Case Study: Strategic Growth by Acquisition


LaMontañita Co-op Food Market
Founded: 1976
Members: 12,000
Number of Locations: 4 (Albuquerque, Gallup, Santa Fe)
Number of Staff: 200

You don’t have to travel far on the sun-baked streets of Albuquerque, New Mexico, to find a natural food store with a juice bar to help quench your thirst. That’s exactly why LaMontañita Co-op Food Market is aggressively adding new locations outside of Albuquerque. They want to be the ones doing the juicing to avoid getting squeezed.

LaMontañita’s current strategies for growth invite an examination into how cooperation can be successfully introduced to more communities through acquiring existing retail venues.

According to C.E. Pugh, LaMontañita’s general manager, their approach to growth originates with the board’s desire to see the co-op increase the number of people it serves through cooperative enterprise. “There’s a recognition and value placed on growth by the board because of that,” Pugh said. There’s also the blunt reality of the competitive pressures in Albuquerque—where Wild Oats, Whole Foods, Trader Joe’s and many independents set up stores. Pugh said they feel pressure on margin that goes hand-in-hand with the certainty that expenses will go up every year.

In the last year alone, the co-op has added the Gallup and Santa Fe locations to their operations. The Gallup location was a struggling food co-op that was taken in by LaMontañita. LaMontañita bought the Santa Fe location when that store’s independent owner was looking to retire. Both acquisitions came about through relationships that had been cultivated over the years.

Pugh sees many benefits to acquiring more locations. These stores come with an established clientele, staff, and already-functioning business practices. Pugh said it’s easier to integrate operations and invite the current shoppers to join, than it is to build an additional location from the ground up. He also said once you’ve jumped the hurdle of going from one to two locations, adding more is much easier.

“By the time you have two stores you’ve developed the systems that are scaleable to more locations. What can shock people is going from one to two locations and what it takes to develop that,” Pugh said.

LaMontañita is also carefully vetting every growth opportunity. “Growth does not come without risk. We need to mitigate that risk on behalf of the current membership.”

With every acquisition, the co-op has taken a number of steps to assure that the potential opportunities are worth the risk. Pugh said they do a professional market study for each project. They also look at their cash flow and balance sheets, forecasting very conservatively. “It scares me if every contingency has to go right for it to work,” he said. Pugh also engages a third-party to run an analysis on the projections of the business. “It’s hard to take a detached view of your own business.” Perhaps most important, they need to ask: If this project goes bad will it take down the whole co-op? They have to feel confident it won’t before moving forward

Pugh, and many others in the natural food industry, believe that the window of opportunity for rapid growth will close in less than a decade. “We need to grasp these opportunities for growth or someone else is going to. A large base allows you to bring in more resources to work on your second bottom line, so you can have a greater impact in your community.”

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By |November 1st, 2005|Categories: Case Studies, Solutions|Tags: , |

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