It’s a challenging time in the United States to own a bar or restaurant. While the dining industry has always dealt with razor-thin margins, the past few years have been particularly rough, thanks to post-pandemic employee shortages, record-high inflation and other issues. “The last couple years have been funky as hell, and coming out of COVID was already pretty funky enough,” says Colorado restaurateur Justin Cucci. “In Denver, specifically, our minimum wage, over the last five years, has gone up over 70%…. That is a piece of the puzzle we never prepared for.”
Cucci is the founder and chef behind 17-year-old Edible Beats. The restaurant group encompasses four contemporary concepts in the Mile High City—Linger, Vital Root, El Five and Root Down (which also has a popular outpost at Denver International Airport)—serving everything from plant-based cuisine to Spanish fare and globally-inspired street food.
While Edible Beats has suffered some losses in the post-COVID world—last year, it sold one of its most iconic concepts, a concert venue and gastropub called Ophelia’s Electric Soapbox—Cucci still managed to make some big moves to create opportunities for himself and his employees. In 2022, the restaurant group adopted a 100% employee stock ownership plan.
How an ESOP Works for Restaurant Employees
The ESOP gives Edible Beats’ 325 to 375 employees (the number fluctuates depending on the time of year) an ownership stake in the business. Shares are allocated to staff at no cost and accumulate in a trust. Long-standing employees are grandfathered into the plan, and newcomers are eligible after one year. Employees’ shares are based on salary, including tips, which are shared based on an individual’s position, tenure and skill level.
ESOPs Are Rare in the Restaurant Industry
Cucci’s adoption of this benefit plan is an uncommon move in the restaurant world. There are only six restaurants among the nearly 6,550 businesses in the United States that have implemented the ESOP, most of which are private companies. Since there were few restaurant ESOP models to follow when Cucci made the decision, the group paved its own way with the help of the leadership team and advisers. “We were a little nervous,” he says.
Using an ESOP as a Succession Plan
But Cucci, 57, also felt like it was the appropriate next chapter for Edible Beats, which has experienced more success than he could have imagined in the Denver restaurant scene. Multiple concepts have been featured on local and national best restaurant lists, and the group has been celebrated for its commitment to local and sustainable sourcing since it opened in 2008.
“I never had [a succession plan], but then when I learned a little bit about an ESOP, I said, ‘That feels like the way our story has to end…..’” Cucci says. “I felt like it would be a way for the employees who had been on that journey, who’ve been part of that success, to reap the rewards of that success. It’s kind of the proverbial win-win, where the owner gets the financial reward out of it by selling his business to the employees even though they don’t have to bring any money to the table.”
How ESOP Share Value Is Determined
Every year, ESOP businesses are assessed by a valuation firm based on factors such as market conditions, the health of the economy, year-over-year growth and whether they met their projections and earnings before interest, taxes, depreciation and amortization (EBITDA) goals. That gives employees a sense of the value of their shares in the company…