The Main Street Phoenix Rising

A COVID-19 recovery strategy that puts workers first

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.

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.

Wiener describes the Main Street Phoenix cooperative strategic plan as a “values-based roll up.” 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.

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.”

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.”

Acquiring Restaurants
Main Street Phoenix is geographically focused on the inter-mountain region — Colorado, Arizona, New Mexico, Utah — and laser-focused in this initial phase on restaurants and food service. Potential acquisitions fall into three types:

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.

Financing
“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 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.

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