I'm afraid if I stay here. I know.
Welcome everyone. I think you all know me. I'm the Dean and the George Schulz professor here. This is our first distinguished Speaker Series event for the spring quarter. Great to do it in person. The DSS is a longstanding Booth tradition. We bring in leaders from business, from the community, from the government to talk about their life, their careers, the insights and experience that they've had. We've had some great alums come back and do it. Tom Ricketts came back, Mark Hoplamazian from Hyatt, Howard Marks most recently. So it's wonderful to have the two of you. I'm just going to do a brief bio and then launch right in. We're thrilled to have Mark Levitt, our alum, here along with Danny Meyer. Mark is co-founder and managing partner of Enlightened Hospitality Investments, and we're going to ask him what that is exactly in a bit. He's actively involved in all the portfolio companies, many of which you would know: Salt & Straw, Goldbelly, Oats Overnight. Is this true, Slutty Vegan? Yes, we need to ask you about that. He's been included in Restaurant News's top 50 technology power list for technology innovation in the industry. Mark is also a longtime member of the Booth Advisory Council, for which we're really grateful. Danny Meyer, whom I know as well, co-founder and managing partner of Enlightened Hospitality. I'm going to ask him about his family life in a bit. In 1985, at the age of 27, he opened his first restaurant, Union Square Cafe, and that launched a lifelong idea in hospitality. 30 years later, USHG includes Gramercy Tavern, the Modern, a fantastic restaurant at the Museum of Modern Art, just to name a few. They also founded Shake Shack together. Danny has been recognized with the Julia Child Award, the Time 100 most influential people list, the Aspen Institute for art and civic leadership, and his restaurants have won an unprecedented 28 James Beard Awards. All of you are eating lunch today with cookies from Chip City, which is one of their portfolio companies. We did not make your lunch, but we don't get any of the credit. Special thanks to Danny and Mark for signing copies of the book, 'Setting the Table: The Transforming Power of Hospitality in Business.' So please first give a warm welcome to Mark.
He's an alum, but he also has other family members who are alum. So maybe I'll ask them just to briefly state their connection to Chicago. Sure. So my daughter was an undergrad here, graduated in '16. She went to the dark side after being at Lazard and Bestar, and went to HBS instead of coming back here. But despite that, we hired her, and she works with us now. My son was a '22 grad from Booth, and loved it. He graduated the same year from business school, and I always say I think he got a way better education.
Andy, you have a connection to the university people might not know about. So yeah, my mom was originally from Chicago, and her father, my grandfather, was a very, very proud member of this community. In fact, I believe there's a school named for him called the Harris School of Public Policy on campus. His name is Irving Harris. I'll tell you guys a story that I would not tell anywhere else. I had a very undistinguished high school career. I applied to only three colleges. On the day that I got my envelopes back, I was rejected at two of them and waitlisted at one of them. I was in nowhere. My grandfather caught wind of that, and he said, 'It's very simple. You're going to go to the University of Chicago.' My life would have turned out very differently. I said, 'I can't do that. I've got to do this on my own merit.' So I wrote one of the best letters of my life to Trinity College, where I was waitlisted, and got in. If I had not done that, I would not be sitting here because I never would have met Mark, who was my roommate. But sometimes the missteps are the best opportunities, and I think he was a good example of that.
Well, and Danny didn't have Irving's help to get him into University of Chicago. I didn't have those issues coming out of college and wanting to go to business school here. I had no problem having Irving right away. It's a problem. Like I said, all the stuff that happened had to have happened in order for us all to be here right now. Danny, maybe could you share the story of how you thought about founding USHG? Did you know you always wanted to be in hospitality?
No, I never knew that. As a matter of fact, after I graduated Trinity with a degree in political science, I didn't really know what I wanted to do. The big thing I knew was I wanted to spend some time in New York City. I'm from St. Louis originally, and during my time at Trinity I kept being drawn to the energy of New York. I just loved it. A typical weekend for me would be hearing some jazz, seeing a Broadway show, going to the Art Museum, going to the horse races at Belmont Park, and going to restaurants. A hundred percent of the things I just said are what I do right now. We serve food in ballparks, racetracks, museums, Delta Airlines, lots of restaurants. But I never knew it. What happened was that I got a job in New York as a salesman for a company that sold electronic... I would take any job I could just to live in New York. I was a good salesman, and I made enough money that I kept putting my commissions into that stock. But I'd never understood how it would feel to be working in a public company. It was created over the counter, which I think became NASDAQ after that. During the four years I was there, I was their top salesman, and the stock went from 2 to 12. When I knew that selling that stock wouldn't be for the rest of my life, I said, 'Now I better get serious.' I was at that point where you're trying to figure out what to do. I thought about wanting to be a journalist or a lawyer. My interest in those two things was connected because I was very interested in politics. I thought journalism was a really interesting opportunity. So I got a job here in Chicago at WTTW, working for the political correspondent there. To make a long story short, I toured journalism schools and law schools. The night before taking my LSAT, I was freaking out. I went out to dinner with my aunt and uncle in New York. My grandmother was in from Chicago. Everyone was having a great dinner, but I was in a really bad mood. My uncle, who's still alive, turned to me and said, 'What is wrong with you, anyway?' I said, 'Well, I have to take my LSAT tomorrow.' He said, 'Well, of course you do. You want to be a lawyer?' I said, 'No, I don't.' He got so mad at me. He asked me the single best question anyone's ever asked me: 'Do you have any idea how long you're going to be sick?' I actually hadn't thought about that. He said, 'I don't know either. But I'll tell you one thing: you're going to be dead a hell of a lot longer than you're going to be alive. Why would you do something with your life that you don't want to do?' I said, 'Because I have no idea what else I could do.' He said, 'You ought to be kidding me. All I've ever heard you talk about your entire life is restaurants and food.' It had never dawned on me that this was a valid career choice. Having had a liberal arts education, that's just not what people used to think about back then. I took my LSAT and never applied to one law school, probably because my score sucked. But I like to tell the story differently. I didn't want to be a lawyer. I consider the law school at University of Chicago. I know someone that should help you there. I was too proud to know that. So anyway, I'm just very, very lucky, and I hope all of you get lucky to be able to know what your passion is. Mine was staring me in the face right under my nose. I was in complete denial just because it was not the thing I should do didn't mean it wasn't the thing that I should do.
A little known fact about Danny is that Danny has the food version of perfect pitch in the music world. Danny can remember meals we ate in college 40, almost 50 years ago, and say, 'You ordered this. We had this wine. Yours needed more salt, mine needed more pepper.' You can recall everything you've ever eaten, who ate with you, and what was good. It's amazing. When you travel with Danny, we go to three places for lunch and four places for dinner. I can do that for a day because my metabolism works a lot slower than Danny's. But it's always an adventure, and it's been like that since we were 18 years old.
So did you know, when you were college roommates, that you would work professionally together?
No, that didn't actually happen until about 10 years ago. I was having dinner with Danny, and I said, 'At the end of the year, I'm going to go join a big private equity firm running their TMT group.' Danny said, 'I'm thinking about getting into private equity.' I looked at him like he had two heads. 'How does that work?' He was humoring me. So we started talking. I said, 'You've made all these investments, but you're not a finance guy. How do you know if something's overpriced or underpriced? How do you structure it?' He looked at me like I had two heads. He goes, 'What are you talking about? I find entrepreneurs I find compelling, and I give them more than they're asking for.' I thought, 'Oh my God.' So that's really how this started. I think we've got complementary skills through my years in investment banking and Danny's years in the food space. We used to compete as to who was a better chef. This started about 4 or 5 years ago again. I said, 'This really isn't fair. When we were in college, this was a reasonable fight. This is not a reasonable thing now.' We compete to see who can bring out the better bottle of wine to go with my better food. You usually win that. So that's good.
What does Enlightened Hospitality mean? How is USHG structured? Where does this fit within that?
I want to tell that story because I think that's a great question. We have what I call the most fighting supersystem. Union Square Hospitality Group exists to extend enlightened hospitality to create amazing dining experiences across the board. It can be a two-star Michelin restaurant like the Modern, one-star Michelin like Gramercy Tavern, or a Michelin-starred restaurant like Union Square Cafe or Ci Siamo. But we also created 11 Madison Park, which became a four-star restaurant. We created Tabla, a groundbreaking three-star New York Times Indian restaurant. Daily Provisions has just opened our ninth in New York City, so that's growing. I'll explain what enlightened hospitality means in a second. But I also want to get back to Enlightened Hospitality Investments. We have this incredible ecosystem. We are a rare private equity firm that is also connected to an operational company. So if someone wants us to use their tech product, we show it to Enlightened Hospitality Investments. If it's a really compelling product that we want to get behind and use, then chances are good we'll want to provide some strategic growth capital for them as well. That can also happen with restaurants. They come to us and say, 'We want to learn what you did with Shake Shack. How did you grow from only one Shake Shack for the first five years?' All the growth happened in the last 15 years. People are interested in that story. One investment we made this past year was a company called Studs, an ear piercing business. It has nothing to do with food, but it's a business that cares deeply about hospitality. All of our investments, whether in tech, food, food tech, or ear piercing, have in common that they believe the best way to drive the best outcomes for your investors is to realize that all businesses have the exact same five stakeholders. If you believe in the power of a virtuous cycle, one good thing keeps leading to something better. Our philosophy is that the thing you really want to be great should not be the input in a virtuous cycle. Our first stakeholder is our employees. We believe we will not have measurably better results than how jazzed people are to work on that team. Happy employees are directly correlated to happier customers. The third stakeholder is our guests, or customers. The fourth stakeholder is our suppliers, and the fifth stakeholder is our investors. Happy investors tend to re-up. If you break this virtuous cycle anywhere, you break the whole thing. But it truly works, and that is our thesis for how we invest in businesses at EHI.
I used to argue with this thesis of Danny's. In those days, it was always 'you take care of the shareholders first.' I said to Danny, 'I'm not sure you're right about this.' The reality is, the world has come completely around to Danny's theory that to drive the best returns for shareholders, you got to start with employees. If you have unhappy employees, it all falls apart.
Our first stakeholder is our employees. We believe we will not have measurably better results than how jazzed people are to work on that team. Happy employees are directly correlated to happier customers. The third stakeholder is our guests. The fourth stakeholder is our suppliers. The fifth stakeholder is our investors. Happy investors tend to re-up. If you break this virtuous cycle anywhere, you break the whole thing. But it truly works, and that is our thesis for how we invest in businesses at EHI.
What Mark and the really incredible team we have have done a fantastic job of is realizing that the thesis of EHI is that because we're not just a private equity firm, but we connect to this whole other ecosystem, we can usually get really favorable pricing. But maybe even more importantly, we get very early looks in many fields. If you were a baseball player, you got to look at a lot more pitches before you had to swing the bat. We can look at a lot of pitches and not strike out. We see about 80 companies for every one we invest in. Out of 28 investments, only one time has there been an intermediary in the middle. It's all very proprietary deal flow. We're paying 20 to 30% less than others because they want our strategic value. We used to debate where hospitality starts and stops. Part of my University of Chicago training came through when I realized that over time, we would make offers to companies. My strong belief is we need to deliver people. People give us capital at attractive prices because they believe our strategic value has value to them. We spend a lot of time outlining where we can help. We've got people on our LP base like Compass Group, the biggest food service company in the world. We've got a couple of the big Shake Shack licensing partners. We've got Pfizer, First Data, who processes 80% of the credit card receipts in the world. This kind of ecosystem community really helps drive what we do. The secret sauce is we're highly differentiated from any other private equity firm. Two-thirds of the companies we backed have female or other underrepresented groups as founders and CEOs. Our investment team looks like that in an industry that for too long has been a bunch of white males. Half our investment team is female, a third is Black. It's a really diverse group. We're firm believers that that's a winning strategy. We don't need people that have had our exact experiences agreeing with us. We've tried to build this with a really flat organizational structure to get the benefit of having a diverse group of people working for us. The challenge has really been to get them not to be afraid to speak. We found you can have a great group of diverse kids, and on a flat structure, we say we're never going to be a place where we say we got rid of someone because their deals weren't good. If the deals weren't good, that was on all of us. We all put our hands in and say we like this or we don't. You lose people's money, and you say we got rid of them. We did bad deals. You're the LP in the fund. You don't care. You lost the same amount of your money. I really feel like this flat structure has worked well for us, and we're continuing to refine it. I look at Fund One and Fund Two. Fund One has done very well, but I think Fund Two is going to be better. Someone asked me why, and I said, 'The reality is we were a first-time fund with no track record or experience, and we've learned. What we've learned is there are points where we can push and be a lot more aggressive than we have. As a minority investor, we now have rights in Fund Two to force sale of the company after a certain mark. That's a really important point. Part of our strategy is that, with only one exception, which was the very first investment we made in Joe Coffee, we are minority investors. We don't want to do turnarounds. But being a minority investor gives you some benefits, like favorable pricing going in. But there are also challenges. Unless we really get smart with some of the governance, we don't usually carry the day based on votes. So we have to be really good at persuading and coaching founders.
Maybe could we talk about the pandemic and how did that change the business? Did that make you go into new lines of business?
It's ironic you asked about the pandemic because the last time we did this was five years ago on March 15th. It was the day the world was coming to an end. I remember Danny singing 'Happy Birthday' washing his hands in the men's room at O'Hare. In those days they said you should wash your hands long enough to sing 'Happy Birthday.' So he was in there. You didn't get rid of all of it, as if that was going to stop the pandemic. The quick answer is the tech. About half our fund is tech, software dealing with pain points in hospitality. That stuff exploded in value. Companies like Goldbelly were up 500% during that period. So the tech stuff really went up in value. We probably lost two years on the fast casual spots in the food space and CPG. It was probably net neutral. More people were home cooking. We've got Bonso, Oats Overnight, Culture Pop. But we didn't have those in the pandemic. All we had was Bonso during that, and they actually grew during that period. In the restaurant business, it was awful. We came that close to going out of business because we were not allowed to be in business. It's really hard to reconcile being a business that says we put our people first when the only way to survive is putting 90% of your company out of work. It accelerated a few things. If you were sitting in some remote location, which I was because no one wanted to be in Manhattan, which was ground zero for this, it was depressing to even think about coming into the city. Boarded up windows, no restaurants. It was absolutely awful. We did one thing: Daily Provisions without question accelerated its ability to have an app for digital ordering. We were not really a takeaway business until the pandemic happened. So in an odd way, it was helpful to Daily Provisions to grow up quickly. Shake Shack, which is a separate public company, was very quick to adapt to that stuff as well. The one thing we did that we hoped was going to have a great outcome, and it didn't really, was we started a SPAC during the pandemic. Everybody was starting a SPAC. We succeeded at raising a lot of money. Our SPAC was public on the New York Stock Exchange. The best thing I can say is that it was like my version of doing what you guys are all doing: we got a lot of business case studies. We talked to a lot of CEOs, CFOs, and CMOs of companies that we said were doing something pretty cool. You have two years to complete a SPAC. We did a very unusual deal that we thought was going to happen with Panera Bread. Panera at that point was going out as three brands: Panera, Bruegger's Bagels, and Caribou Coffee. We actually had a deal. Panera had been a very successful public company. It was brought private by a big firm called JAB of Germany. In the interim years, Panera's performance was not very good. Raise your hand if you like Panera better today than you did 10 years ago. I didn't see one hand go up. So they've really underperformed. There was an opportunity for us, but also a challenge. The opportunity was that JAB said, 'We want your SPAC to come in. We're going to bring this public again, and your SPAC is going to provide the capital.' It was almost like a really big version of what we do. It was a way to get an anchor strategic investor to help their public offering. Having spent time as a banker working with SPACs, they're always broken companies. If in your career someone approaches you with a SPAC, don't waste your time. Anyway, we had a great deal. It was good for the investors too because the deal we struck meant if you were an investor, you would have had 10 days to watch the SPAC perform. There's an opening strike price of $10 a share. You'd have 10 days to decide whether you wanted to redeem it. We felt at the end of the day, all of our initial investors made a couple pennies. But the company didn't go public within the two-year window, and it still isn't public. It seems to be more trouble than ever. Meanwhile, JAB is stuck with this pretty big investment, and I don't know what they're going to do with it. But it won't be us. That's what we did during our pandemic.
I just have to say it was really hard reopening our restaurants. We already had a new restaurant in the works before the day that we were here in 2025. We had already gotten our construction plans for a new restaurant that would open in 2021 called Ci Siamo. It opened because it had to open, like the baby had to be born. But no one in their right mind would have opened a restaurant in 2021. By the way, Ci Siamo is still packed every single night. But what I was going to say is, as hard as it is to open a new restaurant, it was even harder to reopen the restaurants that had been closed, in some cases for two years. The reason is that no one had any expectations when they went to Ci Siamo. No one said, 'What happened to my favorite waiter? What happened to my favorite bartender? Where's my favorite maitre d'? Where's my favorite menu item?' No one said that at the new restaurant. But because 90% of our staff was new at every one of the existing restaurants, take a restaurant like Gramercy Tavern, which just celebrated its 30th birthday. You went there with expectations. That's Gramercy Tavern, and yet it felt different. It took another two years to make these restaurants feel the way they did. The good news is that we had some internal goal that we wanted our staff to look more like New York City, like the population it served. We thought we could get that done in about five years. When we really started focusing on it, with the pandemic, we were able to accelerate that to overnight. Our team, like what you heard Mark saying about Enlightened Hospitality Investments, all of our restaurants look like the city right now. As a result, the people who dine in our restaurants are much more comfortable. When I say diversity, I don't just mean gender and race. I also mean age. One of the things I'm proudest about is that if you go to our restaurant, you see a mix. I love having restaurants that work across age groups as well as across all other diversity groups.
We were active on the investment side during the pandemic. We saw some attractive things. We sold two businesses during the pandemic. We had more conviction that the world was going to come back at some point. So it was a good time for us to get money out.
Could you say a little bit about sustainability and what role that plays in the businesses that you do?
We have an investment in a company called Restaurant Technologies, which recycles cooking oil. It gets recycled. It's an ESG play. This has been flipped from private equity firm to private equity firm over the years. I've been saying there are big pools of capital committed to ESG that need somewhere to go. This company is doing $150 million in cash flow. This would be one of the biggest things out there. The public market will certainly pay a heftier price than flipping it to another private equity firm. So they're starting to focus on that. It's a really cool company. Shake Shack is one of their many customers. They have almost no churn because every restaurant that does any kind of frying has cooking oil. What most restaurants have to do with that is have this really messy and sometimes dangerous backbreaking exercise of parting the stuff out of the restaurant and having some truck pull up. You've probably seen these trucks pull up in front of your restaurant with a really smelly thing pumping the stuff out of your basement. What these guys do is they actually construct the whole pump system underneath your sidewalk. No one ever sees it. They pull a truck up, and it's just gone. Not only are staff not breaking their backs, not only is it clean, but they actually then turn that oil into biofuel. So to your question about sustainability, it's an end-to-end win. They never lose a customer once there are two tanks underneath your restaurant and it's easy in and out, and the pricing is competitive. You're not moving anywhere.
I could talk about how our restaurants all care about sustainability. But sustainability is such a big word. Is it composting? Yes, we do that. Is it thinking deeply about who you're buying your food from, whether it's plants or animals? Yes. Is it thinking about regenerative agriculture and how important that is in terms of where you buy? Yes. Are we LEED certified in all of our restaurants? No. It's something that we're increasingly conscious of. Happily, staff members, often the chefs, are the ones leading the charge. They care deeply about it. Your question is a question that we get daily from our own teams: 'How can we do better?' Our job is to encourage that. Think about where you can do it. Plastic cutlery that is compostable? Yes. Did that cost more money? Yes. Did you have to figure out a way to justify that? Yes. Nothing is easy in the world of business. There are a lot of things you would do if you felt it was the right thing to do and you're not going to lose your customer base because you price that into the product you buy. Can we bring our customers along and educate them so they see it was worth spending more money for that product because of what we did?
Maybe speak a little bit about how much do you use data analytics, things like that?
Since we've got a lot of Chicago people there, we're all over the numbers and the analysis. I think you've got to be very tech, data savvy, and comfortable. Having been a TMT banker, what I saw was the value in the media business really migrated towards the data and the information they had. I've had this ongoing discussion with Goldbelly, saying, 'What's potentially more valuable than being the second biggest user of UPS and FedEx? What's more valuable than what's really a big logistics business that owns the marketplace for food is your data, because you know who's eating what, where, what restaurants of interest.' It's data that's really valuable if you can figure out how to pull it out of there and market it and sell it. So we spend a lot of time with data. We invest in companies that are data forward.
And you invested in one of the restaurant reservation businesses, right? Which one?
We were investors in Resy, which we sold to American Express and made 11 and a half times our money. We're investors in a company called SevenRooms, which is kind of next-generation reservation. They're doing very well, growing rapidly. They're over $100 million in ARR. It's an area that we've spent time in for years, way before we started EHI. This goes back to the year 2000. I made a seed investment in OpenTable.com. In fact, we launched OpenTable in New York at 11 Madison Park to introduce it. It was only in San Francisco at that point. Then it became a global company. When that was acquired, first it went public, and then as a public company it was acquired. That board went away, and that's what we felt Resy could be, a next-gen version. When Resy got acquired, we said, 'Now we believe SevenRooms can be a next gen.'
