Russ Roberts

Roger Berkowitz on Fish, Food, and Legal Sea Foods

EconTalk Episode with Roger Berkowitz
Hosted by Russ Roberts
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Continuing Education... Eric H... Maximizing our RoG...

Seafood is highly perishable and supply is often uncertain. Roger Berkowitz, CEO of Legal Sea Foods talks with EconTalk host Russ Roberts about the challenges of running 34 seafood restaurants up and down the east coast. Berkowitz draws on his 22 year tenure as CEO and discusses how his business works day-to-day and the question of sustainability.

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0:33Intro. [Recording date: July 27, 2015.] Russ: Now, you started working in your family's seafood market as a 10-year old boy. What happened? How did you get to the top? Guest: Well, this is when parents can be really, really smart. They entice you to come to work because it's fun and you can be with your parents. So, essentially that's what happened. Growing up, it was fun to come to work on Saturdays or school vacations, that type of thing. I'd get up on a milk crate box behind the counter and I would learn to weigh up fish on a scale. They didn't have digital scales then; it was almost like a slide rule to learn how to use. And then talk to customers. Which was actually great fun. It was a great education. We didn't see it as work when we were doing that. But it taught us an awful lot at an early age. And then once in a while my father would take pity and give me 50 cents or something, as a little bit of an allowance. But we never saw work growing up as work. It was really just a way of being with our folks. Russ: But at that point your family had just the fish market? Or did they also have a restaurant? Guest: At that point it was just the fish market. Russ: So how did you get from a 10-year-old boy weighing fish and chatting with customers to be the CEO (Chief Executive Officer) of a 34-restaurant corporation? Guest: Well, it's kind of interesting. Historically, let me just give you a little bit of a backdrop of what happened. My grandfather had a grocery store in Inman Square, Cambridge in 1904. He operated that till the mid-1940s. A lot of competition with the new supermarkets that were coming into town and opening up. He was really a fanatic about quality--quality meats and produce. That was really his hallmark. He started to struggle against the advent of the A&Ps and the Stop and Shops of the world. And my father and his older brother were asked to leave school and help him in the grocery business. And they got there and they had a cousin who worked for one of the supermarkets, and the cousin said, 'Hey, if you guys want to compete, you have to have some of the niceties that the supermarkets have.' And one of the things they have are fish counters. So, my father thought, 'Okay, I'll put a fish counter into the grocery.' Well, the problem was the grocery store was only about 2500 square feet and it simply wasn't enough room. So, at that point he ended up leasing the adjacent storefront and opening up a fish market next to it. And so that's how my family sort of evolved from the grocery business into the retail fish market. And my grandfather eventually retired and a cousin ran a butcher shop and then he retired; and my folks ended up taking the fish market and expanding into the empty space of the grocery. And that's how we inadvertently got involved in the restaurant business. We had no background. We used to go out to eat on Sundays. Let's see--we used to alternate. Every other Sunday we'd go to IHOP (International House of Pancakes); and then we'd go to China City, which was a Chinese restaurant in Brookline, Massachusetts. So that was our cumulative experience in the restaurant business. Russ: And how did you get involved at the management level? Guest: So, part of it was really working after school. In high school, it was working behind the counter. And then, I think I was a junior in high school when the restaurant first opened. And it was really trial and error under fire. We didn't really have any background. We just knew we needed to do certain things in order to operate a restaurant. The good news is, I suppose, is there weren't a lot of restaurants going on that were around at that time, so you were sort of forgiven for making mistakes. And I think sort of the best scenario is--I like to tell people, you know, it's funny: growing up in that environment you were allowed to be sort of very entrepreneurial. We didn't have many preconceived notions about what food costs, labor costs of things should be. So the good news/bad news is that you made a lot of mistakes. Half the time we didn't know what the heck we were doing. But sometimes that creates to sort of leapfrogging you into a better place. So it was all hands on deck, who was doing jobs that needed to get done, and that was sort of the hands-on experience.
5:44Russ: So, when you became CEO in 1992, what was the landscape for the restaurant? How many did you have at that point? Guest: At that point I think we had five. And it was my father, my brother, myself. And it was different restaurants were just sort of coming into play. When I say 'into play,' it means it was sort of, there wasn't the thrust of restaurants then that there are today. So, restaurants were not as plentiful, that there were out there. I think one of the differential things, Russ, and it was kind of interesting for me in particular is that I went back to school. I'd been out of school for a good 15 years or 12 years. And there was a program that was offered at Harvard Business School called the Owner/President Management Program. And it was for people who had been out of school at least 10 years and trying to figure out how to grow their businesses and how to think about their businesses. And they took approximately 100 people a year, from different industries and different walks of life; and the age groups were between, say, 32 and 60. And I was one of the younger people in the class. I this was 1985. And I remember getting in there; and the guy who ran the program was a guy by the name of Marty Marshall. And he was a marketing professor. And he was a real curmudgeon. And I don't know if you've ever seen, Russ, the movie Paper Chase, with the John Husting [? Houseman] character? Russ: Yeah, I know about it. Guest: Okay. So, well, John Husting was a law professor; he used to torture his students. And if you didn't come into that class extraordinarily well prepared, you were destroyed, literally. Well, Marty was kind of like that in the business school sense. And there was a lot of people he'd throw bait out to, and of course they'd grab it hook, line, and sinker. And he'd kind of slowly reel them in. And then he would surgically cut off their legs in front of the class. And I'm thinking to myself, 'This is not going to happen to me. I'm not going to let this happen.' So, of course, when you're in class and you have a particular, tough professor or teacher, the thing that you try to do is avoid looking at them, hoping that they won't call on you. So, of course as luck would have it, they rotate the class; and this program was a program where you lived on campus 3 weeks a year for 3 successive years. And as luck would have it, I was sort of posted to the front row. And Marty's not an idiot; he was looking at me noticing that I'm averting his look. So, he comes, stands right in front of me; he goes, 'Berkowitz.' And I'm thinking to myself, 'No. Please. Please.' And he says, 'What business are you in?' So, I'm thinking to myself, it's not a trick question, is it? Russ: It kind of is, though. Yeah. Guest: So, I'm saying, 'Um, uh, uh, uh--I'm in the restaurant business.' And he looks at me and says, 'Oh, you think so? Huh?' And I'm thinking I can't believe I blew that answer. And he says, 'What you're going to do, you're going to do an environmental analysis of your business. And you're going to hand it in next term.' Well, an environmental analysis is, you take a look at your business, past, present, and future. So, I did this. I did a research paper; I was the only one given this assignment. I handed it in the next term; someone typed it for me; it was about 42 pages. And I handed it in. And when I handed it in the first day of class in that next term, he didn't even open it up. He waved it in front of my face and he waved it in front of the class, and he goes, 'All right, Berkowitz. What business are you in now?' And I said, 'I'm in the fish business.' And he said, 'Good. You did your homework.' It was the single most important lesson I ever learned. So, I think at that point--and his message to me was, 'Look: yeah, you are in the restaurant business. But you are really in the fish business. And you have not appropriately exploited the positive value of what you know in this segment. And before you go off thinking of Italian restaurants or Chinese restaurants or steak houses, or whatever, focus on what you know best and really become the expert in that.' And again, it took that banging across the head, the threat, the humiliation if you will, of going through that exercise that really sort of made me appreciate, but focus me on what was really important.
10:58Russ: So, let's talk about what it's like being a CEO in the fish business. Is there a typical day? And if there's not, give me some of the flavor of some of the days. What's it like, day to day, for you? Guest: So, you know, I don't like routine per se. And that's actually one of the great things about the restaurant business, and it certainly is a subset of that, the fish business. Because it's not as predictable. I mean, yes, you get certain friends[?] in terms of how many people are coming in and what the weather may and may not do. But with fish, and fresh fish in particular, you really don't know what's going to get landed. You don't know how many boats are getting in. You don't know how many people are going to be, might be bidding on what it is that you want to get. So there are days when you are fighting for product, fighting for the right kind of items on the menu where you have a more limited menu; what are you going to be doing on pricing? And then you sort of factor in what happens in the restaurant business. Which, you know, you have human resource issues. You have real estate issues. You have all kinds of issues sort of hitting you. So, I mean, I sort of, I don't if I pride myself; but I kind of have a short attention span, so I like the variety of things hitting me sort of all at once. Russ: So, there is no typical day. Guest: There is no typical day. There are days that are less aggravating than others. Russ: But what's--on most days, what's at the front of your mind and your experience on the job? Guest: So. Certainly you want to make the next day better than the last. And what does that mean? It means that, at the end of the day we are really focused on the customer or the guest experience. A very simple philosophy. People have different mission statements, if you will. Mine is very simple. It's three initials: RoG. And it really stands for Return of the Guest. And what I'm simply trying to do is make sure that we can enhance the overall experience that are going to encourage people to want to come back again. I mean, in some ways it's almost like the retail experience I grew up with in the fish market. We wanted people to come back next week. And in the restaurant business, you've heard the saying, 'You're only as good as your last meal.' And that's a truism. So, what is it that we can be working on, from a hospitality standpoint, from a menu standpoint? There's really going to want to encourage the guest to return. So part of what I focus on is: Where are we not doing as good a job as we can? Where do we have weaknesses? And how do you bolster those weaknesses? Russ: How do you find out what those weaknesses are? Do you use someone--here's different--this is a long question, but: Are you eating in the restaurant? Do you have spies eating in the restaurants? Do you use technology? And talk about social media where you are getting reviewed and you are getting 1 star because one of your waiters or waitresses didn't sleep well the night before, and the customer has a bad experience that is not really indicative of the whole, but it's sitting up there on Yelp. Talk about that whole world. Guest: So, it's a combination of all of the above. Certainly I try to keep enough of a pulse on the going in and out of the restaurants, where I get a sense. And I spot-check restaurants all the time. You get a sense of the flow. You listen to how people are interacting. Is there an anxiety level in the area? You look at people's plates: are they finishing their plates? You go and you watch to see how a place is, how clean it is, how the bathroom is cleaned. You are trying to look for the details. But in the old days, I think that, yes, we used to hire 'shoppers' who you might have referred to as spies to go in there, and what kind of experience that they were having. And they'd write it up and get back to you. And I think that was the old way of doing it. The new way of doing it now is really, and you mentioned it: Social media. I can't control what people say on social media. And you know, you have people that are very skilled and tactful at writing, and you have people that are not tactful at writing. And you don't necessarily know where they are coming from. Was there a fiance just let go from one of our restaurants? So you never really know the motivation behind it. However, that said, I do give--I look at social media today as a necessary evil. And I actually employ a service that picks up everything that's said about us on social media. And I get a report, as my management team does, every day, on what was said about us on social media. And so, yes, every so often there may be that 1-star review that doesn't seem to have a lot of credibility. But, you know, what if you see a couple of those 1-star reviews? Or what if--so I look at it as a trend, as an indicator. Because those truly are a guess, whether we like what they say or not. So, I tend to pay attention to those things.
16:56Russ: Let's talk about the competitive environment. As an economist, I tend to think of competition very, very broadly. Competition [?] would include a movie, would include a home-cooked meal, would include a restaurant meal that's not seafood; it would obviously include another seafood mood. And on the sourcing side, obviously you have competitors, grocery chains and others who are trying to get at the same supply you are getting at. How do you think about that competitive environment and how do you try to organize your thinking to deal with it? Guest: So, I mean it's interesting. I think of it in a couple of ways. One, in going back to my business: What is my business? My business is fish. It's sourcing, handling, and value adding. So, I have to make sure that I'm getting the best product. I put it through an environment. I have a processing plant with a laboratory; I test seafood for purity. I think I'm the only one in the country that will test swordfish and tuna fish--every swordfish and tuna fish--for mercury content. I hold all of our shellfish quarantined for 24 hours as we run a battery of tests. We test products for listeria. So, in other words, when it comes to the product, my point of differentiation is a). I try to source the best, but I also try to handle it in such a way that others can't. Now, the other thing is: Seafood is no longer a commodity. It's really a specialty item. And not everyone has access to it. And so I try to make sure that under that product we are sourcing it at the very highest level. And so I look at it that way. Now, if people--but you see, because I look at it as we're in the fish business, I may be in the restaurant business but I'm also starting to look more and more at supermarkets as a way of putting value-added product under our label, whether it be chowder or whether it be shrimp. Because look, understanding that there are going to be people that say, 'You know what? We don't want a restaurant experience. Either it's not convenient or it's too expensive, or something. And maybe we'll have a near-restaurant experience at home, if I can get this product in the supermarket. And then marry that with a bottle of wine. I'm going to have a near-restaurant experience.' So I fully acknowledge that that is a possibility. And that's a channel that we have to be in, as well. Russ: What do you know about seafood and the restaurant business today that you did not know when you were first on this job? And what role does technology play in that transformation? Guest: Well, I think that--I've always been focused on quality assurance. So, I think it's certainly become more important today than ever before. Sustainability, as a concept, has become more important, particularly to the growing segment of Millennials. They really want to know what their product--where their product is coming from, who is harvesting it, in what manner it's been harvested. And I think that's totally appropriate. So I think people are wanting more information today than ever before. And I think that there are--whether it's communications or traceability--there are certainly ways we employ to get people as much information as they want about a given product. Because if we are able to do that it underscores what we are about to begin with. Russ: Let's talk about sustainability. The Monterey Aquarium has what it calls a 'Seafood Watch.' And it's got guides that you can download. I downloaded Massachusetts for fun before this conversation. And there's some suggested fish that you should order. There are some that are 'okay.' And there's some that you should avoid--meaning that they suggest that you should not order these because they are currently, their stocks are in danger, overfished, and a prudent, sensitive customer should order something else. You've been critical of their list. Why? Guest: Well, because I think that they--it's interesting. I think that their guide has been helpful to a lot of people; they certainly see their guide as a source of income, you know, to the Aquarium. But I don't think they really--I think they paint a broad brush, and inadvertently in the past they have done harm. I'll give an example. I was on a panel at the Culinary Institute of America; there was a guy on there who was representing the Chef's Cooperative. And he made a statement--now, again, I haven't taken a look at what's on the pamphlet today--but he made a statement that you should not be eating cod or haddock from the North Atlantic. And I said, 'Why would you ever make that statement?' And he whipped out his card and said, 'It says it right here.' And I said, 'Well, this is what--' Russ: And it's based on science. Guest: Well, well, actually, and that's actually something I want to cover in a little more depth. Because it's not based on best available science. And I will get back to that in a moment. But NOAA (National Oceanic and Atmospheric Administration)--very conservatively, comes up with a quota system in terms of what they will allow to be landed in terms of stocks. And I may not agree with the amount that they allow, because to some degree I think sometimes they were a little draconian in terms of what they will allow in terms of haddock and cod stocks, as an example. But whatever is landed is deemed sustainable. And so for someone to come up or to promote something that says in a pamphlet you shouldn't eat it, is doing irreparable harm to the infrastructure of an industry. Now, again, maybe they could be harvesting a lot more than is allowed. But whatever is harvested is deemed sustainable. And I think that was the wrong message to put out there, that people should avoid them. Because it really hurt the fishermen. It didn't mean that the fishermen were going to catch less of that product. NOAA had already established how much of that product that they were going to be able to have. But to say whatever is landed is not sustainable, I think that that's a mistake, and I think that continues to do harm to the industry. Russ: So help me out here, because this is the first I've heard of this. And maybe many of our listeners are in the same boat, so to speak, as it were--sorry about that. But NOAA is the National Oceanographic Agency? Guest: Yes. And they are in charge of national marine fisheries. And under the Magnuson Act, they are charted to employ the best available science for doing their stock assessments. So, they have been using a methodology that was developed many, many years ago, and it involves a boat going back and forth over an area quite like a lawnmower on an area of lawn and gathering information, and then interpreting that information as to what the quota will be for a year. They actually shouldn't be using it every year. But they use it in sort of an every other year kind of scenario. And oftentimes when they do this stock assessment, at the 11th hour they'll tell the fishermen, as they did two years ago, 'The stocks don't seem to be rebounding according to this data, and therefore you must cut back 77% of what you are currently harvesting.' And so, just think of, regardless of the business you are in, if I told you, Russ, whatever you are doing you've got to cut back on it 77%. That in itself is not sustainable. So, that's sort of what happens to the fishing industry. And for every job on a fishing boat, there are 7 jobs that sort of go back in the infrastructure of that industry. So it has a domino effect when something negative occurs. Now, all that said, we're all in favor of sustainability. And I'm not a scientist and I don't pretend to be a scientist. But I will tell you a story that took place 7 years ago. The President of Northeastern University, Joseph Aoun, invited me out to take a look at their Marine Science Center, was an area of Nahant, Massachusetts, and I went out there. And it was a fascinating place to visit; lots of research scientists there. And there was a husband and wife team that was on a grant from Homeland Security. And they were using sonar to determine, help determine, if there were any enemy vessels that could potentially encroach on our coastline. And so I kind of naively said, 'Gee, can the sonar be utilized in any fashion to help do stock assessments?' And they kind of looked at each other and laughed and they said, 'Here, take a look at this picture from mapping that we did. We did this in an area where NOAA said there wasn't very much happening.' But what they missed and it was an area, a body of herring the size of Manhattan. And what sonar allows people to do is to do a 120-kilometer radius in four different dimensions, and they can check the different species because it measures the air and the lung capacity of the various species. And it can do it in 70 seconds. So I said, 'Well, gee, why aren't we using this?' And they just shrugged. So I ended up bringing in someone who was a State Representative from Gloucester, Massachusetts to take a look at it. And within short order we had our Attorney General; we had Congressman Barney Frank; we had Senator at the time John Kerry, and all of his people. We got the entire Massachusetts delegation on board saying, 'We've got to use this kind of technology to do our stock assessments because it's a disservice to the fishing industry not to have this information.' And I don't know if there's more fish or if there's less fish, but I really want to know how much fish. That's really what needs to be done. And one of the most conservative groups up here--I say 'conservative'--it was an environmental group, still is, called the Conservation Law Foundation. They absolutely agreed with me on this. And they said, 'We do need best available science. It's not getting used.' And today, it hasn't been done. The Governor of Massachusetts at the time, Deval Patrick, had put aside a million and a half dollars to use this as a test, and the Federal government will not allow it to go through at this point, because--we all believe, everyone believes--is because they don't want their previous results called into question. Russ: Yeah, it's awkward. Guest: It is very awkward [?]. However, we are making progress. Secretary Kerry did convene a conference on oceans in this past year. In his opening address--because I was fortunate enough to be invited--he said 'We need best available science.' And I think that really has to be the mantra. Again, I don't know if there's more fish or less fish, but I do know we need accurate assessments in terms of what's out there.
29:43Russ: So this is a classic example in economics of the potential tragedy of the commons--that no one owns the oceans; that there can be a tendency to overfish them because if you throw a fish back that's too small you have very little chance of catching it again; it'll go to one of your competitors or you won't catch it and therefore you have an incentive to keep a small fish. And as a result too many fish get caught, and therefore the overall health of the ecosystem can go down. Now, historically, as we've talked about on the program before, many times people in the fishing industry, certainly in the lobster industry where lobsters are very easily located, they are very aware of this and they work hard to set up a set of informal rules. What we're saying is that the government has set up formal rules to try to restrain the incentives that might exist when there is public property rather than private property. Obviously if you owned the ocean, you would want it to be sustainable. But I will let you know that the Monterey Bay Aquarium Seafood Watch says you should--right now, at least on their website--says you should avoid Atlantic cod in the Canadian or U.S. sourcing, or haddock from the Gulf of Maine, which you had I think referenced before, as well as halibut. The list goes on. But you are saying that because, in theory, NOAA sets quotas that make those stocks remain healthy that that's not a recommendation that people should worry about. Guest: I think it's irresponsible because it's based on faulty data, a)., and b). I may disagree with the quota that NOAA allows, but whatever is landed is deemed sustainable. And whether Monterey endorses that or not, it's still going to get consumed. Now, I think there are other issues out there, like global warming, as an example, that have had some kind of, that have forced certain species to go more northward. As an example, haddock and cod is not as plentiful as it once was in the New England waters. But the water temperature has also risen 3 or 4 degrees. So it also has nothing to do with overfishing. That fish actually is swimming north, and they are having record catches right now in Iceland and Norway, where the waters are colder. And, by the way, they use better available science, including sonar. Russ: Other than just mentioning that I always wonder whether NOAA has the right incentives to pick the right level of sustainability. Obviously they are not a purely scientific organization. They may be susceptible to fishing lobby, your interests, my interests, right? Guest: I tend to think that they are not imposed[?] by the fishing lobby. That opinion. Russ: Okay. Could be good to know. That could be good news.
32:47Russ: Let's talk about particular fish. What is your biggest selling fish, if you can tell us that? Guest: Gosh. I think in aggregate given the number of different dishes that it appears on, probably shrimp. Russ: So, I meant actual fish fish, but I'll take shrimp. In terms of actual fish fish, would it be cod? Guest: Uh, cod is popular. And I buy a fair amount of cod from Iceland. Russ: So let's take those two examples. You alluded to it earlier; you said you have to buy the right amount, I mean, you can get access to it, to make your menu work. How do you do that? Have you thought about having your own fleet? You said you're in the fish business--you could vertically integrate. Guest: Yeah. I almost put out a boat once. And I think it would have been a huge, huge mistake. Because catching fish-- Russ: Different business-- Guest: and selling fish are two different things. So, although I might have been deluded at one point that thinking vertical integration was the way to go, that would have been a disaster as far as [?] Russ: But what I'm thinking about is that if a customer decides to eat cod or shrimp tonight, the customer can go down to the local grocery; or it's romantic and fun to go to the local fish market where you can see the boats come in. You're not doing that. Or are you? How does the market work at your level? It's obviously not the same as when I go in and buy a pound of fish at the local fish market. You're buying enormous quantities. And I assume you are bidding with other large consumers of cod and shrimp. Guest: Well, I might be--my competition in that regard might be wholesalers, who are then selling to other restaurants and/or markets. Russ: Smaller restaurants, presumably. Individual. Guest: Yes. So they are the middleman, if you will. So I try to go as direct as I can. And by the way: the higher quality product does not come at a discount. Oftentimes I really have to pay much more to get the best quality. Russ: What's the mechanism? Are you doing this--you are not doing this every day? Guest: Uh, yeah. Boats come in. Yes. It's a fresh product. Russ: You don't have any long term contracts or relationships with fishing ships, with fisherman? Guest: You know, it's interesting. The West Coast operates a little differently than the East Coast. The East Coast is really, in some ways not as sophisticated as the West Coast. No, it's more of a daily auction that takes place on the East Coast. Russ: But you're going to make sure you get a minimum amount of everything on your menu. The last thing you want to have happen-- Guest: Well, no. Sometimes I have to go without. If I don't see, if I can't buy quality whatever--grey sole--then it's not on the menu. Russ: And do you tell the customer that? Or is it just happening-- Guest: Yes. Absolutely. Russ: every day. Guest: Absolutely: 'It wasn't available today,' or 'I didn't like the quality today.' No, so absolutely, we'll pull the trigger on it. And the other thing I think it would be good for listeners to know is that a true fisherman--and people like ourselves that are in the fish business--are conservation-minded in our very core. We have no incentive nor interest to catch the last fish. Russ: That would be bad for you. Guest: Yeah, it would be bad. Russ: Good today, bad tomorrow. Guest: Yeah, absolutely. And so we look for sustainability as well. And true fisherman have always been conservationists in that regard. So I think that--yeah, look, there were scenarios, going back into the late 1970s, early 1980s, when the 200-mile limit went into play and the U.S. government, I don't know whether it was just bad strategy--they tried to incentivize the U.S. industry with all kinds of tax incentives and whatnot. And the U.S. fleet grew three-fold in a very short period of time before anyone had the time to monitor what was being taken and how it was being taken. Now, I'll let our listeners know, it turns out that you and I went to the same Junior High and High School. I don't know why I like that, but I do. It's interesting how human beings like to bond over meaningless things. Guest: Oh, no: it wasn't meaningless. Russ: No, Miss Kinneen was not meaningless. We both had an extraordinary 8th grade teacher, Miss Kinneen who I've mentioned I think before on this program. But when I was a little boy, my dad and I would drive to Gloucester and we would rent a large rowboat, maybe a 10', 12' rowboat. We'd row for about an hour, with our friend Lenny out, way out it seemed like to me where you could barely see the town in the distance that you'd left behind. And we'd catch flounder for a few hours. And we'd toss them in the bottom of the boat. We'd get home; we'd toss the flounder into the trunk of the car; and then my dad would clean them in the driveway when we got home. Now, at some point, the fishing business--that was the technology of keeping things fresh. Maybe you had a cooler along the way in that. I'm sure we did at some point. Ice played a role at some point in that story. But in your business, at the level that you're talking about with the emphasis you have on freshness and safety--safety in particular--how has that world changed since, say, 1992, or going back a little further when you were younger and weren't CEO in your business. I assume there's been something of a revolution in how fish are preserved once they leave the water, and get on the boat and get into your restaurant's cooler. What's changed? Guest: Well, certainly people have gotten more sophisticated in terms of how they handle product, because they figured out from an economic standpoint that they are going to be paid more money for better product. And so that has some [?]. So to the extent that we know who is catching--we know what boats go out there; we know who got the fish immediately and ice in the fish immediately. We know those boats. We pay more for--those are the boats we want and we pay a premium to get that fish. We know the draggers out there in terms of who is hiring and who isn't hiring; who is dragging in a sustainable manner. And that's the fish that we want. Because they take care of their fish in a better way. So, I think that more and more people are figuring that out, more and more fishermen are figuring that out, that people will pay more money for better fish. So, that's, you know, kind of it's sort of the incentive. We certainly would never do business with someone that wasn't taking care of that product properly--wasn't harvesting it properly, wasn't icing it in right away. And for us, it's as soon as it comes out of the water it has to go into cold temperatures. It has to be transported by truck in a cold environment. And our plant is kept temperature-controlled. So it never really comes out of temperature until it goes on the fire. In fact, what we do, we have our fish processing plant in Boston, in South Boston. We filet every fish and portion every fish in a temperature-controlled environment. Because we don't want it going to a hot kitchen where inadvertently it could be left out, and all of a sudden you have a great piece of fish that all of a sudden doesn't taste that good any more, or has a bit of age to it. Russ: So, two questions: You are saying that it's--is that done by hand, that portioning? Or is it done by machine? Guest: So, machines are getting, are becoming more prevalent. They are prevalent in the skinning. So, you mentioned flounder. So, flounder and grey sole as an example would be skinned by a machine, because it's simply faster and it does a better job. We still filet our fish, we still filet our haddock and cod by hand. We use a lot of salmon. We have, we just brought in a machine that will actually filet salmon, from a whole steak. Russ: So it's easy for a machine to be in a cold environment. But the people who are doing it by hand you are saying are doing it in cold temperatures. Guest: That's in a cold environment as well. Russ: Yeah, that's what I'm asking. So they're working in the equivalent of a refrigerator. Guest: Uh, yes.
42:06Russ: What about the freezing technology? My impression is, is that some boats--I don't know if it's Atlantic, Pacific--you hear about sushi all the time because they are always worried about supply of a certain, say, type of tuna. They are "flash freezing" it. Is that common? Is it universal? What does that mean? And what's the difference? Is there any difference between my freezer and that? Guest: Yeah. Yes there is. Because commercial freezers, which might take the form of nitrogen, gets the fish very, very cold. And if you use nitrogen as an example, it brings the fish down to 20, 30, 40 below 0 [zero degrees Fahrenheit--Econlib Ed.] And it does minimal damage to the cell structure. Whereas, in the old-fashioned way of freezing a fish, might be such that the fish would absorb too much moisture, and that was a sort of, you know, in people's idea [?], this tastes frozen. A fish that has been put into nitrogen would be very, very difficult unless you were an expert and doing a side-by-side, to tell whether a tuna, for example, raw tuna that you get in Japan, had been frozen or not. Actually most of the tuna in Japan has been frozen. Russ: And, is every high-quality fishing boat doing that with their catch? Or are they just keeping it cold? Guest: Uh, tuna boats, yes, I believe they are because the majority of the tuna are actually shipped to Japan-- Russ: So far-- Guest: So I would say the majority of the tuna boats are. Russ: And the issue there is it's such a long trip, it's--you have to freeze it, essentially? Guest: Uh, yes. I mean, sometimes it's flown in fresh. You know, I've been to the Tsukiji market in Tokyo. I don't think I saw any fresh fish when I was there. I saw lots and lots and lots of nitrogen-frozen tuna. Russ: So, you have, I think, you have a lot of restaurants in Massachusetts. But you have one in Rhode Island; you have one in Washington, D.C.; you have one in Atlanta, Georgia. How do you source that Atlanta, Georgia one compared to your Massachusetts ones? Guest: We fly fish--we fly fish in. Russ: What does that mean? I know what it literally means: they are on an airplane. But are they going cargo? Do you have your own plane? How do you do that? Guest: Yeah, no, no, no. It's, you know, it's cargo, Delta Airlines. You know, we pack. There's particular--we can do quality control when we oversee the process from the whole fish to the fileting to the portioning of it. And then we pack it ourselves and send it off. So that from a quality assurance perspective, we don't see a better way of doing that.
45:12Russ: So, let's talk about portion size. Because that fascinates me. Most people--there's a little bit of a pushback lately, but restaurants in general have portions that have gotten larger. Food has gotten cheaper. It's gotten--restaurants are better run. You've got better control through inventory. You can still make a profit at a lower price. Competition is forcing that price down. It forces portions to be healthy in terms of size, not necessarily healthy in terms of health. But meaning large. How has that changed in your 23 years as CEO? Guest: It's kind of interesting-- Russ: How do you decide what portion to serve? Guest: I mean it's, part of it is, and I'll tell you a little bit of a story. I think aging boomers are one group that have always been used to seeing larger sizes. And gosh, about 7 years ago, what I'm trying to do in the course of running our operation is that I usually on a quarterly basis take someone from the front of the house, someone from the back of the house--it can be a wait-staff person, a host person, a bartender, it can be a cook--but not management. And so I usually take two people from every restaurant to get their perspective, because oftentimes these are people closest to the guests that is never asked questions by management. And they have a lot to say in terms of what they observe, and what they can add to the conversation. And I've used them in a variety of ways for a number of different strategy sessions I've had. But I was putting together a restaurant--I had an idea for a new restaurant concept. It was called the Legal Chess Kitchen. And it was a smaller restaurant and I really wanted to target Millennials--the 20 and 30 year olds. You know, the sort of non-traditional customer. And I remember--you know, I had this group, and sometimes I'll lead them by saying, 'You know, we want a restaurant with big portions.' And they are looking at me like I had two heads. And I said, 'What do you mean? You want big portions, don't you?' And they are saying, 'No.' What they were actually asking--this was 7 years ago--they said, 'We really want smaller portions. We want more variety of taste. We want a share. We are not looking for big portions. More tapas-style, if you will.' And it was sort of like a great, aha moment went off in my head. You know, aging boomers, today, grew up in a different set of circumstances, their parents motivated by different things. It was always about how big a portion of meat you got, or how big a portion of this that you got. And today I think that the Millennials today as an example, and maybe the Gen Xs and Yers, and certainly the seniors are more conscious about what they are putting into their bodies. And they are looking for a higher quality. But it's really not about portion size. And it's really not about, aw, how much can I eat. In fact, what I'm seeing more of today in the restaurant business today is that if they can't finish it they want to take it home. So I see a movement today on more healthful portions. Because really, if you look at some of the healthiest of populations, and we can take a look at the Asian population in Japan, you know, and going back to the 1950s, 1960s, and 1970s, it was always about an appropriate amount of protein. Not too much protein. But coupled with the right amount of carbohydrates. And the right amount of fat. More in balance. And I think that we see a more intelligent eater out there today, you know, than someone simply looking at the most amount of protein or the most amount of ounces out there.
49:22Russ: So, how do you manage that? How do you play with that? How do you discover--like you said, that was a revelation. Surely it would a surprise for anyone in the restaurant business that people don't want bigger and bigger portions. Obviously there are restaurants that specialize in that, in large portions. But, in your niche, that's not necessarily what people want. When you discover that, how do you adjust? Is it trial and error? Do you have--do you go back to those servers and ask them how much people are leaving on the plate? How do you deal with that? Guest: Yeah, I mean, it's sort of a combination. But also, plus the fact--I think that restaurateurs have an inherent responsibility to sort of get it right, what is helpful. A number of years ago--remember the trans fat--I mean, trans fat-- Russ: Still going. Guest: Still going. But--this is a true story. So, 15 years ago I was invited to sit on a roundtable at the Harvard School of Public Health. And the guy who was leading that was a guy by the name of Walter Willett, the Chairman of the Department of Nutrition. And so this is--maybe like 6 of us. And Walter went around the table asking each of us if we had trans fats. And he asked me if my cooking oil was trans fat free. And so I'm looking at him--I'd never heard of a trans fat before. And I'm thinking, 'Gee, I think it's trans fat free, but how would I know?' And he said, 'You've got to go back, and you look at the label, and does it say hydrogenated on it? or partially hydrogenated?' And I said, 'Okay.' So, sure enough I went back and it was partially hydrogenated. And I thought I was using pure vegetable oil, kosher, that I changed out every day. And then Walter proceeded to give me an education on trans fats and the dangers of trans fats. So, I really went back and we were I believe the first group of restaurants to get trans fats out of our menus. And I tell you, it was an arduous task, because I had a difficult time convincing the Nabiscos of the world that they shouldn't be in their oyster cracker, as an example. And whatnot. But long story short, we got it out, we got the oil out and the food actually tasted better because trans fats, it's like a preservative that doesn't allow the true flavor to come through, anyway. So, I think what I try to do is really be attuned to what is the best nutrition out there, because I think that we as restaurateurs have a responsibility to the public to do it right. And if I'm in the business of what I believe is selling the healthiest of proteins, then I really want to make sure that I'm doing it in a thoughtful manner. And so, what are the best legumes I should be using? What are the best ingredients that I should be using out there? Because at the end of the day, yes I want our guests to have a great experience; but I want them to have--it should be tasty--but it should be a healthful one as well. Russ: Well, a long time ago, certainly when your parents got started, seafood as a source of protein was seen very differently than it is now. There's a lot more, I think, interest in seafood-- Guest: Yes. Russ: Omega 3 and other possible health-improving aspects of fish. How has that changed in terms of the brand of what you're trying to do? Obviously you've been selling fish for a long time. Guest: Yeah. It's always been about quality assurance, certainly. It would be making sure we got the right quality. So that was always inherent in our proposition. Frankly, we were just lucky: it turned out to be the healthiest of all proteins. Sometimes you are in the right place at the right time. Russ: How has that changed your life--your business--because of that change in perception? Guest: I think that people who want to eat healthier and eat smarter have focused more on seafood, less on fatty proteins that are not as healthy for you. Omega 3s, in terms of being a benefit to help combating cholesterol and then in turn to cardiac disease has been I think a huge boon. I think that people who live to be healthy and want to be healthy migrate to the healthier proteins. Certainly there is a tendency for people who want a more healthful diet to go in that direction.
54:37Russ: How much harder is it to run 34 restaurants than 17? And how much harder would it be to run 68? Guest: Good question. It certainly--there were certain levels and thresholds where it becomes exponentially more difficult, whether it be in training, whether it be in distribution. So, you know, there are different thresholds--so I'd say certainly running 34 is more difficult. It requires more expertise; it requires a disproportionately more amount of training. But it's--and it requires, how do you think about it? I look at business and business models as an evolution. I think that one of the business models in restaurants used to be that bigger is better in terms of size. That is not necessarily the case any more. Yes, given the number of restaurants, the increase in the number of restaurants. But I think that sometimes smaller footprints can be better; doing fewer things better is not necessarily a bad philosophy. So I think over time things change in terms of what the model looks like. But certainly more in terms of numbers is more of a challenge than fewer. Russ: How has your training process changed over your 23-year tenure? Is it the same? Obviously it's more--there are more people being trained and more locations to train them for. But is the process itself--have you changed it radically? A little bit? Or is it pretty much the same? Guest: We keep addressing it in terms of how can we be more effective at it. People learn differently; there's probably a little bit more online e-learning today than there was before. There's more hands-on training, I think, today than there was before. So, I think that there is an acknowledgement of one of the things that we've learned, that people learn differently. And that one size doesn't necessarily fit all. Whether it be--certainly, whether it's high school, junior high school, there are different tracks that people can take to enhance their ability to learn. Russ: You don't like it when people call your business, your group of restaurants, a chain. I was very careful in my introduction to call it a 'group of restaurants.' Because I've seen online that you don't like it. But obviously there are certain things that your restaurants have in common. And there are certain things I suppose are different. So, if I were to walk into the Atlanta or the Washington, D.C., or the Boston location, what would be the same and what would be different? Guest: Well, I think you hopefully get a feel of a common DNA, if you will. I think in the past I was more focused on producing identical twins, and today it's more cousins, if you will. The DNA has to be the same, but the menus can be different. You can have, certainly, they all have to have high quality seafood. But we have restaurants now called the C Bar; LX, Legal Crossing; the LTK, the Legal Test Kitchen; Legal Harborside. So, again, what we're trying to do--again, we're a group of restaurants, part of the same family but not necessarily identical twins. And the reason--it's interesting because when I was thinking about this--this has bothered me for a long time: when people use the word 'chain' in conjunction of restaurants, it's never necessarily used as a flattering comment. When you think of chains you think of things that might be dummied down or cookie cutter, devoid of character. And I'm thinking, those are not traits that represent us. And so I wanted to say something and say, 'Wait a minute. We're an anomaly.' Yes, we do share a common thread. So, again, different looks, different feels, different size. Some may focus, you know, a look of a menu or let's say in the metro Washington area whether it's D.C. or Virginia, there might be more crab items on there. So we would tend to pay more attention to different characters of the area we are in. Russ: I'm going to ask in a weird way: There are some dishes that are the exact same dish on the menu in multiple restaurants, right? Guest: Yes. Russ: And of course, in a fast food chain, which is I think part of the derogatory nature of the word, it tastes the same everywhere and it's not so great; but it's never awful and it's reliable. That's generally what chains sell: they sell reliability. You, I assume, were also trying to sell reliability, but in a different quality space. So, could you tell the difference between those dishes if it's the same menu item in different restaurants? Guest: Yeah; I think that sometimes the preparation is a little bit different; sometimes the plating of that dish is a little bit different. What I'm looking for, and maybe I'll use a different adjective: I'll use 'consistency.' I want the consistency of flavors and quality there. That's what I'm sort of looking for. So if the plating looks a little different or it comes out a little different, as long as the quality and consistency of the product is there, then I'm pleased. Russ: Let me close with a related question, which is: I always find it amusing when someone says to me, 'Oh, so and so is a great cook; she should start a restaurant.' And I'm always thinking, 'Yeah, good cook is such a small part of running a restaurant.' It's good to have good food. It's necessary. But it's so not-sufficient, because there's so many other aspects, and you mentioned some of them: the human resources part, inventory control, pricing, design of the menu, the ambiance of the restaurant itself; there are a thousand aspects to running a successful restaurant. How much of your time as CEO gets spent on food? That is, are you tasting a new dish? Does it get up to your level or is that delegated? You've obviously spent time on the quality of the dining experience; you've already talked about that. But there's so many other aspects of the business. There's regulatory stuff we haven't talked about, the indirect part from NOAA. How much are you in the food business as opposed to the restaurant/fish business? How much are you in the eating and tasting and dining part? Guest: Thank you for asking that question, because at the end of the day, if it doesn't taste good or is something I'm not proud of having on the menu, then we have a problem. So, I am constantly tasting. I'm out constantly working with our chefs. Testing product. If I see something in someone else's restaurant that's interesting, I'm going to have our guys check it out immediately and say, hey, this is something we should be doing perhaps, with our own twist on it. So, it really--at the end of the day it really does come down to: Does it taste good? Is this a dish that I want to return over it? Certainly that is enhanced by the hospitality around it. But the product has to be there, number one. It's not just the sourcing of the product; it's how we execute it. So, yes, I am very, very mindful of how things have to taste, and is this a dish that I would return for again and again, or something that's just, eh. If it's good but not great, then let's not go through the bother of doing it.


COMMENTS (17 to date)
Fisherman's friend writes:

20 year veteran of the Seafood business here. Another issue with the Monterey bay aquarium list is capture by local interests: all imported Seafood is deemed unsustainable until proven otherwise, while the reverse is true for US production. When you consider that more than 80% of Seafood consumed in the US is imported, that's a broad brush indeed.

JRo writes:

The "broad brush" (i.e. inaccurate and even counterproductive) guidance from the Monterey Bay Aquarium Seafood Watch reminded me of the Centers for Disease Control "Can I Eat This" travel app, which supposedly provides "authoritative recommendations" for food safety in over 200 countries. Checking to see if it's safe to eat sushi in Japan, it informed me that "You Probably Shouldn't Eat It" and that "raw meat can contain harmful bacteria or parasites. Meat should be cooked to a safe internal temperature." The CDC's advice for eating sushi in Japan is exactly the same as for every other country from Afghanistan to Zimbabwe.

George writes:

I really liked the operations parts of this podcast and would have liked to have heard more -- esp. since I'm a fan of Legal Sea Foods. My take was that Russ hit the guest with the Monterey / NOAA controversies fairly early in the interview and, as a result, the guest seemed to be girding his loins from that point onward regarding sustainability. I could be wrong on this -- simply the way I heard it -- but, in these types of industry practitioner podcasts, maybe save the controversial issues for the 2nd half of the podcast after operations have been covered and rapport has been established.

Christian writes:

The guest didn't do a great job of directly answering Russ' questions. I don't know if that was to obscure proprietary info, or just his style to think a little more ramblingly than I would have liked.

I agree with George that the guest seemed defensive on sustainability topics, and that the operations stuff was interesting.

The local details of operations from practitioners put flesh on the general innovation-related themes that academic economists discuss. I really like the balance provided by interviews with practitioners.

David Zetland writes:

I don't quite get the "if it's landed, it's sustainable" claim. Yes, those fish will get sold (as Marshall memorably discussed 100+ years ago), BUT that doesn't mean that the WHOLE PROCESS is sustainable.

NOAA may be biased and maybe they are not using 'the best science," but they are targeting Max Sustainable Yield (or similar) and those targets can be inflated to suit fishermen. In that sense, those fish will not be NOT sustainable. I know that fishermen claim that NOAA is too conservative, but how can you double check that?

(Oh, and what if best science says harvest less?)

Moving from the US/Canada, I *know* that EU fisheries limits are routinely and massively inflated (way beyond MSY), such that "landed fish" are indeed the sign of disaster. In those circumstances, it IS a good idea to NOT contribute to the problem by eating the fish. Yes, others will get a "deal" b/c ethical folks are not demanding, but the goal is that those low prices eventually push fishermen into more profitable (hopefully sustainable!) fisheries.

Robert Fenerty writes:

@David Zetland I had the exact same issue. Is a landed fish one that's been caught? Russ is such a pretty thoughtful interviewer and he doesn't let many truisms get past him unconsidered. I'm surprised he never questioned the maxim that Berkowitz kept repeating: "If it's landed it's sustainable." Really? Why?

Michael Byrnes writes:

@David Zetland and @Robert Fenerty

Those are good points. The guest himself criticized NOAA limits as not being developed using the best science AND called them sustainable by definition. Those can't both be right.

I think a more interesting question would be what value is added by the Monterrey guidelines. If the fish are going to be landed whether or not I eat them, how am I helping by avoiding certin fish? Is the hope that enough people will avoid them to make it unprofitable to catch them?

William writes:

Russ: And it's based on science.
The transcription omits the quotes that would fit the manner in which you use the word: 'science'. Your disdain for science becomes a little tiresome...

I imagine there is a lot of scientific research on cod, other species and the sustainability of fishing. It is not clear that your guest is best placed to pass judgment on that, but he does at least have an interest in fishing being sustainable. You seem on the other hand already to have decided that such research is just 'science' and suitable for dismissal.

casey writes:

I love the talks with non-econ folks.. always my favorites of the year, but this guy seemed a little too interested in promotion. Every answer felt like it was part of a sales pitch. I'm pretty sure he freezes some of his fish, but he dodged that question repeatedly, and his closing felt completely like an advertisement.

Jerm writes:

I would think it would be pretty easy to figure out if the NOAA limits are accurate/sustainable:

If the fish stocks (or stocks of predators, like...cod sharks?) are growing to levels above their NOAA targets, then the NOAA target is too conservative. Regardless of the methods used to count the fish, an overly conservative NOAA target would cause the population to grow beyond expectations.

I also thought there were a lot of missed opportunities for interesting conversation:

**With 34 restaurants, is it even possible to really know what's going on at every location?

**34 head chefs? That would mean you have to find at least three new ones every year. Are there enough good options in the worker pool? Considering how much each location is a reflection of the head chef, how do you find a new one?

**He described a lot of practices that go above and beyond the minimum requirements. How hard is it to stay competitive when your rivals can get by with less? How do you figure out which extra layers of effort are worth the cost? With all of the focus recently on stifling regulations, it was interesting to hear about a business that thrives under strict self-imposed working conditions.

There really should be some sort of sarcasm notation for the transcript.

Brian writes:

@William

Yes, the 'science' jibes are becoming a little cumbersome.

I have a personal friend who is a fisheries scientist in Norfolk England. He has no qualms in saying that his 'science' is not 100% accurate, but he does the best he can considering they are covering a huge area. But as he points out, even the most basic analysis of catches per ship in the UK displays the evidence of the collapse of fish stocks around the UK.

I was very amused that the guest said global warming explains the drop in Cod stocks in the US compared to Iceland and Norway. It obviously wasn't the quota system that Iceland enforced in the 70s. And the fact that Norway is not part of the EU (over)fishing system plays no role in their success of maintaining stocks. BTW Both Iceland and Norway implemented their 'science' in the 70s.

I was amused by the anecdote about Walter Willet and trans-fats, if there is a problem in Science it is with people like Walter Willet.

Lukas writes:

I got so much out of this podcast. Thank you.

It's an interesting question: how do you increase the market for seafood without increasing the consumption of fish in order to establish sustainability and keep the industry healthy? Increasing quality and encouraging smaller portion sizes certainly is certainly a comforting thought.

Dan writes:

As a Legal Seafood customer, I had high hopes for this podcast, but I was a bit disappointed for reasons others have touched upon. "If it's landed, it's sustainable" needed challenging or at least further explanation. I think passenger pigeons might disagree with that if there were any left.

Russ did try at a few points to get the guest to give us a look inside the kitchen and see how the (fish) sausage was made, but the guest kept speaking in generalities ("All of the above." "Yeah, we look at social media." etc.) I really wanted to hear more about how things work on the ground level of the restaurants. What things cost, how much is bought, how specific problems are resolved, and so on.

Charles Mann writes:

I just finished reading a couple of Paul Greenberg's books and he seems to paint a much bleaker picture of ocean sustainability. Perhaps Russ can reach out to him for an interview from the other side?

Stephen writes:

Would have been nice to understand how the staff are incentivised to focus on quality. The thrust of the discussion was about quality on all levels but it's the staff who deliver this to the customer were hardly mentioned.

Robert Swan writes:

Not the most forthcoming of guests. I think he might have been a bit less defensive if he had been set "homework" to listen to Russ's interview with Steve Cole (car salesman).

On the "if it's landed it's sustainable" comments, just treat it as if he had said "if it's legally landed, NOAA has deemed it to be sustainable".

On our host's disdainful references to science, I think you're misunderstanding; he is, after all, himself a pracitioner (a professor, no less!) of the dismal science. His disdainful tone is for the appeal to "science" as an authority, not the scientific method.

I'd be against introducing "air quotes" or emoticons or other hieroglyphics into the transcript. This is a spoken interview and the document of record is the audio file itself.

LD Bottorff writes:

Who can turn an interview with the manager of a "group" of sea-food restaurants into something as entertaining and enlightening as this? Great work, Russ!
Yes, I was confounded by the repetition of the phrase if it's landed it's sustainable, but the overall interview was great. I took a break while listening to this and watched a few minutes of a television show about restaurants in Europe. I saw the small portions that were served and I was surprised, but the discussion here helped make sense of what I saw. This was very enlightening.

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