Serving Up Profits: Danny Meyer's Journey Restaurant #1 to Global Hospitality Empire

Great to be with you and thanks Anita. Thank you all for tuning in. That story is getting older by the day. I was a political science major in college and fascinated by politics. Back in those days, if you're interested in politics, the only thing you ever thought about was, well, I guess I got to be a lawyer. And it turned out that I took the LSATs, never applied to one law school. I know I would have been horrible as a lawyer. And I was just really, really lucky that the night before taking my LSATs, I was out for dinner with my aunt and uncle. My uncle saw that I was in a pretty bad mood and he asked me what was wrong. I complained that I had to take the LSATs the next morning and said, 'Well, of course you want to be a lawyer.' And I said, 'I don't.' He got really mad and he said, 'You're going to be dead for a lot longer than you're going to be alive. Why wouldn't you do something that really connects with your passion?' And I said, 'Well, I don't know what else I could do.' And he said, 'All I've ever heard you talk about your whole life is restaurants and cooking and food.' And it still didn't dawn on me because it just didn't seem like a valid career choice. But thank goodness for that conversation. I was in the restaurant business probably a year and a half after that. I spent a bunch of time working in a restaurant in New York City and then I went to France and Italy to learn how to cook and I opened Union Square Cafe. I didn't know what the heck I was doing. But I just feel so lucky to be doing something that really aligns with my passion. And I hope that's what people on this call get to do as well. It's a privilege. We all work. We all have to work for one reason or another. But if you can be fortunate, as I was, to have a job that really aligns with your gifts and what matters to you, then it truly doesn't feel like you're working. It's almost like a game, a team sport.

Yeah, the answer to your question is it was really slow going. I never thought there was going to be a second restaurant. I opened Union Square Cafe, as you said, when I was 27 because it was like a mosquito bite that even though everyone said, 'Don't do it. Don't scratch it.' I didn't have a choice. I was like, it's driving me crazy. And I think that's the case with a lot of entrepreneurs. You don't see what could go wrong. You only see what could go right. And so I opened Union Square Cafe, but it was never with the intent of having more than one restaurant. I just wanted to get it out of my system. And if it worked, that would be nice. If it didn't work, I'd go do something else, but I would have done it and I would have scratched the itch. And so it literally took almost a decade to open a second restaurant, Gramercy Tavern. And as you just alluded, a big part of the reason for that was that my late father was a really interesting entrepreneur. In fact, he gave me a lot of the gifts I have for loving travel and food and wine and people. And he went bankrupt twice during his lifetime. And it was a really hard thing for his son and for all of us in the family to watch that happen. That's your hero and all of a sudden he's out of money. I didn't really understand business all that well. But what I did understand was that it seemed to me every time he went bankrupt, it was because he was expanding his business. And so I said to myself, I'm just never going to expand and then I'll never go bankrupt. And he died before I opened Gramercy Tavern, before I opened my second restaurant. And in a weird way, that was the license that I needed to say, 'Okay, two things. You're not your dad.' And number two, there's a whole lot of businesses in the history of the world that have expanded without going bankrupt. And I took a deeper dive to think about what I had learned from him. A big part of it was that it wasn't expansion per se, it was that he was not surrounding himself with people who complemented his skills as well as his weaknesses. And so that was a commitment that I made to myself: I would always try to hire people who could do all the stuff I did, or at least a big part of it, as well or better than I could. I wanted to surround myself with people I could learn from. And I think I've done that. I'm really proud of our team. I'm proud of the alumni who have worked at this company, who have gone on to do great things on their own outside of this company. So anyway, it never was my dream to have more than one restaurant, but then there were two: Gramercy Tavern and Union Square Cafe. We had what I used to call a sibling rivalry between the two. They were both kind of duking it out every single year with the Zagat survey to see who could be New York's favorite restaurant. And there were probably seven consecutive years where either Union Square Cafe or Gramercy Tavern was one or two as New York's favorite restaurants. Part of that sibling rivalry was fun, but some of it wasn't. And then I didn't wait that long for number three and four. It was 11 Madison Park and Tabla, and then all of a sudden Blue Smoke, The Modern, Shake Shack, Maialino, and they just kind of started coming a little bit more quickly.

I'm a frustrated musician and a frustrated novelist. If I could write books that quickly, I would. If I could write songs that quickly, I would. I just looked at restaurants almost as my creative outlet. Here's a chance to open a place that if only it existed would be one of my favorite restaurants anywhere. And a lot of innovation, I think, for any of us comes from your own life experiences. I promise you, Anita, there's nothing at any of our restaurants that we made up from scratch. Nothing. Not the design, not the menu, not the waiters' uniforms. It's kind of like writing a song. There's eight notes in the octave plus five majors and minors. And out of that, there's an unlimited number of songs that can be written. And it's the same thing in our business. I'm remembering experiences that I've had through my whole life and I put them in my memory bank and my heart and my brain and my file cabinet. I think innovation is being able to connect those dots at a time that makes them all feel fresh and then combine them in a way that makes them all feel fresh. And I never wanted to do the same thing over. As a matter of fact, it took five years to open a second Shake Shack because I was afraid that I would be bored doing the same thing more than once. And somebody fortunately helped explain to me that there can be great creativity in replication. There is so much creativity in Shake Shack even though it's the same thing, it's never the same thing. There's different things you learn about real estate, different things you learn about the menu, purchasing. And then of course, Shake Shack after five years started growing. Now there's about 540 in about 20 different countries in the world. So it's been a fun ride.

Not exactly. First of all, Shake Shack is not a franchise. We own all the Shake Shacks domestically. Internationally, we always have a license partner, which is close to being a franchise, but it's a different legal organization being a licensed partner. We always have a license partner internationally because we know what we don't know internationally. We don't know the same things a local company would know about real estate, licensing, permitting, purchasing, supply chain, talent acquisition, public relations, local preferences for food, etc. So it's been a really good thing to have a local partner in each case. With respect to your first question, I will say that Shake Shack has been so much fun that we've tried on several occasions to come up with an idea that could potentially scale. But the best ones happen when you're not trying. So Daily Provisions and Shake Shack were both kind of accidents. Shake Shack was never I didn't wake up one morning saying let's have a great place for burgers and shakes and fries. It was I wanted to take care of Madison Square Park and wanted to do something nice for the park. I actually gifted this building to the park so the park would become our landlord and a percentage of our sales would go back into the park with every purchase. And it worked. The park probably gets close to a million dollars a year in rent, which goes right back into keeping it beautiful and safe. And we got a nice business out of the deal, but that was it. And then with respect to Daily Provisions, where we just opened our sixth here in New York City, same thing. That was a mistake, my favorite kind of mistake. We desperately wanted to find a new location for Union Square Cafe, which had lost its lease after 30 years. And the site that we found happened to be adjacent to another space, which was an old barbecue restaurant. And the landlord said, 'If you want either of them, you have to take both of them.' And so we said, 'Okay, it's actually good because we need more kitchen space for Union Square Cafe, but now we're left with this little box.' We had to do something with it. And so I said, 'Well, let's give a gift to the neighborhood. I live near here. I work in this neighborhood. I want a better cup of coffee and I want a really good roast chicken that I can bring home at night. And I want a good bacon, egg, and cheese sandwich and a good salad for lunch.' Boom. That became Daily Provisions.

So we'll do both, Anita. Every couple years we'll open a full-service restaurant. The most recent one is Ci Siamo here in the city. And we'll do those occasionally, but they're hard. They take all kinds of time to dream it up, design it, raise the money, build it, hire for it, and then build your audience.

You're asking probably the single most important question, which is how do you scale culture? I'm fascinated by that. That's probably the thing that gets me most excited about going to work every day. It's one of the hardest things we can do, which is to scale a feeling. How does it feel to work there? How does it feel to do business with that place? How does it feel to be a customer of that place? How does it feel when you get in one of those places, you wake up one morning and you go, 'Oh my gosh, we're about to get a restaurant right next to our apartment.' I want those all to be really good feelings. And it really starts with intention. It took me a long time to even understand what the word culture means. Everybody uses it, but what is culture? I've thought about this word a lot and it means so many different things. First of all, at its most basic, it's the way we do things around here is our culture. Now, you don't have to work to have a culture. My next door neighbors growing up in St. Louis had a culture. I don't think they worked at it. The dad would screech in the driveway every afternoon after work at 5:00, 5:02, make himself a drink, and then have an argument, and then the dog would eat someone's homework, and then blah blah blah. That was a culture. That's how they did things around here. Nice people, but you do have to work to have an intentional culture. And I think you really have to work to have an intentional and uplifting culture, which is really what we try to do. Let's go further into the word culture. Here's a great definition I got from touring UCLA. It turns out they have an athletic hall of fame there. And they have more championships than any university I've ever seen. Every single sport, men's sports, women's sports. And someone in the crowd when I was getting this tour asked the athletic director, 'What do you attribute all this success to?' And of course, his answer was, 'It's our culture.' Whereupon the question was, 'What do you mean when you say culture?' And he says, 'It's a really hard word to define, but it's a whole lot like a newborn baby. You better keep your eyes on it 24/7. You better feed it five times a day and the minute it makes a mess, you better clean it up immediately.' That's what he had to say about culture. I'll take it a step further. I've learned very profoundly, early in my career, I was really good at catching people doing things right. And I thought that's all it takes, just constantly catch people doing things right. And what I learned is that if you don't also hold people accountable for when they're not doing the right thing, then your culture is going to be undermined. So I finally figured out that culture in our case is the sum of all of the wanted behaviors that we celebrate minus all of the unwanted behaviors that we tolerate. And that will be our culture. And so it's incumbent upon me with our culture to be really clear about what behaviors we expect of you and to make sure everyone in the organization knows that.

I would hope so. I'll tell you right now that no matter how many times we say it, it's not enough because any business has turnover and every time you think you've said it to everybody, you either haven't said it well enough or you haven't said it to everybody. So we make it clear in a lot of ways. We do not have any group meeting that starts without putting them up on the wall. Here's the five expected behaviors. By the way, I will share that up until a couple years ago, we had four family values and we replaced four family values with five expected behaviors. And you may say, what's the difference? The difference is that we were unwittingly sending out a message that it's a family. It's not a family. It's a business. Would I like it to feel like the good parts, not the dysfunctional parts of family? I'd like it to feel positive when you work in one of our restaurants or in our home office that you feel a sense of camaraderie that is family-like. But it was sending an unfair and dishonest message to say family values because sometimes you have to fire people and you don't fire a family member. So we changed that. We also changed the word values to behaviors because it's really hard to hold someone else accountable for my values, but I can hold someone accountable for expected behaviors. So it's made a big sea change of a difference. And I really believe that for any organization. Language is the mortar between the bricks of culture and it's the way that you scale culture. It's having a common language. It doesn't mean that the culture is to be confused with a cult. We want to hire people who come from very different walks of life, who have a different mindset, but I do want to hire people who have a similar heart set. I do want to hire people who care that their actions are going to make people feel better. And I hope you would feel that when you came to this very diverse group of restaurants that you went to over the weekend, that the people working there, I would really hope, are the kind of people whose emotional skills are such that they are happier themselves when they make you feel better. That's the key thing we've learned: being very intentional about the emotional skill set that you're looking for when you hire is hugely important.

Did you say emotionally perfect? Starting with me, no one's emotionally perfect.

The emotional skills that make up someone who's got what we call having a high HQ, high hospitality quotient. It's very basic and I think we've spent a lot of time internally thinking about how do we ask the right questions. So I'll give you an example. With an emotional skill as opposed to a technical skill, a technical skill might be how do I make the pasta? And the chef can actually work on you to make it better tomorrow. 'Cook, stop cooking it. Use this amount of salt in the boiling water. Stop cooking when the pasta is al dente or just before al dente.' They can teach you the whole thing. It's a technical skill. Some people pick it up overnight. Some people may take a little longer, but you can teach it. An emotional skill, I believe, is something that comes baked into people by the time we meet them. Maybe they got it through nature. Maybe they got it through nurture. But these are skills that are real, but it's really hard for us to teach. What we can do is to be very explicit about which emotional skills we're looking for at a high level. And when we see them, we can celebrate them. We can shine the light on them. And be very clear with people. That's why you got hired. So that absent those skills down the road, because we make mistakes. So I'll tell you what the six emotional skills we look for all the time at a very high level are: kindness, optimism, curiosity, work ethic, empathy, self-awareness, and integrity. So for example, you could be the world's best grill cook and if you're not kind or you're not curious or you don't have a good work ethic or you're not empathetic, it doesn't matter to you how other people feel, or you don't have integrity, or you're not self-aware, you shouldn't get the job here. And I will tell you that when we get those things right and we have a whole team who is not only really good at what they do, which we call 49% of the game, but they're really good at who they are, which is 51% of the game, we have what we call a 100% employee. And we also have a really good framework for when things are not going well to talk about those things. It's not a surprise. We have questions during the interview process that really help us to determine where somebody is. I would never say to somebody, 'Are you self-aware?' 'Oh, yes, of course I am.' But I might ask somebody a question like, 'What's the greatest misperception other people have about you?' And that answer that they give me is going to be very revealing about their own self-awareness. You cannot answer that question if you don't have a sense of who you really are and if you don't have a sense of what you're putting out there. And I think a lot of us are misunderstood about one thing or another. It doesn't make me bad. There's a lot of things people misperceive about me. But I want to know that someone's aware, and so that's the kind of question I'll ask. I wouldn't say, 'Are you empathetic?' 'Oh, yes, of course I'm empathetic.' But I might say, 'Talk about a time you used your natural empathy in your last job.' And if someone looks at you like you're from Mars, that's telling you something. But on the other hand, you get some great stories from people about things they did for a co-worker, things they did for a customer. And so we're really intentional about it. If I can just go off on a little tangent, I love wine. I love teaching about wine. Love drinking it, selling it, sharing it. But I also think...

That wine makers are a lot like we are as organization leaders. Think about it for a minute. The best wineries or chateaus or whatever you want to call them, vineyards in the world, are very, very reliant on a lot of different things, including things they cannot control. They cannot control how much rain they get, or did they get hail early in the season, or when was it warm, when did it get cold, etc. We cannot control a lot of things either. We can't control the economy. We can't control the weather. We can't control if there's some big convention in town that canceled. There's all kinds of things that are out of our control. That's our version of the vintage. But here's what a wine maker knows to do. Number one is they have to take great care of their soil. That's their culture, because they can get the best grapes in the world, but if the soil in which they're planting those grapes is not healthy, it doesn't matter. Right? So they're responsible for taking care of their soil. We're responsible for taking care of our culture, feeding it. Two, they're responsible for picking the best grapes in the world for that soil. So if I'm in Burgundy, I want to pick the best Chardonnay grapes. But they don't grow Sauvignon Blanc in Burgundy. They don't grow Albarino in Burgundy. They grow Chardonnay there. So they've got to get the best Chardonnay for that vineyard. Next thing they have to do is now they got good soil, they got good grapes. Those are our people. We got to pick the best people, the right people for this soil, the right people for this culture. Then you got to train the vines. That's what a wine maker does. If they don't train the vines, you don't get the maximum amount of sun to hit those vines. We have to train our people. They can't just let them grow unruly all over the place. And then you got to prune the vines. If you leave every grape cluster on there, you're not going to get the best sun, you're not going to get the most sun to the best. So we have to sometimes lose people from our team. And on and on it goes. And then finally, you get to the point where you got to make the wine and be really, really selective about how you make it. So what this all comes down to is what I hope for our organization, which is there's no wine maker in the world who makes their best wine every single vintage because there's some things out of their control. But they should make the best wine of that vintage by making sure their soil is healthy, the grapes are healthy, the selection inputs are there essentially, all the above. And that's really what we try to do. And for that reason, I'd like to feel like if you come to any of our restaurants, you can say they have their thumbprint on that place. I can feel that it's a Union Square Hospitality Group restaurant.

There's one. I mean, there's a lot, but if this one is healthy, we can always figure it out. And that is we call it cover count, which is the number of guests that actually ate in the restaurant. And so it depends on the business. At Shake Shack, we call it transaction count because if you go to Shake Shack, I don't know if you were ordering for three people or four people. If you come to one of our full service restaurants, I know you're a table of three. So with our full service restaurants, I'm looking at cover counts. With Shake Shack, I'm looking at transaction counts. That is the entire story. If that is healthy and it's growing day over day, week over week, month over month, year over year, you've got a healthy, robust business. If that's declining, that is the most important thing to look at. Why? Because we're all running for office every single day. And if fewer people are voting for our product at the price we're charging in any corresponding period of time, that is a sure sign for me of a lack of health. And I've seen the story too many times where you raise your prices because of inflation or whatever it happens to be, your cover counts decline, and then you try to raise your prices to get yourself out of it. It is the worst form of a vicious cycle. Whereas if you see that more people in each successive period want to buy your product, you can figure out the business stuff almost always after that. But declining interest in paying what you're charging for your product, that's it. It begins and ends there as far as I'm concerned.

Well, it definitely connects to revenue for sure.

That connects as well, but it all starts with the health of the demand.