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A secret to Chipotle’s good-food-fast innovations

February 10, 2012

Michael Giberson

At Slate, Matthew Yglesias tells the story of a business that is booming: Chipotle’s Mexican Grill, “a company that shows there’s clearly room for growth and innovation in even the most basic sectors of the economy.”

The chain has been expanding rapidly, Chipotle’s stock has risen 500 percent over 5 years, and yet:

… the food service industry can’t seem to get any respect. Politicians don’t name-drop burrito innovators as examples of the kind of entrepreneurs they want to encourage, and despite food’s ubiquity in our lives, culinary progress is slighted as a source of human progress.

Chipotle’s growth since its 2006 IPO should be seen as a great American success story. There’s nothing new about fast food, of course. But it’s not as if Steve Jobs invented the cellphone.

Yglesias follows with, “In many ways, the Chipotle burrito is very similar to the iPhone.” Maybe that analogy is a little strained, but it doesn’t matter, we get a peak at some of Chipotle’s key innovations. The article usefully reminds us that not all innovations are high tech or high science.

(The article gives a brief shout out to burger chain Five Guys, also a family favorite.)

MORE: Another story of entrepreneurial insight in action: Risk and stealth paid off in Eagle Ford shale.

Posted in Energy markets, Food and wine, Technology | Tagged , | Leave a Comment »

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Biking and climbing and driving … and eating!

August 23, 2011

Lynne Kiesling

I am just back from a long weekend trip to Denver, to participate in Sunday’s Deer Creek Challenge bike ride. We did the metric century — 62 miles, with 7,022′ of elevation gain along the way. Pretty daunting for a flatlander! But this event was my “A race” (although not a race, but triathletes tend to prioritize events as a way to structure training across multiple events), so I have been doing some rides with climbs and lots of mileage … and, of course, in the midwest we have the perennial “headwinds are hill training” opportunity. So although I was a bit slow, I got it done, and it was a gorgeous ride.

We drove from Chicago to Denver (in large part due to my flying boycott thanks to the TSA, our feckless Congress that does not rein them in, and the airlines that go along with it to reduce their security liabililty), stopping in Omaha for one night on the way there. As an enthusiast for early American colonial and frontier history, I was excited to drive through the parts of Iowa, Nebraska, and Colorado that I’d not seen before, and I thought the high plains in western Nebraska and eastern Colorado were particularly beautiful; I love the combination of rolling hills and semi-arid landscape.

In Omaha we visited the Art Deco Union Station, which now houses the Durham Museum, so it’s a great stop if you like history and architecture. But the highlight of our Omaha visit was dinner at the Boiler Room, a fantastic restaurant in, you guessed it, an old renovated boiler room for The Bemis Company in the Old Market area of town. The food was fresh, seasonal, and creative, and we happened in to a special winemaker dinner. Outstanding from beginning to end.

We didn’t intend for this trip to be a foodie trip, but then in Denver we ate at Potager, which was also outstanding. Again fresh and seasonal, with a great wine list; melon soup with shrimp, zucchini carpaccio, lots of dishes based on just-harvested peaches, wonderful bread.

Our drive home was a bit of a quick blast, but we did stop in Des Moines yesterday for lunch at Smokey D’s BBQ, which was very good. We shared beef brisket and pork ribs; both were really good, but the brisket was especially good. Their sauces ranged from mild to extra-fiery, which definitely lived up to its name.

All in all, a fun late-summer road trip.

Posted in Food and wine, Sport and fitness, Travel | 1 Comment »

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The unsustainable Fair Trade business model

August 12, 2011

Michael Giberson

Colleen Haight examines the past and present of Fair Trade-certified coffee and wonders whether it has a future in “The Problem with Fair Trade Coffee,” published at the Stanford Social Innovation Review. The title probably should have been “Problems,” plural, as more than one problem gets explored in the article.

I’ve argued in the past here at Knowledge Problem that producing quality coffee that consumers are willing to pay extra for will do more for farmer income in the long run than Fair Trade certification. It turns out that quality concerns are among the problems faced by Fair Trade, for more than one reason.

Here is one quality problem: some coffee buyers are willing to pay a premium for high quality coffee that is greater than the Fair Trade premium, and that means better quality coffee is moving out of the Fair Trade distribution channel. Haight explains with a simple example:

[Assume a] farmer has two bags of coffee to sell and there is a Fair Trade buyer for only one bag. The farmer knows bag A would be worth $1.70 per pound on the open market because the quality is high and bag B would be worth only $1.20 because the quality is lower. Which should he sell as Fair Trade coffee for the guaranteed price of $1.40? If he sells bag A as Fair Trade, he earns $1.40 (the Fair Trade price) and sells bag B for $1.20 (the market price), equaling $2.60. If he sells bag B as Fair Trade coffee he earns $1.40, and sells bag A at the market price for $1.70, he earns a total of $3.10. To maximize his income, therefore, he will choose to sell his lower quality coffee as Fair Trade coffee.

More Fair Trade problems are discussed in the article.

Posted in Economics, Food and wine | Tagged , | Comments Off

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Things that caught my eye: subsidies, wine, LEDs, dismal economists

May 17, 2011

Lynne Kiesling

As a coda to Mike’s post yesterday regarding the CRS study of the effects of removing oil subsidies on gasoline prices, here’s Ron Bailey at Reason reminding us that ethanol subsidies are almost triple those to the oil companies, and with little to show either environmentally, economically, or energetically.

Courtesy of Dr. Vino, an Australian winery using a new German technology rather than a screw cap for its cellar-destined (at $500/bottle!) wines. Called Vino-Lok, the company touts its glass stopper/elastic ring technology’s wine-aging capabilities.

This week Philips is releasing a mass-market LED light bulb with a physical and lumens-delivering profile to mimic incandescents at a fraction of the energy use. But they’ll still be priced at $40-45, which is a bit steep for customers who are accustomed to cheap, short-lived bulbs, so their market success will require some education and adaptation of expectations. They will also have to overcome the hurdles of the failed expectations of compact fluorescent bulbs, which have not demonstrated the required longevity/price tradeoff to make them economical (in addition to their other shortcomings). I may buy one to test, but I don’t plan on fitting out my whole house in these LEDs any time soon, based on my CFL experience.

David Zetland reminds us of the provenance of the economist moniker “dismal scientist”, and claims that he likes to “take pride in calling attention to the unpleasant problems that impede human progress and happiness.” Me too, my friend, me too.

Posted in Economics, Food and wine | Tagged , , | 5 Comments »

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Next Restaurant: pricing and ticketing innovation redux

April 12, 2011

Lynne Kiesling

Last May I wrote about Next, a new restaurant in Chicago from chef Grant Achatz and his business partner Nick Kokonas. In that post I focused on the two innovations in the proposal: selling tickets concert style rather than having a reservation system, and using dynamic pricing for reservations/tickets at different times on different evenings.

Last week Next opened with great fanfare (although I don’t know first hand, because although I signed up on their email notification list I have yet to receive my login authorization for the ticketing system), and they’ve been getting attention both from foodies and economists (and economist foodies). The design feature that is receiving the most economist attention is the one that Nick Kokonas himself pointed out in a comment on my original blog post — the tickets are non-refundable but transferable.

Naturally, then, a secondary market has cropped up, with $170 tickets selling for $1000 and the like. Larry Ribstein ties his observations on such scalping into his previous work on ticket scalping. Why are such savvy entrepreneurs as Achatz and Kokonas letting secondary sellers capture so much of the surplus that they have created?

In particular, while I like the dynamic pricing, why don’t they set up a secondary market auction themselves? My Kellogg colleague Sandeep Baliga wondered the same thing yesterday at Cheap Talk, and then Jeff Ely picked it up and ran with it later in the day at Cheap Talk (note also that Nick Kokonas commented on both posts, love it). Here’s Jeff’s observations regarding my thoughts on a secondary market:

The most interesting design issue is to manage re-allocation of tickets. This is potentially a big deal for a restaurant like Next because many people will be coming from out of town to eat there. Last-minute changes of plans could mean that rapid re-allocation of tickets will have a big impact on efficiency. More generally, a resale market raises the value of a ticket because it turns the ticket into an option.  This increases the amount people are willing to bid for it.  So Next should design an online resale market that maximizes the efficiency of the allocation mechanism because those efficiency gains not only benefit the patrons but they also pay off in terms of initial ticket sales.

As Sandeep points out in the comments, setting up a resale auction that’s essentially a second-price sealed bid auction is not meaningfully different from or more difficult than any typical eBay auction in which lots of people have participated. Jeff’s auction design points are all really good, and if you’re interested you should go read them; in particular he has some suggestions for keeping scalpers from flooding the queue.

Now I just need to keep checking my email and hope that my ticket login shows up before all of the seats are sold …

Posted in Economics, Food and wine | Tagged , , | 2 Comments »

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Fair trade for coffee may be good, but…

February 16, 2011

Michael Giberson

Fair trade for coffee is good, but many readily available alternatives may be better. “Better” as in, better for the producer and better for consumers. I was browsing the website of a local specialty coffee roaster, and noticed the “Ethics” labels on the products: “Premium price” and “Farm Gate”, but not “Fair Trade.” Curious, I thought.

Looking around the website, the “About” page had a clue:

There were some things we were certain about.  … The coffee had to be ethically sourced.  Fair Trade isn’t always so fair, and we strive to make sure that the farmers who grew our coffee were paid at least, but usually more, than the Fair Trade minimums.

The roaster’s blog revealed more: “News: Fairtrade is accused of doing less for coffee farmers than Starbucks.”

The post links to a Gaurdian (U.K) news story discussing a report by the London-based Institute of Economics Affairs. The key problems identified, highlighted in the roaster’s blog post, are: high overhead keeps some of the poorest coffee farmers from Fair Trade certification; Fair Trade is not about quality of products, just price and production conditions; Fair Trade certification works with organizations, like co-ops, but not individual farmers, and Fair Trade premiums paid to the organization may not reach farmers. The IEA report offers more details.

IEA is a free-market leaning think tank, and Fair Trade proponents frequently frame their efforts as morally superior to ordinary market outcomes. One might expect IEA to slam Fair Trade rhetoric. A Financial Times columnist finds that the report “is more nuanced than that.”

[Author Sushil Mohan] accepts that a Fairtrade buyer is, like any other consumer, simply making a choice. “Fairtrade rests as much on market forces as conventional trading does,” he writes. “Fairtrade works not because it subsidises goods no one wants, but because some free market consumers are willing to support it.”

Yet overall, Mohan concludes, Fair Trade seems to be more about catering to the attitudes of western consumers than about improving the lives of coffee producers. Perhaps it yields some good for some producers, but the benefits are surely tiny in comparison to the good that good ol’ free trade is doing for coffee producers. Given that reality, the report suggests there is no reason for school systems or others to succumb to Fair Trade lobbying.

Earlier fair trade coffee commentary at Knowledge Problem:

Posted in Economics, Food and wine | Tagged , , | 3 Comments »

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Roast potatoes, Elinor Ostrom, Whole Foods competitors

October 14, 2010

Michael Giberson

Some food for thought. For months and months, it seems, these three items – “Roast potatoes,” “Elinor Ostrom,” “Whole Foods competitors” – have dominated the “Top Searches” list in the Knowledge Problem site stats. We blog a lot about energy, economics, and public policy. Once in a while a bit of food or drink or music gets a brief mention. I’m beginning to wonder whether we’re giving the readers what they want.

Here we are trying to push the energy economics we think you need and, apparently, you our readers are trying to organize complex community organizations to solve common pool problems using roast potatoes purchased from high-end grocers that aren’t Whole Foods. Maybe we need a post on “pot luck dinners as a common pool resource.”

Posted in Economics, Food and wine | Tagged | Comments Off

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All the life-extending benefits of caloric restriction, without actually, you know, restricting calories?

October 5, 2010

Michael Giberson

The dramatic finish to an article in The Economist:

If inherited epigenetic changes were causing daughter rotifers to produce more catalase, it would raise the question of whether a similar thing happens in other species and, if so, whether it might be induced artificially, without all the tedious business of a lifetime’s starvation.

Maybe that makes more sense if you read the full article.

In any case, yes, a lifetime of starvation (or less dramatically, “caloric restriction”) seems like a high price to pay for extending lifespan a bit. If we can brew something up in a tea, or better yet create a syrup to pour over ice cream, I’m in favor.

Posted in Food and wine, Technology | 4 Comments »

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The fictional (and extremely unhealthy!) Big Rock Candy Mountain

September 10, 2010

Michael Giberson

From the National Institute of Environmental Health Sciences Kids Pages, an earnest warning – accompanying the lyrics to the song Big Rock Candy Mountain – not to be lead astray by the wild (and extremely unhealthy!) images conjured up by the songwriter Harry “Haywire Mac” McClintock:

IMPORTANT REMINDERS ABOUT THE LYRICS: Mr. McClintock’s song was written from the outdated perspectives and manner of speech common many years ago (in the 1920′s), with the intention of humorously portraying an imaginary place for people living “on the road”. But please remember that being unemployed and homeless are very difficult situations for anyone to face! Visit HUD’s Help the Homeless Children’s website to learn more about how YOU can help!

In addition, smoking and alcohol addictions are extremely harmful to your health; and no situation will be improved by having easy access to cigarettes or alcohol, as promised in the fictional (and extremely unhealthy!) Big Rock Candy Mountains.

And speaking of candy, please also visit Obesity and Your Environment and My Food My World!

I’m surprised the writer failed to warn kids about the hazards of never changing their socks. Talk about your environmental health problems!

Posted in Food and wine, Politics, Travel | Tagged | 1 Comment »

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Othman on Pickens, Horseflesh, and Hypocrisy

August 11, 2010

Michael Giberson

Abe Othman at Constructive Economics has been reading Boone Pickens:

T. Boone Pickens, from his autobiography The Luckiest Guy in the World:

I believe the greatest opportunity lies in a free marketplace. There are powerful forces afoot trying to restrict that freedom in the interests of the vested and already wealthy.

T. Boone Pickens, in congressional testimony on a bill to prevent the slaughter of horses for food:

The whole thing, it’s a boondoggle on the American people…People that are for the slaughter should be forced to go down on that kill floor…The brutal slaughter of horses for consumption by wealthy diners in Europe and Japan cuts against our moral and cultural fiber — it’s just plain un-American.

Othman remarks, “Remember, if they can come after the horse slaughterers, they can come after the hedge funds.”

(Othman apparently remains under the the influence of Al Roth’s work on repugnance and markets – not that there is anything wrong with that.)

Posted in Economics, Food and wine | Tagged | 2 Comments »

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