In March, as the restaurant industry was collapsing from COVID-19 shutdowns, some private equity firms saw an opportunity and began looking for struggling restaurants to acquire. The results for the workers could be dire. But a new project is taking a different approach: When the Main Street Phoenix Project buys a distressed restaurant, it will turn the workers into owners, making the industry more equitable.
“The hypothesis was that we needed to accelerate, streamline, and simplify the process of converting to employee ownership,” says Jason Wiener, a partner in the new venture. “This was about taking a traditional, tried-and-true business strategy—the private equity firm—and using the tools of concentration and capital efficiency and deploying it not for the benefit of investors, rather, for the benefit of workers.”
As an attorney, Wiener has spent years helping small businesses convert to employee ownership, a process that can raise both profits and worker compensation. But the work was slow, and he realized that the response to the pandemic needed to happen much faster. “I was sitting on my porch on March 17, and it occurred to me that we needed a vastly different strategy to meet the scale of the crisis,” he says. He was particularly concerned about workers at restaurants, who are often women, people of color, or undocumented, with little savings to survive on if they lose their job—and whose current jobs are underpaid, with erratic hours and limited benefits.
“By bringing new capital to the table, from mission-aligned, patient investors, we could buy businesses at significant value, we can hire their workers back, put them into ownership position, and lock in all of that improved cash flow and all that gain in value for the benefit of workers,” he says. By creating a holding company and repeating the process with multiple restaurants, it lowers overall risk; former employees of each restaurant will become owners in the new cooperative holding company.
After developing the financial model, the partners are now beginning to raise capital and expect to acquire the first restaurant by the end of the year, with plans to acquire around 25 over the next two years. The group will focus on three types of restaurants. Some may be family-owned restaurants with aging owners who wanted to retire, with COVID-19 as a last straw. Others may be burning through cash because of the pandemic and at risk of private equity takeover. Other restaurants may have already closed, and the coop can acquire and reopen them, putting workers back into jobs with consistent schedules, higher wages, and better benefits. All of those things will reduce worker turnover, helping the bottom lines of the restaurants.
Main Street Phoenix Project will work first in the Denver area but plans to partner with others around the country to replicate the model elsewhere. The hope is to save small, independent restaurants that could otherwise be lost now. “In this moment of distress, we have disaster capitalism, where hedge funds and private equity are swooping in to buy up large swaths of real estate and business interests, and they’re just going to sit on these assets until the real estate market turns around,” Wiener says. “We’re gonna find Main Streets across America with large swaths of downtown real estate owned by real estate holding companies and hedge funds. . . . This strategy is about maintaining the independence of Main Street by putting a worker-centered recovery strategy in motion.”