Welcome to the next generation of Wall Street Week, bringing you stories of capitalism, stories that will help you think about business, markets, economics, geopolitics, climate, and technology. This week, we tell a story of the pride of an auto industry and its home city pride that led to their fall and their efforts to restore that pride. We have a story about the business behind that restaurant where you feel like you belong. We start with a story about value.
The value of a college degree one of the biggest investments many of us will ever make. But it's getting more and more expensive for the students and for the institutions.
But is it worth it?
Yes, one hundred percent. I mean, you know, financial considerations is the main motive, and Purdue is an affordable college. But yeah, no, I could have never imagined having access to the amount of resource that I have access to do here.
Rebecca Senior is a rising junior at Purdue. She pays about forty one thousand dollars a year as an out of state student, just over the national average of thirty six thousand dollars, a number that's gone up forty percent since two thousand and four. With students like Senior making ends meet through a combination of grants, scholarships, and federal loans.
I am very appreciative of the scholarship and grant Purdue has offered me. I would not be able to be here without it.
As hard as it may be for many students and their families to cover the costs, historically colleges and universities haven't had to worry all that much about what they charge. The cost of higher education rose faster than the cost of living for most of the last forty years, something interrupted only by the big spike in inflation in twenty
twenty two. But Mitch Daniels, who ran omb and then served as governor of Indiana and as president of Purdue, says that is changing, that people are no longer willing to spend whatever colleges charge.
The systems sort of built for higher pricing. I mean, if you had total pricing power in any business, in other words, you could raise prices and you not only don't lose customers, you may gain more. Because there's no quality measurement, people have associated the price with quality, no
proof that that's true. That's certainly one reason the hardest business to change is one that's succeeded for a long time, and this model you call it, that was very successful, had the wind at it's back and young people being told you got to go to college, four year college, and they followed the path at least resistance. Now, very belatedly, there's a little consumer resistance. Finally, slowly the market has
begun to react to that. So you're seeing now a system beginning to experience the shakeouts that other sectors have.
The shakeouts Mitch Daniels talks about are becoming more common in the United States as colleges have cut programs places like UNC Greensboro Drake and West Virginia University. The State Higher Education Executive Association reports that over five hundred private, nonprofit four year colleges have closed down all together in
the last ten years. Some American students look to Great Britain for an alternative, seeing high quality at much lower prices, but Jillian Ted, who has added provost of King's College, Cambridge to her responsibilities as US editor at large at The Financial Times, says British schools are facing their own financial pressures.
The challenge today is that essentially the numbers have exploded dramatically, which in many ways is a good thing, but it also means that the huge strain on public sector budgets, which at the moment the government simply can't pay the bill for all the students to have cheap education, let
alone free education. So what universities are facing today is a squeeze where on the one hand, they are allowed to charge students today for their tuition, but that's capped at nine thousand pounds a year, and even that level, which looks very low americanized, is seen as grotesquely high by many people in the UK.
As if the business model for higher education weren't challenged enough, it's consumers. The students and the parents are starting to doubt that they're getting good value for their money, at least in the United States, where polls indicate that only thirty six percent of adults say they have a great deal or quite a lot of confidence in higher education, a number that's down from fifty seven percent in twenty fifteen. Is this system succeeding right now? And what is the goal?
How do we measure success for higher education?
Well?
When I said succeeding, I meant they were able to perpetuate themselves in their institutions. I didn't mean it was necessarily succeeding for the students. That's a whole other question, which, again way too late, is being asked more and more forcefully.
But no, a whole other discussion. Whether the system, as we've been operating it has been teaching what it ought to teach, teaching it as rigorously as it ought to be taught, And therefore whether the young people emerging meet either of I would say the two basic tests of success. One are they ready for highly productive work somewhere in the economy. Two are they prepared to be knowledgeable, engaged,
active citizens. And by those two measures we have the system hasn't been doing, in general, too good a job.
The question of whether an increasingly expensive college education is truly worth it is being asked on both sides of the Atlantic.
The explosion of digital technologies, the rise of AI, the rise of homeworking means that the question of what we're educating for is becoming increasingly unclear. And it's worth remembering that so much of what we've had as higher education and secondary education in the last century was created very much post the Industrial Revolution in order to prepare a workforce to either manage factories or work in a factory and to have the discipline and the skills quad for that.
And today, of course, manufacturing is such a small part of the economy that the question of what we're educating for is becoming increasingly uncertain and challenged.
It should come as no surprise that, given the challenges to the value of higher education, leaders are looking to make changes. Eight years ago, Mitch Daniels shook things up at Purdue, freezing tuition just two months in his job, something that continues to this day. When you were on Purdue, what business principles did you try to bring to bear in managing.
I'd love to tell you some brilliant set of brilliant strokes. It was, and a lot of it had to do with what question you asked. I used to say, we saw if we decided we solve the question the equation for zero. Instead of asking how much money do we need next year to keep operating and keep peace and happiness on the campus, we asked the question, what would we have to do this year not to raise tuition? What combination of things? It's not hard to find them
if you make that your goal. Capital spending is one place it's the look. You can have very first rate facilities without the gold plating that I've seen in so many other places. If you watch things carefully, like staff to student ratios, faculty to administrator ratios, things like that, it's not hard, as I say, to pick the low fruit.
One of those places where the fruit may be hanging low is in the administrative staff.
Look at these schools that astonishingly have more administrators than students. I mean, a lot of that could disappear. I used to say to people, you'd be amazed how much government you'd never miss.
But as is the case elsewhere, it's awfully hard to cut your way to success. In the end, it comes back to providing a service, a product of real and sustainable value, one tailored for today, that will leave you in good stead well into the future.
Twelve years ago, on my arrival, more than forty percent of the students were already studying the STEM discipline. Today it's closer to two thirds, and the student body is thirty percent bigger. But those are students' choices. The students are seeing that these are exciting things to learn, exciting careers beyond them. And we responded to what we thought was going to be that demand.
And yes, for Mitch Daniels, one investment that is well worth the price paid is an education in business, something that at Purdue is now granted by the Mitch Daniels School of Business.
We sensed a growing appetite and I think this is positive of students who want to study business and hope and hope to have a career there. First of all, I want them to be grounded in a little broader way than much business education today is. They'll have read's, some economic history, some economic philosophy. They'll have been able to compare systems. They'll make up their own minds which
system is better for the vast majority of people. But they ought to know something about that, not just how to read a balance sheet or how to calculate an MPV. Beyond that, I want them to leave with a sense that this career they've chosen is a noble one.
Over at King's College, Camber Jillian and Ted is similar focused on making sure that students are being prepared for a world transformed by technology, but not defined by it.
British OIGH education is starting to play around with online learning,
partly as a result of COVID. But the path that Oxford and Cambridge are going down and most of the other British universities is to say that there is a real value in face to face education, not just because it's chat GBT resistant, because it is actually by the way, but also because face to face education gives kids the skills they're going to really need for the future, such as the ability to get along with people they might disagree with, such as the ability to present an argument
but to have a socratic debate which doesn't just take one side. And any higher education establishment that can teach kids to not just be able to amass knowledge in a computer, but also the skills to navigate people will have an advantage. So we used to talk about the digital divide being between kids who knew about tech skills and kids who don't. Today there's another digital divide, which is the kids who know about tech skills but can still talk to humans effectively and manage them and be
creative as a human. They will be the really advantage ones in the future.
However, the leaders running higher education sort it all out. The one thing they agree on is that although it's a business, we must never lose sight of the fact that it's also much more than a business.
It's a mission, and it's something which is much higher than any commercialization mantra would suggest, and we need to keep that in mind above all else. We're really investing in kids, but not just in money, in all kinds of other ways as well. And yes, we need to pay the bills, but it cannot be just about paying the bills. It's fundamentally about championing the source of ideas, creation and learning.
Higher education are not supposed to be a business. I used to say the same thing about government, But it can be much more business of life. It just didn't have to in too many cases until recently. I hope we don't overreact, though, because the college degree as we've known it, if it's well done, I think, is still tremendous. There's still a great return on that very expensive investment.
But in the end, the question of whether a college education gives value that justifies the cost is for those receiving it to decide. People like becka senior.
I think the personal growth and professional development that Purdue has offered me is definitely going to take me to a good career or grad school.
Coming up the story of a city and an industry fighting to regain their pride. That's next on Wall Street Week on Bloomberg. This is a story about pride, pride and the way up pride that comes before a fall, and what its to restore the pride of a business, an industry, and a city when they've lost their way. Our Bloomberg Radio colleague Michael Barr is a native of Detroit who watched his city burn during the Riots of nineteen sixty seven, as a once great economic hub edit a period of decline.
I'm going to give away my age because that happened in sixty seven and I was three years old, and I was in southwest Detroit, and at the time I saw the National Guard Enerje go by. Now being a stupid kid, I'm thinking, oh Gi, Joe, I didn't realize that the dagone city is burning down. Between that, how the auto industry really took a hard nosedive.
The story of Detroit is all the more dramatic given what it had once been, the motor city that helped drive the US economy. Autoproduction once accounted for almost five percent of USGDP and nearly a million jobs at its peak. Detroit was the fourth largest city in the nation. That would have been a happy story if it had ended there,
but it didn't. Rising costs, new competition, particularly from Japanese automakers, and an oil crisis hit the industry hard, reducing US auto industry employees by more than a third in thirty years, from more than nine hundred thousand nineteen fifty to run six hundred thousand by nineteen eighty two. Today, auto abuile production accounts for under three percent of US GDP, and Detroit has fallen from fourth to twenty sixth in the
ranks of US cities. According to current Ford CEO Jim Farley, an entire industry, including his own Ford Motor, had failed to see and respond to the changes happening around it.
I think World War two is a big challenge for the company, and when Henry Ford the second led the company back to a revitalized state through the Whiz Kids. We hired all these logistics experts from the army after the World War Two and they really created this kind of bureaucratic but an incredibly efficient machine. And the company was back in the sixties, and then the energy crisis came.
The company didn't have efficient vehicles, it wasn't competitive among quality, and it really lost its way in the seventies, as well as the city of Detroit after the riots and.
We were lost, and from there things just got worse. By the end of the twentieth century, it was hard to remember where it had all started, back in eighteen ninety six, when Henry Ford invented his quadricycle and then moved quickly to found the company he named after himself in Detroit, introducing his iconic Model T in nineteen oh eight, and then inventing the first moving assembly line, which went on to produce twenty million of those Model t's in the nineteen twenties.
My grandfather is a good example, you know. He was an educated man, but he had a great job at Ford and built his family. His kids went to college eventually, and just like your family.
My family was one of those affected by Ford, where my dad went to work in lower level management in the nineteen sixties and continued until cutbacks in the nineteen nineties led him to take a buyout. But long before my dad went to work there, long before it all went south, Detroit erected an emblem of the growth and strength of the new auto industry the Michigan Central station.
At its peak, over two hundred passenger trains left that station every day, carrying over four thousand passengers, and another three thousand people worked in the office tower above the station. Michigan Central continued it to rain well into the nineteen fifties, when Detroit was the home to some two million people. But then the American auto industry went into a long period of decline as Autoplant after Autoplant began to shut down.
As the auto industry went, so went Michigan Central. The last Amtrak train left the station in nineteen teen eighty eight, leaving the Detroit Lambark to fall into disuse and decay, its windows broken, its roof open to the sky, It's marble scavenged. By twenty thirteen, the Detroit City Council had voted to tear the train station down, and it took a determined Mayor Duggan leading a group of detroiters to restore Michigan Central to what it is again.
From my first day in office, getting that train station reoccupied was a central focus. There was no way it was going to be a demolished just meant too much to too many generations. And so my first month, Matt Moron, the owner, was in my office had a list of things that they wanted, and I said, I want one thing. I want you to put windows in that abandoned train station. And he looked at me like I was crazy, and I said, all people see when they look at that train station is blight.
I remember when it was beautiful.
And so we made a deal on some other things where they spend a million dollars to put in windows. And when the windows started to go in, it hit an electric effect in the city. Everybody driving by in the freeway said, oh my God.
To bring Michigan Central and Detroit back from the brank, it took more than private industry and government. Darren Walker runs the foundation the Ford family created in the nineteen thirties, and he helped lead philanthropies like his to step in.
The crisis of twenty thirteen was significant, to say the least. The moutheisence that was committed was shocking and criminal, and of course the city found itself in this very odd situation with the museum being an asset of the city which was a debtor. The Ford Foundation made the first grant one hundred and twenty five million dollars. Of that four hundred that helped I believe to insent others to join, and it was one of my proudest moment.
But above all, Detroit needed the auto industry to come back to set aside the pride that it caused it to underestimate its foreign competitors for too long, and to take a hard look at what those competitors were doing better than they were where I worked.
At Toyota a young person with my family from Detroit. That was the best car company when I graduated in business school, you know, efficient and really focused on the customer, and we became the best selling car with the camera because we had a better car and it was built in Kentucky. You know, ultimately, the competition in America, it's a free society, is going to be you know, open market.
But ultimately, ultimately, in the end of the day, as a CEO, I have to be completely competitive on quality and cost to their quality and cost, take out all the subsidies, all the tariffs. We have to be full competitive. If you look at the company, this has happened many many times. It's a company that's been through a lot, but here we are. There is I think fifty companies that have survived after fifty the fifties to be still here. The average company now big companies stays on the stock
to change for like twenty years. You know, we've been there for every year. So it's a company though that when it gets is back against the wall, something magical happens.
Where are you on the roadback? How far along that road are you?
Our backs are off the stove pipes.
Ford, along with GM and Stilantis, has clawed its way back from the worst of it, with the three automakers selling over six million units in the United States last year and reaping more than a half a trillion dollars in revenue. They're profitable again, with Ford making over four billion dollars in net income in twenty twenty three, all of which has brought jobs back as well. Michigan unemployment peaked apart from the pandemic in nineteen eighty two at
sixteen point six percent, well above the national average. Last year, it had fallen all the way down to three point six percent.
Done.
As Mayor Douget explains, one plant at a time.
But when I started, I sat with Bill Ford.
I sat with Mary Barr and I sat then with Sergio Marcioni, who was running Fiat Chrysler, and I said, look, if Detroit's going to come back, we've got to come back on our strength. We're not going to be the tech cobb, the biomedical hibe. The next time use cite of parts plant, please ask them to come talk to me first. And it was Bill Ford who was the first one had flexingate made parts for Ford trucks. Ultimately, we landed a jeep plant with five thousand employees, almost
all Detroiters being hired. So that was terrific because I had a large number of unemployed who had high school degrees and we needed good paying manufacturing jobs. Now, with the University of Michigan Grads School being built, we are now competing for the tech jobs, the jobs of the future. And that's exciting as well, because in this city we need both. We need the people building the cars, we
also need people designing the jobs of the future. Son on Fourteenth Street, next to the train station, is the only public street in America where the road charges your car. We have a self charging road while you park there because the coil is underneath will charge it.
That's what we're doing. It's the technology in the future.
Now once again, as it did over one hundred years ago, Michigan Central stands as a symbol for the potential of the American auto industry, driven by the vision of another forward, William clay Ford, the great grandson of patriarch Henry Ford.
I think it is you know, obviously it's a family company, build's vision, but also the train station is very much a symbol, a kind of a mark along our journey to create a great company and we avoid a bankrupt which was amazing in the early two thousands, has been two thousands, but to build a vibrant company, you know, in the.
Ev world, the digital vehicle world.
The train station felt like the right kind of challenger project for four to be part of, so that we could be part of the you know, revitalization of Detroit, which had really been kind of used by almost the national media as a example of the decay of the country. And this felt like the kind of project that would be emblematic of our recovery as a company.
With the US auto industry and the city of Detroit on the rise again, the question is whether it can continue on its path, can it avoid the tunnel vision born a pride that led it to stumble fifty years ago Like its competitors, for it has concluded that its path the future lies through solving the riddle of electric vehicles. And that is where we turn next on Wall Street Week to the perplexing question of how and when to make that transition to an electric future. This is Wall
Street Week. I'm David Weston. At the beginning of the twentieth century, the United States radically changed how we move people and cargo around. It was the dawn of the internal combustion engine, pioneered by people like Henry Ford. According to current Ford CEO Jim Farley, it changed our economy and our world.
At that time, Ford was the pinnacle. We had eighty percent market share globally of the car business. We were working on our second vehicle called the Model A, built at the Rouge. We were going from the moving as semily line but basically buying our parts from other people, to a completely integrated plant at the Rouge.
In nineteen oh eight, when Ford began producing the Model T, there were only about two hundred thousand registered cars and trucks in all the United States. In less than twenty years, that number had exploded to over seventeen million. Today it's edging toward three hundred million, around nine cars for every ten people. Now many see another transportation revolution, one that will rival or even exceed that of one hundred years ago. Ironically,
Tesla was not the true pioneer in electric vehicles. General Motors introduced its Evy one back in nineteen ninety six. That experiment was quickly abandoned, and the Detroit automakers returned to their core businesses of internal combustion engines, a business on the upswing again, thanks in no small part, to help the government during the Great Financial Crisis.
I was young staffer on the transition operation, standing before the forefront of this new administration.
Michigan Congresswoman Haley Stevens served in the Obama administration, which faced the imminent demise of the US auto industry. Back in two thousand and nine.
All I could do in my spare time is read the Detroit Free Press online and look back to what was going on in Michigan, in my hometown. This was very, very troubling, scary, and unique, in part because the word bankruptcy started to enter this sentence as it related to General Motors and to Chrysler, and particularly to hear the words General motors and bankruptcy in a sentence was foreign
and newfound territory. And so I knew that if I was going to serve in the administration of Barack Obama, I had to do something for Michigan.
It was catastrophic, But now comes the hard part converting to a world of electric vehicles, and there is a long way to go. Tesla led the way, going from nineteen thousand EV sales in twenty thirteen to one point eight million a decade later. GM, Slanted, and Ford are trying to catch up and are growing their EV businesses, but off of a much lower base, selling around one hundred and fifty thousand EV's in the United States in twenty twenty three, or less than three percent of their output.
EV success will require a fundamental rewiring of all the car companies, including Ford.
We're well into the messy middle of the most transformational time other than the Model T you know, we've never gone through this electrification transition for low co two drive trains. We've never had a digital product before. We never could give people time back like we will with Level three autonomy. We're investing in all that enabling technology. We're very profitable
with our pro business and our combustion business. I'd say, you know, we're just a few years away from another vibrant period for the company, and as leaders, we see it before everyone else sees it, and so it's it's exciting for us, but we feel a tremendous amount of responsibility for your parents, for you, for my grandparents.
Reinventing a huge legacy company takes money and lots of it. Ford has said that it plans to invest twenty two billion dollars in electrification through twenty twenty five, and in twenty twenty one, GM set a bold target of transitioning its entire fleet to EV's by twenty thirty five, all to make a product the vast majority of consumers have yet to embrace.
I'm so proud of our domestic automakers for continuing to innovate, continuing to lead the way. They've doubled down on, particularly electric vehicles in the plight towards zero emissions. They've made the strategic investments and the automakers that we have today as we head into the year twenty twenty five are so different than the automakers of the turn of the century. The world is moving towards electric vehicles. We're seeing this in markets on all continent. We want the United States
automakers and workers to be leading the way. We want them to be dealt in.
Ford's Jim Farley admits that traditional US automakers have a long way to go, but insists they are making progress.
The growth in the US is still you know, we were up thirty forty percent in electric sales, were number two in the US to Tesla. We're also number three in hybrids. We're the only company that kind of you can buy an F one fifty electric or hybrid, or or a V eight. You know, it's your choice. And so we've learned a lot from customers. I think what's happened is we're in the mainstream customer, and the mainstream customer is totally different than their early adopters.
That consumer resistance to the next round of EV sales has caused Ford and the other US automakers to trim back their aggressive goals, at least for the time being, with Ford announcing it will entirely shut down its plans for an all electric suv at a cost of over four billion dollars, something Congressmen Stevens monitors closely. Even as she remains sure of where things are headed over the long run.
None of us fully know how the consumers are going to embrace electric vehicles. I know anytime I get with an automaker, I'm asking how are these cars being sold? What needs to be done? But one thing is very clear. The world is moving towards electric vehicles.
Whatever resistance some consumers may have to evs Ted Cannis, president of ford Pro, the commercial arm of the company, says, the story is very different for businesses running fleets of trucks, fans and emergency vehicles.
A retail customer is making the decision of choice and might be a very personal decision about their own commitment to what they like are the fast cars. But in a business, it's a business. You're trying to improve fuel costs, run maintenance, enter a quiet neighborhood in the working hours, there's real business res sands to have an electric vehicle.
Give what Cannis says about commercial demand, it's no surprise that his Ford Pro is now the company's most profitable unit. The challenge is keeping up with the demand.
The demand remains so strong, but it's for the rest of this year. I t it's going to be a backlog.
Do you have any.
Concern that that may give an opportunity to competitors If they can't get the vehicles they want when they want to get it, they might go to someplace else.
That has been a concern.
There's no question if there's open capacity, people prefer our product, whether on.
The consumer or the commercial side. The transformation to electric is about more than just propulsion and connectivity. The manufacturing process itself is fundamentally different, which could come at the cost of some employment, a major issue in the last collective bargaining agreement with the UAW and something that the congresswoman who represents many of the Detroit area autoworkers has very much in mind.
We're certainly seeing some volatility in the market. I'm eyeing still is very closely, in part because as they're transitioning, they're winding down some manufacturing. Then they're announcing job layoffs. They've got tight contracts, but there's also some tough conversations that are taking place even though those contracts have been set. In part, we don't want to be ushering in anything that isn't fair for the hard working men and women of our auto industry.
As if making the transition to EV's work hard enough. The Detroit automakers are doing it in the face of stiff competition, first from Tesla and now from Chinese EV makers, with Byd alone now producing over three million cars last year and threatening to export their much less expensive models into the United States, something that Biden administration says it will at least slow down by imposing tariffs of over
one hundred percent. For his part, the Ford CEO says that he doesn't object to the competition, provided it's fair.
I've been doing this for forty years. I worked for Toyota for a couple of decades. I've never seen a competition like this. They have full sponsorship of their government. The government bent on evs before anyone else in the world. They're the largest market in the world, and now they're the most important market in the world. We can compete and win against them, but we have to bring our a game, and we have to learn of a lot of new things.
This will be the.
Ultimate test of companies like Ford for the next one hundred years. I fully believe we can do it.
It's been a long journey for the auto industry and for Detroit, from the peaks of production, employment, and profitability of the mid nineteen hundreds to the deep valleys at the end of the century. Now it looks like it's truly regained some momentum and some of that pride that it lost, But the industry and Detroit may have their biggest challenges still ahead. We've talked about a very proud time for Detroit and for Ford and then losing some of that pride with sort of losing the way, both
for Detroit and for Ford. How do you make sure you don't lose it again? How do you make sure you don't make the same mistake in a different time, in different places.
This is the most important question for a CEO, and I think really the only answer is culture.
It can't depend on me.
It has to depend on kind of the heart and soul of our workforce who comes in every day, and their commitment to quality and cost is really only the only way to be enduring and sustainable. Great companies like Toyota did that to empower the factory worker to pull the hand on cord when they saw something wrong. And the only way I believe to sustain that afford is not me.
The future of Detroit can't depend on any single person or any single company. At its best, the story of the auto industry over the last century and more has been one of innovation and investment. Is not letting unimaginable success lead to complacency. As Andy Grove said, complacency breeds failure. Only the paranoid survive. Coming up a story about the restaurant business and the people behind it that's still ahead
on Wall Street week on Bloomberg. This is a story about what makes the restaurant business work when it all belongs food. It appeals the right atmosphere, people who make us feel welcome, prices we are willing to pay, and in the end, revenue to cover costs and make a profit. It can be a tough business, but ultimately, like any good recipe, it works only when it all comes together, all driven by a vision that turns a business into a calling.
I'm born bread and Buttered in Harlem and one hundred and fourteenth Street in Frederick. Douglass was one of the most notorious drug in the community. There's a school down the block, like halfway midway down the block. And it broke my heart to know that school kids on their way to school to learn how to witness that type of activity. And I always said, you know, I complained about it, and I'm like, but what am I going to do about it?
Melbolle Wilson is one of those who had a vision which led her to start her own restaurant in Harlem, as much for the sake of the neighborhood as for the food.
My parents are from the South. My father is from a very very small town, three stop lights, Hemingway, South Carolina. So they grew up saving money under their mattress. You know, they didn't trust the banks. So what did I do when I got paid? Whether it's at Sylvia's or Rosa Mexicano Windows on the world, Every Friday when I got paid, I put a little bit under my mattress. This particular day, I said, let me see how much I've saved up. Well, I started counting and counting and counting.
Then I got scared. I'm like, oh my god, it's a lot of money.
I'd saved up three one hundred and twelve thousand dollars in cash, in cash, five dollar bills, one dollar bills, twenty hundreds. But I said, what am I going to do with this? And I decided to change my neighborhood to be the change that I wanted to see.
It's not just Harlem that's been changed by restaurants like Melboury's, restaurateur of Danny Meyer, creator of the famed Union Square Cafe, and Grammercy Tavern says, the New York restaurant business overall is thriving, often driven by connections to particular neighborhoods all over the city, and.
I think people more and more crave getting out to restaurants. In my entire career, I have never seen our restaurants nearly as full as I are today.
Our restaurant won't make it without the passion and vision of a Danny Meyer or a Melboe Wilson, but it also has to make it as a business. So Miley tell us about the restaurant business. How does the restaurant business work? What drives it?
I mean, this is a tough business. It's a small margin in business, and I think as customers were probably not always aware of just how much it takes to make a restaurant successful.
Miley Carpenter is the founding editor in chief of Food Network magazine, and she says, as tough as the business is, it's also essential to the economic dynamism of cities like New York.
I can't express how important the restaurant scene is to the energy and the like. It's our life, but it's everything to New York.
There are over seven hundred thousand restaurant businesses in the United States, bringing in revenues approaching ninety billion dollars a month, or about four point six percent of the national GDP. Nationwide, restaurants employ over twelve million people, according to the Department of Labor, making it the sixth largest labor sector in
the country. But as important as restaurants are to our economy and to our everyday lives, many were driven to the point of extinction when the pandemic hit in early twenty twenty.
The pandemic brought really the entire industry, and I would say, especially in New York City, brought us to our knees because we were not allowed to have revenue outside of some pitily things like can you sell a bottle of wine out the door? And horribly one of the toughest things to reconcile was being an employee first company, and then being in a position where the only way to stay in business was to lay off a huge, huge percentage of our company.
In New York City alone, restaurants employed over three hundred thousand workers before the pandemic hit, but nearly half of those lost their jobs when the city shut down. Many restaurants didn't survive the crisis, and the rest had to make immediate changes to their businesses to keep them alive.
The pandemic upended the world of commercial real estate and with it the restaurants that depend on it, with much of the industry still struggling to recover as people have been slow to return to the office, something that has both affected restaurants near those offices and created a potential incentive to get people to come back.
We have diversified quite a bit our business model, especially going through COVID. I think we've learned the hard way because Daniel old model, as we all own and operated like he owns this resturant physically, the walls and everything else, becomes a lot of obligation to do this.
Sebastian Silvestri is CEO of Dynex, which runs Daniel Blude's company. He says restaurants like Ballues can be a magnet for office workers.
I'm going to take like one like a cel Green, for example, the one of our partner, and they have those spectacular building like when Vanderbilt one Medicine. They're trying to get tennant in. They're trying to bring people back to work in the office. That's their own business. They need to bring world class ammenities, and then they come to people like us and say, hey, what could we
do here? But I think a company like a cel Green, a larger commer show real estate company, they need world class commenity and then this is when they come to us. So it's been a win win for them and for us.
As hard as the pandemic hit commercial real estate, one might think rensfree restaurants would come down, but Danny Meyer says he hasn't seen that in New York.
Interestingly, the side rents are not down at all. It's almost seems like whatever struggles developers and landlords are having getting office tenants to come back, they're taking out on the people who are on the street, the retail people. So I would say that it's not necessarily a better time to open a restaurant than it was. But I have no question at all that the restaurants that have opened post pandemic have been some of the most exciting
vintage that we've ever seen in New York City. Anyone who opened a restaurant after the pandemic had a very very real sense of where their neighborhood was at that point, so that was a much better thing.
Well, in other businesses that would cause a renegotiation at that twenty.
Year lease, Well we tried, We tried with what success. Modest modest look. Landlords have the best subscription business in the world. It doesn't matter whether it's raining, they're going to get their rent. It doesn't matter whether there's an economic downturn, They're going to get their rent. So it's
a good business to be in. And unfortunately in New York City, one of the things that I find quite frustrating is that a lot of the landlords would rather warehouse their space waiting for a sunny day, and so that's not necessarily good for the streetscape of the city.
Despite all the challenges and uncertainties of running a restaurant, there are some that not only succeed, but succeed year after year and become a part of the DNA of New York City, something that New York restaurateur is like Danny Meyer and Danielle Ballud have shown over decades, with Danny starting Union Square Cafe back in nineteen eighty five when he was just twenty seven and Danielle Ballude opening Danielle eight years later.
We don't want to this oriental customer, neither these orient out team, but we want to continue to progress and keep us a level of excellence always and a style of cooking that belonged to us. Danielle, me, myself, my team, So there's always a French DNA in what we do. And yet you know, after so many years in America, there is this temptation of borrowing flavors, Like right now we're doing a beef dish and we're using miso as a curring and seasoning and flavoring around it.
I can talk about a place like Danielle. So it's thirty one years, so there's.
A lot of people.
I have been with Danielle for a long time, and I think that's the success in the Russian industry. That's what I tell people all the time is when you have good people, your job is to retain them, take good care of them, make sure they're happy, give them, you know, care and love and support, and give them a career. But every time we open a new place,
it's like you have to start almost from scratch. And you know, every ration is an enterprise in itself, you know, Russian like Danielle employ over one hundred people, Same with La Pavillon, same with Cafebulu, same with Central New York. So every rasta and he's a business on his own.
You know, I'm so proud of the fact that our two I was going to say oldest, but our two senior restaurants, Union Square Cafe is going to be forty years old in twenty twenty five. Grammercy Tavern is going to be thirty this year, The Modern is twenty this year, and Shakeshak is going to be twenty this year. So that's pretty good. And what I'm really proudest about is that in a city whose first name is New, where people definitely want to talk about what's new? Have you
been any new restaurants? They love that that's part of it. But I think what any restaurant strives to do that is here for keeps, or that wants to be here for keeps, that wants to become an institution in this amazing city. If you go to ten restaurants, I'm going to expect that seven of those ten restaurants are restaurants you've never been to. Because it's fun to discover a
new place. I want to be one of the three that make your list, ther rotation that you go back to, and you go back to him because your favorite restaurant, like mine, is someone that loves you the most.
As you've watched restaurants come and go over the years, is there some sort of rule of thumb of which ones work and which ones don't work?
I mean, I'm always fascinated by this. And when I'm eating out, I'm looking around, is what's making this place packed? Why is no one here when the food is great and it's this sort of magical combination of elements. And I think it's changing. And so restaurants that are able to quickly adapt to the way we eat now versus how we ate before COVID or how we ate ten years ago, those are the ones that tend to survive.
And when I look now at which restaurants are really you know, packing people in and able to keep them there. I mean, there's so many elements. I think fun is a very important element that wasn't as important maybe ten years ago. An element of sort of levity when we go out to eat, we want to be entertained. Surprise hugely important. Think about the restaurant experiences that you go
tell other people about. It's an element of surprise. It is something something and grabbed you, whether it was a little gift when you laugh, just that little something that makes you tell a story. I mean, I think the best restaurants are storytellers.
Whether it's surprise or fun or a story, it all has to come together and make us feel welcome.
When people come to a restaurant, they want to belong. They want to feel like if they've been there before. They want to know that you recognize that. They want to feel seen. I don't think is ever going to change. People want a hug, a virtual hug, but they want to know that you are happy to see them back there. And in a time when there's more alienation and if you can point your finger at social media, work from home,
whatever you want to talk about. I think restaurants are one of the great places that they're almost like a town hall that bring people together, and restaurants can recognize you and can be that part of your day that just makes you feel happy that you're in New York City.
And when all the pieces belong together, restaurants can help trans form a community or a city. We felt the loss when the pandemic hit, and perhaps we appreciate the connection all the more now that we can return to our favorite restaurant that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week with more stories of capitalism.