Tyler Cowen wonders whether the Shake Shack IPO means it is time to stop eat there?
After an IPO, the equity share of the original creators — in this case Danny Meyer — is diluted. Meyer’s incentive to maintain quality standards and his personal brand name is weakened. The subsequent public shareholders are more likely to insist on a less risky and more mass market approach…In other words, both the signaling and the moral hazard arguments suggest that soon you should stop eating at Shake Shack.
I actually think Tyler is late to the party on this: the IPO signals we already should have stopped going.
When Shake Shack opened at New York’s JFK airport in 2013 (and then opened a second JFK location, 14 gates down from the original), and when Delta started serving Danny Meyer’s Blue Smoke on-board in international business class, it became clear that Meyer had traded on reputation and accepted lower quality.
You can’t reprise the same quality in an airport and in-flight is even harder.
Here’s why airport restaurants tend to be so bad:
- Restaurants have to bring everything in through security
- There are limits on when things can be brought in, they can’t generally bring supplies down the concourse at peak travel times. So you don’t get the freshest just-in-time delivery.
- And space limitations are huge. Not only can’t you bring things in whenever you want, you often don’t have a lot of space for storage at least compared to a standard retail location. And you may not have room for specialized equipment.
- The airport may not permit gas ovens, so everything has to get re-created using electric.
- Security constrains your chefs, their knives frequently have to be tethered to a wall to prevent being taken (and inventoried every day).
When you run a restaurant inside an airport you have a large number of people who need to be served quickly — you need to prepare for quick service even trumping quality because of the pressures of flight departures.
Your customers have varying tastes, they didn’t travel to your location to eat your food they are at your location in order to travel. But you need to cater to their varied preferences.
You need to make up high rents with limited ingredients because of cost and space. So you focus on a few menu items, and make them accessible to the largest number of people. And then your restaurant, which is known for lunch and dinner, needs to try to do breakfast, too.
And as a restaurant owner you have to do all of this within price points that may be contractually set with the airport, e.g. that prices have to be the same as outside the airport or at a modest premium of (say) 10%-15%.
And how to overcome all of these challenges? Many restaurants partner with concessionaires with plenty of experience working with airports, big names like HMSHost — which helps them operate more efficiently, but reduces the local character of what they offer.
There are still good airport restaurants which is to say they are better than average, or better than you’d expect in an airport. Take Tortas Frontera at O’Hare. We all have our favorites. But very few airport location restaurants are dining venues we’d seek out outside the airport.
So if your theory is that you want to stop frequenting a restaurant once it compromises quality to meet varied tastes wherever they are, you want to drop a restaurant once it opens an airport location. And you probably want to eat Blue Smoke barbecue on a plane (because it’s better than what Delta would otherwise serve you) but you may not want to eat it in the restaurant.
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[…] in addition to being bad it’s not at all surprising that airport food vendors are […]