Conversation with Master Chef Craig Shelton on Science, Food, Farming, and Finance: Founder, Aeon Hospitality (2)

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): In-Sight: Independent Interview-Based Journal

Publication Date (yyyy/mm/dd): 2021/04/01

Abstract

Chef Craig Shelton has over 40 years of experience in science-based cooking and teaching in the hospitality business. He trained in eight of the world’s greatest restaurants, including “El Bulli”, “Jamin”; “Ma Maison”, “L’Auberge de l’Ill”, “Le Pré Catelan”, “Bouley”, “Le Bernardin”, and “La Côte Basque. Chef Shelton has earned countless awards as Chef-Owner of his own restaurants including a James Beard Best Chef medal, NY Times 4-Stars ratings on four separate occasions, a 5-Star Forbes rating, the Relais & Châteaux Grand Chef title; and Number One Top Restaurant in America in 2004 from GQ. Mr. Shelton is also an instructor at Princeton University in the Princeton Environmental Institute, where he teaches a freshman seminar on the interrelationships between public policy, agriculture, diet-related disease and anthropogenic climate change. Mr. Shelton began his expertise in this area while an undergraduate of Yale where he earned his degree in Molecular Biophysics and Biochemistry. He is a co-founder of the think tank, Princeton Center for Food Studies, the founder of King’s Row Coffee, and a co-founder of Aeon Holistic Agriculture, Inc. He is recognized as a consummate business consultant with specialization in macro finance. He is known for his ability to generate excitement in his cooks and instill in them the drive toward excellence by connecting all aspects of gastronomy to the larger intellectual landscape – chemistry, ecology, literature, art and human physiology. His great passions are reading and ocean sailing. His full C.V. can be seen here. More about Aeon Hospitality, Mountainville Manor, Aeon Holistic Agriculture, Kings Row Coffee, and Princeton Studies Food (in the hyperlinks provided). He discusses: science; Aeon Hospitality; financial consulting; awards; and restaurant models.

Keywords: Aeon Hospitality, Craig Shelton, culinary arts, enterprise, finance.

Conversation with Master Chef Craig Shelton on Science, Food, Farming, and Finance: Founder, Aeon Hospitality (2)

*Please see the footnotes, bibliography, and citation style listing after the interview.*

Scott Douglas Jacobsen: So, we were cut short due to time constraints yesterday around the subject matter, which you’ve devoted 20+ to 35+ years of your life depending on the metric. This is around culinary arts and business, and the biophysics infused into those, not everyone will do them. Because they take common sense and folk knowledge from centuries past into the current style of culinary art. When, in fact, the science may have some evidence contrary to what is considered wisdom from days past. Let’s talk a little more.

Master Chef Craig Shelton[1],[2]*: What is interesting too, there is so much pent-up demand. When you’ve allowed an entire century to pass, and have almost isolated a discipline like the culinary arts, you’ve isolated it from any and all advances made in the rest of the intellectual world.

Once that pin is pricked, it’s an intellectual prophylactic. Then there’s an explosion. So, it really came in the moment with El Bulli, so, it didn’t just like a light switch happen that one day; no one is willing to embrace or talk about or allow reading about kitchen science, then it became a little bit allowed.

It was like an absolute immersion. It went from nothing to everything seemingly in the top kitchens. It was laboratory-type equipment. People are pushing this thing on steroids. It was quite an extraordinary thing to witness. A deficit has built up over centuries, this intellectual deficit.

When the levy broke, it was quite a flood. It was really quite a beautiful thing to witness. To be in that picture for a while, to see it, it was important.

Jacobsen: Why the name Aeon Hospitality?

Shelton: So often, people and companies are consulting companies, economists. I did not use that because I wanted to emphasize an intellectual position rather than a personality. Most hospitality comes to a brand of a personality.

I was a very reserved, very quiet, very brainy human being. Then all of the sudden, it is my turn to be a sous chef. In those days, back in the mid- to late-80s of the last century, there was this presumption of a larger than life personality. I had to manufacture one, adopt my style.

It took a certain effort to get into producing a persona that I felt was required for the task. I think part of this explosion, which kept some out of the discipline. I think it levels off rather quickly. Then the notion of chefs was not so thoughtful.

It suddenly allowed for a much broader type of presentation.

Jacobsen: How do you build financial consulting into the expertise you have around hospitality and running restaurants?

Shelton: It is a question that deserves a question. In the sense, when you say, “Financial,” there is a whole suite of disciplines in finance. There’s expertise in raising money. There’s expertise in managing money.

The kind of expertise that would come into play when you’re running a restaurant have to do with general knowledge. It’s odd the industry has no exposure to financial concepts, time value of money, pricing of risk.

The most basic fundaments of the entire body of knowledge in our world. But it is most useful for people in understanding the basics: What do you mean by “present value”? What do you mean by “these things”? What do you mean by “return on”? What is the function of a business?

How many thousands of times a manager said to me, “Craig, how can you say this project is upside down when it profits?” They don’t understand the difference between an operating profit and a return on investment, even something as simple as that.

It completely can change the way people can understand their job, the management of labour. So, it’s kind of like this. You have studied a lot of high-range people. You become more – I’m sure – learned in a range of subject matters, which is quite expansive.

Here’s this person who experiences a similar thing, which he chose to stay current, he is reading the Harvard Business Review vigorously each month. Every year, these kinds of journals publish lists of the most important business books ever written.

You start reading some of the stuff. There’s absolutely no limit to how much it could improve your business, how much it improves your life, your inner life and relationships in life. What you find, in a lot of industries, this is a long-time standing observation.

Entrepreneurs are too busy to work on improving their business, more lives suffer, even more tragic on the lives on their employees who dramatically suffer for it. The businesses suffer for it. They are underperforming.

I have read so much. I have real-world experience, as I have CPAs in my companies, MBAs in my companies, who helped me along; I tried to get mentors for me, from an early age. One of my business partners was very, very, very, successful as a United States developer.

He allowed me to be his mentor, and an understudy of how he runs successful companies. Like you, when I was young, my restaurant was in the middle of the world’s most important pharmaceutical center, New Jersey.

One of the centers for telecommunications was there and for business products, e.g., insurance, financial services. So, the people who come to my restaurant every single day for 25 years are some of the best minds in the business world, in the entire world, I befriended many of them.

They were absolutely generous in sharing their insights with me. I was extremely fortunate in that way.

Jacobsen: You’ve had a number of awards. “#1 Top Restaurant in America” in 2004 from GQ, a 5-star Forbes rating, a number of distinguished titles or accolades for performance in your relevant area. What do you attribute most of the success at the highest to now?

How do you integrate that into more improvements still in the performance of a restaurant, of the consulting, while still keeping your feet on the ground while acknowledging individual and collective excellence either under the individual or business name?

Shelton: One of my taglines is “I never witnessed a business in my life ever working harder than us.” Every restaurant, generally, which I have seen fail, is people weren’t thinking deeply enough, certainly not deeply often enough.

Jacobsen: In what way?

Shelton: In every way, business models, the business model was broken 150 years ago, but there was more demand than supply. If you had 25 days, I could start talking and never repeat myself and not run out of new topics.

I’ll give you the simplest example. Every restaurant in the world punishes good customers and rewards bad customers. All of the incentives in restaurants reward things that lead to bankruptcy and punishes things leading to financial success.

Jacobsen: Is this where the restaurant models were broken 150 years ago?

Shelton: Yes, if you used to own a restaurant in Italy or France, you most likely inherited it from your father, who inherited it from his. Your pricing model did not need to include capitalization expenses, because you inherited it tax-free.

Secondly, who were your workers, all these family enterprises didn’t have to account for labour. It was your family. You didn’t need to pay for all the labour and made profits if you will. Overhead was generally diminished because there weren’t a lot of insurance costs, of marketing going on, etc.

These things were negligible to many of their costs. Primarily, it had not yet gone through the artificial asset inflation process of the 20^th century in British banking and in Europe. So, what I observed early on, the fact of three macros in business.

The cost of the materials on the plate or on the glass if you’re drinking. Then you have labour, which is the second macro. The third is all the single line items. We call this overhead in business. It could be 500 things all related to this.

At any rate, the point is: If you think about it, if you do the thought experiments, you understand the labour or the overhead costs are, actually, fixed costs. That is, if you filled your restaurants with 100 diners, and if each dish sold might be a chicken dish, on one given night in the suburbs with a single seating (they’re not turning the tables in America in the suburbs), you’re selling chicken at 20$ per person.

On some other arbitrary night, it happens the same number of people, 100 people, came in and ordered the most expensive item. Let’s say the rack of lamb at 50$ a plate, would there be a penny’s difference in the labour between those items? The answer is “No.”

Would there be a penny’s difference in the overhead? The answer is “No.” Those things have to be considered fixed. The only variable thing is the cost of goods. There is not a single restaurant in the world pricing to that reality.

No one says, “I have a million dollars a year of the combination of labour and overhead. I have 100,000 customers in the year. Therefore, my pricing model should be 1,000,000/100,000 equals 10$ at fixed cost plus the variable cost, whatever it is that they choose to eat, plus some amount of profit.

There is not a single restaurant in the world, outside of my own clients, which have even the awareness of this. Then what happens, they are coached by the finance community into this faulty way of thinking, which is the way you price everything.

You only worry about the cost of goods. A 5$ cost of goods for this dish, mark it up times 3 for 15$. A 10$ cost of goods goes to 30$. A 15$ dish goes to 45$, and so forth. Then they’re told, “If you subtract the cost of goods from the retail price, then you get gross margin.”

In those cases, 15 minus 5 is 10, 30 minus 10 is 20, 45 minus 10 is 35. Now, we’re going to allocate a fixed percentage of the gross margin to account for labour in each of these cases, which is – let’s say – 50% of gross margin.

So, that’d be 5$, 10$, and 15$. The overhead may be 40% of those margins: 4$, 8$, and 12$. That is a mathematical representation. It seems to tell you. In the case of the first dish, you are making 1$ on the first, 2$ on the second, 3$ on the third.

It is like mainstream economics, but it excludes banks, credit, and money from their formulas describing the new economy. It may be beautiful mathematics. It may be stunningly beautiful mathematics. But does it have any relationship whatsoever to reality?

The answer in both cases is “no.” Hence, the almost perfect failure of prediction in economics. They resort to calling things black swans, as in unpredictable, rather than realizing the models are based on false assumptions.

Why did you exclude this money from the banking sector, when it’s the single largest source of money? Perhaps, 50:1 or 100:1 depending on the nation. Economics entirely omitted it. It is a similar kind of situation in restaurants.

The reality: Once you understand, it doesn’t matter what the customer orders once the labour and the overhead is fixed. “I am not making money on the chicken dish. I am losing 12$ on a dish, which I sell for 15$. I am overcharging the customer.” Not knowing this, not understanding things such as what the true cost of using your purveyors as your source of interim credit rather than using the financial institution for credit.

These are multimillion-dollar mistakes. I can keep going on, and on, and on, where the first assumptions, almost everything held to be true in the hospitality industry, are absolutely wrong. So, there’s lots of opportunity if you can get someone into a place of willingness to do something generally uncomfortable in our industry, which is this thing called “thinking.”

When you have mispriced your entire array of goods, it comes down to this: Not understanding, every restauranteur has been brainwashed into believing that they have one business, which is to sell food and beverage; the reality is quite different.

The reality: You have two different businesses under one roof, not even in the same industry. You manufacture food. You merely retail beverage. When you manufacture, you have to include the pro rata cost, fixed costs, per product or per customer.

In addition to the variable cost, now, the beverage component is purely discretionary. It’s purely incremental. Therefore, it should be priced as no proportion of the fixed costs in it. What ends up happening, in most restaurants, if you do the forensics correctly, you realize.

They are losing about 75% on the totality of their food sales. If you took away all the beverages, you would see that they are losing the food part at about a 75% loss. That’s the reason that they have to mark up their beverages for an average of 4 times. That’s how they stay alive.

It is two mistakes trying to cancel each other out. You are gouging on the beverage side because you are mispricing on the food side. It is not that they are overcharging or undercharging. They are doing both. You are overcharging on the expensive items.

You are dramatically undercharging on the cheaper items. You are turning your generic customers, unwittingly, with your improper use of math. You turn them into customers who lose money on the food side and aren’t even aware of it.

This terrible so-called solution is to gouge everybody on their beverage purchases, which especially punishes the people who want the finer things, e.g., the nicer bottles of wine or the nicer drinks. They really get gouged. That’s one small example.

Appendix I: Footnotes

[1] Founder, Aeon Hospitality.

[2] Individual Publication Date: April 1, 2021: http://www.in-sightjournal.com/shelton-2; Full Issue Publication Date: May 1, 2021: https://in-sightjournal.com/insight-issues/.

*High range testing (HRT) should be taken with honest skepticism grounded in the limited empirical development of the field at present, even in spite of honest and sincere efforts. If a higher general intelligence score, then the greater the variability in, and margin of error in, the general intelligence scores because of the greater rarity in the population.

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