Zingermans Deli

At Zingerman’s, Pastrami and Partnership to Go

By JENNIFER CONLINJULY 5, 2014

Sandwiches wait to be delivered to patrons at Zingerman’s Delicatessen in Ann Arbor, Mich. Founded in 1982, the deli is known not only for its variety of sandwiches, but also for its highly unusual business model.

It was a typical Wednesday morning atZingerman’s Roadhouse, a restaurant in Ann Arbor, Mich., that offers nine varieties of macaroni and cheese and smokes its own hogs for pulled pork. But on this particular morning, in a colorful back dining room, finance was on the menu.

Gathered for their weekly huddle at various booths and tables were roughly 50 restaurant staff members, all studying a large whiteboard filled with handwritten numbers. Alex Young, a James Beard Award-winning chef who has run the restaurant since it opened in 2003, noted one figure in particular: $165,256, the previous week’s sales.

That number, as the board showed, was nearly $13,000 more than they had anticipated in the monthly plan for this third week of April and close to $5,000 more than they had forecast just seven days earlier. Smiles erupted across the faces of everyone from the busboys to the line cooks to the wait staff. For one thing, they had served 300 more meals than anticipated. “I think we could get that number up to $180,000 next week with the start of graduation ceremonies,” said Mr. Young, referring to the fast-approaching festivities at the University of Michigan. “How do you think we might get to that goal?”

Staff members started offering suggestions, including promoting products made at one of the restaurant’s sister businesses: graduation cakes fromZingerman’s Bakehouse, for example, or a gift package of “Zingerman’s Guide to Good Leading,” a three-part business book series sold byZingerman’s Press.“Great ideas,” said the author of the books, Ari Weinzweig, who was sitting in a booth, dressed in his standard uniform of gray jeans, slip-on rubber shoes and black T-shirt. The books explain how Mr. Weinzweig and his co-founder, Paul Saginaw, turned Zingerman’s Delicatessen, a tiny sandwich shop near the university, into a group of nine businesses that, three decades later, has 650 employees, 18 managing partners and combined annual sales of $50 million.

Founded in 1982, Zingerman’s Deli is now known internationally for its many huge and creative sandwiches. President Obama ate there recently. (“The Reuben is killer,” he told a cheering crowd of students.) But its most important creation may turn out to be a highly unusual business model — one that has produced impressive growth while engaging employees who enjoy the opportunity to help run the businesses and even to start new ones. Zingerman’s has also introduced a business to share its philosophies with other business owners who come from around the country and the world to learn how to create work environments where employees think like owners.

Shortly after the Roadhouse huddle, Mr. Weinzweig received an email from a line cook, Leo Chen, who pointed out that four of the cocktails prepared at the restaurant bar required egg whites. Mr. Chen estimated that 30 egg yolks a week were being thrown out, yolks that could be “used for breakfast, puddings, etc.,” he wrote to Mr. Weinzweig, who encouraged him to prepare a plan for collecting the yolks at the bar and transferring them to the kitchen; the plan could be presented at the next huddle.

That ‘Zingy’ Feeling

The original business plan for the deli was quite simple. “It started with a vision of a sandwich that was so large it would take two hands to pick up and when you finally bit into it, the Russian dressing would roll down your forearms,” said Mr. Saginaw, who was wearing, as he often does, a fedora and a bowling shirt. By the early 1990s, on football Saturdays, the line at the sandwich counter stretched around the corner and down the block.

Once the deli connected, the founders were besieged with offers to replicate it — from Disney, from Las Vegas casinos and from would-be franchisees. Mr. Saginaw and Mr. Weinzweig turned down all of them. Still, they weren’t satisfied with the deli, which had hit a plateau, and they wanted the business to grow. But they weren’t interested in cookie-cutter growth. They wanted to retain the things that they believed made Zingerman’s special. “When I see a model like Steak ’n Shake, I think it’s great,” Mr. Weinzweig said, referring to the hamburger chain, “but I don’t want to do the same thing again and again in places where I don’t even live.”If anything, he and Mr. Saginaw were more focused on how they would run their business than what the business would be. “From the beginning,” Mr. Saginaw said, “we wanted to build an extraordinary organization — not the biggest, not the most profitable — but an organization where decisions would not be based on who had the most authority but on whoever had the most relevant information.” He added: “We wanted to invite everyone to help run the business and convey that each one of us was personally responsible for its success.”

In 1994, the two founders wrote a vision statement for what would become the Zingerman’s Community of Businesses, or ZCoB (pronounced ZEE-cob). Instead of building delis wherever they could, they envisioned a dozen or so distinct, local businesses that would all be operating by 2009. Each would be founded and run by a passionate managing partner who would know the Zingerman’s culture and values, having gone through extensive in-house training, what they now call “the path to partnership.”These partners would invest their own money, generally 10 to 15 percent of the initial investment, so they would have a stake in the success of the business. Mr. Saginaw and Mr. Weinzweig, who would contribute capital as well, hoped that by offering staff members an opportunity to move up within the company, they would recapture the start-up spirit they had initially enjoyed with the deli.

Not everyone liked the new vision. Within three years of its introduction, 80 percent of their managers had resigned. With increased opportunity comes increased responsibility, and many of the employees were accustomed to the deli’s relaxed environment and didn’t want to recapture the spirit (or workload) of a start-up. Disappointed with the departures, the founders went looking for people who shared the vision.And they started rolling out new businesses: A bakery that had been started to make bread for the deli became Zingerman’s Bakehouse. A training and consulting business, ZingTrain, would share Zingerman’s strategies and philosophies, especially its emphasis on customer service and staff training.

There are now six ZCoB businesses clustered on the south side of Ann Arbor, including the Zingerman’s Mail Order business, the Zingerman’s Coffee Company and Zingerman’s Creamery.They have begun to resemble a real-life version of Richard Scarry’s Busy Town, right down to the storybook cheerfulness that comes from decorating every business with motivational messages written in Zingerman’s signature typeface and illustrated with quirky cartoons and drawings. But that cheerfulness can take a toll. Former staff members talk about the frustrations of having to placate difficult customers, as well as the stress of being “Zingy” throughout a long shift. “It is exhausting to work somewhere where you feel  like you have to improve what you do constantly,” said one former worker at Zingerman’s Roadhouse.

Eight miles west of Zingerman’s Roadhouse is the 42-acre Cornman Farms, where Mr. Young, the chef, has been growing vegetables and raising goats, cattle and pigs for Zingerman’s Roadhouse since 2005. This year, at the same location, ZCoB has opened its newest business, Zingerman’s Cornman Farms, an event space with a restored barn and farmhouse. In its first 10 days, it held both a wedding and a fund-raiser. The businesses sell to one another and work together, but they all have to stand on their own. Not all of them have stayed in the circle. In 1994, Zingerman’s Practical Produce opened to sell fresh fruits and vegetables, as well as Zingerman’s bread, and operated for six years until it was sold. The original partner ended up having differences with Mr. Weinzweig and Mr. Saginaw and left after less than a year. “Without the right partner, the business couldn’t work for us,” Mr. Weinzweig said. “It was a good lesson to learn. But you can’t try a lot of things and have them all work out, either.”

Today, each business has its own “training engineer,” and the nine businesses offer staff members more than 50 training classes, including sessions on knife and food safety, effective interviewing and how to buy a house. At the deli, employees are taught the provenance of all of the cheeses, meats and smoked fish they sell, as well as how to greet customers with a friendly “10/4” — a smile from 10 feet followed by a greeting from 4. “We get price questions a lot,” said Maddie LaKind, a recent University of Michigan graduate who worked part time in the deli during college and is now working and training full time at the deli, hoping for a career in food. “Customers might want to know, for instance, why our Italian submarine sandwich costs $15.50. I explain to them the value of the product. It has 11 different high-end ingredients. But we also happen to be paid and treated well.”

For employees, there is little reason not to participate in the training. They are paid their normal wage during class time — they carry a “passport” that tracks their completed course load — and can receive raises or promotions for completing segments. For example, deli employees earn a 50-cent-an-hour increase for completing orientation. “I feel like I have received a business degree working here,” said Heather Kendrick, a music major at the University of Michigan who works in the deli.

Ji Hye Kim, 36, who started at the deli in 2008 after beginning her career in health care, is now on the path to partnership. In 2010, she wrote a vision statement for an Asian restaurant called San Street, and the partners approved her pursuing the idea. Since 2011, Ms. Kim has been selling pan-fried glazed tofu, soy garlic chicken and steamed buns stuffed with pork and shiitake mushrooms off the back of a rolling trolley near the deli. The food cart has worked as an “entrepreneurial lab,” she said, producing sales of $165,000 so far in the fiscal year that ends July 31, up nearly 50 percent from the same period last year. Although the partners have not committed, she is working on a business plan for a Korean restaurant and looking for a space that would seat 50.“I am hoping to have a brick-and-mortar restaurant within the next six to 10 months,” she said, adding that Mr. Young, the Zingerman’s Roadhouse chef, recently helped her get a three-week internship at a Korean restaurant in New York.

Code Reds and Code Greens

Not long after the introduction of the Zingerman’s Community of Businesses, Mr. Weinzweig came across a book titled “The Great Game of Business,” by Jack Stack and Bo Burlingham. It recounted how Mr. Stack and a group of managers responded when International Harvester decided to close an engine manufacturing plant in Springfield, Mo., where they were employed.Mr. Stack and the managers bought the plant, renamed it Springfield ReManufacturing and turned it into a thriving collection of more than 30 businesses now known as SRC — thanks largely to an innovative strategy that came to be known as open-book management.

It was Mr. Stack’s insight that all kinds of good things would happen if managers shared information with employees: If employees knew more about how they and their colleagues were performing, they would be motivated to perform better. And if they were rewarded for improved performance, they would come to believe that they had a stake in the outcome. They might suggest ideas that would never occur to a manager who wasn’t on the front lines, for example, and generally engage with the business and its mission in ways rarely seen at American companies.

Mr. Weinzweig found the book eye-opening. “It was like turning on the light in a dark room where we had been bumping into the furniture,” he said.Though the Zingerman’s founders had never hidden the business’s financials from their employees, they had also never actively distributed them. The emphasis had always been on food and customer service. Now, employees were given responsibility for performance metrics that were tracked on a scoreboard. The metrics showed how the company was performing in sales and expenses, but also in composting and energy efficiency. The Zingerman’s Experience Indicator even turned customer service into a performance metric by tracking code reds (complaints) and code greens (compliments). Today, a code-red mistake, like a lost order, quickly sets off the customer recovery program, which gives a server the discretion to undo the damage by offering a coupon, a free item or more.

Still, the introduction of open-book management at Zingerman’s did not go smoothly. It might have failed but for a trip that Mr. Weinzweig and some of his staff took to visit Mr. Stack in 2001. Only after observing how it was done at SRC did they realize that they’d been sharing the numbers but not helping employees understand them. The problem, they concluded, was that they weren’t holding weekly meetings to discuss the results. Mr. Weinzweig says he previously wanted to do so, but was persuaded that the last thing the company needed was more meetings. After visiting Springfield, however, they introduced the huddles, like those held on Wednesday mornings at the Roadhouse. (As many as 50 are now held every week at the assorted ZCoB companies.)

Employees are encouraged, but not required, to attend the sessions. Most do — they are paid for their time, and there is usually free food — and they often see the results, especially when improved performance triggers the company’s profit-sharing plan.

But open-book management has paid off at Zingerman’s even when times were hard and there were no profits. One advantage of sharing performance numbers is that there are no surprises when the numbers turn south. In 2009, at the worst of the economic downturn, those attending weekly huddles at the Bakehouse confronted the possibility that the bakery would run out of cash within nine months. Hoping to prevent layoffs, the two managing partners and other employees who could afford to do so volunteered to take a pay cut. “It was amazing,” said Amy Emberling, one of two managing partners at the Bakehouse. “We made it through and ended up being able to retroactively pay all those employees.”

A Growing ‘Deli Campus’

It has now been 20 years since Mr. Saginaw and Mr. Weinzweig drew up their vision statement. At the time, the deli produced a little more than $5 million in annual revenue. Today, the deli has grown from its original 1,300 square feet into a 30,000-square-foot “deli campus” that, thanks to a recent addition, now includes seating, both inside and out, for hundreds and has greatly reduced waiting times.

One measure of the vision’s success is that while annual revenue at the deli topped $14 million in 2013, it represented less than 30 percent of total revenue for the nine businesses.Over the last few years, the organization’s net operating profit has hovered around 5 percent. That profit margin would be considered disappointing at many companies, but Mr. Saginaw and Mr. Weinzweig say they are happy knowing that the slim margin is a result, in part, of paying employees well and providing good health care. (The lowest entry-level wage for most ZCoB employees is now $9 an hour, and the company has committed to paying an entry wage of $11 an hour by January 2016. Full-time salaries range from $32,000 for an assistant manager at the deli to $95,000 for a senior accountant.)“Employees who are stressed out financially, wondering how to pay for their kid’s allergy meds, or their rent or auto insurance, are not going to be able to do their job well,” said Mr. Saginaw, who has been lobbying in Washington for the last year for an increase in the minimum wage. “We’re comfortable with the notion that there’s such a thing as enough. Others may be wealthier than we’ll ever be, but I wonder if they’ve lost a certain amount of joy in their work.”

The business model that he and Mr. Weinzweig created has been studied and emulated.Wayne Baker, a professor in the Ross School of Business at the University of Michigan, turned it into four case studies. Bo Burlingham featured Zingerman’s in a book called “Small Giants,” which is about companies that “choose to be great rather than big.” And the owners and employees of more than 1,000 companies have attended ZingTrain seminars to learn more about the Zingerman’s model.

ZingTrain now has six full-time trainers and eight ZCoB staff members teaching seminars at a new educational facility that can accommodate up to 35 participants at a time. Recent seminars covering open-book management attracted business leaders from a water-treatment plant in the nearby community of Plymouth, a marijuana company in Colorado and a chef academy in Singapore.

At one session, the managers of a California winery that instituted open-book management in 2013 explained how they had struggled to get employee bonuses right. And the chief executive of a chain of ice cream shops based in Austin, Tex., talked about how the company had exceeded its projections thanks to a suggestion that had emerged from employee brainstorming.The internal training courses are taught by staff members — except for the required employee-orientation class, called “Welcome to the ZCoB,” which is always taught by one of the two founders.

Recently, about 15 new employees from across the nine Zingerman’s businesses gathered in a room upstairs from the deli, all sampling a new torte that Mr. Weinzweig had brought from the Bakehouse.“First of all, here is my cellphone number, as well as Paul’s,” he told the surprised group, as they scribbled down the numbers. “Call us anytime you have a problem. That is what we are here for.” (Mr. Weinzweig still fills water glasses most evenings at the Roadhouse to stay connected with the customers and the staff.)

Krystal Walls, who works in the mail-order business and has two children and a third on the way, said at the session, “I have never worked anywhere where I was trusted or respected like this.” Another employee, Tess Eastment, who was starting work in the catering business, said, “I was pretty cynical when I started working here but have to admit, I am drinking the Kool-Aid now.”“ I hate that analogy,” Mr. Weinzweig said to her. “That Kool-Aid killed people and cults imply being secretive. We are totally open.”He went on to talk about the opportunities that awaited the new recruits and to emphasize that Zingerman’s also offers personal counseling and even loans to any employees facing hardship. “Welcome,” he said, summing up. “Any one of you may one day be a new partner in the ZCoB.”