Employees to slice up pizza business
June 17, 2003
By Alec Rosenberg, BUSINESS WRITER
THERE'S PIZZA and then there's Zachary's. The husband-and-wife team of Zach Zachowski and Barbara Gabel started Zachary's Chicago Pizza 20 years ago in Oakland's Rockridge district. The College Avenue restaurant and its sister outlet on Solano Avenue in Berkeley have become local landmarks. Hourlong waits are common on Saturday nights, as customers line up to taste the award-winning stuffed pizza, a deliciously dense combination of tomato sauce, cheese and dough.
Over the years, Zachowski and Gabel have gradually handed day-to-day management to employees. Now the couple are taking it a step further, announcing they are selling Zachary's to employees and retiring.
"It's the ultimate exit strategy," Gabel said. "There's no reason if they are smart, which they are, that Zachary's can't be here 20 years from now."
For customers, Zachary's employee stock ownership plan shouldn't mean any immediate changes. But for employees, it will give them a piece of the ownership pie -- a bonus on top of their already above-average compensation. Meanwhile, Oakland residents Zachowski, 53, and Gabel, 51, plan to stay active at Zachary's for a few years during the transition.
"We're not going to be gone tomorrow," Zachowski said.
It would have been easier for the couple to sell Zachary's to an individual buyer. But they preferred an employee stock ownership plan, or ESOP, because they think it will be better for employees. Also, they get tax benefits.
"We're overscale on wages, benefits and work hours," Zachowski said. "It would've been very hard to find someone who would have bought it and kept it the same way."
Zachary's ESOP is open to all employees who work at least 1,000 hours a year. Employees will receive company stock equal to 25 percent of their salaries. An employee earning $40,000 will get $10,000 a year in stock -- that's in addition to a regular salary, health insurance and 401(k) retirement plan.
Employee shares fully vest after seven years. Unlike a 401(k) plan that is disbursed after retirement, employees cash out their stock five years after leaving Zachary's, paid out equally over five years.
Zachowski and Gabel told Zachary's 110 employees about the ESOP in mid-May after consulting top management.
"I was thrilled," said 12-year Zachary's employee Christy Schuchmann, who started as a server in college and passed on plans to be a teacher to become a manager. "It's just such a good job, you can't leave."
General Manager J.P. LaRussa has worked at Zachary's since Day 1, starting as a part-time dishwasher when he was a high school senior.
"This breathes new life into the business in a very positive way," he said.
Zachary's owners talked to the National Center for Employee Ownership in Oakland before starting the ESOP.
"I think it's a very good fit," said Corey Rosen, executive director of the nonprofit center. "They want employees to be owners. They're a successful business with a great reputation -- lines out the door."
The U.S. has about 11,000 ESOPs, which has stayed steady despite the economic downturn, Rosen said. Most ESOP firms are privately owned. Ideally, they are profitable and management is comfortable sharing ownership, Rosen said.
The poster child for a bad ESOP is United Airlines, having financial stress, union-management mistrust and no flight attendant participation, Rosen said.
Zachary's ESOP has risk. Zachowski and Gabel will be on the hook for a loan to speed the ownership transition. But they are optimistic that the business, which has been profitable from the start, will continue to succeed.
Zachowski and Gabel opened Zachary's on July 25, 1983, leaving Chicago's chilly weather for Oakland. After 20 years, they still enjoy eating Zachary's pizza -- Zachowski prefers cheese; Gabel spinach and mushroom. Zachary's sells thin and stuffed pizzas, which take 30 minutes to make, and accepts only cash to speed transactions and limit costs.
"If the pizza wasn't good, people wouldn't come," Zachowski said. "I've never said it's the best pizza in the Bay Area and never will, but we win a lot of readers' awards, which is a good benchmark."
Zachowski and Gabel were content with two Zachary's restaurants but will leave it up to employees to decide whether to expand. Once retired, they will retain a small share of Zachary's. They may get more involved in charities -- Gabel is a board member of the East Bay SPCA and Zachowski races cars.
Also, they plan to regularly eat Zachary's pizza, along with the restaurant's legion of loyal customers.
"Whenever I'm in the country I say, 'Let's go to Zachary's'," said Walnut Creek resident Chelsey Hauge, 20, a frequent foreign traveler. Before leaving for Mexico, Hauge ate lunch last month at Zachary's with friend Marcie Holmes, 22, of Danville, who was making her second visit to the pizza place.
"She's just becoming addicted," Hauge said.