E&H Family Group, the company that owned the Buehler’s chain of supermarkets, started considering the sale of its grocery assets at the beginning of 2016 — though few were aware a deal was being considered.
The impetus for the sale, in large part, was the current generation of Buehler family owners were reaching retirement age.
Dan Shanahan helped in the selling effort as the team put together the confidential information memorandum and generated a list of possible acquirers. The feedback in the market was positive.
“There was a lot of interest because Buehler’s is a very well-respected chain to people in the industry,” Shanahan says.
The company, however, ultimately balked at selling to an outside buyer because it became clear that many of the suitors would not have needed Buehler’s headquarters, where more than 100 people are employed, and there might’ve been some overlap that would have led to some stores shutting down.
“For the Buehlers, all things being equal, it was important that they were able to retain the jobs,” Shanahan says.
So rather than go with another grocery chain, the company decided to sell to its employees.
According to the press release sent out in October 2017, E&H Family Group sold its 13 supermarkets to employees in the form of an employee stock ownership program. Shanahan, who joined Buehler’s as its president and COO in 2011, became the president and CEO of the newly formed company, Buehler’s Fresh Foods, which is responsible for operating the grocery chain.
The deal included the Buehler’s headquarters, its commissary and warehouse — essentially all of the assets that support the grocery business.
“All 2,100 employees will be retained in the transition and eligible employees will become owners,” the company said in a statement.
A large tent
The idea of selling to employees as an ESOP was, at least in part, a way to formalize the bottom-up management philosophy that existed through groups such as the company’s associate’s council. This is a representation of clerks who meet with management to discuss issues, good and bad, that they see from their positions.
“It wasn’t a big shock to the people here because we always want them to act like an owner, and this just formalizes it,” Shanahan says. “What’s happening in our industry today in Ohio, there’s low unemployment and it’s a big benefit for us on an attraction or retention basis, too.”
In Buehler’s ESOP, he says nearly every employee is eligible from day one for ownership, but their vesting doesn’t start unless a person works at least 20 hours per week, or at least 1,040 per year, which only excludes seasonal workers and those working very few hours.
Shanahan says that all the people who stay with the company for more than a couple years are typically over those thresholds.
“For our ESOP, it was important to have a large tent,” Shanahan says. “I’ve seen some companies where only 10 percent of the highest-salaried people are in it.”
The ESOP structure, according to Shanahan, only entitles employees to be involved with large decisions, such as the sale of the company. The rest of the decision-making will continue through the traditional hierarchy of executive management and its board.
“That being said, with our style of management being bottom up, we want our people to have a lot of say, and we intend to continue on that path,” Shanahan says.
The company is exploring how exactly that bottom-up decision structure manifests, and could, like some other companies, enable employees to vote on how much of a raise they’re going to have every year.
“But again, that’s not ESOP-driven as much as something that we’d like to do. We just think that’s our style of management here,” he says.
Shanahan, who’s been in the grocery business his entire career, says he promotes the bottom-up management approach because he’s seen it work very well. Some 2,000 Buehler’s employees spend their time on the front lines interacting with customers. They have valuable information about what’s going on, and it’s critical that they communicate what they see with management.
“We need them to all be ambassadors,” Shanahan says. “The perceptions that we have in the marketplace really begin and end with their interaction.”
The other benefit of that philosophy, he says, is employment and retention.
“Retaining people is very valuable for us. If we have higher turnover, it’s very expensive and you can’t operate the way you want to operate because you’re turning people and continuing to re-train people,” Shanahan says.
More than a paycheck
Shanahan believes three things motivate people beyond their salaries: autonomy, mastery and purpose.
“People want to have a little bit of autonomy. They want to have a little bit of purpose, and the commitment to the training and really helping them learn the departments that they’re working in is big for people,” Shanahan says.
To that end, the company is considering counseling employees on their career paths, talking with them so they understand what jobs are available, what they pay and what skills they need to get those jobs. It’s allowing employees to self-select, and the company’s commitment to transparency means their career options are right out in front of them.
“Why have it be a big mystery?” Shanahan asks.
It’s a concept modeled after a guidance counselor, someone who can help employees manage their careers with check-ins along the way. In the future, there could also be an online component that employees can use to see what jobs are available, what they pay and where the employee is at in respect to that job and how long until they’re in a position to apply for it.
“That’s a win-win for all — for us and for employees,” Shanahan says.
Back to growth
Admittedly, Shanahan says the year of the sale was a bit of a distraction for the company.
Though the majority of its employees were kept unaware of the potential transaction, he says the focus on the sale took attention away from growth initiatives. As the structure of the ESOP becomes clearer, Shanahan is eager to get back on the growth track.
“We want to grow rapidly,” he says.
The company is planting the seeds right now for growth in diverse areas, such as the possibility of standalone restaurants and how to capitalize on catering, which is doing extremely well.
“Ten years from now, we would like to double twice in our volume,” Shanahan says, by which he means any and all aspects of the current business, and any lines that may develop in the coming years.
Shanahan breaks the company down into three parts:
Stores, which he calls the organic section of the company.
Vertical, which is the company’s commissary through which it sells product to other supermarkets outside of Ohio through brokers, and a warehouse that the company has shared with other retailers to work off of each other’s buys.
Margins or perimeter business, which would include Buehler’s catering and food service, a once small, but expanding aspect of the whole.
“We really want to place our bets on all of those, and whichever ones take off, we just want to be ready to have it be scalable,” he says. “There are a lot of independent retailers doing that. We have some good friends in the business that have three or four, five formats and 60-70 stores with three or four or five formats. You used to always say you don’t want to get away from your core competency. Well, today you want to go where you can get some growth.”
Buehler’s is happy to remain a community company — it’s an inherent aspect of the family business. And the community is happy that it gets to keep its local grocer.
Since the switch to an ESOP, Shanahan has noticed more interest in the company, and the communities in which the stores are located are very happy with the outcome since there was a belief that there would’ve been a lot of jobs lost if the company had sold to an outside buyer.
“The Buehler family, I know, is very happy the way this turned out,” Shanahan says. “It’s a 90-year-old company, and preserving all those jobs was big.”
But, Shanahan notes, to maintain that sentiment, the company must continue to deliver on its unique selling propositions.
“Our business is not easy that way,” he says. “You can’t rest on your laurels for too long.”
- Employees live on the front lines. Learn from them.
- Autonomy, mastery and purpose can mean as much or more than salary.
- Consider the impact on the community when making big business decisions.