After being advised to make a succession plan for his restaurant group Edible Beats in Denver, founder Justin Cucci decided to give back to the people who have helped build his mini empire. So he formed an employee stock ownership plan (ESOP), giving the 325-plus employees a share in the long-term financial worth of the company.
"I was told to look at where I wanted to go with Edible Beats and how I see my exit, which wasn't something I wanted to think about, and it was either to sell it to an outside group or break up the restaurants and sell individually," said Cucci, who runs Linger, Ophelia’s Electric Soap Box, two locations of Root Down, Vital Root, and El Five in Colorado. "Nothing sounded like the right thing, but when I thought about ESOP, I wanted them [the employees] to have some opportunities and reward them, because there wouldn’t be an Edible Beats without them."
Not that Cucci plans on retiring anytime soon. The move to an ESOP now means as he gets older and, "tries to figure out my end journey in this," a plan will be in place, he said. In fact, Cucci started working on his ESOP about five years ago, but COVID shutdowns, business uncertainties, and banks halting many loans, especially for restaurants, paused the process. But once things were moving again, he returned to the idea, both because he wanted to give back to the staff, and also to find new incentives to retain them.
"We are an industry that's always been about turnover, and we have definitely been on the better side of that across the restaurants, with amazing employee tenure," said Cucci over the phone. "That's one reason I did this. I looked at these restaurants and saw these people that have been here for 10, 13, 14 years, almost since day one, and they have run it like their own."
Apart from serving food that customers enjoy, each restaurant also supports local farms and ranches as much as possible. Edible Beats also has its own gardens that supply the restaurants. Prices run across the board, with the average check at Root Down, Ophelia’s and El Five running between $30 and $50 per person, minus booze; and for the fast-casual Vital Root and bar-centered Linger, food checks average closer to $20-$40.
The ESOP is overseen by a trustee who represents the employees, and an administrator, also representing the employees. Employees garner shares based on their tenure and salaries. The higher someone is paid in the group the more responsibilities and burdens they carry, so they have more shares, which is determined by the trustee.
"I can't influence them,” Cucci said. “It's run through a legal system so everyone can get their shares.”
The ESOP officially launched in February 2022, and a year later, Cucci said it appears to be working. To start with, every employee there, whether they had been there for a day or 10 years, was eligible to be vested in the plan. New employees must wait a year from start date in order to get vested, and once vested they earn 25% of their shares each year. Once fully vested, employees can have all the shares valued after an evaluation, similar to how stocks are valued. Their value increases as Edible Beats pays off any debts.
Employees that had already been there for at least five years when the program began started out fully vested.
"Now, at least half the staff feel the responsibility on a personal level, and the better a restaurant does, the better the staff does, so everyone is affected by the overall choices," said Cucci. "There is no expense to any employees. They just have to come in and hopefully work hard so everyone in the company can achieve their goals."
He added that having shares in the company can, in theory, change the life of an employee. The equity can help them buy a house or start their own business. The only thing the shares can't do is be transferred or sold to another person. Shareholders who want to disinvest must sell their shares back to Edible Beats.
For Cucci, creating the ESOP means he doesn't have to sell off Edible Beats in pieces, or to an owner who may dismantle the business that he built so carefully. Eventually, the idea is to have the Edible Beats restaurants completely employee owned.
"I wanted to still have the ability to craft the narrative [of Edible Beats], but to also get out of the way and let the leaders [of the restaurants] craft the end narrative," said Cucci. "I have no clue how this will play out, and I don't know if it will take a decade, or be ready in five years."
The one thing Cucci is certain of, choosing the ESOP was the best way for him to support the staff and leave the industry on a high note.