Co-opportunity Thrives Again

The story of Santa Monica's Co-opportunity is an arduous saga -- from early success, to the brink of failure, to its present very sound financial condition. When the cooperative opened its doors in 1974 the founders, George Tucker, Eytan ben Sheviya, David Thompson and Mike Timko, were full of inspired optimism, although other co-op groups in Southern California had tried and failed.

Fifteen years later, Co-opportunity thrives. From its 4500 square foot facility, 3800 of it in selling space, the co-op had sales of well over $4,200,000 in the year ending mid-1989. That's nearly double the sales level of only two years earlier, and calculates to over $21/square foot/week.

From the outside, Co-opportunity's corner building is nondescript. The only distinguishing features are an assortment of handpainted signs: "WELCOME / CO-OPPORTUNITY /1530 / food for people, not for profit / Please no barefeet or rollerskates." But inside, it looks and smells like the Garden of Eden. The fresh, organic fruit and vegetables in produce are alluring. The incense, oils and soaps of the Health and Beauty Aids department are aromatic. Colorful packages are inventively displayed in grocery. Will Simon, general manager, states: "When people walk in to see food, I want them to see abundance."

Back from bankruptcy

Even more remarkable than its sales growth of recent years is the fact that in 1984 the co-op was so weak financially it filed for reorganization under Chapter 11 of bankruptcy laws. Some comments on that watershed in the evolution of Co-opportunity can be found in an article by Paul Bauersfeld in MOVING FOOD (December 1984):

"Filing for chapter 11 reorganization caused a great deal of concern and misunderstanding among members and was a hot topic at an unusually lively membership meeting in October. In the end, however, the members voted overwhelmingly in favor of the board's actions, reflecting a desire to put the events of the past behind and to move forward. While difficult times lay ahead, the consensus of both the workers and members is that Co-opportunity can survive and prosper."

What "reorganization" required was a complete shift from the social functions to an intensive focus on the business aspect. Looking back, Bauersfeld recalls that "businesswise, Co-opportunity was very unsuccessful. It had a hodgepodge of products with poor display. Although the financial plan was sound, it was floundering in practice." A newly formed wholesale produce division was soaking the struggling retail operation. The forced closure of the warehouse did little to bolster financial stability in retail. It was then that the financial advisory committee, under the leadership of bankruptcy attorney Guy Nutter, took steps to regain financial solvency at the co-op.

"I offered to be counsel at a reduced hourly rate," Nutter said. "At that time the co-op did not know how badly it was losing. There was no internal bookkeeping system. We were using the capital influx of new memberships and extending the terms payable."

The co-op had filed chapter 11 in August 1984, but until Simon was hired in early 1986, very little happened. Technically the courts give you one year to put together a reorganization plan, but the co-op was allowed more time. While information was periodically provided to accountants and the bankruptcy court, no progress was made on a plan to satisfy creditors. Co-opportunity was fortunate not to be closed down during this gray period. The problems were enormous, and rumors of embezzlement and special deals were common.

Management to the rescue

According to Nutter, Will Simon, the current general manager, "is a minor miracle [and] the most important factor in the turnaround from a member's point of view. When Will joined the co-op in 1986, the financial picture was worse than when we originally filed. The banks and creditors were voting for him as a manager more than Co-opportunity as a store."

Having been in the health food industry for over 25 years, Simon was reluctant to take the challenge that Co-opportunity presented. Lois Arkin, Executive Director of Cooperative Resources and Services (CRSP), had responded to an advertisement Simon placed in the Los Angeles Times. She was aware of the cloud of gloom that hung over Co-opportunity and saw something in his ad that resembled a ray of light. Simon visited the store as a customer and s decided to let this opportunity pass. But later, when he answered a blind ad, the board search committee called him. After several weeks of interviews, Will accepted the position.

Simon remembers that the first thing he did was to bring in professional people with background in the industry, because unskilled people were in positions that had been thrust upon them. "First I hired Richie Roeckl in produce and health and beauty aids expert Robin Enwright." He continues, "I told Richie to throw everything away and start over. A general redesign of the store followed, which added about 20 percent more space to our produce department. We took a badly underutilized sales area and filled every nook and cranny." The store also received a cleaning, painting, and new wooden signs, which provided warmth.

Simon's next step was to upgrade the equipment, first the aging cash registers, then produce cases and later refrigeration and freezer units. Simon gave two reasons for the acquisitions: "To attract more customers we needed to be more efficient, and we wanted to convince members we were going to make it. What better way than to buy new equipment? We dramatically increased our product mix while continuing to emphasize organics. Our bulk sales took a quantum leap when we invested in some new bulk bins (Trade Bins). Customer response to these changes was instantaneous."

Co-opportunity

Santa Monica, California

Total sales (FY 1989):$4,270,000
Members:3500
Square feet(total):4500
 (selling):3800
  
 percent of total sales
Member discounts:6.0
Gross margin (after discounts):26.0
Labor expenses:16.7
Net margin:2.2
  
Produce:24.6
Grocery:30.3
HABA:14.5
Deli:10.3
Bulk:6.7
Taxables:4.8
Frozen (incl. meat, poultry):4.7
Dairy:4.1

In spite of the financial handicaps, Simon and the new accountant, Momtaz Abas, generated two years of federal and state back taxes. The bankruptcy attorneys began moving on a plan of repayment. By February of 1988 a plan was approved that called for a 55 cent payback on each dollar. Attorney Nutter comments, "It was a unanimous decision to approve the plan. It is one of the highest payback percentages of any reorganizing company." When this article comes to print, Co-opportunity will have concluded all Chapter 11 payments.

In order to maintain a license to sell produce, the U.S. Department of Agriculture requested a $50,000 bond to insure against any future losses. Nutter and Simon negotiated this down to $25,000 with increments of $10,000 as volume in produce increases. Currently the government has a $35,000 guarantee on any future losses that Co-opportunity may incur.

Building the organization

Simon realized very early that the cooperative had to bring salary levels up to keep and attract the kind of employees needed to sustain growth. "We decided that 16 percent of sales was a level we could live with. During the first three years, there were frequent salary adjustments to keep pace with our sales growth. The employees feel a very real part of our growth and know that they are reaping the benefits of their hard work." The benefit packages also were improved to include three additional paid holidays (the store is closed seven days a year), one "personal" paid holiday, five sick days (which employees are paid for if not used), full health and dental plan, and after two years a paid two week vacation. Employees also enjoy discounts ranging from five to twenty percent, depending upon their membership and involvement in other co-op activities.

Membership director Ginny Winn joined Co-opportunity in June of 1987. When she started there were "a lot of members, a lot of misconceptions, and poor records. There were several different data bases, the computer base, data cards and the file system -- nothing matched! But once we developed informative materials and good lines ofcommunication with potential members, membership doubled, then tripled." There are now over 3500 members.

What once was a surcharge system is now a discount system. On joining Co-opportunity, there is a non-refundable membership fee of $5 to cover the costs of entry and exit. Members are asked to purchase one $25 share and pay an additional $5 per month until the member has paid $100 in total share capital. Members who are paying in equity under the plan or who have made the full $100 investment receive a 10 percent discount on all purchases. If they have purchased the initial share but are not making monthly payments, they receive a 5 percent discount. Participation in the volunteer incentive program earns an extra five percent discount plus "VIP" status. VIP members sit on any of six committees.

Personnel

After building clientele at a local competing health food store for over five years, Robin Enwright has been the manager of the Health and Beauty Aids department since 1986. Enwright said, " I started by calling companies and sales representatives that I knew. After eliminating the slow moving products, the sales reps started to visit the co-op, and together we expanded the product line." Before Enwright, the HABA department earned only six to seven percent of the total sales. Now the daily gross is $1500 to $1800 and is 13 to 15 percent of the annual volume.

The cashiering department is divided among two supervisors, Bruce Palma and Robin Panagacos. Palma has watched the average daily cash totals rise from $2400-4500 to the current average totals of $7500-9000. According to Palma, "There was a hands-off approach to supervising before we came on. We are part of the transition to a more hands-on approach, making sure that the department doesn't suffer because of poor work habits. This is a delicate situation, given the open and personal atmosphere among employees."

After fifteen years and a troubled childhood, Coopportunity is in its adolescent prime. Many growing pains still exist. Simon said, "Even though the past year has been a financial success, Co-opportunity has had its share of problems. Outdated bylaws and personnel codes have led to some labor problems. One employee was fired for cause yet continued to sit on the board. Three ex-employees who were terminated took their cause to the National Labor Relations Board. All allegations were dismissed. These same three employees had attempted to tie their terminations into allegations of 'union busting' against the general manager. Local 1442 had petitioned the NLRB and had been granted the right to hold an election on September 11, 1989. On September 18, the union withdrew its petition to hold the election. Some people described the attempted unionization as a 'bitter struggle.' It was in fact a very low key campaign. A small group of ex-employees have alleged racial discrimination and pay favoritism among management. In responding to these charges, management need only point to its ethnic mix and the high salary levels enjoyed by co-op employees." Average non-management wage is now $8.00 per hour.

The board and management of Co-opportunity, recognizing the need for growth in the area of board/management/labor relations, have hired a consulting group to help in this area. After initial focus on defining problem areas, the work with consultants is intended to develop better agreements on board and management roles and decisionmaking procedures, then to make parallel improvements for middle management.

Growing pains

At present, the store's biggest problem appears to be lack of space. Despite no advertising by Co-oppportunity, over 700 customers per day shop the store, spending a high average of $17 each. The co-op is looking in this fiscal year at a sales level of 4.8 million dollars, but the limits of the site are being reached. Said Simon, "There are times when our store is total gridlock. Our parking lot (fourteen spaces for compact cars only) is our warehouse. A semi unloads 500 to 800 pieces twice a week. The merchandise goes from our parking lot to our shelves. We get other major deliveries each day in our lot. Our staff of over thirty is constantly competing with customers for an open area in our store, which makes for some very inefficient labor activity. " The board has approved a move to a larger location, and a site search is underway.

See other articles from this issue: #026 January - February - 1990