We Own It—At Last!

How a 30-year-old nonprofit finally grew up to become a real co-op

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In 1972, when Good Foods Co-op incorporated as a nonprofit Kentucky corporation, the Kentucky statutes mentioned only farm cooperatives. Our founders incorporated as a nonprofit, hoping we could gain tax-exempt status. We didn’t.

In 1986, consumer cooperatives were added to the statutes. In 1996, our members voted to become a Kentucky cooperative, but the Attorney General’s office refused to approve the change and transfer of assets from a nonprofit to a cooperative. Repeated efforts to reverse this decision were unsuccessful.

The liabilities

Good Foods member’s equity investment was $10 with a $15 yearly dues payment for which a member received a 5 percent discount on every purchase. That yielded over $200,000 a year in discounts—quite a return on members’ investment! No wonder we could use the discount to “sell” membership. Yet, under this system, the larger the percentage of purchasers that were members, the less income the co-op had. We had grown and prospered with this system, but it was not in the long-term best interest of the co-op.

Making membership matters even more complicated, we also had 165 “lifetime” members who had invested $100 or $150 to finance a capitalization program back in the lean 1980s. In 2000, as if to bring home our precarious situation, we barely survived a nightmarish move. We lost $220,000 that year, shrinking our equity. In the same year, $240,000 was given in discounts! It was time for a change.

The vision

By 2001, we had new General Manager Anne Hopkins, and new Board President Michael Fogler, who shared the vision of becoming a true cooperative with a solid equity system. In late 2001, a determined board brought in Cooperative Development Services Consultant Marilyn Scholl for a training session for board and management. In response to a plan for the transition to take place in two phases—first to re-incorporate as a cooperative and then at some later date eliminate the discount—Marilyn’s comment was, “Don’t rip the band-aid off twice.” She recommended that we ask the membership to adopt all the changes at once, saving time, money, and energy.

Using colorful visual aids, Marilyn drove home the importance of a fair equity investment that offered flexibility as our capital needs changed, reduced tax obligations, and built a sense of ownership among members. She challenged us with, “You are addicted to discounts,” and demonstrated that a patronage rebate system would be a responsible method of returning surplus to owners, sustaining the co-op even if all purchasers were owners and protecting the co-op during lean years. When, at the end of the day, Marilyn asked for a show of hands in favor of changing both the equity system and eliminating the discount, every hand in the room went up.

The plan

The board now had a firm plan. We would dissolve the Kentucky nonprofit corporation and incorporate as a cooperative in Vermont, where the laws were much more favorable. Good Foods hired a Vermont attorney, Laddie Lushin, and a Kentucky attorney, Mike Slone, to help us negotiate the legal complexities in both states. Michael Fogler directed and coordinated the work of the board and the attorneys. The special membership meeting was set for October 27, 2002, when the co-op membership would vote on the changes. The countdown was on.

Staff training

Front-end Manager Lorna Nichols, Assistant Manager Crystal Stites, and Owners Services Manager Ann Marx were charged with training staff and educating the membership. We knew the ultimate success of the plan would come from the daily interactions among staff and members in the aisles and at customer service. We trained our wonderful customer service staff first. They then served on a panel to train the entire staff.
This training time gave the customer service staff an opportunity to internalize the plan as they explained all the details and answered staff’s questions. We incorporated lots of role-playing into the training sessions. We knew it would be vital to be absolutely straightforward and honest in our responses to members about the plan, especially about raising the investment to $200 and eliminating the discount. We encouraged our staff to listen to member concerns with respect and to accept that not everyone was going to like the change, and that was OK.

We thought our entire staff would also benefit from the big picture view of equity/patronage system from a successful cooperative. Elizabeth Archerd from the Wedge Co-op shared her passion for the cooperative way of doing business. She explained that our current $10 equity investment was throwing pebbles on a pile to build a foundation. This foundation is unstable at best. With the $200 investment, members are placing concrete blocks of equity to build a solid foundation for the future. This became one of the talking points of our education campaign.

Member education

Marilyn Scholl was invited back as the guest speaker for our annual membership meeting in April to unveil the share/patronage plan to our members. The meeting drew 140 members with lots of questions. Marilyn’s easy, engaging manner and her knack for simplifying complex issues helped make the meeting a success.
We set up an information table in the store entrance that included success stories from other co-ops. Michael Fogler wrote monthly newsletter articles to keep members apprised of the latest developments. The board was in the store to answer questions on Member Appreciation Days.

Through September and October we held five forums, with a rotating panel of board, managers and customer service staff to answer member concerns. The capitalized members had their own forum where we addressed how their “lifetime” membership would be changed. These forums gave us great feedback, and once members understood the plan, they went away supporting the change.

In October, staff sported “Vote October 27th” and “Ask About the New Membership Plan” buttons and T-shirts. Special membership meeting posters were plastered on almost every flat surface in the store. We had done what we knew we had to do, and now it was up to the members.

Success

When our Kentucky attorney received a letter in early October from the Attorney General giving us their blessing to go forward with the reorganization plan, we jumped for joy and breathed a tremendous sigh of relief.

The special membership meeting was planned as a celebration with live music, a contra dance, door prizes, and food. As the 200 members filled the church, the energy was high. I was like a cat on a hot tin roof as remaining questions were answered and the votes were cast and counted. All of our hard work over the better part of a year was validated as a resounding 92.5 percent of the members present voted “YES”!
On January 2, 2003, Good Foods became a Vermont cooperative and sold our first shares. Our equity investment changed from $10 to $200, and we replaced the 5 percent discount with a patronage system. We changed from members to true owners.

When we disbanded the dues/discount system we had 4202 members. In changing to the ownership system we contacted each member when their yearly dues payment would have been due under the earlier system. We offered several payment plans but most people preferred to pay in full. Many chose to not wait for their dues period but signed up immediately! We currently have 1,792 owners, and now ‘sell’ community ownership—not a discount.

Vindication

In mid-2003, we were given a severe test when Wild Oats opened a store two miles from us. We took a big hit in sales and were very disappointed to not be able to give a patronage rebate our first year under the new system. Yet our owners took it in stride; as one commented, “Sure I would have liked to get a rebate, but I care more that this co-op continue and flourish.” If we had not switched to the share/patronage system, we would have been in a deep hole. It was a perfect example of why it is essential that we have a solid equity system. After a year of belt-tightening and margin-watching, we will be sending out our first patronage rebates in May 2005. The future of Good Foods looks bright.

 

Rebates Phased in at Ann Arbor People’s Food Co-op


In 1997, we formed a board/staff equity team and began educating ourselves and investigating what other co-ops do. We also purchased a POS system to keep track of member purchases.

In 1999, we ran joint manual and POS systems to ensure that purchase totals matched, with staff owners being the guinea pigs. Because of our frequent purchases, the ease of keeping receipts, and our commitment as owners to making it work, this worked well. The board also guaranteed members that, in the first year, the co-op would offer 100 percent of a rebate equivalent to the former discount of 3 percent at the register.

In 2000 and 2001, there were no rebates because we were expanding into our café next to the store and then recovering from the expansion debt. In 2003, we issued a rebate of 3 percent, with 20 percent in the form of store credit and 80 percent retained in the co-op. We also retained 80 percent in 2004, when we gave a rebate of 2.8 percent ($75,000).

In retrospect, anticipating conflict over eliminating the discount was more difficult than actually making the change. Convincing the board of the need to change was challenging, and it was a good move to spend time getting board and staff on the same page before trying to convince our owners of the benefits of switching from discounts to rebates. Even better was being patient enough to run dual systems for a period. In addition, realizing that our members would miss the sense of getting a good deal at the co-op, we implemented a members-only special program in conjunction with the change to a rebate system.—Carol Collins, People’s Food Co-op general manager
 

Hendersonville Community Co-op Takes the Plunge

After years of financial struggle, it was clear that the discount structure was hindering our co-op. Our General Manager Phil Guida proposed to the board of directors the implementation of a patronage rebate system to replace a 5 percent discount at the register. After bringing in Peg Nolan to speak on the subject, the board decided unanimously to make the switch.

We timed implementing the patronage rebate with the beginning of our fiscal year in October 2004. At the time, we also changed from manual registers to a POS system. The first few months were spent easing the fear of change for our members, asking them to be patient through the rough spots and explaining the process to those members who were uninformed. We implemented new programs including members-only specials and a virtual coupon which gives members 5 percent off any shopping trip of their choice once per quarter.

Hendersonville Co-op has a member equity requirement of $250. To date, we have 1,246 members and have refunded equity for only two household memberships for owners who didn’t agree with the change to patronage rebate. There has been a 20 percent increase over last year in renewing members, and we’ve been running about equal with last year’s totals for new member households. We are finding the response to be positive; prospective members want to support the co-op and save money with our member specials.

The board is confident we will offer a payout, and we have a tight budget this year to help with that goal. We continue to surpass our projected sales numbers and had a 9.7 percent increase during the first quarter. We’re finally able to have a little breathing room, and we are now looking toward expansion as a realistic goal. —Kelli Reese, Hendersonville (NC) Community Co-op marketing director and outreach coordinator
 

Wedge Community Co-op Rebates Pay for Thanksgiving Groceries

Our co-op has sent a patronage refund every year for the past 15 years—a million dollars in cash in the past four years. There’s nothing like the satisfaction members have when they pay for their Thanksgiving groceries by endorsing their check from their co-op.

The patronage refund check feels good and does much to solidify the sense that joining was a good idea. Consumers can drop as much or more money at any other grocery store (especially the conventional chains trying to make inroads into the natural food market) and never get a penny back. But that wouldn’t count for much if we weren’t providing a good place to shop. We spend considerably more on labor than most stores, so staff has the time to provide the information and service that solidifies trust. If you don’t have that trust, people may bolt at the first opening of a competitor with cheaper prices.—Elizabeth Archerd, Wedge Community Co-op member services director

See other articles from this issue: #118 May - June - 2005