Cooperative Expansion at La Montañita

Using existing venues to build a co-op network

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Founded in 1976 by 300 families, La Montanita Co-op opened its first storefront in a community center on the eastern edge of the University of New Mexico in Albuquerque. This 1,000-square-foot store served the co-op well and by 1986 had a membership of 3,000 families and annual sales of $1 million. In 1987 La Montanita had outgrown its original location and signed a lease on a historic, 10,000-square-foot grocery store. The location was less than a mile east of the original store but in what was then considered to be a “questionable neighborhood.”

Early growth

The 10,000-square-foot Nob Hill facility opened on a shoestring budget, including a $750,000 loan from the National Co-op Bank. Membership doubled within the first year, and by its third year of operation annual sales reached $5.5 million. Over the 20 years La Montanita has operated in Nob Hill, the co-op has periodically remodeled to keep the store fresh, upgrading equipment as needed. Our total investment in the site to date, including the original loan, is $1.9 million.

The presence of a neighborhood grocery has increased property values for residents. The co-op continues to anchor a neighborhood renewal that hosts numerous small businesses, making the area a shopping and entertainment destination. Currently sales are nearly $8 million annually. As a mature location, Nob Hill provides great value to the overall organization.

By 1998, La Montanita was experiencing overcrowding in the aisles and parking lot. After a member survey showed Albuquerque’s North Valley as one of the top choices for an additional location, a lease on an existing grocery store became available. In 1999, with annual sales at Nob Hill hitting $7.8 million, La Montanita opened its second location across town. Investment in the 10,000-square-foot North Valley location totaled $1.2 million: $500,000 in equipment, $400,000 in leasehold improvements and $300,000 in inventory.

Sales got off to a strong start, and membership gained nearly 2,000 households in the first six months. La Montanita experienced typical growing pains, including staffing and training issues, and a lack of integrated managerial systems that joined the two locations. And in its third year the opening of a competitor nearby (Sunflower Market) served to slow sales at the North Valley location. Yet growth was maintained by improving internal systems, hiring of managerial expertise, attending to improved customer service, and expanding staff training. In addition, the co-op maintained a strong advertising and community development campaign that included zip code-targeted direct mailings, events, and community outreach.

The North Valley store earned sales of $4.6 million in its third year and is currently recording sales growth of 12 percent, with annual sales in fiscal year 2006–07 of $6.2 million. Once again, as with our experience at the Nob Hill location, the model of utilizing an existing grocery facility to minimize capital outlay and maximize return on investment worked well for La Montanita.

Co-op to co-op support

Co-op membership and sales continued to grow, with over 10,000 households and total sales exceeding $12 million by 2004. In summer 2004 the board of directors of Wild Sage Co-op in Gallup, New Mexico (located about 140 miles west of Albuquerque), approached La Montanita for support. Five years earlier, at the request of Wild Sage buying club members, La Montanita had helped them open a storefront. The all-volunteer board and staff were burning out in attempting to run the store.

After a series of community meetings and discussions between the two boards, it was agreed that La Montanita would purchase the assets of the Wild Sage Co-op. Wild Sage would be responsible for paying off its debts. La Montanita would lease a larger location, purchase equipment, and hire and train staff. Wild Sage members would become members of La Montanita Co-op. Since Wild Sage had a membership program similar to La Montanita, we could easily honor Wild Sage membership commitments and incorporate its members into our existing structure.

La Montanita leased a 1,500-square-foot downtown location near the existing storefront, bought recycled equipment, and invested in both inventory and staff, for a total of $100,000, including the asset purchase. Staff from both of the Albuquerque locations pitched in to stock shelves, train staff, and get the store up and running. Although sales grew steadily, we recognized from the outset that it would take several years for the Gallup store to reach the volume necessary to cover overhead. The investment was, however, a relatively small price to pay for the opportunity to maintain a co-op presence in the region and keep shoppers from having to drive at least two hours for comparable natural and local food choices. It also was a low-risk way to test our organizational ability to manage a distant location.

Santa Fe transformation

At almost exactly the same time that Gallup’s Wild Sage board of directors was approaching La Montanita, the owner of the Marketplace Grocery, Santa Fe’s only independently owned natural foods grocery, began a conversation with La Montanita general manager C.E. Pugh. Over its 22 years of operation the Marketplace had grown to a 10,000-square-foot location, housed in a grocery that was built in the 1960s. As Santa Fe boomed during the 1990s, the Marketplace saw the corporate chains—Wild Oats, Alfalfas, Whole Foods, plus Trader Joe’s and Vitamin Cottage—each open a facility from a mile to a mile and a half away. The Marketplace struggled to compete.

A number of questions arose in the conversation between La Montanita and Marketplace Grocery. Despite being only 50 miles apart, was the Albuquerque/Santa Fe cultural divide too great? Would Santa Feans see the co-op as “their own” and support it? Were we, as an organization, strong enough to succeed in a town saturated with natural foods corporate giants? What value did we bring to the Santa Fe community? What would the financial ramifications of success or failure? These and other issues had to be addressed.

After several months of negotiation and internal due diligence, both financial and philosophical, an agreement was reached that allowed the co-op to withdraw its letter of intent should we not find the necessary community support to proceed. The co-op organized a series of public meetings in Albuquerque and Santa Fe. Members and nonmembers participated, and their response was overwhelmingly positive.

With a National Co-op Bank loan of $1.7 million, on the last day of February 2005 the Marketplace closed and opened the next day as a community-owned cooperative. Utilizing pricing available to us as a member of the National Cooperative Grocers Association (prices considerably lower than what had been available to the independent Marketplace), staff from all locations pulled an “all-nighter” to re-set prices to co-op levels.

Thanks in part to the publicity from community meetings and followup press, Santa Feans were primed. Without so much as a sign saying, “Get your co-op membership here,” within the first 10 days we had over 1,500 new member households. Within the first six months, sales were 20 percent over projected budgets.

In a number of ways, the value of the Santa Fe asset purchase was evident from the start. It was similar in size and product line to our two Albuquerque locations; it was surrounded by several mature and developing residential neighborhoods; it used the same POS system; it needed little leasehold improvement; we could transform it into a co-op without losing customers or revenue due to “dark days”; and it had a dedicated and well-trained staff. Several opportunities for an improved transition strategy immediately presented themselves, most notably regarding staff education and integration into our co-op culture.

Far-flung governance

New Mexico is a land of wide open spaces. Co-op governance that bridges those distances was a discussion the board of directors began during weeks of due diligence on both the Gallup and Santa Fe acquisitions. Many governance options were considered in an effort to represent members adequately. The board sought to reduce the possibility of factionalism and focused on empowering all directors and board candidates to keep in mind the good of the co-op as a whole, no matter what their primary community location. After much discussion, the board decided to maintain its structure and focus on recruitment of candidates, especially from our new locations, both for regular board elections and for newly developed advisory board appointments.

For the first year and a half following the acquisition of the Marketplace, the La Montanita board of directors actively rotated its meetings among co-op locations. Thanks to the availability of affordable audio/teleconferencing equipment, the board now regularly meets in Albuquerque. Store managers in Gallup and Santa Fe set up equipment so that directors and other members based at those locations can participate in meetings.

From an inspired member linkage committee the board developed weekend meet and greet “Coffee with the Board” events, especially at the two new locations but also in Albuquerque. These provided opportunities for board accessibility, governance education, and “face time” with members. Board members also made a deeper commitment to assuring that governance education articles regularly appeared in our monthly newsletter, “Co-op Connection.”

Assessing past and future strategies

With the opening of La Montanita’s Cooperative Distribution Center in January 2007—part of its long-term regional food-shed project—the co-op began running a truck out to Gallup on a weekly basis. At the Gallup store, access to fresh local products including milk, bread, eggs, fresh cut meats, cheeses, and produce is inspiring greater sales. By May of 2007, the Gallup location reached the break-even point. We are pleased to have achieved this success.

In Santa Fe, clearly the market was ripe for an alternative to corporate chain stores, and that store continues to grow, with annual sales of $8.5 million in 2006–07 and over 4,000 new member households since the 2005 conversion to the cooperative. In order to accommodate the Santa Fe store’s growth, again with the support of the National Co-op Bank, in the fall of 2007 we will be removing a wall to add 7,000 square feet of space. As part of this renovation, we are leasing 1,500 square feet of that space to the New Mexico Federal Educators Credit Union. Their expansion into Santa Fe allows that city’s membership access to the financial services of La Montanita’s long-time credit union partner.

Clearly, in some communities there is no choice but to build from scratch. But thus far, purchasing independents and transforming them into co-ops while utilizing existing grocery facilities is a model that has worked well in building La Montanita Co-op. It has served to minimize capital outlay, reduce the risks of expansion, and maximize returns for communities and member-owners. Rather than mimic the corporate paradigm of building new superstores, our smaller neighborhood stores fit well with concern for community, sustainability, and efforts to reduce our carbon footprint by limiting new construction.

Working to build La Montanita’s cooperative economy, we continue to assess past and future strategies. We can’t help but wonder whether, as a model, this recycling of existing venues and independent groceries could help expand our cooperative movement nationally.

See other articles from this issue: #132 September - October - 2007