Merger Saves Anoka Co-op, Expands Lakewinds

About one year ago, the president of the board of Anoka Co-op contacted Twin Cities Natural Food Co-ops looking for assistance with a struggling co-op. Although Anoka Co-op had reached its milestone 25th anniversary, sales were at nearly the same level as ten years earlier. The fiscal year end sales of $625,000 reflected a ten percent drop from the previous year. The facility was small (2,300 square feet of retail space) and outdated, equipment was inadequate, and the co-op was faced with health department citations for code violations. The manager of fifteen years was gone and bottom line losses continued to grow. One board member admitted to being embarrassed to send people to the co-op because the food was not always fresh. The co-op’s accountant suggested they seek out the help of other local co-ops.

Staff training was near the top of Anoka’s list of needs. Lakewinds has a great in-house customer service training, so in March we offered to provide this training to Anoka staff. After one afternoon, however, we realized that it would take much more—an infusion of cash, people, and a new vision—to change the direction of Anoka Co-op. Internally at Lakewinds, the staff and board began to discuss options of how we could help.

Lakewinds Natural Foods is located in Minnetonka, Minnesota, a suburb about fifteen miles west of Minneapolis. Sales at FYE June 30, 2002 had risen to over $11 million in 6,550 square feet of retail space, and we were interested but unsuccessful to date in securing a second location of comparable size. At the time we started working with Anoka Coop, we had already been discussing the idea of a satellite store. By satellite store, we meant a smaller store in a not-yet-fully developed community that could grow as the community grew. We had hired Pete Davis of Cooperative Development Services to do a market assessment of a broad semi-circular area to the south, west, and north of our store to identify the strongest potential areas for retailing natural foods. Anoka County, to the north, was included in this study and had come back positively as a strong potential market.

Though we weren’t sure what direction it would take, the Lakewinds management team began to discuss the pros and cons of involvement at Anoka Co-op. Soon we came up with three reasons to pursue a partnership with Anoka:

• We thought that the experience of operating a smaller second location would be valuable to us as training for operating an additional full-size location in the future. We wanted to “test” our systems—purchasing, financial, front end, HR, marketing—to see where our weaknesses were and determine how we could improve and plan for the future.

• With the proceeds from the sale of cooperative distributor Blooming Prairie a few months before this, we were anticipating some unbudgeted cash at both Lakewinds and Anoka Coop. We thought that development of an existing co-op would be an excellent use of the funds from the gain on the sale.

• We did not want to see a co-op close its doors, especially one that existed in a good market. The suburban area surrounding the town of Anoka was one of the fastest growing segments of the metropolitan area. We knew that if this co-op closed, there would still be a demand for natural foods in the community. Retaining this store and growing the existing business seemed much easier than starting all over again.

As our board of directors got involved, we started to meet first with the Anoka board president and later with other board members to discuss the idea of merger. In early May, the Anoka board held a meeting of its members to discuss the future of their store. In a straw poll, they were given these choices:

• Continue present efforts to turn around the business;
• Secure a large loan and update the store;
• Close the co-op;
• Accept the merger offer of another Twin Cities Coop (they knew it was Lakewinds);
• Other write-in alternative.

The results of the straw poll, 54 to 5 in favor of merger, put us both on the path of drawing up merger documents, performing due diligence, holding information meetings for members, and preparing for our respective member votes. In early June, our two memberships voted—Lakewinds members with a count of 716–63 and Anoka members at 126–2—to accept the merger. On June 16, 2003 Anoka Co-op began operating under the name Lakewinds Natural Foods.

According to the terms of the merger, all fully paid Anoka members received a full member share in Lakewinds. Working from four different “official” lists, the process was more difficult than expected. We determined that 275 members transferred their ownership at the time of merger. Since then, we have added over one hundred new members.

In addition, Lakewinds agreed to the following:

• We would keep all Anoka employees on staff, but agreed that their jobs might change.

• We agreed to keep the store open for at least eighteen months. There were three years remaining on the lease.
• One Anoka member would be appointed to the Lakewinds board of directors until the next election.

• For as long as needed and desired, we would provide regular meetings for interested Anoka members to give input to management about their store.

After June 16, we immediately began working with P. J. Hoffman, store planner at Blooming Prairie/UNFI to redesign the layout and plan for new equipment. At the end of August, we closed the store for one week and transformed the facility. We replaced coolers, installed a new register system (same as the Minnetonka store), added brand new bulk bins and new grocery shelving. The store got a new coat of paint, new lights, and new front signage. Inventory doubled as we expanded all departments of the store as well as added fresh meat from the Minnetonka location. The change was astonishing!

The costs of the remodeling project were shared almost equally between Anoka Co-op and Lakewinds. Anoka came to the merger with about $70,000 in assets, including $25,000 it had just received from Blooming Prairie three days before the merger. Several items purchased for the store, including the register system, bulk bins, shelving, and some coolers would easily transfer to another store and more than cover Lakewinds’ contribution to the remodel project should the store need to close in the next few years.

With six months behind us, things are looking positive. Sales at Anoka are up about 50% over the same period last year, with the trend toward even stronger growth. We wanted to learn about our weaknesses at Lakewinds, and we haven’t been disappointed. Every system has failed at some point, so we have been given the opportunity to improve in many areas.

We have a great staff providing great service and some very happy members. Anoka members now have access to Twin Cities Natural Food Co-ops (TCNFC) programs, including CAP specials, the Mix, and reciprocal memberships with other Twin Cities’ co-ops. We held a successful Health Fair at the store in January and are planning some classes. We have the opportunity to work with Chris Ryding of TCNFC on developing the Anoka café.

Right now, life is good in Anoka and getting better all the time. Who knows, in another year or so, we may be looking for a bigger store!
See other articles from this issue: #111 March - April - 2004