The New Normal: Growing Our Co-ops & Thriving in a Competitive Landscape
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Transcript of The New Normal: Growing Our Co-ops & Thriving in a Competitive Landscape
THE NEW NORMAL
GROWING OUR CO-OPS AND THRIVING
IN A COMPETITIVE LANDSCAPE
NFCA FALL MEETING,
HANOVER, NH
SEPTEMBER 27, 2014
Market Context
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Whole Foods Trader Joe's Sprouts Fresh Market NCGA Natural Grocers Earth Fare
Major Natural Food Competitors
Increasingly Competitive
Landscape
The New “Supernaturals”
Sprouts
• Founded 2001:
– 2011 merged with Henry’s & Sun Harvest
– 2012 acquired Sunflower
• Chain of 165 stores, based in Phoenix, AZ
– Southwest U.S. and now KS, MO, GA, AL
• IPO in 2013, traded on NASDAQ
• $2.7 B/year, 27% gross, 3% net
• “Healthy living for less” & “Responsible Retailing”
– Produce=25% of store sales
Lucky’s
• Founded in 2002 by Bo Sharon
– Lots of former Oats & Sunflower talent
• Chain of 13 stores, based in Boulder, CO
– CO, MT, WY plus FL, IN, IA, MI, MO, OH, & KY
– MW focus
• “Good food for all”
• Intersection between Sprouts and Food Co-ops– More natural than a Sprouts
– More price-competitive than a food co-op
Natural Grocers
• Founded in 1955 in Golden, CO
– History as Vitamin Cottage, 2012 IPO
• Chain of 84 stores, based in Lakewood, CO
– Rockies, Southwest, Pac NW, pushing into MW
• $500 M/year, 25% gross, 2.5% net
– 5-16k sq. ft., 1/3 of mix and ¼ of space to Wellness
• “What we won’t sell and why”
– Strict product guidelines standards, only Organic Produce
Earth Fare
• Founded in 1975
• Chain of 33 stores, based in Asheville, NC
– Southeast U.S. plus IN, OH, and now MI
• “Connect communities and improve lives through
food”
– Company has a “Food Philosophy” of “selling food as close
to the ground as it gets.”
– “Boot List” of banned ingredients, particularly HFCS &
artificial ingredients
Effective competitors
• Know the consumers in my market – not just
the ones in my store
• Know that demographics are changing
• See mid-level shopper sales as the opportunity
• Know today’s mid-level shopper could be
tomorrows core shopper
• Set goals to attract more mid-level shoppers
Case Studies
• Existing Co-op acquires conventional store
• Existing Co-op merges with another co-op (&
opens a beautiful new store)
• Existing Co-op partners with a start-up group
Existing Co-op acquires
conventional store
Opportunity in White River Junction
>> Collaboration & Cooperation
>> Transformation
>> Results
• Increased sales from $100k to $180k per week
• Profitable within first three months of operations
• Increase in memberships
• Increase in staff morale – better pay, benefits
• Expansion of the cooperative model with no impact on our friends at Upper Valley Co-op
CO-OPERATIVE MERGER: STRENGTHENING TWO
COMMUNITIES
Testing our Values
People’s Food Co-op La Crosse:
Established as a buying club in 1973.
FY2010 Sales: $10.9 Million
FY2010 Members: 4124
Rochester Good Food Store
Established as a buying club in 1975.
FY2010 Sales: $3.4 Million
FY2010 Members: Annual dues paying members ~ < 500
La Crosse,
WI
Rochester,
MN
Bachelor's degree or higher 24.1% 38.1%
Married residents 39.1% 57.6%
Family households
48.4%
(WI 66.5%)
63.0%
(MN 66.2%)
% Ethnically white 91.1% 82.0%
% Living in poverty 25.2% 8.8%
July 2011 unemployment rate
7.6%
(WI 7.8%)
5.8%
(MN 7.2%)
Daytime population change
(commuters) 19,395 27,477
Household income
$37,476
(WI
$49,993)
$62,420
(MN
$55,616)
Some statistics of interest to the People’s
Food Co-op (these are 2012 stats):
There are always a lot of good reasons NOT
to do something.
Our challenge is to weigh the COSTS vs
BENEFITS of any given strategy.
Being a good manager is as much about
knowing what NOT TO DO as it is about
knowing WHAT TO DO.
Start with a gut check. List the obvious
benefits versus challenges.
ARE THERE ANY DEAL BREAKERS ON THIS LIST?
We dug in and tried to approach this opportunity
systematically –
First we created an “OPPORTUNITIES & CHALLENGES”
assessment
Then a “GOALS” sheet
From there the board asked me to layout a “MODEL
TIMELINE” based upon the development limitations
we were operating under.
Once the board had a chance to review those
items they asked me to generate a “MEMBER
ENGAGEMENT TIMELINE” that included a “DRAFT
LETTER” that would go to all members explaining
the opportunity, the actions taken to date, as
well as what we saw as the benefits and
challenges
At the same time I was working on an “EXPANSION
PLAN” that included market research conducted by two
outside consulting firms. A “SOURCES & USES BUDGET”
was drawn up that was used to create a set of “FIVE
YEAR PRO FORMA BUDGETS” to demonstrate the financial
feasibility of the plan.
Discussions began between the Rochester and La Crosse
BODs in early February 2011. By mid-July I had to
present a well formulated case demonstrating a solid
plan for the merger AND expansion.
Process Successes:
The La Crosse store was operating at a high level so
that when my attention was turned to focusing 90% on the
merger and expansion planning the co-op didn’t suffer.
(I eventually hired a store manager for La Crosse, but
not until 18 months in to the project.)
The boards of both organizations found trust in one
another and didn’t turn on one another during times that
were difficult.
We over-communicated. We took our lumps and found
comfort with open disagreement and hostility toward the
proposal. (It was small but very loud.)
The board and management expressed our support and
belief in the proposal, but we didn’t do the hard sell.
The vast majority of members saw the benefits clearly.
Process Successes, continued:
We did our homework. We anticipated to the best of our
ability what the questions would be and worked to find
answers to them wherever we could. We did not however
make promises we couldn’t keep, and we were comfortable
saying, “We don’t know.”
When the first vote in Rochester failed to reach the
required threshold for passage (it passed with 66.2% in
favor – MN statute requires a 67% threshold) the
Rochester board conducted a listening tour, called every
member, and investigated and decided that there were
enough “anomalies” to warrant another vote.
Once the decision was made to move forward those who
were opposed got behind the co-op to help us find
success.
Process successes, continued:
PFC La Crosse has built a culture of cooperation among co-ops for many
years. Our management team got behind the merger proposal and helped
wherever they could. Our members also got it – the merger proposal passed
in La Crosse by 83%.
When the first vote missed the threshold (by 11 votes!) the board parted
ways with their GM. I worked with them to find an interim GM who I hoped to
eventually hire as Rochester Store Manager should the merger become a
reality. She was key to building bridges with staff and members.
PFC La Crosse provided operational assistance throughout the merger
period when GFS was financially struggling, continuing a history of 5 years of
outreach with that co-op during a time of great leadership turnover and
upheaval. It was also a time when the co-op emerged from decades of
stagnation.
Process Weaknesses:
GFS had a GM who was at odds with his Board prior to the
merger proposal and expansion opportunity. The inability
of his Board to manage his performance along with my
failure at managing his ego led to his undermining of much
of the process with staff.
We did not anticipate the level of paranoia that would
evolve among the GFS staff. The GFS Board and I met with
them on multiple occasions to keep them informed of the
process and the plan, but we couldn’t counteract what was
going on between visits. We saw everything from a Front
End Manager who quit to picket against the merger outside
of the store, to ballot tampering during the voting period.
GFS was an annual fee co-op rather than equity based.
Determining a member joining date for vote eligibility and
finding a way to allocate equity to a loosely defined
membership was a challenge.
Process Weaknesses, continued:
As a fee-based co-op that had for nearly 25 years been
run as a privately controlled business, there was not a
strong tradition of member participation and investment.
Our collective balloting systems were loose and did
not provide for adequate security during high stakes
election. We have since revamped – we no longer collect
ballots in the stores for any election. All election
counts are now conducted by our auditor. We are moving
toward electronic balloting within the next two years.
Cooperative mergers are relatively common, but not in
the food co-op world. We were lucky in that we were
able to find attorneys with experience in ag co-op
mergers, but sadly, the way many ag co-op mergers are
handled aren’t necessarily the ones we wanted to
emulate.
At the end of September when FY2014 ends for PFC and the NEW
Rochester People’s Food Co-op celebrates its first
anniversary:
FY2014 Consolidated La Crosse Rochester
Sales $23.0 M $13.0 M $10.0 M
Sales Growth 33.28% 4.00% 90.00%
Total Members 7603 5180 2423
Total Employees 210 119 86
FY2011 Pre-Merger Consolidated La Crosse Rochester
Sales $15.6 M $11.5 M $4.1 M
Sales Growth 8.94% 5.72% 18.98%
Total Members 5118 4364 754
Total Employees 156 120 36
Existing Co-op & Start-up
Partnership
• Case Study: Gateway start-up group dissolves
& members join Mississippi Market. MM opens
store in start-up community.
• Much quicker to open
• Significantly easier to get financing
• Stronger balance sheet & cash flow
• Strong operations from day 1
What does this mean for my Co-op
Questions & Discussion
Thank you
Dave Blackburn: [email protected]
Michelle Schry: [email protected]
Terry Appleby: [email protected]