Yard House, a 19-unit causal-dining restaurant chain based in Irvine, Calif., which sold 70 percent of its stake last fall to private-equity firm TSG Consumer Partners, now is giving all of its restaurant managers and corporate staff a piece of the action. Where previously only a handful of top executives had equity shares in the high-grossing chain, now 100 employees have a financial stake in the business, and they didn’t have to buy shares. The shares were given away in varying amounts, depending on an employee’s position and length of time with Yard House. Investing in people will help retain and attract quality employees as Yard House gears up for expansion, said Harald Herrmann, the chain’s president and chief operating officer. Known for offering more than 100 different draft beers, Yard House units average nearly $9 million in annual sales.
Most operators today are very focused on controlling escalating food and labor costs. Is this the time to be offering shares?
Granted, margins are tighter. The cost of doing business has gone up. The economy shrinking affects a lot of same-store sales numbers, but what better time to invest more in people? To get through tough times like this, it’s all hands on deck. That’s the natural byproduct of including more equity holders in the organization. From the accounts payable clerk or someone on the insurance side or marketing or operations—they have a financial interest in the life of the company.
But they don’t have to buy their shares?
No. They are given gratis per the company. The way they are earned is through time. They vest after five years. A lot of companies ask managers to buy in with a cash amount. Typically in our industry, I don’t know anyone who can pull $50,000 or $100,000 from a bank account. Most who have made such a commitment had to get a loan from traditional sources or from family members. We did not want to put that hardship on management.
What did Yard House’s majority stake holder, TSG, think of this plan?
They are already modeling it. Their employees in their office have ownership in the company. They agree the more owners we have focused on Yard House, the stronger the company is going to be. Yes, we give up a little piece of the pie, but the pie gets bigger the more everyone is focused on growth and profit and growing their own nest egg.
