hold ourselves accountable. Two Looking like the city we do business in. I'm also really proud that We

Build a community. With our guests and together raised Two million dollars. And an employee relief fund. It was a way to

Acknowledge to the people who we had to lay off. The last thing we want is for you to be out on the street. Because that was in increments of Up to twenty five hundred dollars a person. To get them from

The point where they were laid off to the point where United States government created the uh Care's Act. Which provided additional supplemental income.

The city is still in in some ways Struggling to get back to to where it was. I know you were involved in some councils related to trying to help the city and uh restaurant industry. What do you feel like it's gonna take for the city to get back?

And I guess the same thing about the restaurant industry. Like, is it not helpful to look back? You just have to keep looking about where you are. I did serve on three different entities. One was the governor's committee to bring back New York. One was

NYC and companies Committee. And then for the last nine months of his term. The mayor asked me to be the chair of the economic development corporation, the NYEDC. A lot of the efforts that went into all of those

felt better than they were actually effective. I only had one idea for EDC I think that was useful. And that was to have a homecoming. Which was August of twenty twenty one.

And it was broadcast live on CNN with all kinds of amazing Musicians Who came to Central Park to put on this great concert. But it was to broadcast to the world, New York City is back. And the idea of a homecoming was come home.

Maybe you're someone Who moved away temporarily. Come home. And it was a really cool thing, except About an hour and a half into it.

The skies just completely opened up with the greatest deluge of rain I think I've ever seen here. And It was kind of a parallel to what New York was like,'cause that was right Between Delta and Omicron. And it was like The sandpiper that takes a few steps

To the edge of the sea. And then has to run back when the wave comes in. And that's kind of how New York was feeling. So I don't know if our efforts were helpful. It turns out there's no amount of

cheerleading that's gonna get someone to walk into the subway if they don't feel like it. There's no amount of cheerleading today. That's gonna get somebody to choose to work out of an office if they have a choice of not commuting. to wherever they go. People got very, very used to their new habits. Now that's not true of everybody if you work in a restaurant.

You can't do the dishes on Zoom, you can't pour a glass of wine on Zoom. A lot of people who don't have a choice. Committees. Does it make you think

Any different about What the role of businesses and what the role of Government is Do you feel like oh I'm gonna get more involved in politics?

Or it's like, nah, I'm gonna spend more time focusing on on business. I think business is politics. I think that we are running for office every single day. It's just that our constituency are the people who work for us and the people who Choose To spend money with us or not.

And I think businesses and governments can be more effective if they listen to each other. No. All those issues are finding their way right into the restaurants. You know, we made a Decision. A year ago.

To mandate that both our staff and our guests be fully vaccinated. Our staff wanted us to do this. Because They didn't want to Be serving guests.

Without mask. Talking. Breathing. We actually did it before. It was a city wide mandate.

But We had at least three occasions that I'm aware of where Anti vaccination activists would come into our restaurants and stage a protest. The other kinds of things that There's a certain movement to

Boycott the use of the hamburger bone that we've used at Shake Shack forever. Because The now retired founder of the hamburger bun company. had made a very large contribution.

Gubernatorial candidate in Pennsylvania. We didn't give the money. If we were political That wouldn't have been the guy we'd give money to for sure, but That doesn't stop people from saying this could be a good target.

Yeah. Not gonna change a hamburger bun that is A massively important part of our recipi. And God forbid if we would start asking all of our suppliers who they voted for, who they support. We'd really be in tough shape.

But It's the way of the world right now. I think that there are no Barriers between Consumer companies. And politics. And so

You can either pretend it's not there, or you can try to be constructive with it. For me the most constructive thing is to Engage in conversations with public officials And then when we're asked to take a stand on something

To make sure that that stand is consistent with what our Company values are anyway. It's something I think about myself all the time, which is What's your compass for making decisions? And

If you have that compass and you know what your true North is and you know what matters to you, what What you wouldn't change. Even if it meant making more money, you would still do something the same way because it mattered that much. When you've built substantial wealth through your business, it's often tied up in a single equity position. The upside is real, but so is the risk, and knowing when to act isn't always obvious.

Creative planning works with business owners to build a strategy around concentrated equity. When to diversify, how to manage tax risk, and how to protect what you've spent years building. Creative planning where wealth works together. Lear more at creative planning dot com slash masters of scale. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show.

Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those were great at AI and those that went out of business because they weren't. How do we build a future?

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Find pioneers of AI wherever you tune in. Before the break, we heard restaurateur Danny Meyer talk about the tough decisions he had to make over the past two years and his most recent decision to hand off the CEO title. Now he talks about how inflationary pressures are creating unprecedented shifts. But also why some of his employees could actually benefit in the long run. He also shares insights.

On what gets him to invest in a new business? What it means to look for the next shake shack. And how access to startup ideas helps improve his creativity. Plus He shares some final lessons.

Абаті упси в фасинг проблем. And why we should all have optimism about the future of entrepreneurship. entrepreneurs who are listening to the show are concern about inflation rising and the the risk of recession

You have been through thirty seven years of running your business. Do you look at the cycle where we are now and sort of feel like Yeah, I know this game. Or are there things that are different? Because of the conditions right now.

There are definitely things that are are different. I've never seen this before. I do know from thirty seven years of experience. That this is not the thing that's gonna end the world. I think the toughest thing about inflation is that

As a business person. It's hard to Feel like you're giving good value. Nobody that I know loves raising prices. Now I could argue that our industry has been

Underpriced For too many years because We've probably not paid Uh Talent enough money.

We've been willing to pay for years for Organically raised Vegetables and Humanely raised animals. What about the people?

And there's Something Fascinating counterintuitively that Inflation has actually done what government

Four people. In that Yes. Your cost of living's way up. But your earning power is dramatically up.

You work in one of our restaurants today. And you're a tipped employee. You're making way more money. 'Cause our menu prices are way higher and that's actually helped bring people back to work.

It doesn't feel good to go to a restaurant and see that A salad is now eighteen dollars. But If you can also make more money while you work. Maybe that's a good thing.

Well Commodity prices are gonna come down. And supply chains are gonna loosen up. Once you start paying somebody a higher rate per hour to work, you're not gonna lower that.

And so That will be a sustained benefit. outcome of this whole period we're going through. One of your colleagues shared a story about Shake Shek's. catch up conundrum, you know, that Heinz reached out to the CEO Randy Garuti about.

Whether raised prices meant you'd go without or not. Is raising your prices something that in an environment like this you just have to do? That is what we have to do. The Heinz catch up story. is mirrored by

French fries. It's mirrored by All kinds of things where We will actually have A contract that we signed with a company Where we agree to buy this much.

Product. And The company agrees that This is what you will pay for it. And there are companies coming to us.

Not just Shake Shack, but To all of our restaurants saying I don't really care about that contract. I'm changing the price. And that's just never happened in my entire career. But when a company like Heinz Ketchup says

Nope. Can't help it, but our costs have gone up. We see this All over the place. And

We have to raise our prices. Now we didn't have a contract with our guests saying I promise you for the next three years that The roast chicken is gonna Not Budge in price.

But We don't have a choice. Because Restaurants already have incredibly thin margins. And so

Where does it end is is really what the question is. I don't know the answer. I just know that we will emerge On the other side. As you m move up to the executive chairman role, does that mean you're s be spending more time with your private equity fund? Yeah, so

Our fund is called Enlightened Hospitality Investments. We're now in our second fund. The first fund is completely invested in businesses. We invest in companies That are led by Really enlightened leaders.

Who came up with an idea we only wish we had come up with. And they're all at a early enough stage, it's later than venture, but it's before a big liquidity event. And so it really means is that I'm able to spend more time

With The founders and CEOs of these Businesses Who are looking for Someone they can bounce ideas off who's probably made some of the same mistakes

Just a whole lot earlier than they did. When you look at the kind of businesses we invest in. They all have a very similar heart set. We believe that the best way to create the best outcome. For your

Shareholders and investors. is to have them be the outcome, not the input. And to have the inputs be The team who works there, your customers, your community, and your suppliers. And

So that's what's consistent about every investment. We are not only able to learn from those businesses But In many cases, we're able to use their products and be a better business at Union Square Hospitality Group as a result.

Sometimes it's software. It's a kind of coffee. inventory ideas or marketing ideas, but It's creating an ecosystem where We get to stay

At the top of our game. We invested in Goldbelly way before the pandemic made it a household name, literally. So The businesses are all over the board. I mean there's some things about hospitality that are

Timeless. And then there are other things that are just changing so rapidly. Right. I was reading something about Shake Shack's digital sales during Covid going from like zero to Forty, forty five percent or something. So you're looking at both Kind of tools to accelerate that.

And brands that maybe I don't want to say you think of as the next Shake Shack, but Something that can take a hospitality idea to a next place. If it is a food company I don't think that's an unfair way to look at it, Bob, to say could it be the shake shack of blank. So we just invested a

Company Based in Atlanta called Sluty Vegan, which The name itself. Was Debated.

limited partners are gonna go for But you know what? They just opened their first New York store in Brooklyn this past weekend. And the opening line. Is close to a half a mile long.

To get in. To this little storefront. That's what we call Earning a tribe. So if it's a food business or a a restaurant company, yeah, I think it's fair to say

Could they become the Shake Shack of their category? We also have a company called presi taste through artificial intelligence helping to set up Cameras in kitchens. And in dining rooms.

To show Just from a body heat standpoint, how many human beings are standing in there and then predict for the kitchen How many orders They should be preparing Which cuts way down on waste, which increases the productivity of the team, and which decreases the time you have to wait for your food. So

We're looking at just about everything. And one of the Companies I love. It's called Notco, N O T C O. And rather than using

Chemistry. Two Create Non meat protein. They're actually using fruits and vegetables. And they have

Created this computer based algorithm that can figure out The flavor. Texture and appearance. of any food and then figure out which fruits and vegetables in combination

will actually replicate that. So for example, they launch not milk. You can get it at Whole Foods. And wouldn't you know? It tastes great. It's made from pineapples and cabbage.

It doesn't taste like pineapples, it doesn't taste like cabbage, it tastes like milk. Every time we get to learn From somebody who's got These amazing ideas and They come from a same

Heart set, not mindset, but heart set as we do. There's just a fantastic opportunity to not only back them But then bring back all kinds of lessons. That then from my higher perch up in the trees. We can bring the really good ideas to our company.

I asked you a question in one of our other conversations. I asked you whether you were optimistic And you said I'm not sure I'm optimistic. I'd say I'm hopeful. Are you optimistic yet?

I'm optimistic. I am optimistic. I think hope Is somewhat passive. Optimism implies I'm really on the

Balls of my feet, not the heels of my feet, and I'm ready to go. Looking at the role of entrepreneurship. Are you more optimistic? About That

Moving forward. Absolutely because entrepreneurism Is I think a very conscious act of Sing a problem.

Before others saw the problem. Having a solution before anyone even thought there could be a solution. And then Marshalling a team of people. Who

Agree and who want to help you. Create That solution. And I think that Entrepreneurs need

Problems in the same way that surfers need waves. So when have we ever had more problems to solve? There is still a lot of money on the sidelines. waiting to back good entrepreneurs, notwithstanding the fact that the public stock market today.

have much, much lower valuations. Part of the reason they have much lower valuations is people are waiting it out and they're not putting more money into the stock market right now. But that money still exists. And I think entrepreneurs With the right idea.

The right passion and the right leadership skills. Are actually facing what could be a golden age right now. Well, Danny, as always, it is great to talk with you and congratulations on making it to this next stage of your journey. Thank you, Bob.

Masters of Scale Rapid Response is a wait what original. It's hosted by me, Bob Safian, Masters of Scales editor at large. Masters of Scale host is Reed Hoffman. Our executive producers are June Cohen, Darren Triff, and Jordan McCloud. Arhead of content and production is Lori Hoffman.

Our producer is Marie McCoy Thompson. Scripts by Alex Morris and Tucker Legers. Our music director is Ryan Holiday. Original music and sound design by Eduardo Rivera. Audio editing by Keith J. Nelson, Steven Davies, Andrew Nalt, and Mike Gallagher. Mixing and mastering by Aaron Bastanelli. Special thanks to Adam Skuse, Catherine Clark Gray, Emily McManus, Adam Heiner, Colin Howard, Tim Cronin, Kelsey Capitano, Samia Puta, Anna Pizzino, Sarah Tartar, Leah Sarah Medis, Charlie Menessis, Chinemia Zaquena, Aria Finger, and Saida Sapieva.

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