Podcast: Open Tables: COVID-19 Cripples the Restaurant Industry

Transcript

Listen: While the COVID-19 pandemic has had a devastating economic impact globally, few industries have been as hard hit as restaurants and hospitality. In the U.S. alone, losses north of $225 billion are projected over the next three months. This week, GZERO World with Ian Bremmer is focusing on what it means for businesses and employees alike. Ian interviewed famed restaurateur Danny Meyer, the CEO of Union Square Hospitality Group and founder of Shake Shack. Meyer discusses the toll coronavirus has taken on his own business, his decision to let go 80% of his workforce (2,000 employees) and the dimming prospects of survival for many restaurants in America, including some of his own.

TRANSCRIPT: Open Tables: COVID-19 Cripples the Restaurant Industry

Ian Bremmer:

The human toll of coronavirus has been devastating, and while the loss of life is of course the greatest tragedy, industries around the globe have also screeched to a halt. The restaurant industry in particular has been crippled by government enforced closings, and right now countless servers and bartenders and kitchen staff are out of work trying to figure out how to make next month's rent. Many of our neighborhood jewels that have closed temporarily will never open.

Ian Bremmer:

Hello and welcome to the GZERO World Podcast, and here you'll find extended versions of the interviews from my show on public television. On today, I speak to restaurateur Danny Meyer, who as CEO of the Union Square Hospitality Group, has founded some of the most successful restaurants in New York City. He also came up with a little fast casual joint you may have heard of called Shake Shack. Let's get to it.

Ian Bremmer:

Danny Meyer, head of the Union Square Hospitality Group, and founder of a little place you might've heard of called Shake Shack. So good to be with you, Danny.

Danny Meyer:

Hi, Ian.

Ian Bremmer:

So, I mean so much to talk about. None of it easy right now. I want to start big picture. Estimates I'm hearing latest that's going to cost your industry $225 billion over the next three months alone. How do you even wrap your head around that? How are you thinking about the impact on restaurants right now?

Danny Meyer:

I am having an impossible time wrapping my head around almost any number I hear or read about on a daily basis. I'm doing the best job I can to wrap my head around our own company, and it's tough. You go from X amount of revenue to practically zero revenue. The only reason we have any revenue today is that we continue to cook some meals for Delta Airlines first class transcontinental passengers, and that show goes on. And other than that, every single one of our restaurants is closed. And the question that we're all looking at and thinking about is, how do we get to the other side of this whenever it's over? Which obviously nobody knows when that's going to be.

Danny Meyer:

We're in a lot of different businesses, which I always thought was a good kind of diverse shopping cart, but let's put it this way. A big part of our income are events. Obviously, they're all closed. A big part of our income is catering. Done. A big part of our income is sports. We're in four different ballparks for baseball and we're done. That's all gone. And governments are wisely saying people should not gather right now. That's what restaurants do at their best. That's done.

Ian Bremmer:

Even once the pandemic is over, or once we're allowed to go back into the restaurant, you're going to need at least a month to re-recruit and rehire your employees. Why does it take so long?

Danny Meyer:

A lot of people think that you should just be able to turn on the lights and turn on the gas stoves, and you've got a restaurant. But you got to think about a restaurant almost as if it's a team. A hospitality team takes time to warm up and learn to play together and work together and remember how to do it. My guess is in my business where we've got a number of different restaurants, we will probably end up starting with one or two of them and learn how to do it.

Ian Bremmer:

I'd love to hear a little bit about what you think the industry needs from government right now. What kind of leadership, what kind of message, and what kind of behavior, what kind of action?

Danny Meyer:

Well, I think that in any situation, great leadership is a combination of reality and hope. And I think people do need to understand the reality of what's going on in a health crisis way and what are the most strategic things we can all do to bring that to the quickest possible close, painful as they are? We also know that the reality is that all those things add up to a really crazy economic situation that is just as bad economically as the health crisis is health-wise. And in our industry, it's staggering. It's just absolutely staggering how many people are being laid off right now. I would want to make sure that that workforce was ready to come back to work emotionally, physically, that they had a house, or think about Maslow's Hierarchy of Needs kind of applies right here. Did they get evicted? They sure better not have, did they lose their healthcare? They sure better not have. Could they put food on their table? They sure better have.

Danny Meyer:

If that workforce can come back to work when the green light goes on, and then this is the crucial next part, will there be businesses left standing to employ those people? Because there's a lot... You can't just freeze time. You could cut a hundred percent of your payroll, awful as that is, and you still have obligations. You still have to pay the landlords. I haven't seen a whole bunch of landlords saying, "I'm going to give you a holiday from your rent until this is done." I haven't heard the utility company saying, "I'm going to give you a holiday from paying for the gas and electricity until this is done." And so it would be one thing if someone were to say, "We could get through this in a health way if you just keep people away from people." I'd sign up for that.

Danny Meyer:

And then if they were to say, "And it's going to take four months, and for four months you're going to have zero profits," I could sign up for that too. If there were a way to come up with the economic and political means by which to create that, then what that would mean is four months from now you can have your job back because we got a business and we'll put you back to work. And yeah, this will have been an eight month year or a seven month year of profitability. That's fine. That's completely fine by me. What's not fine is 'poof' goes the workers and 'poof' goes the businesses. That's not fine.

Ian Bremmer:

I mean, right now you hear of course the stimulus. There are a lot of people concerned that there's going to be massive giveaways to big corporations and there's going to be no accountability or responsibility for taking care of the people. What do you think, if any, sorts of restrictions should be placed on the recipient companies of that bailout, of which your company may well end up being one, to help ensure that the taxpayers feel like this is equitable?

Danny Meyer:

Well, I think the key thing is that if a business is receiving any of the funding themselves, that there is a commitment to be in business and to be the employer that they once were. I think that if you're putting any of that money in your own pocket and you're not hiring back people, then it will have been for naught. So Ian, one of the things I'm trying to look at is what happened in New Orleans post-Katrina, because I think there's got to be some analogy here. If you think about it, overnight, an entire workforce was sent home. In fact, in that case, a lot of the workforce was actually decimated themselves because their homes as well as the places they work were decimated by the flooding.

Danny Meyer:

But in this case, it's almost like a hundred percent of our workforce got out before the hurricane came. They're alive, but not well. But what role did government play A, to take care of people, the workers? And what role did government play in terms of remediating the hurricane damage and the mold so that the businesses could get back? Because it took that system to make it happen. And I feel like this country has had almost like the neutron version of a hurricane, which is we can't see it, but it's there. And somehow I know we'll figure this thing out. I just know in my gut that it starts with a healthy workforce, and then I think businesses committing to hiring that workforce back.

Danny Meyer:

My career goes back to 1985. So I've seen a number of good days and I've seen some tough days. 1987, I thought we were out of business for good. I was a two-year restaurateur. I was 28 years old that year. And I said, "That's the end," with the market crash. And then 1991 after the Gulf War, same thing. Recession. 1997, obviously 2001 with 9/11. And each time what was amazing to me as a restaurateur, each one of those crises felt like the end. How are we ever going to come back from this? People are depressed. It's dangerous. No one's going to come back. And somehow with each one of those crises, we got through it. Like every crisis you face, this is the biggest one because you've never faced this one before-

Ian Bremmer:

Absolutely.

Danny Meyer:

... In the city. But we overcame that, and we said, "The best thing you can do is be with friends. Be with people you love." And restaurants uniquely provide that opportunity. So Ian, here's the thing. Today I can't tell people to come out to eat and so I don't have that stimulus. I believe we will get back to this. I really believe we're going to weather this one. But I do know that a number of restaurants that exist today, there's 660,000 restaurants in America. And while we don't get the attention, say that the auto industry does, or the airline industry does, where everybody can wrap their heads around, "Oh, these are the four major air carriers," or, "These are the six major auto companies," 660,000 disaggregated restaurants-

Ian Bremmer:

Yes.

Danny Meyer:

... Either the second or third largest employer after government in the United States.

Ian Bremmer:

About 10% of employment in the United States is attached to the restaurant.

Danny Meyer:

And this is a big deal. And think about the ripple effects of that in our economy. I'm going to guess, I've been hearing anything from 50 to 75% of all restaurants are going to go out of business. I'm having a tough time believing that. But here's what I know. No one's going to stop eating because that's a physiological need. And I also believe that people are not going to stop finding ways to gather because I think that is a deep human emotional need.

Ian Bremmer:

You've eliminated tipping from all your restaurants. You were the first to do that in the states, paying your employees a living wage.

Danny Meyer:

And I don't want to be running an organization where half the people are going to fall below the poverty line, some of whom spent their life savings going to culinary school. It just felt completely wrong. So I said, "All right, stop it. I can blame the tipping system all I want or we can actually reject it."

Ian Bremmer:

I mean, I wonder to what extent, I know this is a tough question, do you think that those measures might have made your company more vulnerable, less resilient with this sudden shock?

Danny Meyer:

Oh, I actually think to the contrary and I'll tell you why. And this gets back to our last conversation about recruiting our team back. So if you take 2000 layoffs for example, which happened last week in our company, and let's take the hourly workers who were front of the house employees, who if they had been tipped employees, their unemployment claim would've been dramatically lower than what our laid off employees are able to claim. Why? Because in this country, there is a separate and lower minimum wage for tipped employees-

Ian Bremmer:

Yep.

Danny Meyer:

... Dramatically lower in some cases. In some half of the states in this country, the adjusted minimum wage is $2.13 an hour. Imagine going to unemployment and saying, "Here's my W2, and I'm really sorry I didn't declare all those cash tips, but here's my W2. What do I qualify for?" And I qualify for some percentage of a W2 that shows $2.13 an hour minimum wage. Now take an employee who did not work in a tipped house who was obviously paid an hourly wage as close to what the full tip would've been anyway. Those people are in much better shape. And my guess is maybe for the first time, they now see why this was a really important thing for people to do that.

Ian Bremmer:

I want to ask one thing about Shake Shack. I know that the chain is not part of Union Square Hospitality Group. It's run independently, but you founded it. And I'm wondering just your views on their capacity to stay open throughout this crisis. They can do takeout and delivery. Do you have any sense of that?

Danny Meyer:

Well, I know that Shake Shack is a tremendously athletic group of people, and they're trying everything they can just like every good business in the country, to keep people employed as long as possible, as safely as possible, and to serve people food. Food provides comfort. And Shake Shack last week announced that a thousand percent of all their restaurants, whether they happen to be in states that had mandated no gathering or not, would be serving food from the curb only. Pre-ordered on their app or however, if people don't have the Shake Shack app, but then they could order it, I believe, just by getting out of their car and telling someone on the curb, "Here's what I want."

Danny Meyer:

My view is that these are crazy times, and that Shake Shack is adapting as athletically and nimbly as possible. But always, as someone who founded Shake Shack, I know that the culture of Shake Shack is the same as the culture of Union Square Hospitality Group, that's where Shake Shack was born, and that is people first. And we'll see where it goes. I'm guessing that the next days are going to be just as changing of a landscape as the previous days have been.

Ian Bremmer:

So tell us, say, what do you think New Yorkers can do and Americans across this country on a personal basis? We've talked about what the government can and needs to do to help all these out of work service workers, small neighborhood bars, restaurants over the coming months? They mean so much to the fabric of society. You have any ideas?

Danny Meyer:

Well, once it's safe, and I keep saying once the green light goes on and God knows where that... God knows what authority is going to say that, I would just say patronize as many places as you can. Look, when we lose a day, we lost the day. It's not like if I can't get a haircut tomorrow, my barber knows that she's still going to see me two days from now or three days from now. So she doesn't lose the sale. But when a restaurant or a restaurant worker loses a day, they lost the day. It's gone. And so really the only thing that I could suggest is just remember that. And if you're going to a restaurant that accepts tips, be extra generous when they reopen. If you're going to a restaurant that doesn't accept tips, go there twice as often as you used to.

Danny Meyer:

One thing that I know a lot of people are doing, in fact we've been doing it ourselves, is selling a lot of gift cards. Because every time we have some money, it's another reason that we may stay open for another day or our business may stay open. What we've been doing at the outset, for one week we made a commitment to give a hundred percent of all gift card revenues to a brand new 501(c)(3) employee relief fund that we just set up called Hugs for USHG. I personally made a commitment to take my entire compensation and contribute that to the employee fund, as did a hundred percent of the sea level members of our executive team. And I feel really, really grateful about that.

Ian Bremmer:

So maybe one question before we wrap up, Danny, about just society at large. I mean, we've talked so much about the restaurant industry. The other people, of course, that are being affected by it are the people that patronize the restaurants. And now, I mean Americans across the country, half of the country right now are in self isolation, and for at least a matter of weeks or months it seems like. What do you think we should do to replace the companionship, the social belonging that restaurants have been providing us every day?

Danny Meyer:

Smile a whole lot more. I keep trying to remind myself. My wife reminds me of that all the time. These are days when there's a lot of bad news, there's a lot of scary news, there's a lot of anxiety, there's a lot of fear. And I do think that the root of the word hospitality is actually hope. And those of us in this business cannot wait to get back to serving that hope.

Ian Bremmer:

Be well and thanks for the strong... thanks for the leadership.

Danny Meyer:

I cannot wait to share a meal with you. I cannot wait.

Ian Bremmer:

Looking forward to it, Danny.

Danny Meyer:

Okay.

Ian Bremmer:

Be good.

Ian Bremmer:

That's it for today's edition of the GZERO Podcast. Like what you've heard? I hope so. Come check us out gzeromedia.com and sign up for our newsletter Signal.