Growth Possibilities

Many cooperatives are considering issues relating to substantial growth. This article is based on material originally written for members of the Boston Food Co-op. But the specifics of our situation highlight issues similar to those faced by many other co-ops.

Background

The Boston Food Co-op (BFC) operates a full line food store, with a strong natural foods emphasis but a large selection of commercial products as well, along with a small self service meat department. Our market is very competitive, and we are dwarfed by our competition. We look at continued rapid growth as essential to our survival. We intend and expect to hold on to our friendly atmosphere and sense of community as we grow, but grow we must.

Five years ago, the BFC decided that we wanted to grow into a financially stable and strong organization, while retaining our commitment to member control and involvement, including member labor in the store. Until that point, growth was only one of many priorities, and not one which we were able to pursue very effectively. The BFC was then a thirteen year old store with an annual sales volume of around $1 million. We had been through two cycles of "boom, then bust," and survival was once again uncertain. We made four major changes at that point:

• We adopted a variable pricing system.
• We changed from a collective to a general manager structure.
• We tackled our first major building renovation, giving us more retail space, open windows facing the street, tile floor, gondola shelving, wider aisles and shopping carts, and a lot of new refrigeration.
• We opened shopping to non-working members and then to non-members.

Since that time, sales have been growing at about 25 percent per year, and at over 50 percent for the past nine months; current volume is $3 million per year. We've renovated twice now, and plan to renovate again during the nextyear. Sales to members make up over 80 percent of total sales, divided about evenly between working and non-working members.

In thinking about growth, one clear priority is continued growth in our present site. We estimate that we can double our current volume in this site, and that we'II eventually be limited by parking (we have our own small lot).

But additional sites also will be essential to continued growth. About half our members come from our neighborhood, while the other half typically come from several miles away, passing more than one supermarket and at least one large natural foods market. In a city as dense as Boston, that's too far to count on people traveling to a food store. We have very loyal pockets of members in several distant neighborhoods, but we also have lots of dropouts from those neighborhood, people who join in an initial burst of enthusiasm but then find it just too far to travel week after week.

Why Grow?

Opening additional stores has, in a general way, always been a goal of the BFC. A second store would support greatly improved operations at our present site. The extra buying power would get us larger volume discounts from suppliers, allowing better prices and more store savings, and would enable us to get products that we can't get now. The member base on which we support services such as our newsletter, nutrition and product information, and social and community events, would be much larger and provide more support.

Most of the reasons that make it attractive for us to open a second store also apply to joining with existing co-ops.

Our ability to retain trained and experienced staff members would be enhanced in a larger organization, with more jobs to choose among and more of a career track allowing for growth and new challenges. Our ability to fill management positions from within should also be improved with a larger workforce.

Most of all, another store brings co-ops to more people. For most potential co-op members in our area, the co-op is just too far away to be reasonably convenient. We'll also obviously be offering much better service to current members who live near the second store.

A larger organization also has more visibility and credibility, and will more easily attract new members. Our competitors get a lot of free publicity that we miss out on because we're perceived as too small, a little club; this publicity is increasing as interest in natural and organic food increases.

That's the carrot side of the move toward additional stores. On the stick side, the food industry continues to concentrate into fewer, larger companies, and the natural foods business is no exception. Smaller food stores will continue to disappear, and we'll have to work hard not to join them. We'll also always have trouble holding on to our members who live far away. For some, for a while, they'll keep coming to the co-op; but eventually we'll need to bring the co-op to them.

Of course, there are big risks in all this. Well have to spend a lot of money in order to open a second store, and there's no guarantee that it won't lose money. In the worst case, a second site could drag both stores under before we could close it. Managing two stores will be much more complicated for the staff, the board, and the membership. It will certainly occupy the lion's share of our attention and energy for a year or more, energy and attention which would otherwise be available for our present store.

Location, location, location

We won't know for certain if a second store will work. But we have a good idea of what factors give us the best chance of success.

Externally, picking a location will address most of the variables. First, we need to think that it can support a co-op. We're looking primarily at areas where we already have a lot of members; a major plus for a second store will be the added convenience it offers to current and former members who live near it. Staffing also may be strongly affected by location.

We're looking at neighborhoods that have the right demographics. Factors that seem important: education levels, percentage of women in the workforce, percent born in the area, age distribution.

An even harder step is finding a suitable specific facility. A new store site will need most of the features our current site enjoys: a ground level retail space of 6000 square feet or more, adequate loading facilities (preferably at the rear ofthe building), a highly visible location near a heavily traveled street, adequate parking, etc. We'll need affordable rent payments and a long enough lease to be able to afford amortized improvement costs.

Finally, we're looking at empty buildings, existing stores, and the possibility of new construction.

Merger?

While we've mostly focused on starting a second store in an area where we already have a strong membership base, we've also been looking at another route toward the same goal. Most of the reasons that make it attractive for us to open a second store also apply to joining with existing co-ops.

We've begun preliminary discussions with board and staffmembers at another store in the Boston area, the Arlington Food Co-op (AFC), to look at the implications of merging AFC and BFC. AFC was organized about twelve years ago, along much the same lines as the BFC. Their sales are about $500,000 per year, and show a similar history: erratic performance earlier, strong growth more recently after opening sales to non-working members and then non-members. Their product line is fairly similar, though more limited because of their smaller size. They've operated out of a basement location since the beginning, and this has been a significant obstacle to growth.

AFC is at a crossroads now. They need to decide whether to stay in their current location or find a first floor retail site. They lack the resources to take on a relatively large site (our size, for example), but a small site will limit their possibilities pretty drastically. The BFC probably does have the resources, both human and financial, to successfully operate in a larger Arlington site, ifa good one can be found. If AFC has been limited largely by its basement location and smaller product line, it could be expected to blossom once those limitations are removed. Our broader experience in store operations should allow a relatively smooth transition.

Like all expansion ideas, this one has a lot of complications. Merging two existing organizations means resolving issues in a lot of areas where practices differ. We would need, at a minimum, to come up with a board and management structure for the combined organization, and decide which areas we need to standardize.

Looking back

Merger with AFC would represent an ironic coda to our last phase of expansion, twelve to fifteen years ago. At that point, we thought we would open co-ops everywhere, but we were committed to a decentralist or federalist idea of little autonomous groups cooperating but each acting independently. New England co-ops even organized their federation wholesalers similarly. Eventually, three of the regional warehouses merged, with everyone looking at bankruptcy, wiser but older; the others went out of business.

In the Boston area, each storefront was organized as a separate body and expected to stand on its own two feet. BFC served as the model for most of the area storefronts and furnished personnel, leadership, equipment, and other support, but each store remained a separate entity. Big mistake. Such small organizations could only rarely gather the human and financial resources to make much progress. AFC is the only one of the stores left, and we hope to combine with them before it's too late.

I'm struck by how much time we lost pursuing what turned out to be a disastrous idea. The reason for keeping all the co-ops small and independent was to keep our democracies immediate and very accessible, but the co-ops we created turned out to suffer much more from a lack of interest than access. We also overestimated the ability of small groups to act together in concert for the common good (cooperate), and underestimated the ability of large groups with good leadership to take the needs and interests of smaller groups into account.

We'll face these issues again in the near future. Giving up some of our autonomy in our own store will certainly be one drawback of a merger -- or of opening a second store anywhere, although that's not as immediately obvious. It will mean keeping uppermost in our minds the good of the whole co-op rather than that of any particular unit, remembering that we're all in this together. There are sure to be lots of decisions about where to put extra resources and how to balance the competing ideas of two (or more) sites. There could even be someday the painful decision about whether to close one site or not.

Meanwhile, we're also looking to cooperate with other cooperatives in other ways. Area co-ops have been working together more and more over the past few years. Recently, we've been coordinating most of our merchandising work with the food co-ops in Arlington, Cambridge, Cape Ann (less than an hour away), and Brattleboro (two hours away). We're also working together to produce our newsletters and other education materials. Northeast Cooperatives, our federation and major supplier, also is working in this direction.

The current has gotten a lot stronger, but our skills and sense of direction have improved.

Where do we stand now? We're negotiating for a site in Arlington, and if we can, we'll join with AFC and open a new, larger store there. Meanwhile, we're somewhat hurriedly rushing through the complexities of meshing our two organizations. We didn't merge before finding a site because we at BFC felt doubtful of our ability to operate profitably such a small store (the present AFC), and because a suitable site is by no means a certainty. In hindsight, however, both organizations should have gone through a process of agreeing to merge if we obtained a suitable site, and worked through the issues in a more measured way. In particular, problems have been caused by attempting to carry on real estate negotiations confidentially and simultaneously involve our members in a decision.

In addition, we're still looking for sites in other areas. Arlington is a more conservative area than our present location, and it's possible that a market study will conclude that the area is unable to support a co-op store large enough to be successful. In our region, we've concluded that it's extremely difficult to operate the kind of co-op we want as a small store. There are other areas of the city which are more likely to support a food co-op like this one; we just haven't found sites there, and they no longer have existing co-ops which need help.

We recognize that the jump from operating one store to operating two will be an enormous one. We've been working on the changes we'll need to make to do that successfully, and trying to learn from those few co-ops already doing so. After all these years, we've accumulated a pretty large block of assets to put into the project of spreading co-ops again. We hope to be a lot more successful this time. The current has gotten a lot stronger, but our skills and sense of direction have improved.

Member concerns

In a referendum by Boston Food Co-op members, the expansion option passed by a vote of 452 to 115, or about 4 to 1. I'm pleased both by the vote and by the number of votes cast. However, I do want to acknowledge and respond to some of the doubts and questions of those who voted "no," or who might do so in another co-op's planning.

The most frequently expressed reservation has been that trying to open a second store will overextend us and jeopardize our existing store. The specifics take many forms, questioning whether we have enough management depth, enough financial strength, enough energy in the staff, board, and membership, etc. This is certainly a reasonable concern. There are real risks involved in expansion which should not be underestimated.

However, there also are risks in not expanding. As I argued earlier, we are much too small to be secure in the long run. The rest of the industry will continue to offer longer hours, wider variety, faster turnover (fresher products), and other improvements in services, which we'll have to keep up with to retain even our current members. Most of these things involve essentially fixed costs, so costs per unit go down as sales volume increases (economies of scale). In addition, larger volume will always mean lower product costs from suppliers. And other improved member services are much more possible as we grow, because they too are mostly fixed costs which can be performed for ten thousand people as economically as for two thousand.

Will we get overextended by a second store? I don't think so. It certainly will be a challenge, but I think that's often good for an organization, just as it's good for a person. In personnel terms, we have by far the strongest and deepest staff we've ever had, and one which will require, probably sooner rather than later, new challenges in order to stay motivated.

Financially, we're approaching the point where we have the money needed to invest in a second store. The present store still has major financial needs, but we've made enormous progress on those in the past few years, and our plans include continued improvement there. Because of the great value of our building, which we own, we're very solvent. We'll continue to need careful financial management, because we are still a small organization, but we're very well positioned financially to undertake this project. Within reasonable bounds, we can finance the initial capital investment in a second store, and can afford the startup losses that a second store may entail.

I think opening a second store will be exciting enough that it will increase tremendously the amount of energy -- staff, board and member -- available to us. One of the longer term benefits I expect expansion to bring is a rekindling of excitement associated with co-ops, a sense that co-ops are really going somewhere and are going to be an important force for social change in their communities. Most of us know lots of people who seem like potential co-op shoppers, but who don't feel it's worth going to any extra effort to shop at a co-op rather than at some other store. I think a big factor here is the image co-ops have for many of these people as small exclusive groups which will never reach very many people or affect the outside world much. As we grow larger, that's less and less true.

This feeling of excitement will affect current members as well as prospective members. I think the second store project will draw the same kind of outpouring of member and staff energy that our two big renovation projects had, because it's exciting to be part of creating something new and good, and because the sense of working together on such a project and the realization of how much a group of people working together can accomplish is exhilarating. Such projects always seem like barn raisings to me, and they're still the part of this job I find most exciting. The glimpse they offer of what the world could be is like nothing I know.

Will we lose the essential character of the BFC as we get larger? I don't think so. I think that character comes largely from things that are either helped by growth or not related to growth. A friendly staff which knows a large percentage of the membership personally, for example, is to me an important component of our character. Careful hiring makes a big contribution here, and low staff turnover is important, so that staff members are around long enough to get to know a lot of people. Growth helps because it allows higher salaries and wages and better working conditions and makes a more exciting and stimulating workplace.

Member labor is another important piece, because it gives members an important perspective on what's going on here and throws members and staff together in a way that fosters friendships. Member labor is often abandoned by growing co-ops, but we've made a firm commitment to it at every level of the BFC, and we think we can make it work better as we get larger. Member labor isn't going to be done in by growth. There are certainly co-ops larger than we are (Davis Food Co-op, for example) with strong member labor systems.

Effective education and advocacy around social change issues is another important piece of our character. Growth enhances our ability to devote resources to these activities -- concretely, to spend money on salaries and materials in these areas. Indeed, until fairly recently we did very little such work in these areas because there just wasn't any money for it.

Growth can become the main objective for its own sake, and it doesn't guarantee success in any of these areas: operating efficiencies, staff retention, improved services, greater social impact. But I think we've been successful at keeping our reasons for wanting to grow in sight, and using the advantages growth offers to pursue those goals. We're closer to the co-op we'd all like to be after the growth of the past several years, and I'm confident that that will be true for the next several years as well.