Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Wasn't thal Joe.
Speaker 2: I have a question, go on, what is your favorite
Speaker 2: chain restaurant. It has to be a sit down chain restaurant.
Speaker 3: Sit down chain restaurant. That's a really good question.
Speaker 4: You know.
Speaker 3: I actually really like Chilia's. I think they have Their
Speaker 3: fijidas are absolutely legit. And I say this as someone
Speaker 3: who is eating quite a lot of text mex Fijidas
Speaker 3: from my time in Texas, and so I think I
Speaker 3: have credibility and as a kid, and I haven't been
Speaker 3: there in years, but I still think my memory of
Speaker 3: the food is really good. I love Cracker Barrel.
Speaker 2: Oh, breakfast at Cracker Barrel is really really good. Well,
Speaker 2: I bring it up because today we're going to be
Speaker 2: answering the question of where all of these restaurants actually
Speaker 2: get their food from.
Speaker 3: That's a great question. I don't I don't know anything
Speaker 3: about it. I don't know anything about sit down chain restaurants.
Speaker 4: I mean, I don't know.
Speaker 3: I think about most chain restaurants period, let alone fast
Speaker 3: food ones. But the world of sit down ones that
Speaker 3: are real restaurants where there's waiters, waitresses, et cetera. I
Speaker 3: don't know a thing about it.
Speaker 2: You're not interested in my favorite restaurants. Oh, this is
Speaker 2: how it works. I asked you a question, and you
Speaker 2: were ciprocate.
Speaker 3: I was going to and I was planning to, and
Speaker 3: then you like turned a ninety degree angle to talk
Speaker 3: about to talk about we were going to start answering
Speaker 3: the question of where these comfort was like, oh, okay,
Speaker 3: I guess we're going on to some new direction here.
Speaker 3: We could just keep talking about favorite restaurant, Tracy, what
Speaker 3: is your favorite restaurant to sit down in?
Speaker 2: I actually have many? Okay, Red Robin, Oh, I still
Speaker 2: love that place. They had a salad that was basically
Speaker 2: just a plate of chicken tenders.
Speaker 4: It was so good.
Speaker 2: But build does a salad Fridays. You still love that place?
Speaker 4: I know.
Speaker 2: And there was one in London and it was like
Speaker 2: my anchor to America in the early two thousands. And
Speaker 2: Chili's Chili is with my Chili.
Speaker 3: Yeah, yeah, it's legit. Keep going. We're going to make
Speaker 3: up for the fact that I didn't ask you. But
Speaker 3: now I'm just keep going well.
Speaker 1: One thing.
Speaker 2: One thing I did realize recently. I've never been to
Speaker 2: an olive garden. I don't know why that is.
Speaker 3: I've been a few times. It's not that terrible. I
Speaker 3: don't think like I've been. I've even been to the
Speaker 3: one in Times Square.
Speaker 2: Yeah, but I feel like it's very hard to make
Speaker 2: carbs badly. Right, it's just pasta and bread.
Speaker 3: Yeah, uh, it's good.
Speaker 2: Okay, all right, I am going to move the conversation
Speaker 2: on now Apple Bee's.
Speaker 3: Have been to the one in Times Square? There, solid
Speaker 3: I do not like it. Why do we have to
Speaker 3: move the conversation on. I don't get it. Why can't
Speaker 3: we just keep talking about it? Sit down restaurant?
Speaker 2: All right, Well, we'll get back to them. We'll get
Speaker 2: to our recommendations. But on a serious note, one of
Speaker 2: the reasons we are interested in this subject is because
Speaker 2: we did a series last year called Beat Capitalism, where
Speaker 2: we talked a lot about agriculture and the chicken industry specifically,
Speaker 2: and anti trust and monopolies and things like that. And
Speaker 2: one of the things that stood out to me from
Speaker 2: that series was a comment from Doha Mechi, who is
Speaker 2: the former Assistant Attorney General, where she talked about the
Speaker 2: tyranny of the middleman in the economy, and I think
Speaker 2: this is something that people are, you know, perhaps just
Speaker 2: waking up to. There are all these companies out there
Speaker 2: that you have probably never heard of, but have massively
Speaker 2: dominant positions in the economy and charge a lot for
Speaker 2: their services. And one of those happens to be a
Speaker 2: very large company that provides food for all these sit
Speaker 2: down chain restaurants.
Speaker 3: You know, I'm going to play Devil's advocate on this
Speaker 3: episode because, as.
Speaker 2: You know, because you love chili so much, because I love.
Speaker 3: Chili's, and I love food production at massive scales, and
Speaker 3: I love.
Speaker 4: All of this.
Speaker 3: But it is true that there are all these companies
Speaker 3: that are really important that sort of sit between whether
Speaker 3: the retailer, the customer, or more in the case of food,
Speaker 3: more frequently the farmer and the end retailer of the
Speaker 3: farmer and the restaurant do we literally know nothing about.
Speaker 3: And they're huge and they're massive, and they don't get
Speaker 3: any attention, and so I am very interested in this topic.
Speaker 2: All right, Well, we do have the perfect guest. It
Speaker 2: is someone who has been on the show before I
Speaker 2: think maybe a year or two ago. Now, yeah, wow,
Speaker 2: time flies. But we're going to be speaking with Austin Frerik.
Speaker 2: He is an anti trust and agricultural expert and also
Speaker 2: the author of Baron's Money Power and the Corruption of
Speaker 2: America's Food Industry. It's a great book even if you're
Speaker 2: not interested in agriculture or anti trust specifically, it says
Speaker 2: a lot about the US economy, so I would highly
Speaker 2: recommend it. And Austin actually has just written a new
Speaker 2: chapter for his book that is all about this particular company,
Speaker 2: and I guess I should just say what it is.
Speaker 2: It's called Cisco.
Speaker 3: It's not the networking gear company.
Speaker 2: Not the networking gear company, although it does have the
Speaker 2: most generic origin story ever. So Cisco's stands for systems
Speaker 2: and services company.
Speaker 3: Yum delicious.
Speaker 2: All right, Austin, welcome back to the show.
Speaker 4: Thanks for having me on again. And I just want
Speaker 4: to say, you guys have me on last year really
Speaker 4: changed the course of my book, so I appreciate that.
Speaker 2: Oh, thank you.
Speaker 4: Well.
Speaker 2: It was genuinely excellent. I am not just saying that.
Speaker 2: I really enjoyed it. Okay, speaking of which, how does
Speaker 2: it work when you decide to add a new chapter
Speaker 2: to a book and why did you decide to do this?
Speaker 4: Yeah. So the funniest thing about this book was when
Speaker 4: I would do book talks, people kept telling me about
Speaker 4: barons I missed, Like I was in Idaho. They're like,
Speaker 4: let me tell you about a potato baron when I
Speaker 4: was in Indiana. There.
Speaker 3: We're going to get the name of the potato baron
Speaker 3: after the episode.
Speaker 4: So oh yeah, I have a whole purgatory folder that
Speaker 4: I just put this information into. But Cisco kept coming
Speaker 4: up and it was the weirdest placed origin story where
Speaker 4: so I talked fast and I know it. So I
Speaker 4: purposely been doing book talks and nursing.
Speaker 2: Homes, so you have to slow down and practice.
Speaker 4: Okay, I blame it on. I listened to podcasts like
Speaker 4: one point five point five, especially Midwestern and older people.
Speaker 4: You gotta take it down. And what kept happening when
Speaker 4: I was doing.
Speaker 3: You realize, if you're speaking fast because you're used to it,
Speaker 3: then people who listened to you on those podcasts are
Speaker 3: now listen you two and a half to three x speed. Anyway.
Speaker 4: It's bad because my husband listens to them on two
Speaker 4: x twos. We talked that way, and it's so a
Speaker 4: lot of times you do nursing home gigs, they'll value
Speaker 4: for dinner before and after. And it was people kept
Speaker 4: complaining about the food. And I mean, anyone that's been
Speaker 4: to a hospital or there's home in America, it's pretty bad.
Speaker 4: I mean, we're serving our most vulnerable people the worst food.
Speaker 4: And they kept coming up. But it's Cisco's one of
Speaker 4: those things everyone kind of complains about, but no one knows.
Speaker 4: And my mom used to have a bakery and I
Speaker 4: write about that in my Coffee chapter. And she had
Speaker 4: a Broadliner and her Broadliner disappeared. They got bought up
Speaker 4: by a bigger entity, and so I was just curious.
Speaker 2: And then that's broadline distribution.
Speaker 4: Yes, right, thanks for that's an industry term. I think
Speaker 4: of them as grocery store for restaurants. They were Amazon
Speaker 4: Before Amazon, they were the everything store.
Speaker 3: This is really important because when we're talking about Foo distribution,
Speaker 3: so there are broadliners. You get everything there from well,
Speaker 3: you know, your huge jar of olives to cheese or whatever.
Speaker 3: But then also a restaurant might also have specialty distributors
Speaker 3: too that like just really focus.
Speaker 4: On one thing, right if they have the option. Okay,
Speaker 4: in certain markets, usually most rural communities, there's very few options.
Speaker 4: But like for example, New York has one most competitive
Speaker 4: broadliner market, so restaurants here have a lot of different
Speaker 4: source and options.
Speaker 2: Yeah, I should just say this is going to be
Speaker 2: a very odd, lotsy episode because it brings together baking, warehouses, logistics, trucking,
Speaker 2: anti trust, all that good stuff. So I'm very excited. Okay, Well,
Speaker 2: on that note, how did Cisco get to be a
Speaker 2: dominant player in this particular space.
Speaker 4: I love this origin story John Bot. He's a different
Speaker 4: type of character compared to other barons my book. I
Speaker 4: really like him, like he's like a model businessman where
Speaker 4: he's one of those people comes out of Waco, Texas.
Speaker 4: His brother and dad died young, dropped out of college,
Speaker 4: leap Baylor to support his mom, worked at AMP, got
Speaker 4: transferred to the AMP in Houston, and he's one of
Speaker 4: those people you see in business history that just saw
Speaker 4: things before other people. He saw two important things. Number one,
Speaker 4: the rise of frozen food. We're talking like right after
Speaker 4: World War two and how that was going to and
Speaker 4: then also frozen food mixed with women entering the work
Speaker 4: at workforce knowing that they want to make quicker meals.
Speaker 4: So he thought, oh, people are gonna eat out more.
Speaker 4: And the thing to keep in mind here is our
Speaker 4: norm of eating out is a very new thing in America.
Speaker 4: Historically used to like bring a dish to something, it
Speaker 4: was like a church function. Now we eat up about
Speaker 4: once a day. So he saw that thing ahead of people,
Speaker 4: and he didn't think amp was moving fast enough. So
Speaker 4: he founded a frozen essentially a frozen berry company. But
Speaker 4: going back to this point, you made Joe about all
Speaker 4: these different things. That's how the idea from Cisco came
Speaker 4: from where literally some Irish oil man was opening a
Speaker 4: fancy hotel in Houston, and he was working the loading
Speaker 4: dock that night and he saw in the day a
Speaker 4: frozen strawberries. A frozen strawberry. I don't have a competitive advantage,
Speaker 4: but what I can do is this food buyer has
Speaker 4: like thirty different vendors for all these different things. What
Speaker 4: I can do is offer him as much as possible.
Speaker 4: So the origin of Cisco was he brought nine companies
Speaker 4: together to create it, and you realized some's gonna fill
Speaker 4: this at some point. So even though they only did
Speaker 4: business in a few state, he registered in all fifty
Speaker 4: states so that's how Cisco is created.
Speaker 3: I am fascinated by this idea because it's just one
Speaker 3: of those things that hadn't really occurred to me until
Speaker 3: like a read ear chapter, just like yeah, like it's
Speaker 3: really weird how much we eat out or it's just
Speaker 3: really novel in terms of the prevalence of restaurants. I
Speaker 3: mean I eat out way more than I did, like
Speaker 3: when I was a kid growing up.
Speaker 4: I think about that all the time. Used like Bonanza
Speaker 4: was like a buffet was like a special occasion once
Speaker 4: a week.
Speaker 3: And now I sit down Pizza Hut. That's another one
Speaker 3: that was such a big deal. Yeah and yeah, no,
Speaker 3: I just you just do it.
Speaker 4: Now, Well, let me pose a question to you. What
Speaker 4: do you think? And there's a new king The number
Speaker 4: one sit down chain restaurant in America is where you
Speaker 4: order off the menu.
Speaker 3: Oh, this is tough.
Speaker 4: Before I tell you it's my favorite train, your favorite chain,
Speaker 4: maybe my husband.
Speaker 3: I'm worried that, like I'm not going to know it,
Speaker 3: and then I'm going to be really embarrassed at how
Speaker 3: out of touch because you're going to say it is
Speaker 3: going to be really obvious. What is it?
Speaker 2: Cheesecake factory?
Speaker 3: No are we are we talking about by dollar volume?
Speaker 4: Dollar volume?
Speaker 3: Okay?
Speaker 2: All right, yeah, you're gonna have to tell us.
Speaker 3: I think I'm having stage fright.
Speaker 4: What's the Texas Roadhouse?
Speaker 2: I love Texas Roadhouse? Oh my god. They have the
Speaker 2: best red rolls.
Speaker 4: My mom brings to block bags and like I should.
Speaker 2: Have said, that was my favorite. They had one of those.
Speaker 2: When I was living in Abu Dabi, they had one
Speaker 2: and it was absolutely fantastic.
Speaker 4: You want to understand America, go to a text roadhouse
Speaker 4: on Friday night. Yeah, I wasn't one to buke Iowa.
Speaker 4: I was on book tour last weekend. I got a steak,
Speaker 4: vegetable and mashed potatoes homemade fourteen dollars.
Speaker 2: Un ironically, their sticks are really good, Like they're good.
Speaker 2: I always have to pull.
Speaker 3: Where do they get there? Where do they get their food?
Speaker 4: Oh? I mean who knows how they I mean you
Speaker 4: need to get it from Cisco and they you don't.
Speaker 4: I don't know.
Speaker 3: They only charged fourteen because of the incredible miracle of capitalism.
Speaker 3: Have been scared, Joe.
Speaker 4: My hotic is two things they do scratch cooking. Most
Speaker 4: chain restaurants now do frozen food. They're actually kind of
Speaker 4: brocoling in the back and number two volume. Okay, yeah,
Speaker 4: their surfers only have three tables and they move you
Speaker 4: so quick.
Speaker 2: I love that you're doing in person research on the
Speaker 2: subject of chain restaurants. But you know, you mentioned that
Speaker 2: we're not entirely sure where Texas Roadhouse gets its food from.
Speaker 2: How does it work the contracts between a restaurant and
Speaker 2: someone like a Cisco. What do we know about those
Speaker 2: specific agreements?
Speaker 4: So a few things. One we can kind of figure
Speaker 4: out what chain Cisco does based on its website. So
Speaker 4: it has a subdivision called Sigma. So if you go
Speaker 4: to Sigma's website, it will rage about its corporate clients.
Speaker 4: Some of them are all Garden Red Robin's one, you know,
Speaker 4: different chains like that. The agreements, there's a lot. I mean,
Speaker 4: what I do know from these agreements is what we
Speaker 4: see with public universities, and even that are not transparent.
Speaker 4: There's a famous one at the University of Iowa. Someone
Speaker 4: wanted to know what's the contract for food here? And
Speaker 4: it went up to Supreme Court in Iowa and it
Speaker 4: was rejected, which is kind of a weird thing, Like
Speaker 4: you think that our cultural state would have a really
Speaker 4: good source in the food. You would know the contracts.
Speaker 4: There's not a lot of disclosure here.
Speaker 2: They filed to see the actual contracts.
Speaker 4: Keep it closed.
Speaker 3: Yeah, Okay, So let's say a red Robin is it
Speaker 3: or an olive Garden is a client of Cisco. Would
Speaker 3: that be a national contract that would cover every Red
Speaker 3: Robin or Olive Garden or would there be any variation
Speaker 3: and read in regional distribution or anything like that, Like I.
Speaker 4: Would think so I would contextualize Cisco as think of
Speaker 4: it as like fed extra food. Okay, A lot of
Speaker 4: these companies that pattern products, and Cisco's just moving their
Speaker 4: patent pattern fries, you know what I mean? Like they
Speaker 4: all have their kind of That's what Cisco's there to
Speaker 4: do is outsource that part or handle that.
Speaker 2: Is there some giant like Cisco food production center in
Speaker 2: like I don't know, the wilderness of Wyoming or something,
Speaker 2: or are they sort of like scattered around the United States.
Speaker 4: Scattered around? I mean, this is this is harder to understand.
Speaker 4: There was a good Wall Street Journal article like twenty
Speaker 4: years ago, how a lot of your Jollopeno poppers in
Speaker 4: a restaurant I'll be all being made at one factory
Speaker 4: in Mexico. You know, it's cheaper to pay someone offshore. Essentially,
Speaker 4: you know, stuff it, but then you are sacrificing taste
Speaker 4: at some point. But Cisco doesn't own production facilities. It
Speaker 4: owned a slaughterhouse in Iowa at one point, but then
Speaker 4: it sold it off. So I can't quite figure out
Speaker 4: what they got into that. My guess is is for
Speaker 4: most restaurants, people pick their vendor based on They called
Speaker 4: center of the plate the protein, so they were trying
Speaker 4: to do quality control.
Speaker 3: Yeah, I'm sure you're the center of the plate. Yeah,
Speaker 3: a restaurant to refer to whichever protein. I already but
Speaker 3: this is so they don't have production what basically it
Speaker 3: is and you already said it's like fed eggs at
Speaker 3: its core, it sounds like it's logistics companies.
Speaker 4: Yes, most of theirm place are truck drivers. Huh.
Speaker 2: Your dad was a truck driver, right, you talk about
Speaker 2: this in the book.
Speaker 4: Yes, he works from a corn start company.
Speaker 2: So what did that experience of growing up with a
Speaker 2: truck driver dad teach you about a company like Cisco.
Speaker 4: So my dad used to be first he's being in
Speaker 4: the beer business, so he's a beer truck driver, and
Speaker 4: then he worked in beer sales. So that's actually where
Speaker 4: a lot of my I love looking at displays and
Speaker 4: grocery stores because my dad used to merchandise, so I
Speaker 4: love good merchandising. So like, my favorite grocery store is
Speaker 4: HAP in Texas LOVEHV No One merchant, No One merchandise
Speaker 4: is like that, Yeah, this is a fact, and so
Speaker 4: you look at that. And so like my dad always
Speaker 4: taught me like he could, he knew the type of
Speaker 4: demographics of a grocery based on the number one beer,
Speaker 4: like oh, this is a blue Moon hivy or this
Speaker 4: is a you know, red red Dog hivy. So there's
Speaker 4: different price points. And so my dad now does corn products.
Speaker 4: But just understanding because there's independent truck drivers, there's in
Speaker 4: house truck drivers, and there's kind of hierarchy to these
Speaker 4: different worlds all that kind of stuff.
Speaker 3: So let's talk about the competitive landscape because that's an
Speaker 3: addition to the fact that you know, you are a
Speaker 3: big fan of the stakes at Texas Roadhouse. That's why
Speaker 3: we're here. What does the competitive landscape for sort of
Speaker 3: this sort of broadline or food distribution to restaurant really
Speaker 3: look like.
Speaker 4: So that I mean, that's that's the big question anti
Speaker 4: trusty market definition. I mean that is is like my
Speaker 4: little pet peeve is, how do you define a market's everything?
Speaker 4: So like Cisco try to buy us foods, you know,
Speaker 4: back in twenty fifteen, and they argue their competition include
Speaker 4: Sam's Club. I think people like I just remember personally
Speaker 4: anadoltically my mom, we only went to Sam's Club when
Speaker 4: she ran out cups and needed to get cups between
Speaker 4: her next truckload. Most people would not include Costco and
Speaker 4: Samski as a broadliner and Texas Roadhouse.
Speaker 2: Is it going to Costco to buy steakes?
Speaker 3: But in theory or restaurant, I mean, I take your point,
Speaker 3: it's not really a comp but in theory, there probably
Speaker 3: are restaurants that source from some of these whole Yeah.
Speaker 4: I mean you can tell when you go in certain
Speaker 4: local restaurants, you'll see Costco branded products in the back.
Speaker 4: My bigger thing here is right now, a lot of
Speaker 4: what is a market is defined by highly paid economists,
Speaker 4: and these things aren't publicly disclosed usually. I kind of
Speaker 4: keep in mind, I come out of the Treasury Tax
Speaker 4: Analysis Office. The beauty of that world is you have
Speaker 4: Treasury doing tax revenue estimates UFCCBO, and then you have
Speaker 4: independent academic institutions like you PEN doing revenue estimates, so
Speaker 4: you have three different estimates coming at you for the
Speaker 4: same thing. I will love if we did something like
Speaker 4: this with market definition because here's the thing, these markets
Speaker 4: are pretty stable. Having like there should be a government
Speaker 4: agency doing market definition reports.
Speaker 3: So based on how you so the merger attempt was blocked.
Speaker 3: It so based on however the regulators at the time defined, Okay,
Speaker 3: this is the market, this is the circle we're drawing.
Speaker 3: What are we talking about in terms of market share
Speaker 3: and so forth?
Speaker 4: So keep so at the time too, there's basically three
Speaker 4: national broadliners and they were number one Cisco is trying
Speaker 4: to buy number two US Foods. That was read. But
Speaker 4: what's really interesting here is basically, even though Cisco got
Speaker 4: stopped two things number one, number two is trying to
Speaker 4: buy number three. Right now, US Foods is trying to
Speaker 4: buy I have to write it down performance foed. But
Speaker 4: then Cisco basically is engaged. When people call roll ups
Speaker 4: to my calculations, it's buying over two hundred and sixteen companies.
Speaker 4: So even though it got stopped once for this big merger.
Speaker 4: It's market dominance really comes from rolling up you know,
Speaker 4: a local Miami seafood place, local produce place, and that
Speaker 4: Anaheim that kind of stuff.
Speaker 2: So I know, roll up strategies started to get more
Speaker 2: attention under the Biden administration, but historically it does seem
Speaker 2: like regulators kind of go after the big M and
Speaker 2: A deals and they kind of ignore all the small ones,
Speaker 2: even though once you add up all the small ones,
Speaker 2: it can get a company into a very very dominant position,
Speaker 2: like with Cisco.
Speaker 4: I think this is the biggest one of the biggest
Speaker 4: dowop poles and modern competition policy in America. I mean,
Speaker 4: go back to my coffee bearing JB. Move they did
Speaker 4: was clinics because this sounds awful. They realize people are
Speaker 4: economically irrational with their pets when it comes to healthcare,
Speaker 4: so they bought over like fifteen hundred vet clinics they
Speaker 4: rolled up. Commissioner con helped put a stop to that.
Speaker 4: I generally think with big companies like this, once you
Speaker 4: reach a certain size, you basically don't allow them to
Speaker 4: acquire because you just know they're not buying a company
Speaker 4: for pro competitive reasons. But a lot of this flies
Speaker 4: into the right art because the Federal Trade Comission, you know,
Speaker 4: it's very understaffed. They can't keep they cannot keep tracking
Speaker 4: a seafood provider in Miami who's buying it.
Speaker 3: Talk to us more about what they rolled up or
Speaker 3: what they've been trying to roll up. So I take
Speaker 3: it these aren't other broadliners. Are these specialty? Are these niche?
Speaker 3: Are these regional?
Speaker 4: Like?
Speaker 3: What are they? What are the fragmented assets that they're
Speaker 3: consolidating onto the Cisco umbrella?
Speaker 4: All above?
Speaker 3: Okay?
Speaker 4: I mean they generally don't compete. They buy. Okay, like
Speaker 4: in Iowa, they came dial because they bought a broadliner,
Speaker 4: a local broadliner. That essentially what they did for earlier
Speaker 4: their history. Now they tend to buy more specialties. So
Speaker 4: they'll buy like hotel things, like little soaps. They'll buy
Speaker 4: a company that does like Asian food. They'll all these
Speaker 4: little things, and then they're starting to buy four in
Speaker 4: like an Irish broadliner, a Canadian broadliner, Coasta Rica broadliner.
Speaker 4: It's just kind of a blop that keeps growing.
Speaker 2: Am I a tomato broadliner? I brought Joe tomatoes tomato,
Speaker 2: really nice tomatoes.
Speaker 3: Niche, I think you're a specialty distributed.
Speaker 2: Yeah, okay, fair enough. I certainly don't do it in volume,
Speaker 2: especially this year. Okay, Well, on that note, in your chapter,
Speaker 2: it says that Cisco has something like twenty seven percent
Speaker 2: market share.
Speaker 4: It's unclear what the market share is.
Speaker 2: Okay, So originally this was going to be my question,
Speaker 2: like when we say that, what do we actually mean?
Speaker 4: We don't know. I originally in that chapter have A
Speaker 4: quoted as a fifty percent market share, but you sometimes
Speaker 4: you'll see forty, sometimes you'll see thirty. It really comes
Speaker 4: back to the market definition. That's why I want to
Speaker 4: go back to having some public entity debate this so
Speaker 4: it's transparent. But also partly what stopped that purchase of
Speaker 4: US foods is when you have to see looked into it.
Speaker 4: They are looking at metropolitans and they realize, like in
Speaker 4: Las Vegas and San Diego, it would have like an
Speaker 4: eighty percent market share. So even with food, we tend
Speaker 4: to talk national food is so local food markets particular,
Speaker 4: we really need to drill down regionally.
Speaker 3: What do they use this power for? Sitting aside the
Speaker 3: fact that they want to make a lot of money
Speaker 3: like all companies do, like when I think about the
Speaker 3: risk of anti competitive abuse or why I wouldn't want
Speaker 3: one company to have such a dominant, you know, share
Speaker 3: of a given market, I think, Okay, what is the
Speaker 3: potential for abuse? So maybe they say no, you're not
Speaker 3: you can't get access to all of this stuff unless
Speaker 3: you buy our all of Maybe could be one sort
Speaker 3: of thing, or they tell a restaurant you can't buy
Speaker 3: X unless you buy our soaps. Like what is the
Speaker 3: fear or what is the reality of what Cisco currently
Speaker 3: does with the amount of power that they have.
Speaker 4: Yeah, so two things number one, So it's it's not
Speaker 4: like you get a big sales book with the prices
Speaker 4: of Cisco. Those days are gone. Most of it's on
Speaker 4: an app and this is a black box. My understanding
Speaker 4: from people I've talked to is they always want to
Speaker 4: make their margin. So they might sell you your center
Speaker 4: of a plate, the protein at a loss or costs.
Speaker 4: They get you in the door, but then they'll make
Speaker 4: the margins up by tweaking the napkin prices. Here's the
Speaker 4: thing one could argue that's in violation the Robits and
Speaker 4: Batman Act because in theory, you should charge everyone the
Speaker 4: same price for x amount of units, but we don't
Speaker 4: know because.
Speaker 2: Of Oh so we think it might be personalized up pricing,
Speaker 2: but we're not sure.
Speaker 4: We're not sure. Okay, that is what some people have accused.
Speaker 4: The other thing to keep in mind here and the biggest,
Speaker 4: honestly part of the reason why I wrote this chapter
Speaker 4: is just the quality decline. I feel like most eating
Speaker 4: out in America, especially local places, it's all kind of
Speaker 4: eh because CISC companies like Cisco, they don't want to
Speaker 4: buy from like a local provider. They want one entity
Speaker 4: to do a bunch, and so it's just stifling out
Speaker 4: that kind of innovation, the quality, and especially in rural America,
Speaker 4: Cisco doesn't want to deal with local things, and so
Speaker 4: especially in I think an undercurrent two of my book
Speaker 4: I realized after the fact was the communities producing our
Speaker 4: food are actually being hit hardest by the food system.
Speaker 4: We saw in the Coger Albertson merger case failed merger
Speaker 4: that they're gouging the most in real communities. Most the
Speaker 4: broadliner dominance tends to be highest in real communities, and
Speaker 4: real communities tend to have the most fast food, So
Speaker 4: it's kind of getting the worst of all these worlds,
Speaker 4: So like New York has the best food, Like it's
Speaker 4: kinda the more yuppie you are in America, that probably
Speaker 4: the better food selection you have.
Speaker 2: That seems fair actually, and again like that's pretty ironic
Speaker 2: given that most of the food is grown outside of cities. Obviously,
Speaker 2: I'm going to ask the question that is very close
Speaker 2: to Joe's heart. But with market dominance tends to come
Speaker 2: pricing power. But on the other hand, with market dominance
Speaker 2: and scale comes savings from volume. Do we have any
Speaker 2: idea of like the net effect of a cisco on
Speaker 2: food prices in restaurants?
Speaker 4: We don't. I mean kind of what I realized writing
Speaker 4: this chapter and just in general with this book is
Speaker 4: I just kind of do everything as Goldilocks, and there
Speaker 4: is beauty to scale, but things have just gotten too
Speaker 4: far and things are out of whack. And I think
Speaker 4: with price and I brought this up last time, and
Speaker 4: it's the first slide I show people anytime I talk anymore,
Speaker 4: is Americans been more on average on food than most
Speaker 4: Western democracies. And I think it's like cliche to say
Speaker 4: I went to Europe and had cheaper food and it
Speaker 4: was better. I think that's how you've seen the system
Speaker 4: play out because you basically big big, gets big. You
Speaker 4: have all these big boys kind of like going at
Speaker 4: each other, and it's just kind of this race to
Speaker 4: the bottom.
Speaker 3: Talk to us more about the food creator side of
Speaker 3: the business. If I'm I don't know if I'm growing
Speaker 3: tomatoes or if I'm or if me and Tracy are
Speaker 3: growing tomatoes, to what degree the Cisco play us off
Speaker 3: of each other or squeeze our margins in order to
Speaker 3: get within the Cisco distribution system.
Speaker 4: I think the best example of that's in seafood. Okay,
Speaker 4: the seafood. Seafood in general America is just a dumpster fire.
Speaker 4: To to be blunt with you, there's a really and
Speaker 4: I'm gonna make a comparison here. CNBC came up with
Speaker 4: a really good story the other day where Walmart and
Speaker 4: Amazon are this big fight right now. Yeah, and Walmart
Speaker 4: basically has very low standards for its third party platform.
Speaker 4: There's a lot of fraud, a lot of abuse going
Speaker 4: on that platform because it's trying to get market share
Speaker 4: from Amazon. I would compare Cisco to that, where they
Speaker 4: don't here's the thing, they don't really care how their
Speaker 4: seafood source I mean, there's been so many allegations of
Speaker 4: the calamari coming from Chinese slave labor fish that's saying
Speaker 4: it's Gulf shrimp from the you know, from America. It's
Speaker 4: not just all these like these constant abuses in this
Speaker 4: seafood system, but Cisco not caring because all it cares
Speaker 4: about is price. Think of Cisco like the Walmart food distribution.
Speaker 2: That makes sense. So when you were reporting out this
Speaker 2: particular chapter, did you hear any specific stories from either
Speaker 2: restaurant owners or food producers about dealings with Cisco and
Speaker 2: what it's like to actually negotiate with them.
Speaker 4: The biggest critique I've heard is just the lack of selection.
Speaker 4: Cisco is such a dominance in a lot of these markets,
Speaker 4: local restaurant owners really don't have a lot of choices.
Speaker 4: That's probably the biggest critique I heard. And just my
Speaker 4: favorite phrase, and it's a subtitle of the chapter of
Speaker 4: this chapter is Tonight's dinner fell off the Cisco truck.
Speaker 4: We've all had those meals, you know what I mean.
Speaker 4: You go to wedding and you can just tell it's
Speaker 4: like the low Staer Cisco where it's just so blah
Speaker 4: and tasteless, but a lot of restaurants. I mean, that's
Speaker 4: kind of this whole undercurrent of this book. This chapter
Speaker 4: is I kind of think of this as my Frankenstein chapter.
Speaker 4: What started off as an aid to local restaurants make
Speaker 4: their life easier is now undermining them because they're losing
Speaker 4: their specialness.
Speaker 2: Oh yeah, On that note, didn't the founder at one
Speaker 2: point try to I guess he retired but was still
Speaker 2: connected to the company, and then he tried to correct
Speaker 2: some of what you're describing.
Speaker 4: Yes, I mean, I can't say this enough. He is
Speaker 4: a model business man. I mean, this guy he retired
Speaker 4: in the late eighties. He stepped aside, donated the charities,
Speaker 4: kept coming into the office each day, didn't want to
Speaker 4: sign parking, and he always trusted his people especially. He
Speaker 4: let basically each warehouse do its own thing, and I
Speaker 4: would compare it to like Whole Foods, famously Whole Foods
Speaker 4: let the managers do its own thing pre Amazon, so
Speaker 4: if they saw a good thing at the farmer's market,
Speaker 4: they could bring that producer in. He retires, few CEOs
Speaker 4: come along. One comes along, and the old man hated
Speaker 4: consultants number one. He's like they don't know my business.
Speaker 4: Number two, they'll probably chait even though they're not supposed to.
Speaker 4: They'll share my secret sauce with my competitors. New guy
Speaker 4: comes in, hires consultants, and what the first thing he
Speaker 4: says is centralized procurement. You instead of having all these
Speaker 4: local different things, get all your berries from one person.
Speaker 4: And what John saw is he saw change the numbers.
Speaker 4: So he wanted to go to the board to talk
Speaker 4: about this CEO. Time was kept being like, no, no, no,
Speaker 4: this is a nine year old man who built this company.
Speaker 4: This is his everything. He went around and got it
Speaker 4: to the board. According to one ext if he was
Speaker 4: in estquartered out the building, this broke the old man.
Speaker 2: Did he like literally go into the building and like
Speaker 2: find the.
Speaker 4: Board and no, he had a it could be a
Speaker 4: certain staffer, get it to all the board members and
Speaker 4: he was shown the door. This broke the old man.
Speaker 4: And you see the quality decline, you know, centralized procurement.
Speaker 4: Like you, I don't want to romanticize the Hall of
Speaker 4: Peanut pepper or like this kind of stuff, but you
Speaker 4: are cutting corners at some point when you're doing these
Speaker 4: like not everything can be frozen and taste just as
Speaker 4: good as a fresh thing. It's like a good example,
Speaker 4: it's actually a tomato, like a good summer tomato. Like
Speaker 4: there's no reason iohy can't get a good summer tomato.
Speaker 4: It's so easy to grow a tomato there. But they're
Speaker 4: all the same blah tomato grown who knows where. And
Speaker 4: that's kind of that kind of story. And part of
Speaker 4: it the argument I'm making there is part of regulation.
Speaker 4: Guard rails, whatever you want to call them, is almost
Speaker 4: prevent companies from themselves to stop a race to the bottom.
Speaker 3: It's interesting this idea that the restaurants can't distinguish themselves
Speaker 3: to the same degree because of the sort of decline
Speaker 3: in quality. And it strikes me. We did in upsisode
Speaker 3: with some guys who actually opened up a pizza restaurant
Speaker 3: right around the corner from Bloomberg, and in that case
Speaker 3: we were talking about the delivery apps, and the idea is, like,
Speaker 3: you know, one point in theory service delivery, et cetera,
Speaker 3: might have been a restaurant's calling card, right, we have
Speaker 3: really good we really know you, et cetera, And we have.
Speaker 2: We'll get to your house and fifteen minutes or the
Speaker 2: pizza is free.
Speaker 3: But then everyone in theory. It's like this game theory
Speaker 3: thing where everyone feels compelled to Okay, we're going to
Speaker 3: distribute through the well known delivery apps that everyone has
Speaker 3: heard about. And that's great, and on some level it
Speaker 3: makes markets more efficient perhaps although they've gotten so expensive.
Speaker 3: I think it's for me, it's more efficient often to
Speaker 3: just go pick it up. But that's besides the point.
Speaker 3: But the long term effect is essentially this sort of
Speaker 3: elimination of the specialness of the place. And so maybe
Speaker 3: there is more efficient, maybe the food is cheaper, maybe
Speaker 3: it does get too faster, maybe even gets too faster
Speaker 3: and hotter, et cetera. But this idea that we have
Speaker 3: this sort of textured economy with this sort of flora
Speaker 3: and fauna of businesses that are distinct, that of texture
Speaker 3: sort of disappears once they plug into these giant platforms.
Speaker 4: You just made a great neo brandeis argument.
Speaker 3: Oh great.
Speaker 4: I mean this might not shock anyone. I'm a neo
Speaker 4: brandised person. But that is my critique of the crant
Speaker 4: I trust framework is not everything can be put into Excel.
Speaker 4: How many hogs when persons shown, it's a question society
Speaker 4: is has to wrestle with and I make that kind
Speaker 4: of point in this chapter was at my wedding, I'm
Speaker 4: part check and we start col watches, which colatches and
Speaker 4: I are very different than the ones in Houston. Houston,
Speaker 4: they put meat in them, but like you can't buy
Speaker 4: col watches from Cisco. It's like the local little things
Speaker 4: make a place of place, and you're losing this the
Speaker 4: homogenization of the American food system. Everything's kind of the same.
Speaker 4: It's kind of blah. And that's what's it's hard to art.
Speaker 4: You can't. That's what's the thing that's missing. That's why
Speaker 4: it is a little it does seem, frankly a little
Speaker 4: hard to quantify this effect that everybody feel. I think
Speaker 4: of two little examples is my mom had her own
Speaker 4: coffee store and then she went worked at Starbucks. And
Speaker 4: what drove her the nuts the most, or something called planograms.
Speaker 4: She was told where to put every single thing on
Speaker 4: the shelf. And my mom worked next to a General
Speaker 4: Mills plan She knew that audience and she knew how
Speaker 4: to merchandise, but they didn't trust her. It's like the
Speaker 4: lack of trust and employee.
Speaker 3: We learned about planograms. Oh yeah, that's right with the
Speaker 3: Celsia CEO.
Speaker 4: Yeah, that was a good episode. Yeah.
Speaker 2: I have since walked into CVS's looking at the shelf
Speaker 2: space very very differently, and I'll just too.
Speaker 4: Oh, I'll just add on. The thing keep in mind
Speaker 4: is no one gets rid. No one opens a restaurant
Speaker 4: to get rich. Everyone. It's a really really hard industry.
Speaker 4: You're willing to sacrifice incomes because you do because what
Speaker 4: you love, and you just you feel that pride in
Speaker 4: local places and they're just running, they're running up hill
Speaker 4: more and more based on because of these structures.
Speaker 2: You know, you mentioned frozen berries earlier, and I know
Speaker 2: Barry Barons are in your book. Do the dominant companies
Speaker 2: like a Cisco or a Berry Baron, do they kind
Speaker 2: of like feed on each other? You think, like does
Speaker 2: Cisco naturally lean towards producers who are making stuff in
Speaker 2: huge volumes?
Speaker 4: I mean, I think it goes back to Walmart. I
Speaker 4: mean part of it was people in negotiating power when
Speaker 4: they negotiate deals with these companies. So you've got to
Speaker 4: get big, so you have some volume so you can negotiate,
Speaker 4: Like I think of I go back to Walmart just
Speaker 4: because I think of Walmart as the closest thing America's
Speaker 4: ever had to Soviet unions out Paula Buro. That's the
Speaker 4: weirdest chapter people have reached out to me about. Is
Speaker 4: all the suppliers, like you don't negotiate with Walmart. Walmart
Speaker 4: dictates to you. I think with Cisco, is they're just
Speaker 4: so big.
Speaker 3: These are centrally planned internal economies.
Speaker 4: Yeah, absolutely, and it's I think the best example of
Speaker 4: the bad qualities. Actually, the produce system in America partly
Speaker 4: is because of the farm bell we subsidize corn, we
Speaker 4: don't subsidize carrots, So our protoce system went offshore, you know,
Speaker 4: because you can exploit labor and exploit environmental stuff, so
Speaker 4: that green pepper's coming from who knows where, traveling long
Speaker 4: things and so. And it's also designed for durability, not
Speaker 4: for taste. And you're seeing the play out in your
Speaker 4: local restaurants where just the foods kind of.
Speaker 3: It's interesting you used the phrase earlier saving companies from themselves.
Speaker 3: I think even the companies seem to be aware of this.
Speaker 3: And you mentioned Starbucks is a great example because I
Speaker 3: forget what's the name of the Starbucks founder.
Speaker 4: He could everyone it's not Howard Schultz. That's who we
Speaker 4: think it is.
Speaker 3: Oh well, Howard Schultz. Every every few years his name
Speaker 3: is back in the headlines, and he himself seems to
Speaker 3: rue the fact that this company, which early on sort
Speaker 3: of had a local coffee shop vibe which I think
Speaker 3: he really liked, has not been able to sustain that
Speaker 3: in part because of, yeah, the required programs, and he
Speaker 3: complains about that. Everyone's like, we got to get back
Speaker 3: to feeling like a real Italian coffee shop. It never
Speaker 3: seems to happen.
Speaker 2: Well, one of the Ben and Jerry's founders just quit
Speaker 2: as well because Ben and Jerry's was bought by Unilever.
Speaker 4: So the funding each chapter, I realized, there's they all
Speaker 4: had these like niche Every commodity is different in America,
Speaker 4: and the like Therey's actually to be the most complex commodity.
Speaker 4: The whole Harry regulation America's written in the nineteen before we
Speaker 4: had refrigeration, So it makes no sense. The joke and
Speaker 4: dairy is only five people understand the dairy program and
Speaker 4: four are dead. And I was kid it seen with
Speaker 4: this dairy guy in Wisconsin last week. And there's a
Speaker 4: glut right now in the butterfat market be engineered, soybeans
Speaker 4: increased the butterfat. And the rumor right now in the
Speaker 4: street too is are feeding palm oyld the cows.
Speaker 3: Oh wow, speaking of dry you know when we did
Speaker 3: that episode with Mike Frohman recently and you mentioned that
Speaker 3: you asked him what was the bigg surprise? He learned
Speaker 3: as US trade repert He's like, oh, there's five hundred
Speaker 3: different things you could do with a dairy molecule, and
Speaker 3: because of trade rules. Anyway, by the way, just following up,
Speaker 3: I am currently in a touch with someone from the
Speaker 3: Big New Zealand Dairy cooperative Fonterra from Big Dairy, I
Speaker 3: am working on finding the dairy molecule specialist for that episode.
Speaker 2: Oh well, that's very exciting. Maybe we'll end up doing
Speaker 2: a three part milk series. Yeah, I'm sure we better
Speaker 2: hurry it up since it's almost October. Okay, is there
Speaker 2: anything that can be done about this? Like now that
Speaker 2: a Cisco has rolled up all these different companies and
Speaker 2: substantial market share, although as we were discussing, we can
Speaker 2: debate what that actually means. Is there like what swings
Speaker 2: that dominance the other way?
Speaker 4: Yeah? I mean to Joe's and just I just want
Speaker 4: to add on to Joe's point earlier about the companies
Speaker 4: not wanting to have to do this, but if they
Speaker 4: don't engage this beat, like the system design right now
Speaker 4: is they have to do this behavior. And I actually
Speaker 4: think about that with farmers now in America. The farm
Speaker 4: building right now is designed to maximize corns. You have
Speaker 4: to overplant corn even though it's bad for the environment,
Speaker 4: else you go broke. So everyone's behaving this way because
Speaker 4: we're in a Las Fair era. What to do about it?
Speaker 4: And that's kind of why I profiled this woman named
Speaker 4: Ellen in that chapter. She I think people crave heroes
Speaker 4: right now. No one's really articulating hope on whatever your
Speaker 4: local party is, what is a positive food system? And
Speaker 4: Ellen Ellen's fascinating where she's a farmer's two kids. She
Speaker 4: opened her own restaurant and then she opened her own
Speaker 4: like Cisco, because the problem she has with Cisco didn't
Speaker 4: want to take her product and sell to restaurants on
Speaker 4: Almahon to mooin, So she created a nonprofit Got it Up.
Speaker 4: They would basically pull different farmers in Western Iowa to
Speaker 4: sell into these It was using and they're also doing school,
Speaker 4: so that was a big one, but then they got
Speaker 4: hard hit by the Doge cuts. That to me is
Speaker 4: like maybe one possible thing is maybe extension. You have
Speaker 4: extension all across the world America. Maybe they can kind
Speaker 4: of get into that help this kind of procurement.
Speaker 2: Yeah, maybe you don't try to compete against Cisco on volume,
Speaker 2: but you go like hyper localized hyperlocal.
Speaker 4: But also something we got a rein in Cisco. I mean,
Speaker 4: looking at the black box of the pricing strategy would
Speaker 4: be huge. But also I think we should put merger
Speaker 4: acquisition freezes on these large entities. At some point it's
Speaker 4: like you can't buy anymore, like you've hit your cap.
Speaker 3: It's interesting, tracy. Like the other great homogenizing effect, of
Speaker 3: course on society is big digital platforms, right Instagram, et cetera.
Speaker 3: And everyone feels that they have to constrain whatever they do,
Speaker 3: whether it's a restaurant or media company, et cetera, in
Speaker 3: order to serve the elgo guy that is sort of
Speaker 3: capricious and unpredictable in some way. And it feels like
Speaker 3: the story, whether we're talking about the physical world or
Speaker 3: the digital world, is that scale has this homogenizing effect,
Speaker 3: which nobody really likes these conditions.
Speaker 2: Yeah, I think that's right. But also there are these
Speaker 2: like hidden tears of scale, viz. These middleman companies. All right, well, Austin,
Speaker 2: thank you so much for coming back on Odd Blots.
Speaker 2: Congrats on the new chapter, and I'm sure a lot
Speaker 2: of people will be looking forward to picking up the
Speaker 2: revised book.
Speaker 4: Thank you so much for having me on again. Joe.
Speaker 2: That was really enjoyable.
Speaker 3: Yeah.
Speaker 2: I always love talking about food. Although I haven't had
Speaker 2: lunch today, so I knew that. I'm a little bit
Speaker 2: Can we go to Olive Garden in Times Square?
Speaker 3: Let's do it right soon, I'll go. I'm happy to
Speaker 3: go there soon.
Speaker 2: Okay, I actually would like to go.
Speaker 3: Yeah, it's got great views. It's actually really fun and
Speaker 3: it's got great views.
Speaker 2: Oh you've been to that specifically one? Oh, I didn't realize. Okay,
Speaker 2: so there's a lot to pick out from that. I
Speaker 2: know you're on the side of cheap and plentiful food,
Speaker 2: but perhaps perhaps I guess the homogeneity of the offering,
Speaker 2: maybe that concerns you.
Speaker 3: It definitely concerns me. And this idea that no, and
Speaker 3: this idea that restaurants if they you know, so much
Speaker 3: of the preparation is done off site, et cetera for
Speaker 3: curious things that you eat, and so what is the
Speaker 3: restaurant anymore? And so this is a thing where scale
Speaker 3: is great and cheapness is great, and I'm all for this,
Speaker 3: And I think food should be a lot cheaper than
Speaker 3: it is, because we've had a lot of food inflation
Speaker 3: in this country and I think it's very worrisome, and
Speaker 3: so food should be a lot cheaper and more efficient,
Speaker 3: et cetera than it is. But when we think about
Speaker 3: the things that sort of make us a society. Nice,
Speaker 3: If if a restaurant is really just a sort of
Speaker 3: Cisco microwave, yeah, or Cisco man, right, a giant microwave
Speaker 3: that can connects a Cisco manufactur distribution system to a
Speaker 3: Grubhub delivery system, what world are we living in?
Speaker 2: Yeah? And I think it gets back to the flora
Speaker 2: and fauna point that you were making. So maybe you
Speaker 2: could have you know, uh, food that's cheap and maybe
Speaker 2: not of the highest quality, but it is plentiful and inexpensive.
Speaker 2: But then you should have you know, more local options.
Speaker 3: We brought me those really nice tomatoes yes, so thank
Speaker 3: you for those.
Speaker 2: You're welcome. So I'm doing my part.
Speaker 3: But I do not think that is a scalable solution
Speaker 3: for most people. No, And I grew up hating tomatoes
Speaker 3: because I thought that they were all really bland because
Speaker 3: I only got them.
Speaker 2: In the supermarkets. Yeah, it is phenomenal. How different a
Speaker 2: supermarket tomato taste from a homegrown one? Anyway, shall we
Speaker 2: leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm joll Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our guest Austin Ferk, He's at Austin Ferk, and
Speaker 3: check out the new edition of his book Bearings, which
Speaker 3: has a whole chapter about Cisco. Follow our producers Carmen
Speaker 3: Rodriguez at Carman armand Dash E Bennett at dashbod at
Speaker 3: Calebrooks at Kilbrooks. For more odd Loots content, go to
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