The Hidden Supply Chain Making Every Menu Feel Familiar

22:30So they'll buy like hotel things, like little soaps, They'll buy a company that does like Asian food. All these little things. And then they're starting to buy foreign, like an Irish broadliner, a Canadian broadliner, Costa Rica broadliner. It's just kind of a blob that keeps growing. Am I a tomato broadliner? I brought Joe tomatoes this morning. Tracy brought me tomatoes, yes. Thank you. Really nice tomatoes. You're a niche. I think you're a specialty distributor. Yeah, okay. Fair enough. I certainly don't do it in volume, especially this year. Okay. Well, on that note, in your chapter, it says that Cisco has something like 27 % market share.

23:04It's unclear what the market share is. Okay. So originally - This is going to be my question. Like, when we say that, what do we actually mean? We don't know. I originally in that chapter have quoted as a 50 % market share, but sometimes you'll see 40, sometimes you'll see 30. It really comes back to that market definition. That's why I want to go back to having some public entity debate this so it's transparent, But also, partly what stopped that purchase of U.S. foods is when the FTC looked into it, they started looking at metropolitans. And they realized, like, in Las Vegas and San Diego, it would have, like, an 80 % market share.

23:36So even with food, we tend to talk national. Food is so local. Food markets in particular, we really need to drill down regionally. What do they use this power for? Setting aside the fact that they want to make a lot of money like all companies do. When I think about the risk of anti-competitive abuse or why I wouldn't want one company to have such a dominant share of a given market, I think, okay, what is the potential for abuse? So maybe they say, no, you can't get access to all of this stuff unless you buy our olives. Maybe it could be one sort of thing. Or they tell a restaurant you can't buy X unless you buy our soaps.

24:12like what is the fear or what is the reality of what cisco currently does with the amount of power that they have yeah so two things number one so it's it's not like you get a big sales book with the prices of cisco those days are gone most of it's on an app and this is a black box um my understanding from people i've talked to is they always want to make their margin so they might sell you your center of the plate the protein at a loss or cost to get you in the door but then they'll make the margins up by tweaking the napkin prices. Here's the thing. One could argue that's a violation of the Robinson Batman Act, because in theory, you should charge everyone the same price for X amount of units.

24:50But we don't know because of... Oh, so we think it might be personalized pricing, but we're not sure. Yes, we're not sure. That is what some people have accused. The other thing to keep in mind here, and the biggest, honestly, part of the reason why I wrote this chapter is just the quality decline. I feel like most eating out in America, especially local places, it's all kind of eh. Because companies like Cisco, they don't want to buy from like a local beef provider. They want one entity to do a bunch. And so it's just stifling out that kind of innovation, the quality, and especially in real America.

25:21Cisco doesn't want to deal with local things. And so especially in real, I think an undercurrent too in my book, I realized after the fact was the communities producing our food are actually being hit hardest by the food system. We saw in the Kroger, this in Albertson merger case, failed merger, that they're gouging the most in rural communities. The broadliner dominance tends to be highest in rural communities, and rural communities tend to have the most fast food. So it's kind of getting the worst of all these worlds. So New York has the best food. The more yuppie you are in America, probably the better food selection you have.

25:53That seems fair, actually. Seems right. And again, that's pretty ironic given that most of the food is grown outside of cities, obviously. I'm going to ask the question that is very close to Joe's heart, but with market dominance tends to come pricing power. But on the other hand, with market dominance and scale comes savings from volume. Do we have any idea of the net effect of a Cisco on food prices in restaurants? We don't. I mean, kind of what I realized writing this chapter and just in general with this book is I just kind of view everything as Goldilocks. And you know, there is beauty to scale, but things have just gone too far and things are all out of whack.

26:37And I think with price, and I brought this up last time, and it's the first slide I show people anytime I talk anymore, is Americans spend more on average on food than most Western democracies. And I think, and it's like cliche to say, I went to Europe and had cheaper food and it was better. I think that's how you're seeing the system play out. Because you basically, big, big gets big. You have all these big boys kind of like going at each other. And it's just kind of this race to the bottom.

27:16How many vendors does it take to meet all your organization's food needs? Just one, EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor. In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side.

28:02The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi-asset portfolio for the long haul. stocks bonds options crypto it's all there plus an industry-leading 3.8 apy high-yield cash account switch to the platform built for those who take investing seriously go to public.com and earn an uncapped 1 bonus when you transfer your portfolio that's public.com paid for by public investing all investing involves the risk of loss including loss of principle brokerage services for u.s listed registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc.

28:46Member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com slash disclosure. The Chase Inc. Business Premier card is made for business owners who make things happen. Designed for high spend and limitless cash back, Inc. Business Premier is a painful card with built-in flexibility. Get the buying power you need to make large purchases, cover unexpected expenses and help your business grow. Earn a total of 2.5 % cash back on every purchase of $5 ,000 or more. Plus, earn unlimited 2 % cash back on every other purchase, giving you unlimited earned potential to invest cash back into your business, from innovation and technology to everyday expenses.

29:25Inc. Business Premier is the only business credit card with 2.5 % cash back on every purchase of$5 ,000 or more, and is part of a suite of credit cards from Chase for Business, designed to meet your needs every step along the way. Learn more at chase.com forward slash business card. Chase for business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. Talk to us more about the food creator side of the business. If I'm growing tomatoes, or if me and Tracy are growing tomatoes, to what degree does Cisco play us off of each other or squeeze our margins in order to get within the Cisco distribution system?

30:14I think the best example of that's in seafood. Okay. The seafood, seafood in general in America is just a dumpster fire to be blunt with you. There's a really, and I'm going to make a comparison here. CNBC came up with a really good story the other day where Walmart and Amazon are this big fight right now. Yeah. And Walmart basically has very low standards for its third-party platform. There's a lot of fraud, a lot of abuse going on that platform because it's trying to get market share from Amazon. I would compare Cisco to that where they don't, here's the thing, they don't really care how their seafood source.

30:43I mean, there's been so many allegations of the calamari coming from Chinese slave labor, fish that's saying it's Gulf shrimp from America. It's not just all these like these constant abuses in the seafood system. But Cisco not caring because all it cares about is price. Think of Cisco like the Walmart food distribution. That makes sense. So when you were reporting out this particular chapter, did you hear any specific stories from either restaurant owners or food producers about dealings with Cisco and what it's like to actually negotiate with them? The biggest critique I've heard is just the lack of selection.

31:20Cisco has such a dominance in a lot of these markets. Local restaurant owners really don't have a lot of choices. That's probably the biggest critique I heard. And just my favorite phrase, and it's a subtitle of this chapter, is tonight's dinner fell off the Cisco truck. We've all had those meals. You know what I mean? You go to a wedding, you can just tell it's like the lowest tier of Cisco, where it's just so blah and tasteless. But a lot of restaurants, I mean, that's kind of this whole undercurrent of this book, this chapter, is I kind of think of this as my Frankenstein chapter. What started off as an aid to local restaurants to make their life easier is now undermining them because they're losing their specialness.

31:53Oh, yeah. On that note, didn't the founder at one point try to, I guess he retired, but was still connected to the company. And then he tried to correct some of what you're describing. Yes. I mean, I can't say this enough. He is a model businessman. I mean, this guy, he retired in the late 80s. He stepped aside, donated to charities, kept coming into the office each day, didn't want to sign parking. And he always trusted his people, especially the easy let basically each warehouse do its own thing. And I would compare it to like Whole Foods. Famously, Whole Foods let the managers do its own thing pre-Amazon.

32:24So if they saw a good thing at the farmer's market, they could bring that producer in. He retires, a few CEOs come along. One comes along and the old man hated consultants. Number one, he's like, they don't know my business. Number two, they'll probably share, even though they're not supposed to, they'll share my secret sauce with my competitors. New guy comes in, hires consultants, and what the first thing he says is centralized procurement. Instead of having all these local different things get all your berries for one person and what john saw is he saw uh changes in the numbers so he wanted to go to the board to talk about this see how time was kept being like no no no this is a nine-year-old man who built this company this is his everything he went around and got it to the board according to one executive he was in escorted out the building this broke the old man did he like literally go into the building and like find the board and No, he had a certain staffer get it to all the board members.

33:18And he was shown the door. This broke the old man. And you see the quality decline. Centralized procurement. I don't want to romanticize a jalapeno pepper or this kind of stuff. But you are cutting corners at some point when you're doing these. Not everything can be frozen and taste just as good as a fresh thing. A good example is actually a tomato. A good summer tomato. There's no reason Iowa can't get a good summer tomato. It's so easy to grow a tomato there. But they're all the same blah tomato grown who knows where. And that's kind of that kind of story. And part of it, the argument I'm making there is part of regulation, garter rails, whatever you want to call them, is almost to prevent companies from themselves to stop a race to the bottom.

33:57It's interesting, this idea that the restaurants can't distinguish themselves to the same degree because of the sort of decline in quality. And it strikes me we did an episode with some guys who actually opened up a pizza restaurant right around the corner from Bloomberg. And in that case, we were talking about the delivery apps. And the idea was like, you know, one point in theory, service, delivery, et cetera, might have been a restaurant's calling card. Right. We have really good. We really know you, et cetera. We'll get to your house in under 15 minutes or the pizza's free. But then everyone, in theory, it's like this game theory thing where everyone feels compelled to, OK, we're going to distribute through the well-known delivery apps that everyone has heard about.

34:43And that's great. And on some level, it makes markets more efficient, perhaps, although they've gotten so expensive. I think for me, it's more efficient often to just go pick it up. But that's besides the point. But the long-term effect is essentially this sort of elimination of the specialness of the place. And so maybe there is more efficient. Maybe the food is cheaper. Maybe it does get too faster. Maybe even gets too faster and hotter, et cetera. But this idea that we have this sort of textured economy with this sort of flora and fauna of businesses that are distinct and that have texture sort of disappears once they plug into these giant platforms.

35:19You just made a great Neil Brandeis argument. Oh, great. I mean, this might not shock anyone. I'm a Neo Brandeis person, but that is, my critique of the current antitrust framework is not everything can be put into Excel. How many hogs one person's shown, it's a question society has to wrestle with. And I make that kind of point in this chapter was, at my wedding, I'm part Czech, and we serve kolaches, which kolaches in Iowa are very different than the ones in Houston. Houston, they put meat in them. But like, you can't buy kolaches from Cisco. It's like, these local little things make a place a place.

35:52And you're losing this, the homogenization of the American food system. Everything's kind of the same. It's kind of blah. And that's what's hard to – that's what's the thing that's missing. That's why – It is a little – it does seem, frankly, a little hard to quantify this effect that everybody feels. I think of two little examples is my mom had her own coffee store and then she worked at Starbucks. And what drove her the nuts the most were something called planograms. She was told where to put every single thing on the shelf. And my mom worked next to a General Mills plant. And she knew that audience and she knew how to merchandise, but they didn't trust her.

36:25It's like the lack of trust in an employee. We learned about plenograms. Oh, yeah, that's right. And he was with the Celsius CEO. On beverages. Yeah, it was a good episode. Yeah. I have since walked into CVS's looking at the shelf space very, very differently than I used to. I'll just add on. The thing to keep in mind is no one opens a restaurant to get rich. It's a really, really hard industry. You're willing to sacrifice incomes because you do it because of what you love. And you just you feel that pride in local places and they're just running they're running uphill more and more based on because of these structures.

36:56You know, you mentioned frozen berries earlier, and I know berry barons are in your book. Do the dominant companies like a Cisco or a berry baron, do they kind of like feed on each other? You think like does Cisco naturally lean towards producers who are making stuff in huge volumes? Yes. I mean, I think it goes back to Walmart. I mean, part of it was people are negotiating power when they negotiate deals with these companies. So you've got to get big so you have some volume so you can negotiate. Like, I think of, I go back to Walmart just because I think of Walmart as the closest thing America's ever had to a Soviet Union-style politburo.

37:33That's the weirdest chapter people have reached out to me about is all these suppliers. Like, you don't negotiate with Walmart. Walmart dictates to you. I think with Cisco is they're just so big. These are centrally planned internal economies. Yes. Absolutely. And it's, I think the best example of the bad quality is actually the produce system in America. Partly is because of the farm bill. We subsidize corn. We don't subsidize carrots. So our produce system went offshore, you know, because you can exploit labor, exploit environmental stuff. So that green pepper is coming from who knows where, traveling long things.

38:01And so, and it's also designed for durability, not for taste. And you're seeing this play out in your local restaurants where just the food's kind of. It's interesting you used the phrase earlier, saving companies from themselves. I think even the companies seem to be aware of this. And you mentioned Starbucks is a great example. I forget, what's the name of the Starbucks founder? It's not Howard Schultz. That's who we think it is. Oh, Howard Schultz, every few years his name is back in the headlines. And he himself seems to rue the fact that this company, which early on sort of had a local coffee shop vibe, which I think he really liked, has not been able to sustain that in part because of, yeah, the required pentagrams.

38:44He complains about that every once in a while. It's like, we got to get back to feeling like a real Italian coffee shop. It never seems to happen. Well, one of the Ben & Jerry's founders just quit as well because Ben & Jerry's was bought by Unilever. So the fun thing, each chapter I realized there's, they all have these like niche, every commodity is different in America. And they all, like dairy is actually to me the most complex commodity. The whole dairy regulation in America is written in the 19, before we had refrigeration. So it makes no sense. The joke in dairy is only five people understand the dairy program and four are dead.

39:13And I was kibitzing with this dairy guy in Wisconsin last week and there's a glut right now in the butterfat market. because we engineered soybeans to increase the butter fat. And the rumor right now in the street, too, is they're feeding palm oil to cows. Oh, wow. Speaking of dairy, you know, when we did that episode with Mike Froman recently, and you mentioned that you asked him what was the biggest surprise he learned as U.S. trade rep. And he's like, oh, there's 500 different things you could do with a dairy molecule. And because of trade rules. Anyway, by the way, just following up, I am currently in touch with someone from the big New Zealand dairy cooperative, Fonterra.

39:45So I'm working on finding. From Big Dairy. I am working on finding the dairy molecule specialist for that episode. Oh, well, that's very exciting. Maybe we'll end up doing a three-part milk series. Yeah, we could. I'm sure we could. Who knows? We better hurry it up since it's almost October. Okay. Is there anything that can be done about this? Like now that a Cisco has rolled up all these different companies and it has substantial market share, although as we were discussing, we can debate what that actually means. Is there like what swings that dominance the other way? Yeah, I mean, to Joe's, I just want to add on to Joe's point early about the companies not wanting to have to do this, but if they don't engage this, like the system design right now is they have to do this behavior.

40:29And I actually think about that with farmers now in America. The farm building right now is designed to maximize corn. So you have to overplant corn, even though it's bad for the environment or else you go broke. So everyone's behaving this way because we're in a laissez-faire era. What to do about it. And that's kind of why I profiled this woman named Ellen in that chapter. I think people crave heroes right now. No one's really articulating hope on whatever your political party is. What is a positive food system? And Ellen's fascinating where she's a farmer. She has two kids. She opened her own restaurant.

41:00And then she opened her own Cisco. Because the problem she has with Cisco didn't want to take her product and sell it to restaurants in Omaha and Des Moines. So she created a nonprofit, got it up. They would basically pull different farmers in Western Iowa to sell into these. It was using, and they're also doing schools. That was a big one. But then they got really hard hit by the doge cuts. That to me is like maybe one possible thing is maybe extension. You have extension all across rural America. Maybe they can kind of get into that, help this kind of procurement. Yeah, maybe you don't try to compete against Cisco on volume, but you go like hyper localized.

41:32Hyper local, but also something we got to reign in Cisco. I mean, looking at the black box of the pricing strategy would be huge. But also, I think we should put merger acquisition freezes on these large entities. At some point, it's like you can't buy anymore. Like you've hit your cap. It's interesting, Tracy. Like the other great homogenizing effect, of course, on society is big digital platforms, right? Instagram, et cetera. And everyone feels that they have to constrain whatever they do, whether it's a restaurant or a media company, et cetera, in order to serve the algo god that is sort of capricious and unpredictable in some way.

42:09And it feels like the story, whether we're talking about the physical world or the digital world, is that scale has this homogenizing effect which nobody really likes these conditions. Yeah, I think that's right. But also there are these like hidden tiers of scale viz these middlemen companies. All right, well, Austin, thank you so much for coming back on Odd Lots. Congrats on the new chapter. and I'm sure a lot of people will be looking forward to picking up the revised book. Yeah, thank you so much for having me on again.

42:53Joe, that was really enjoyable. Yeah. I always love talking about food, although I haven't had lunch today, so. Me neither. I'm a little bit hungry. Can we go to Olive Garden in Times Square? Let's do it right. Let's go soon. I'm happy to go there soon I actually would like to go Yeah, yeah, it's great It's got great views It's actually really fun And it's got great views Oh, you've been to that specific one? Oh, I didn't realize Okay, so there's a lot to pick out from that I know you're on the side of cheap and plentiful food But perhaps, I guess the homogeneity of the offering Maybe that concerns you It definitely concerns me And this idea that restaurants, if so much of the preparation is done off-site, et cetera, for various things that you eat.

43:44And so what is the restaurant anymore? And so this is a thing where scale is great and cheapness is great. And I'm all for this. And I think food should be a lot cheaper than it is because we've had a lot of food inflation in this country. And I think it's very worrisome. And so food should be a lot cheaper and more efficient, et cetera, than it is. But when we think about the things that sort of make a society nice, if a restaurant is really just a sort of Cisco manufacturing. Yeah, or a Cisco – right. A giant microwave that connects a Cisco distribution system to a Grubhub delivery system, what world are we living in?

44:22Yeah, and I think it gets back to the flora and fauna point that you were making. So maybe you could have, you know, food that's cheap and maybe not of the highest quality, but it is plentiful and inexpensive. But then you should have, you know, more local options. Well, you brought me those really nice tomatoes. Yes. So thank you for those. You're welcome. And so there are some nice tomatoes, but I do not think that is a scalable solution for most people. No. And I grew up hating tomatoes because I thought that they were all really bland because I only got them in the grocery store. Supermarkets.

44:54Yeah. Yeah, it is phenomenal how different a supermarket tomato tastes from a homegrown one. Anyway, shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our guest, Austin Furrick. He's at Austin Furrick. And check out the new edition of his book, Barron's, which has the whole chapter about Cisco. Follow our producers, Carmen Rodriguez at Carmen Armand Daschle Bennett at Dashbot and Kale Brooks at Kale Brooks. For more Odd Lots content, go to bloomberg.com slash oddlots.

45:28We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash oddlots. And if you enjoy Odd Lots, if you want us to dig into dairy, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

46:26How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor. In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. How can you free your team from time-consuming office tasks?

47:06Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights, and support available at amazonbusiness.com. Hiscock Small Business Insurance knows there is no business like your business. Across America, over 600 ,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscock's Insurance for protection.

47:42Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com. There's no business like small business. Hiscox Small Business Insurance.