A COVID-19 recovery strategy that puts workers first
by Karen Kahn
As the country moved to shutdown the economy in mid-March, Jason Wiener, a Colorado attorney whose legal firm is committed to building a values-driven, sustainable economy, had an idea: “Let’s make restaurants work for workers rather workers working for restaurants.” Wiener was already thinking ahead. Concerned about the fate of local businesses and the millions of workers who were losing jobs, he also saw an opportunity for “a phoenix to rise from the ashes.”
Wiener has spent years supporting the conversion of businesses to employee ownership. But as he told me in a recent interview, conversions are slow and resource intensive. Converting one business at a time, the regenerative economy will be a long time coming. As he took in the economic devastation about to unfold in the wake of COVID-19, he realized that Main Street businesses like restaurants would be the hardest hit—they couldn’t go remote—and the most marginalized workers (women, people of color, and undocumented workers) would suffer the consequences.
Let’s make restaurants work for workers rather than workers working for restaurants.—Jason Wiener, Colorado attorney and partner in the Main Street Phoenix Project
Wiener brought together a group of employee ownership experts and experienced restauranteurs to consider how to use this devastating crisis to create a worker-centered Main Street economy. The goal was to come up with a set of interventions that could accelerate, streamline, and simplify worker ownership conversions.
Speed was of the essence, because the COVID-induced economic recession was sure to result in a wave of private equity buyouts that would further exacerbate wealth inequality. Wiener’s vision was to use the crisis to accelerate broad-based ownership and a more equitable distribution of wealth.
The Main Street Phoenix Project
From an initial meeting in mid-March emerged the seeds of a new idea: a worker-owned holding company that would buy (and hold) distressed restaurants, immediately make the workers owners of the holding company, and re-launch the businesses to get people back to work. By providing back office services—accounting, purchasing at scale, training for workers to grow professionally, and worker benefits such as health care and paid sick leave—the cooperative holding company would be in a position to increase the profitability, resilience, and job quality of its wholly-owned subsidiaries.
Launched about a month later as the Main Street Phoenix Project, the cooperative has established a board of directors, is hiring its operations staff, and is in conversation with owners, investors, and workers as it prepares for its first acquisitions. It offers a turnkey solution for distressed restaurant owners—a quick sale and a commitment to bringing back the workers and maintaining the owners’ legacies.
Wiener describes the Main Street Phoenix cooperative strategic plan as a “values-based rollup.” By blending employee ownership culture and practice with its emphasis on worker voice, the discipline of private equity, and the scale and efficiency of a back-office holding company, the cooperative brings the benefits of a scaled restaurant group directly to its members—the worker-owners. The expectation is that at scale, Main Street Phoenix will produce $100,000 per year per worker in “net excess spend,” says Wiener, dollars that can be used to fund health insurance, retirement, and job training.
Board member Lauren Ruffin, co-director of the Black artists cooperative CRUX based in Albuquerque, reflected, “It strikes me that the pandemic has exposed a cliff that people are falling off of economically but also a values schism. We don’t talk enough about worker safety and autonomy.” What Ruffin sees as the most important aspect of Main Street Phoenix is that it “gives workers the agency to decide when it is safe to go back to work. They won’t be forced to return because of financial need.”
The model allows the holding company to float restaurants for 12 to 18 months, so even if the pandemic continues to have an impact on dining out for some time, Wiener believes that the once-profitable businesses they plan to buy will rise again. “Restaurants aren’t going anywhere; they are staples of the community that are markets of community identity. There is no future in which restaurants cease to exist.”
The cooperative holding company brings the benefits of a scaled restaurant group directly to its members—the worker-owners.
Which isn’t to say that Main Street Phoenix plans to relaunch restaurants using the pre-COVID-19 model of erratic schedules and subminimum wages supplemented by tips. As a result of long-standing racist and sexist policies, restaurant workers—mostly women and people of color—“face low wages, limited hours, poor benefits, and frequent sexual harassment,” according to Jenny Weissbourd of the Aspen Institute. Main Street Phoenix is allied with One Fair Wage, High Road Kitchens and others pioneering non-exploitative employment models for restaurant workers.
In addition to paying all workers a living wage and committing to bringing women and people of color into managerial roles, “we plan to level out people’s hours, making the work more predictable and giving workers more control,” says Wiener. “One of the reasons that there is 100 percent turnover among restaurant workers is irregular and sporadic scheduling. We believe if we can make people’s schedules consistent and stable, we can make these jobs more sustainable.”
Main Street Phoenix is geographically focused on the intermountain region—Colorado, Arizona, New Mexico, Utah—and laser-focused in this initial phase on restaurants and food service. Potential acquisitions fall into three types:
- Restaurants in default. The owner has walked away, and the landlord has taken possession. Main Street Phoenix would negotiate with the landlord to bring the location back online and would seek out the former manager and employees to get up and running as quickly as possible.
- Distressed restaurant owner, ready to sell. Main Street Phoenix becomes a turnkey agent, immediately buying the restaurant (most likely at a substantial discount), installing new managers, hiring back the workers, and restarting the business in a responsible way.
- Undercapitalized or mid-career owners looking for a solution to keep their restaurant open. Main Street Phoenix buys the business at book value, with an earn-out agreement for the owner who would stay on for several years, keeping the brand intact and helping to shepherd in new management over time.
Already, leads are popping up through professional networking and local papers. “By engaging strategic partners in the business-to-business sector—commercial banks, food service vendors, commercial real estate—we know who is in trouble and where to begin reaching out,” says Wiener.
If restaurants continue to rely heavily on the delivery model, Main Street Phoenix might also acquire or partner with a cooperative delivery service, bypassing the astronomical fees that companies like UberEats and GrubHub have been charging. Says Ruffin, “Data shows that restaurants in Albuquerque, for example, are selling more than they were before the pandemic, but the increase in business hasn’t been represented in the bottom line because of the charges from the delivery services—sometimes as much as 30 percent.”
“We want foundations, impact investors, angels to identify that this is a private sector strategy that is the most direct route to supporting the most precarious workers in a non-intrusive way,” says Wiener.
The project is planning to raise $6 to $7 million in patient equity and debt capital, using an innovative strategy that offers outside investors a reasonable rate of return without diluting the workers’ control or economic interests. With the Rocky Mountain Employee Ownership Center acting as a fiscal sponsor, the project can also accept grants and donations.
The real value is in spreading the risk across multiple restaurants. These individual businesses would not necessarily be able to raise the capital on their own.”—Lauren Ruffin, board member of the Main Street Phoenix Project
The investments are at the holding company level; no single investor is underwriting a particular deal. Says Ruffin, the real value is “in spreading the risk across multiple restaurants. These individual businesses would not necessarily be able to raise the capital on their own.”
“We are not a traditional fund or startup,” says Wiener. “We are not a fund, investing for gain, because we are truly a buy-and-hold holding company, aimed at generating excess cash flow to support the income security of the workers. For investors, we are far less risky than a startup, because we are acquiring operating businesses with a track record of success.”
Scaling the Model
Main Street Phoenix plans to acquire 25 restaurants over the next two years, which would bring about 1,000 restaurant workers into more stable jobs. Wiener says the expectation is that at least half of the workers would become worker-owners (others would likely be seasonal and part-time workers). As an alternative model at scale, Main Street could have considerable influence. But it doesn’t plan to stop there.
The cooperative wants to see the model spread and is making its tools and processes available through what it calls a “white label” strategy. The goal is for other regions and sectors to replicate the model and scale broad-based ownership far more quickly than previous strategies have allowed. As of now, the co-op is in discussions with a Boston cooperative planning a similar acquisition strategy for New England.
If all goes well with the restaurants, Main Street Phoenix has expansion plans as well. It would like to add new business sectors—childcare and day care centers, and then personal care services such as nail and hair salons and massage studios—to its portfolio. The idea is to turn Main Street businesses, particularly those that that employ women, people of color, and undocumented immigrants, into engines for prosperity. “By rolling these businesses up into a worker-owned holding company,” says Wiener, “we can use efficiencies at scale to build broad-based financial security and to preserve the fabric of our communities.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.