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APRIL 2024
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Myths About ESOPs
Are Workers Truly Winning?
Employee stock ownership plans (ESOPs) and co-ops have been getting a lot of media coverage lately, from The New York Times to Restaurant Business. But, for the most part, it’s just hype. These plans vary widely, but in general, a business owner sets up a trust for employees and transfers stock to the trust. Some owners claim that making employees part-owners will get them to work harder and improve company performance. Others have different reasons. The owner of Jaws Jumbo Burgers, a Florida- based chain, recently announced a co-op program offering workers part-ownership of any new restaurants he opens. This owner, an outspoken critic of rising minimum-wage laws, hopes turning employees into part-owners will motivate them to back off on demands for higher pay. My take on this: The notion that low-wage fast-food workers can benefit from any employee stock-ownership plan is nonsense. Let’s look at some of the myths about how these plans would actually work for them. Myth 1: Employee ownership motivates workers. These plans are not some big-hearted, democratic move to give power to the people. If you’re making $30,000 a year, you are spending every single cent of that $30,000. You are too busy trying to solve problems and save money. You’re using your break to schedule your kids’ doctor appointments. For you, a little more cash, in the form of a raise from $30,000 to $35,000, would be gigantic, and you would change employers to get it. Do advocates of this idea seriously think somebody who is flipping burgers is actually going to track the value of their stock in an ESOP and work harder to make it go up? Only when employees get to a higher income level do luxuries like an ESOP become motivational. Myth 2: Stock ownership plans spread the wealth. Let’s say I’ve worked at Jaws Jumbo Burgers for two years and I’m leaving. Can I cash out the stock I own? How are my holdings valued? Some plans make it difficult for people to withdraw their cash and walk away.
For example, I quit LA Fitness the other day for a new gym. I asked an employee at the front desk how to stop my monthly dues, and they handed me a form to fill out. I asked, can’t I just go online? No, they said, you fill out the form and you have to mail it in. Why can’t I just hand it to you? I asked. It has to be mailed to corporate headquarters. By this time, I’m annoyed. This business is making it as difficult as possible for me to claim what I am owed. Low-paid hourly workers dealing with employer’s stock- ownership or co-op plans are often vulnerable in the same way. In order to benefit, they must figure out and follow complicated rules. Most are likely instead to just leave their stock holdings in place when they resign and walk away. Myth 3: Employees will grow into leaders. Advocates say stock ownership plans can solve employers’ succession- planning problems by motivating employees to stick around and
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Turning Down the Heat How Restaurant Managers Can Reclaim Sanity and Success
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assume leadership. But fast-food restaurants are a revolving door. The idea that you’re going to retain front-line, drive- through employees with stock ownership is disingenuous. I would argue that most employees are not in the job long enough to understand the rules. A real succession plan involves identifying key, high-potential employees whom you really want to succeed you. You might set up an incentive plan and sell the company to them over time. This could make sense for some 100-year-old business that is a union shop with people who have worked there forever and are well- established and can form a governing board. ESOPs have been successful in circumstances like that.
Nobody wants to be a restaurant manager. This is one of the biggest problems restaurant owners face, according to ARROW UP Training, a consulting firm to the hospitality industry. Managing a restaurant can become a lifestyle in addition to a job. Many managers put in 50–80 hours a week and experience high levels of stress. Customers are becoming more difficult and demanding. Employee absences are soaring, not only because of illness but because some workers have a more casual attitude toward their jobs compared with the past. No wonder turnover among restaurant managers is high. Rather than engaging in constant firefighting, managers can benefit from clearing some of the underbrush causing the outbreaks, according to Jason Berkowitz, founder of ARROW UP. Before you can solve a set of problems, you have to track and name them. Every day for a month, list your main trouble spots. Don’t be discouraged if the list gets too long. After a month, start identifying small steps you can take to improve operations. And don’t swing for the fences, Berkowitz says. Hitting singles is fine. If you have been putting off tough conversations with problem employees, have them now. Explain the impact of their inept or inconsiderate behaviors and correct them with empathy. As uncomfortable as this may be, it’s better than the pain you will feel when your top people leave out of frustration over co-workers’ lack of accountability. Consider upgrading your scheduling software. To deal with employee absences, implement a program that sends mass texts to employees, inviting them to fill last-minute vacancies. These information-sharing tools build teamwork and empower employees to pitch in to solve problems. Get organized. If certain problems with your work processes crop up over and over on your firefighting list, set up trackable procedures. Compile checklists or training programs to close gaps. Inviting a star employee to help can motivate that person and help them build skills, creating a potential successor one day. Also, consider trusting employees to manage closing or opening routines, to give you some much-needed rest. Well-maintained cameras and security systems can provide a helpful window on the store from afar. As you improve your operating processes, communicate with your employees about the positive aspects of restaurant management. The stable pay, diverse experience, and advancement potential offered by these jobs can help you retain the ambitious employees you most want to keep.
It’s true that ESOPs are gaining traction in some sectors. The number of privately held companies with ESOPs rose by 1.5% in 2021 to 5,973. One reason is because KKR and other private equity firms have started to use them as a way to motivate employees, who actually do benefit when private equity firms flip their companies for a profit, according to The New York Times. But to succeed, these plans must be accompanied by employee education and a strong chance that the company will rise in value and give employees a clear path to cashing out. In the case of quick-service restaurants, ESOPs more often benefit owners by providing a way to extract money from the business. Getting a valuation on stock transferred to an ESOP enables an owner to get a loan. So if your business is valued at $10 million and you transfer a 49% ownership stake to the ESOP, you can cash out, either by having the ESOP borrow money and pay you $4.9 million for that equity stake, or by receiving a promissory note from the ESOP. Plenty of consultants and bankers who put together financing for these plans have a lot to gain. Before you take the bait, take a hard look at the actual benefits for your employees.
– Nate Riordan
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“West Coast Franchise Law represented us as we took
our Wendy’s operation from 9 restaurants to over 40 ... They were a vital part of our growth, success, and exit, and we highly recommend them to any multi‑unit franchisee.”
Hans Sohlen & Mark Reed — Former Wendy's franchisees
A lingering effect of the pandemic is transforming the competitive landscape for fast-food restaurants — customers’ appetite for drive-through meals. A desire for convenience has replaced health worries as the No. 1 motivator for drive-through customers, but diners’ appetite for swift, contactless service has not waned. And competition is intensifying as full-service chains such as Applebees expand aggressively into the drive-through space. Drive-Through Delight Restaurants Vie for Bigger Share of Drive-Through Sales
Customer Analytics: Some operators are installing video cameras in drive-through lanes to track repeat customers by reading license plates, enabling restaurants to tailor menu items to individuals’ tastes. According to Interface Systems, a service provider, the technology also can track how many drivers drop out of long waiting lines, helping restaurants staff up for busy periods. Intelligent Menus: New personalized digital menu boards are connected to the cloud and can change pricing and product availability based on information received from other apps at the restaurant. They also enable fast-food operators to accept electronic payments and redeem customers’ reward points while they order. Gamification for Order Takers: Taking order after order can be boring for employees, so some operators are making a game of it. New gamification apps turn tracking key performance indicators into a challenge for employees. Workers can see whether they are improving their productivity or quality of service, encouraging a significant increase in employee engagement. Restaurant Robots: As labor shortages continue to burden restaurant operators, a growing number are using robots to serve customers and perform basic kitchen tasks. In one noteworthy example, the Sweetgreen salad chain uses robots to measure and serve ingredients in bowls along an assembly line. Several other restaurants, including White Castle and Wing Zone, are using a kitchen robot called Flippy to automate food preparation. Taken together, these tech trends promise a fast-changing experience for the growing number of drive-through diners seeking speedy, convenient service. 3
Here are a few technological innovations that will help separate winners from losers in the drive-through sector.
Multiple Drive-Through Lanes: Some operators are converting single-lane drive-throughs into multi-lane, order-filling superhighways. Taco Bell opened a two-story, four-lane drive- through in Minnesota in 2022, with a contactless delivery system that transports food to drivers from a second-story kitchen. Customers can choose different lanes to collect pre-orders or order on site, and food can be delivered via robotic lifts. McDonald’s has since opened a test restaurant in Texas that allows customers to place orders via a two-lane drive-through, an app, or self-service kiosks on site.
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In This Issue 1
The Harsh Realities of Employee Stock Ownership Plans
2
For Restaurant Managers: Moving From Crisis to Control
3
Growth in Drive-Through Business Fuels Fast-Food Innovation
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2 Adjustments That Are Vital for Businesses in 2024
Essential Business Changes for 2024 Success
Almost every business needs to pivot and modernize to stay relevant, and a big part of that is finding a new target audience and more revenue streams, both essential for keeping up with the times while boosting profits. Here’s how you can go about doing just that. No. 1: Reevaluate your target audience. The pandemic and its consequences have shaken up almost every industry, including yours. Prospective customers may have different expectations and needs, while some of the loyal customers you’ve always relied on may not be coming back. In 2024, you must reevaluate your ideal customers and strive to cater to them. Adjust your pricing model, marketing, and other aspects of your business accordingly. If you adapt the company's business model to be more attractive to your ideal (but untested) clients, be sure to find a balance so you don’t alienate loyal customers staying with you.
Finding ways to maximize monetization is an effective way to boost profits without making substantial changes, and you should take advantage of them whenever possible. Identifying the right product to offer is critical. Start by considering the needs of your ideal and existing clients. Why are they buying your product? What could make their experience better? Consider introducing surveys, ideally with discount incentives, to get information from clients themselves. Ultimately, clients are the only ones who accurately know their needs and what they’re willing to pay for, and they may have ideas you’ve never considered. Remember Sears, Blockbuster, and RadioShack? Neither do we. Change is the only constant in this world; every company needs to adapt to it or face the consequences. All businesses, including yours, can be more efficient and boost profits like never before, so long as they’re willing to make the proper adjustments to grow.
No. 2: Find new revenue streams from existing clients. It’s much easier to sell to loyal clients than to find new ones.
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