Employees take ownership gradually at Oliver's Markets in Sonoma County

In most businesses, the owner works harder than anybody. The extra push beyond just the paycheck comes rewarded by equity in a company that grows in value.

Oliver’s Market, with nearly $175 million in sales expected this year from stores in Cotati, Windsor and two in Santa Rosa, launched an employee-stock-ownership plan in 2017. So far the new ESOP sounds good to employees, but their ownership stake is not yet tangible. In about September, employee-owners will receive their first statements showing how much of the company they own and what that tiny sliver might be worth.

Employees who have worked for Oliver’s for 10 years or more will see immediate vesting as partial owners. Others who are age 21 or older and work at least 1,000 a year - about half time - will vest three years from January 2017. The company has about 1,100 employees; nearly 700 will qualify for the ESOP.

The stock ownership resembles a 401(k) retirement plan but employees make no contributions. They receive ownership shares as a bonus, pro-rated based on their income. As with a 401(k), they can cash out if they leave the company.

Structurally, owner Steve Maass is selling 43 percent of the company to employees a bit at a time.

“We are really lucky how Steve treats us as employees,” said Roger Guttridge, store director at the Santa Rosa Stony Point location. “He treats us like family. That’s the vibe here.”

Maass opens the company’s financial information to Oliver’s employees, Guttridge said, a rare transparency in the grocery industry. “The more I show people, the more invested they get,” Guttridge said. “I show them how much we pay for rent, $3,000 to $5,000 a month for electricity. The ESOP gets people bought in more at every level. When I say hey, do you mind shutting the freezer door, they” understand. “Now we’re paying a good part of the PG&E bill.”

Guttridge has worked for Oliver’s for nearly 17 years. Previously he worked for Raley’s and Sonoma Market for about a decade. “Steve could have sold to a big company,” Guttridge said. “This is his way of saying, these people helped me out. I want to pay back to them, keep it a local company.”

For the past year, Jordan Midyett has managed the 20-employee bakery department at the Stony Point store. She came to Oliver’s in 2009 when she was age 18. “I grew up with this company,” she said.

“It’s very confusing,” Midyett said of the ESOP. “I don’t fully understand the vesting or the shares we will be getting. But I tell customers all about it. We are employee-owned. It’s awesome.”

Most of the bakery employees won’t vest for a while because they work less than half time, are under age 21 or have not worked for Oliver’s for many years. “I have a lot of part-timers,” Midyett said.

Marina DeDominguez is assistant manager of the 10-person produce department at the Oliver’s Market on Stony Point Road in Santa Rosa. She orders and buys produce for the department. “I love it,” she said of the job in produce.

An employee for 10 years, DeDominguez will immediately vest shares in the ESOP. The notion of vesting puzzles her. “It’s kind of confusing,” DeDominguez said. “It’s nice of the owner that he is doing all this for the employees. He cares about the employees.”

Eric Meuse works as general manager for Oliver’s Market, and as trustee of the ESOP. He has worked for the company nearly 28 years, starting barely a year after its founding. “To have an ownership stake really meant a lot to me,” he said. Maass could sell to another store chain, and most upper managers such as Meuse would lose jobs. “Oliver’s will remain Oliver’s,” he said.

Oliver’s changed to a social-purpose corporation in 2017 when it created the ESOP. That means the company is supposed to encourage its leaders to consider employees, the environment and the community as well as the company financial position in considering business decisions. Being a social-purpose corporation makes it easier for Oliver’s to repel an offer by another grocery chain. “We’re not only about the money,” Maass said. “We’re about the community. If they offered us $1 billion, we would obviously do that,” he said.

“We have been working on the ESOP for about five years,” Maass said. “I’m not sure I’d do it again,” he said, joking. “It is so incredibly regulated and expensive. Just setting it up was $350,000. Ongoing, it keeps getting worse.” The company pays a specialized attorney in San Francisco $800 an hour to help with the ESOP set-up.

To maintain the ESOP, Oliver’s must have its financial condition audited or reviewed. “You have to have an audit of the valuation,” Maass said, an annual process. A third-party company must distribute Oliver’s shares to employees. “It’s like a 401(k) on steroids,” he said.

The company is structured as an S-corporation. To pay for the ESOP, Maass Corp. acquired a loan. The company in turn made a longer-term loan to the ESOP, where employees acquire shares of Oliver’s Market.

“How we pay for it is that there’s no federal or state tax,” Maass said. The ESOP provides a tax break. “Instead of paying 45 percent tax, which was our bracket, that money pays for these loans.” Distributions that would have been used to pay taxes are used instead to fund a portion of ESOP share purchases.

“It is so hard to get the staff to understand and value” the ESOP, Meuse said. Part of his job is to help employees adopt an “ownership culture.”

“It’s not until years and years go by and they see the value of the company appreciate, their shares grow and their bank accounts grow that they get invested in it,” he said. “We don’t just share financial statements. We coach and train them to understand them inside and out.” Each store pulls an average of about 23,000 transactions a week, roughly 100,000 total.

Owners tend to be more conscious of waste, Maass said. “They get more and more bought in to the culture,” he said. “If I throw away something I shouldn’t throw away, it’s hurting me.”

One employee saw another employee trimming meat too aggressively, Meuse said. “Hey, that’s my money you’re throwing away,” she said to her co-worker. “That’s exactly what we’re looking for. There are some people who grasp the idea. We’re just hoping it snowballs.”

Maass intends the ESOP also to serve as an incentive for employees to stay longer. New employees vest in two to three years, depending on date of hire.

“It’s like buying a great big mansion,” Maass said, “for no money down, slowly gaining equity in it. The value of that mansion can go up or down. That’s what an ESOP is.”

“I’m 72,” Maass said. “At some point, I have to retire. I couldn’t sell to these other guys (chains). All these people - Eric, Jill (CFO) - have been with me through the whole thing. I don’t need that much money. I don’t use what I have. I built my house by hand more than 40 years ago. I have been happy with the decision” to create the ESOP.”

Valuation of the company by a CPA firm for the ESOP takes place at fair-market value - the amount a hypothetical buyer would pay for the company in the marketplace. It is not the company’s strategic value - the amount a specific buyer such as grocery chain Safeway or Raley’s - might pay for Oliver’s to gain market position.

“We would be worth probably twice as much from a strategic value” perspective, Maass said.

If an employee leaves the company, his or her shares are converted to cash and kept in the ESOP, Meuse said. For small accounts, the employee can receive a check for that amount. Larger accounts may take longer to liquidate. Retirees or disabled employees receive their funds immediately. Younger employees who leave may roll their funds into a 401(k) or IRA account.

Many years ago, Oliver’s Market adopted a crossover model where its store inventory crosses over between traditional grocery items and organic food. “We integrated organic with conventional food” throughout the stores, Maass said.

“Our cheese didn’t sell so we made it twice as big,” he said. The model worked. “Our health food didn’t sell, so we put it everywhere. Now we’re about 50-50.”

The company plans a 30-year celebration at the Cotati store on Sept. 15, right about when the first ESOP statements are due.

Oliver’s keeps boxes in each store for employees to pose questions. So far, few have asked about details of the ESOP. “After statements arrive, I bet there will be 50 questions in the first week,” Guttridge said.

James Dunn covers technology, ?biotech, law, the food industry, and banking and finance. Reach him at: james.dunn@busjrnl.com or 707-521-4257.