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The Tao Of Zingerman's, The Deli That Grew Into A $62 Million Business: 'We Exist To Give People Better Lives'

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The Tao Of Zingerman's, The Deli That Grew Into A $62 Million Business: 'We Exist To Give People Better Lives'

Zingerman’s, which began with two partners opening an Ann Arbor delicatessen in 1982, has grown into a baker’s dozen of businesses with 732 employees and $62 million in annual sales.

As an entity, Zingerman’s is known for its progressive values nearly as much as its food. All employees have had health insurance from the beginning. Servers earn $15-30 an hour — 384 percent higher than Michigan’s minimum wage for tipped workers. Employees can buy shares in Zingerman’s. If employees run into emergency circumstances, there’s a relief fund from which they can apply for help, paid for with a 5 percent annual earmark from company profits.

“There’s nothing about how we run a business that shareholders would approve of. There would be shareholder revolts at every annual meeting,” cofounder Paul Saginaw, 66, told Benzinga with a chuckle.

“We don’t exist to create more shareholder value. We exist to give people better lives.”

That mission and business model — which is now taught to outside businesses via ZingTrain, one of the 13 companies in the Zingerman’s community of businesses — began with Saginaw, cofounder Ari Weinzweig and two goals.

“We wanted a really great sandwich and an organization that had a lot of soul,” Saginaw said.

A Company With Principle

The genesis of Zingerman’s expansion came after a yearlong conversation initiated by Saginaw in the early 1990s.

The energy levels and esprit de corps at the deli didn’t seem as high as before, he said. “That just scared the s--t out of me.”

Once a business evolves past the point of meeting payroll each week, “you realize you need a definition of success,” Saginaw said, and a written narrative for a company’s future.

Saginaw and Weinzweig arrived at a plan, finalized in 1994, to open 10-12 food-related businesses in the Ann Arbor area by 2009. They’d be run by people who were beyond passionate about the idea they were pitching — and those people would be partners in Zingerman’s.

Everyone who is a partner in Zingerman’s today started at the company as an employee, Saginaw said.

“We didn’t want folks who had a sense of ownership. We wanted ownership.”

See Also: Founders Brewing Co.'s Journey From Near-Bankruptcy To Best-Seller: 'Our Investors Thought We Were Crazy'

3 Bottom Lines

The ideas that became the Zingerman’s Community of Businesses — a creamery, a mail order service, a bakehouse, a coffee company, a candy manufactory and more — were intended to lead their respective markets not in size, but in quality, Saginaw said.

Zingerman’s has two cofounding partners, 15 operating partners and three staff partners who have the same level of decision-making authority.

The company's three “bottom lines” are great food, great service and great finance.

The Zingerman’s culture is driven by its guiding principles, and that’s what makes the company unique, Saginaw said.

“Best practices do change. Principles don’t change,” he said. “Principles aren’t principles until they cost you something.”

By defining the level of excellence the company aims for, Zingerman’s is also helping to define its workforce, he said.

“If they’re well-written, then they attract the kind of people you want to come to your organization.”

At the same time the Zingerman’s founders were debating their company’s future in the 1990s, they were also pursuing a trade dress lawsuit that accused a competitor of copying their style.

Today, worrying about the competition isn't where Saginaw spends his time.

“You are much better off if you just focus that energy on how to make your customers and employees happier,” he said.

Activist, actress, author and fitness guru Jane Fonda listens as Zingerman’s cofounder Paul Saginaw speaks at a May 7 fundraiser in Detroit for ROCACTION, a group that advocates for higher wages and improved working conditions in the restaurant industry. Photo by Dustin Blitchok.

Skin In The (Deli) Game

Employees who have worked for Zingerman’s for at least two years are eligible to purchase shares in the company for $1,000, and the cost can be financed over two years of payroll deductions.

The shares are in an LLC that holds the intellectual property of the Zingerman’s Community of Businesses, said Saginaw, who calls the system a “hybrid form of employee ownership.”

Distributions are made every year Zingerman’s exceeds a 2 percent profit margin. The first distribution, in January 2016, was $320, Saginaw said.

“As they say, that’s a good day at the races.”

A separate benefit for employees is based on annual plans written by each Zingerman’s business, Saginaw said.

The business plans project what level the entities must operate at to sustain themselves, and profits are shared when the businesses make gains over and above their baseline.

Improving The Service Industry

In 2015, Zingerman’s released a 2025 diversity plan at a time when headlines were dominated by the Black Lives Matter movement and civil unrest in Ferguson, Missouri after the shooting of Michael Brown by a police officer; the U.S. Supreme Court ruled in favor of same-sex marriage; and gender identity entered the national conversation in a way it previously had not.

Issues such as diversity and sustainability — Zingerman’s would like to become a zero-waste company, Saginaw said — are at the heart of the company’s vision.

“The racial diversity of the partners group should, at a minimum, reflect the demographics of the county we do business in,” Saginaw said.

Saginaw appeared at a fundraiser held in Detroit in May for ROCACTION, a group that advocates for higher wages and improved working conditions in the restaurant industry. At the event, which was headlined by Jane Fonda, Saginaw spoke against the system of compensating restaurant workers primarily through tips.

Gratuities are included on customers’ checks at Miss Kim, a Korean restaurant and Zingerman’s business that opened in Ann Arbor last year.

The food service industry’s distinction of having the highest incidence of reports of sexual harassment is “at least tangentially connected to tipping,” Saginaw said. And in states where employers must pay the difference between tips received and the minimum wage, an enormous administrative burden is created, he said.

“If you thought about it, how many other businesses are asking the customer when their employees are going to get paid or not?”

The lowest starting wage of any position in the Zingerman’s world is $11 an hour, Saginaw said: “We’re trying to get to $15 as quickly as we can.”

A Special Place

With progressive values, a level of employee benefits that are unusual in the service industry and a goal of making the community where it operates a better place, Saginaw recognizes that Zingerman’s occupies a unique place in the American business world.

“There are other businesses that operate like we do. There’s just not a lot of them,” he said with a smile.

Posted-In: Ann Arbor Ari WeinzweigRestaurants Top Stories Success Stories Exclusives Interview General Best of Benzinga

 

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