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Influencers Transcript: Danny Meyer, July 18, 2019

ANDY SERWER: We've all heard the cliché, make your passion your work. Danny Meyer turned his into a business empire. At age 27, he opened his first cafe. He took that success into a slew of the buzziest and best restaurants in New York City. Plus he founded Shake Shack, which now has over 200 stores nationwide.

He's written numerous books on cooking and business, and in 2015, "Time" magazine listed him among its 100 most influential people. Meyer is here to talk about trends in how we dine and what they reveal about where our culture and economy are headed.

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Hello, everyone. I'm Andy Serwer. Welcome to "Influencers." And welcome to our guest, Danny Meyer. Great to see you.

DANNY MEYER: You too, Andy.

ANDY SERWER: So I want to start out by asking you about Shake Shack, because there's so much interest in that particular facet of your world. What have you learned about this company-- running a public company? I guess you went public about five years ago.

DANNY MEYER: Well, I've learned that I made a great decision by not being the CEO of Shake Shack, even though I founded it. Randy Garutti, who's the amazingly gifted CEO of Shake Shack, and I have worked together since he was about 22 years old. And Randy came aboard as a general manager at restaurants of ours like Tabla and Union Square Cafe. And then he ran, as director of operations, all of our fine-dining restaurants before Shake Shack.

The reason I'm telling you that's the biggest thing I've learned is that when you're a producer, you've got to put the right people in the right spot. And being a visionary and being the CEO of a public company are very, very different things. You definitely want vision in your CEO, but I think that understanding that you want someone who appreciates the culture that we've always been, from a fine-dining background, and can then add the systems that you need to be a now 220-plus unit public company restaurant is crucially important.

Thing two that I've learned is that this is a whole new category, which we call fine casual. And if you go back in history to the greatest export that our industry has ever had, fast food, what it basically did was solve a big problem for people, not only in our country, but internationally-- how can you eat as many calories as quickly and as inexpensively as possible? And it worked.

And I think what Shake Shack and now many others are contributing to that is to say, well, what if you had a baby and the mother was a fine-dining kind of background, where you think a little bit differently about ingredients? So, of course that means that our burgers don't have antibiotics or growth hormones. And of course, that means that the eggs that are used in the custard are cage-free eggs. Of course, that means certain things about our site selection, our design, our relationship with the communities in which we work, the kind of people we hire, the training that we have for our staff.

So what if you took that and you said one of the parents is fine dining and the other parent is this other thing that this country has had for a long time, called fast food? And you say, OK, it won't be quite as fast and it won't be quite as inexpensive, but it's going to be really, really good. And then what if you could get the public to say, I kind of like that equation. I like almost as fast, almost as inexpensive, but also really, really good at the same time? It's a pretty cool mash-up and it's working out really well.

ANDY SERWER: Yeah, it seems like it's a place on the value chain, then, right? You're on that curve. And that makes a lot of sense to me. You talked about those 220 stores at this point. How much potential, how much upside is there for this company? And I should mention, you're chairman of the board, I gather, not the CEO, right?

DANNY MEYER: Correct.

ANDY SERWER: So how much upside is there, Danny?

DANNY MEYER: Well, I think we've stated pretty consistently since the IPO that we intended to have 450 company-owned Shacks in the United States. And we're on track. We're on track right now. And I feel really good about that.

What I think we're really surprised by that maybe we didn't fully understand back then, is the kind of international appetite. And Shake Shack is a company that, unlike so many of the ones I grew up with, where they first saturated the United States before thinking internationally, I think we're recognizing that the world has become a great collection of cities.

And so we went to the Middle East when Shake-- we actually signed our first deal to have a license internationally when Shake Shack had just four restaurants in the United States. It's pretty unusual. And now Shake Shack is in 14 different countries across the world.

ANDY SERWER: I have so many other questions. Let's do kind of a lightning round for Shake Shack, and then move on to some other things. So, how are you using technology? Why no franchises? And you talked about a little bit of a slower growth environment right now for the company.

DANNY MEYER: I did?

ANDY SERWER: What about some of those issues?

DANNY MEYER: I don't remember.

ANDY SERWER: I think maybe not you personally, but I think that they said that 2019 would be a little bit of a slower--

DANNY MEYER: Actually, quite the opposite.

ANDY SERWER: OK. Well, the stock has been maybe taking a hit. And I thought it was because of guidance, but I could be mistaken.

DANNY MEYER: Yeah, Shake Shack is actually accelerating its growth, even over 2018, which was a big year for growth. Technology has been incredibly important for Shake Shack, I think. The app, which has made it very, very possible for people who don't either have time or interest in waiting in line to order ahead, pay ahead, and just come to the Shack, and your meal is ready. That's led to quite a bit of delivery opportunities for Shake Shack as well.

And increasingly in Shake Shacks, you'll also see an ordering kiosk, which gives you the opportunity to have flawless ordering experience plus extra hospitality. Because what that means is that the very people who are there to welcome you and hopefully recognize the fact that you've been a regular for some period of time, are thinking 100% about hospitality and don't have to think quite as much about the transaction of dollars for goods. So that's been an interesting thing.

And I also think that increasingly Shake Shack looks at how technology can advance its culture with its people. Understanding how it feels to work there. The thing that I think Shake Shack truly, truly excels at, in addition to really good food, is a culture of what we call enlightened hospitality. And what that means is that we actually put our employees first. We put our customers second, communities and where we work, third. And fourth, our suppliers, and fifth, our investors.

And for all of your watchers, your viewers out there, that doesn't mean that we put our investors at the bottom of the totem pole. It's truly a virtuous cycle. And what that means is that ultimately, if you put your employees first, the only way to really have happy employees is to have really happy investors. Because that means we get to grow. That means you, if you're an employee, get to have the opportunity for promotions and raises.

ANDY SERWER: But no franchises. They don't fit into that equation.

DANNY MEYER: We are-- internationally, all of our relationships are licensed relationships. Because we know and what we don't know internationally. Purchasing is different. Labor is different. Real estate, public relations, supply chain is different.

Domestically, they're all company owned. And the reason for that is that we think that culture is really the defining factor of why Shake Shack feels different. And we just haven't wanted to give the keys to our culture to anybody else.

ANDY SERWER: Yeah, it makes sense. And you have a store with kiosks right next door here, which I've used and it works just great. Broadening out a little bit, food is one of the great demographic shifts-- or the appreciation of good food in America is a giant trend in the United States. Why is that? Over our lifetime it's changed so much. Why?

DANNY MEYER: It's really a good observation and it's never going to go back. It's like, try to put the cork back into a champagne bottle. It's just not going to happen at that point. I think food for so many people was a necessary biological need, right? Like, when I grew up, there were a whole lot more people who ate to live. And today there's a whole lot more people who live to eat.

There's a whole new category of people we call gastronauts, who actually travel for the discovery of food. And they travel for the opportunity to collect tiny experiences. And one of the really interesting things that we've seen, as more and more people are interested in food, interested in taking pictures of food, sharing that experience with people, I mean, that's a new thing. We take it for granted.

But when I first got into business with the Union Square Cafe in the 1980s, if you saw a camera in your restaurant, it was generally a tourist from Asia. Today, if you don't see a camera at the table, you kind of feel like, you must have done something wrong. The food must not be-- must not be that good-looking.

But I think the most fascinating outcome of that trend that isn't ever going to go backwards, is the death of captive audience dining. And captive audience dining would be places like museums, theaters, hotels, baseball stadiums, airports--

ANDY SERWER: Freeways.

DANNY MEYER: --airplanes. Right. Where food was a necessary amenity to fuel people. But what people did was they took an approach, which is, we know you need this, so we're going to give you the lowest possible quality--

ANDY SERWER: I hate that.

DANNY MEYER: --for the highest possible price. And that led to things like, you know, $8 warm beers at ballparks and soggy popcorn in movie theaters. And I think what people are now saying is, hold on. You're charging me a lot of money to go to the ballgame, to get into the museum, or to stay at the hotel. And rather than looking at food as something that you did just because you had to, you better make food that is just as good as the meal I had last night at my favorite restaurant. And you better give me another reason to come do this other thing.

And we're having a great time playing in those arenas-- no pun intended. But we're having a great time where the bar historically was low-- jazz clubs, airports, airplanes, museums, ballparks, arenas. We haven't yet gotten to the ultimate captive audience, which is prisons, but I wouldn't be shocked if someday that happens.

ANDY SERWER: Well, I want to talk about that a little bit more and maybe put it to you this way, then. So many opportunities, so many different types of foods, so many different types of venues, so many cities, the world-- how do you prioritize and choose what you're going to do?

DANNY MEYER: Well, the very first headline-- with all the many different ways we deal our cards, there's really only one headline, and that's hospitality. And we really look for opportunities where the person on the receiving end or the institution on the receiving end says, we want the experience of dining here to actually advance how it feels to do business here. If we find that in a hotel or we find that from a cultural institution or we find that from just a basic building development, and we have an adequate number of staff members who are ready to grow at that moment, and we've got the right idea for it, we just have a whole lot of fun doing that.

Quick story. My first restaurant, Union Square Cafe, was this idea. I was 27 years old and I had this idea that I had to give birth to. What I had to do with that idea was to find the right location and the right chef.

My second restaurant, which didn't come till 10 years later, was Gramercy Tavern. I had this chef I really wanted to work with, a guy named Tom Colicchio. This was 25 years ago. Having the right chef, now I needed the right idea and the right location.

ANDY SERWER: You really think about things strategically, then.

DANNY MEYER: You really do. And then the third way, and this is increasingly happening, is we keep finding these amazing locations. It could be a park, like Madison Square Park. It could be an art museum, like the Museum of Modern Art. It could be center field at Citi Field. And we find the place and then the place tells us what the ideas should be and who the chefs should be.

So it used to start with idea, then place, then chef. Then it was chef followed by idea and place. And now it tends to be, you give me the frame and I'll tell you what piece of art belongs in that frame.

ANDY SERWER: Right.

DANNY MEYER: And that's what led to Shake Shack, for example.

ANDY SERWER: Right. In the park. It's interesting to me, one thing you've left out, to my mind, is the food itself. In other words, oh, I'm going to open up an Asian fusion concept restaurant. You don't do that? I mean, there's so many trends in food and some of them seem to go off the rails. And you know, raisin pecan bourbon-- you know, it just goes on and on and on. What's your thinking there?

DANNY MEYER: Well, the thinking is the food obviously matters a lot. I am a food lover. I love what's on the plate. I love what's in the glass. And I-- but I do think that we're in a time when the expectations should be that the food is going to be great.

There's a lot of really good food to be had right now. I remember when there were wastelands all across America. It's hard to find a city-- other than the one you were sharing earlier-- where it's hard to get a good meal. And we think deeply about that. You know, we have our chefs and sommeliers have 28 James Beard awards. So we think deeply about food.

But at a time when there's so much good food, we also look for what are those things that are going to make you come back time and time and time again. And I don't believe that contrived food or trying to catch this year's trend is the thing that's going to do that. I think ultimately when you have a contrived experience, how many times have you said, why didn't I just go to my favorite trattoria and get a great bowl of pasta where they know me and they're happy to see me?

And so we try to put it together and say, how can we do food that's interesting enough to make you want to come back, but good enough so you will come back?

ANDY SERWER: Right. And then there's--

DANNY MEYER: Pair that with a welcome that makes you feel like you belong. And that's ultimately, I think, what people want.

ANDY SERWER: I want to focus on that point you just made, Danny, because one thing that I've always liked about Union Square so much, and of course it's not a secret, is the fact that you feel welcome, even though this is one of the finest restaurants in New York City. Because so many other places make you feel bad that you're there, which is amazing.

DANNY MEYER: Why would they do that?

ANDY SERWER: Why would they-- well, because they're better than you are, et cetera, et cetera. So what is the secret to the service for the Union Square Hospitality Group?

DANNY MEYER: Well, I think the secret to the service at any of our restaurants is always understanding what the word "service" means and what it doesn't mean. Service means did we deliver on the technical promise? Did we do all the things you would have expected? And to separate that out, you'd better do those things really well because they're not coming back if it's broken.

But the thing that's going to convince someone that they don't have a choice but to come back, is the hospitality. Which is, in addition to all the things we did really well, including how well did the food taste and was the air conditioner working-- all that stuff, in addition to all the things we're supposed to do well, how did we make you feel? What were the acts of thoughtfulness? What were the things we did to customize that service experience for you so you go, why would I go anywhere else?

And what that means is that we're taking every transaction from the base transaction of, you give me money and I give you food, to a hospitality transaction, which means, you're basically paying me how I made you feel. Of course the food has to be great. And so when you don't hear me talking about the latest trend in rotisserie chicken, or whatever, or Roman pizza, don't think it's because I don't care deeply about that. But I also realize that you kind of, at this point-- our brand promise is that you expect the food to be great, but mostly you expect to feel better emotionally when you leave that experience.

ANDY SERWER: And that "feel better" comes from-- or the touchpoint is your employees, right? And you have more and more employees now. I don't know how many people work in your company in total, but it must be-- is it harder and harder to find good people just because you're hiring more of them and because the labor market's so competitive right now?

DANNY MEYER: It's always been a challenge to hire somebody who has the requisite technical skills and the requisite emotional skills. I don't think it's harder today than ever. I just think that we have to be pickier than ever. Because if ever we get to the point where we are growing so much or so fast that we stop being picky, then we're just like everybody else.

And it's not because there are not great employees out there. As a matter of fact, one of the things we're incredibly heartened by is that the number of people and the breadth and diversity from which people are now coming to the hospitality industry is broadening and broadening and broadening. And I just think it's always been an industry that has had a reasonably low bar of entry.

You don't have to show me your resume for having made milkshakes for 20 years to get a job at Shake Shack. You don't have to show me your resume for having answered the telephones or welcoming people to the front door for 20 years to get a job as a host at Maialino or Gramercy Tavern. What you do have to have is a heart for hospitality, a work ethic, and a desire to grow.

And then it's our job as an industry-- and this is what we're focused on in our company more than anything-- is to provide a professional pathway so that our industry is not just looked at as, that's what I'm doing while I'm really pursuing something else. But rather a place that you can actually make a living, make a good living, and support, hopefully, your own professional and personal growth.

ANDY SERWER: Speaking of wages, you got rid of tips, famously. High-profile move. Some people said, oh, waiters are making less money and they're leaving. It's been a few years now. How is this grand experiment going?

DANNY MEYER: Well, it's going well, but it hasn't been easy And it's challenging because we've challenged a cultural norm in this country that dates back to, I believe, the late 1800s, when our industry famously chose not to pay front-of-the-house workers any compensation at all. Because instead, we would get the guests to pay them a tip.

ANDY SERWER: Right.

DANNY MEYER: That stuck. And to this day, and in most states, more states than not, there is an adjusted minimum wage of $2.13, which nobody can live on. And the way a tipped employee makes a living is via your tips. We decided that that was not working any longer. At least, not for us.

The reason was that over the course of my career, the disparity between what a tipped employee can make and what someone who is not eligible for tips, i.e. a cook, can make, that disparity has grown by 300%.

ANDY SERWER: Why?

DANNY MEYER: Because the tipped employee is basically getting a multiple of your menu price. Menu prices have only gone up. But guess who has not been getting those same types of raises? Non-tipped employees. And it has felt increasingly bad to say, we care about promoting a professional environment, and we're failing in two ways.

The tipped employee is making a fair amount of money, but they can't advance their career. Because if they wanted to become a manager, which would be a natural progression professionally, they would actually have to take a 25% pay cut. The cook can't afford to live in Manhattan anymore unless they're living on top of five people in a very, very small apartment. That didn't work either.

So we decided, instead of blaming the tipping system, why don't we just challenge it in the first place? We have three key stakeholders to think about-- our staff members, our guests, and our investors. The challenge was, how do you get the math to work out? How can we do all the things we want to do for our staff members, i.e. a generous parental leave policy, generous retirement plan, a health plan, narrowing the gap between tipped and non-tipped-- formerly tipped and non-tipped employees-- how do we do all that and not give you as a guest sticker shock because you're not going to be tipping anymore?

So the menu price covers everything. And how do we do all of that, not lose our best servers, and keep our investors happy at the same time? So it's been a challenge. But I'll tell you that we will now have four years under our belt at The Modern, which is where we started it. We've just converted our final couple restaurants, Blue Smoke, and our bar, Porchlight. And so far, I've got to say, we feel very, very positively about it and wouldn't go back.

ANDY SERWER: Do you support a $15 minimum wage?

DANNY MEYER: I think it's probably a good idea. And I think that one of the great things about eliminating tipping is we've been paying way above $15 an hour anyway. So each time minimum wage goes up, we're kind of immune to it. And every time minimum wage does go up, if you still accept tips in your restaurants, you will continue to raise your menu prices. And you, the guest, will continue to pay a higher tip on top of that. So I think it's probably the right thing to do.

And we're up for any law that affects all of us equally. What I don't really like is why some employees make $15 and others make $2.13, depending on you, the guest, to pay them a tip. I think it's my job to be your employer.

ANDY SERWER: Yeah. A lot of thinking going into that. Shifting gears a little bit, can you have branches of fine restaurants? I'm thinking about the folks that open up a Las Vegas edition of their great restaurant in LA or San Francisco or New York. What's your take on that?

DANNY MEYER: Well, I think you can and I think a lot of people do it incredibly successfully. Heretofore we've not expanded one of our fine dining restaurants. We do have a fantastic licensed partner in Tokyo, now going on 12 years, with a restaurant called Union Square Tokyo. And that's been a great cultural experience. We've learned a lot about systems from them and they've learned a lot about hospitality from us. But people have done it incredibly successful. We just haven't had the experience yet.

ANDY SERWER: What about putting the USHG logo on different restaurants? Does that work, or does that detract? In other words, all of these are part of one group. Or is it better to have them completely standalone?

DANNY MEYER: Well, the USHG logo is really more of an internal thing--

ANDY SERWER: Right. That's what I'm asking.

DANNY MEYER: --than it is an external thing. In the same way as if you took a look at Estée Lauder or Condé Nast, where they have-- each one of those great companies has many brands underneath it. Not every magazine is called Condé Nast this or that. And not every makeup item is called Estée Lauder. It could be Joe Malone. It could be Mac.

I think we're really comfortable with where we are, which is when you go to The Modern, we want you to feel like you went to The Modern. I'm proud of the fact that it is a Union Square Hospitality Group family member, but you won't go to The Modern and see a big stack of eight business cards for all of our brands there.

ANDY SERWER: I agree with you. How can you manage so many different parts of this company as you get bigger?

DANNY MEYER: Again, I think it gets back to looking at the one thing we do, which is hospitality. So when I get in front of our new hires every two weeks, which I do, I'm not talking about their specific restaurant. I'm talking about our culture of hospitality and I'm talking about the things that we all have in common-- the family values of what's expected.

Because I think when you as a guest, even though we don't have the business cards of Jazz Standard when you go to Gramercy Tavern, or Gramercy Tavern when you go to Manhatta, or Manhatta when you go to Marta-- a lot of restaurants with M in it-- even though we don't share those business cards, I believe that a lot of our regular guests know. And they should. I want them to feel, even when they go to Shake Shack, I would want you to feel there's something that feels like it's got their thumbprint on it.

And so when you talk to me about how do I manage, I'm not the GM or the chef at any one of our businesses. I'm not the sommelier. Doesn't mean I don't care deeply about food, wine, and operations. I think what I basically am responsible for doing is saying, here's the kind of businesses we should say yes to. Here's the kind we should say "no thank you" to.

But when we say yes, my job is to make sure that they live up to the promise of excellence in hospitality. Because I think that's what you expect. And maybe even more importantly, I think that's what a prospective employee would expect when they come to work for us.

ANDY SERWER: You close restaurants sometimes.

DANNY MEYER: Yep.

ANDY SERWER: North End Grill. I liked that place. I think Green River in Chicago is another one you were involved in. Why do those restaurants need to be closed?

DANNY MEYER: Well, we've closed four in 34 years, almost 34 years. And one was Tabla, an Indian restaurant, North End Grill, Green River, and Martina just closed last week, a fast casual pizza place. And I think we close restaurants because-- starts by having taken a risk in the first place.

Sometimes the restaurants we've closed have been long-standing restaurants that maybe we've got an underlying premise wrong. Tabla was an example. People loved it. There just weren't enough of them relative to the overhead. We had 283 seats, so Tabla was our largest restaurant in New York with the greatest overhead but unfortunately with the most limited appeal as Indian food. I'm proud that we did the restaurant.

North End Grill, another one. I think we have famously made some good bets on some up-and-coming neighborhoods, like Union Square, where we were paying $8 a square foot when we signed that first lease. The Gramercy Tavern, where we were paying $20 a square foot when we first signed that lease. But sometimes we don't get it right.

And I think the bet that we made on a little street in Battery Park City that no one had ever heard of, called North End Avenue, believing that that whole Battery Park neighborhood with Brookfield Place and Time Warner and the World Trade Center coming back, I think we didn't hit that bet right in terms of the location. But I think North End Grill was a terrific restaurant.

ANDY SERWER: I do too. Two quick last questions. One, Frank Bruni did a recent article-- you were quoted in it-- about older people in restaurants. Do you segment restaurants by age? Is that important?

DANNY MEYER: No. I think you want a restaurant that can appeal to a broad range of people. But as you do that, I do think it's equally important to not exclude people from enjoying it. So if the only way I can make my 25-year-old daughter happy in a restaurant-- and by the way, she's not like this. But if the only way I could make her happy was to have the place so blisteringly loud that she never had to talk to her friends, I know I would be actually eliminating people who are probably over the age of 40.

So I think what we try to do is to have a place that is broadly appealing, starting with the food, starting with the way you feel when you're in the place. And I do believe that there are enough ways you can eat good food today without stepping into a restaurant, that what that has really meant is that restaurants remain the best place I know for people to be with people.

And as much as we all think that we're being with each other when we text each other, when we send an Instagram and comment and "like" and tweet and all the stuff, I really think that human beings need more high touch the more high tech we get. And I think restaurants remain the best place to do that. So I've got to create a place where you can actually see the people you're with and hear them while you're eating our food.

ANDY SERWER: Final question. How do you want to use your influence on the world, Danny?

DANNY MEYER: I think I've always wanted to use any influence we have, not to tell anyone else what to do, but to try to set an example that when you do things in a certain way, it's actually good for business. I think the first time we learned that was all the way back in 1990 when we eliminated smoking at Union Square Cafe 12 years before it became a law in New York. And we didn't do it to tell anyone else what to do. We just wanted to say, if you do the thing that everybody else said, you shouldn't do that because even though it's a good idea, it might put you out of business, I don't really care.

I'd like to try to prove to ourselves that if we believe something's right, go ahead and try it. And if it works, others will follow at that point. And I think that's where-- I actually think that's where influence stems from, not by trying to convince other people with your words to do something else.

ANDY SERWER: Interesting stuff. Danny Meyer, thanks so much for coming by.

DANNY MEYER: Thanks, Andy. This has been great.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.