Natural food co-op retailers have demonstrated their persistence in the marketplace to reach consumers eager for sustainable and ethical business practices. Nonetheless, food co-ops are also losing market share to chain competitors that can open new storefronts quickly and effectively. According to CE Pugh, chief operating officer of the National Co-op Grocers Association (NCGA), only 16 percent of the NCGA’s membership manages multistore operations. He thinks there’s a lot of opportunity for this number to grow. “If someone’s going to open all these stores, it should be co-ops,” Pugh said.
As much as the food co-op startup movement has injected communities around the U.S. with co-op development activities, starting a co-op today takes significant organizing resources. Established food co-ops with a confirmed customer base and proven track record can grow new storefronts much more efficiently. Clearly the next step for a lot of food co-ops in the sector is to seek ways to replicate the co-op model in their local communities.
The million dollar question, then: Is your co-op ready to do this?
From Bill Gessner’s perspective as an expansion planning and business development consultant with the CDS Consulting Co-op (CDS CC), it all comes down to enacting a vision. Not every co-op is in a position to have multiple stores, but every co-op is in a position to examine its co-op’s cultural beliefs about growth. He thinks some co-op managers or boards may be held back by the idea that their one store IS the co-op, rather than a vehicle for greater cooperation in the community.
Part of being ready to replicate operations is to view the co-op as more than the sum of its store departments, and shifting toward a holistic vision of maximizing the co-op way of doing business. “Change needs to be embraced by leaders of our co-ops. Let’s not be invisible or just fly under the radar. We want to bring cooperation to more and more people and build the cooperative economy,” Gessner said. “Let’s make the co-op brand be one of the top 5 brands for democracy, sustainability and community.” In order to accomplish this vision, co-ops need to take a systematic approach to planning that includes market feasibility, internal readiness and financial viability.
“A lot of second store development occurs because someone approaches a retailer and they react. It would be better if there was a more proactive approach to looking at it,” said Debbie Suassuna, location and site analyst for the CDS CC. Part of this preparation is getting professional advice via a full-scale market evaluation to determine how many stores can be supported by your market, and where these potential stores should be located. One question that always comes up is whether it is better to expand into a bigger store or open more locations. There are many factors that go into answering that, but Suassuna said that a co-op may be poised for having multiple store locations when its current location has achieved its full expansion potential, has the opportunity to build sales in another part of town, or customer service is compromised in some way.
If your parking lot is maxed out and sales per square foot are high, she said chances are you are also inconveniencing customers and putting limitations on what you can do to grow sales in the long term. “If your store is busy like that, it can make your competitor stronger if they have better parking or an easier shopping experience,” she said. If that’s the case, opening another location can alleviate these pressures and increase sales growth. “It’s really important to evaluate your options.”
A good place to start is to do a survey of your customers to get a sense of where they are coming from. Suassuna suggests a Customer Address Transaction (CAT) survey to find out if there is potentially enough market support for more locations. “The CATsurvey is the first step, to show where the co-op gets its business and to identify areas that are not well-served by the co-op and thus, may represent new or second store opportunities. It’s very important to understand the performance of the current store before moving forward.”
Infrastructural change is integral to developing a new paradigm of growth into more locations. On a very practical level, Gessner believes that any store seeking to transition from a single store to more than one needs to have a store manager system in place at least a year before another location opens. This means that the general manager is not involved in the day-to-day operations any more, but delegating to a store manager who can carry out that function. “You can’t be the general manager and a store manager at the same time you are planning an additional store. Developing that staffing structure and transitioning to a multistore focus takes time,” Gessner said. Gessner thinks that there are also a number of things that operations should consider to plan for multiple locations. Is the internal work culture of the co-op aligned with the organization’s goals for growth? Are there strong systems within departments that allow for greater capacity, especially in human resources and information technology? Has the management reviewed its organizational depth chart and identified areas to expand or strengthen? Are people being trained to take on the additional responsibilities of multistore management? Gessner advises addressing these issues so that when an opportunity arises, the co-op can be ready for it.
Of course, all the planning points to one major consideration: funding and profitability. There are benchmarks to meet regarding cash flow and profitability. In order to assess financial feasibility the co-op will have to consider what consolidated financials might show. What are the risks and benefits of multiple locations to the bottom line?
George Huntington, general manager of Bloomingfoods Market & Deli in Bloomington, IN, knows how crucial financial viability is to successful growth. He was hired shortly after the co-op opened its second store in the early 1990s—one that had got into trouble—and he was determined to turn things around. “Sales were half what they should have been and debt was twice what it should have been,” he said. Huntington attributed the crisis to a lack of planning. The co-op did not do a market study or get a professional financial forecast at the time. It didn’t do a member loan drive to help finance the store. Its ideas were well-intentioned but not well thought out.
Of course, a lot has changed for Bloomingfoods and the food co-op sector since then, yet the advice for proceeding remains the same. “Work with professionals well versed in expansion planning,” Huntington said. By gaining the necessary assistance, Bloomingfoods is now thriving, having added a third location two years ago. Other stores are not out of the question in the future. Huntington thinks that with assistance from the CDS Consulting Co-op, NCGA’s Development Co-op, and support and advice from peers, boards and general managers can feel confident that the resources to be successful as multistore operations are available. “The momentum builds on itself,” Huntington said.