Working Together for Our Mutual Benefit
Vision and leadership support co-op merger and expansion
Food co-ops are experts at doing things the hard way. We are grassroots organizations—it comes with the territory. People’s Food Co-op (PFC) in La Crosse, Wis., and the Rochester Good Food Co-op in Rochester, Minn., decided to take advantage of current resources by working together for our mutual benefit. We traded some old challenges for new ones along the way—but through the process we hope to gain additional insights about co-op development for others in our sector to consider.
Our story started in the fall of 2010 when I spoke with a local La Crosse developer who is a longtime member and supporter of PFC. He asked me about considering a store in a multi-use development he was working on in downtown Rochester, located about three blocks from the world-renowned Mayo Clinic.
Flattered, I said, “Thanks, but no. There is a food co-op already in existence in Rochester. You should go talk to them. Let me get you their number.” Coincidentally, I had facilitated a strategic planning session for the Rochester co-op’s board of directors the year before and knew that a move into downtown was something that was on the table for strategic consideration.
Rochester co-op not ready
After the Rochester board sat through the developer’s “dog and pony show,” I got a call from Dan Litwiller, the board president. Their board agreed that the development opportunity was an excellent one, but they were also clear that their organization wasn’t prepared to handle such an undertaking on its own.
Rochester’s co-op has been around for 37 years, but it had some challenges to face. Among them:
- a dues-based rather than equity-based membership structure, so most members didn’t really engage with the idea of ownership;
- no cash—at one point during discussions about working together, the co-op had about six days’ cash on hand;
- a management team with a couple of strong players but many who were new and were long on enthusiasm but short on management or grocery experience;
- a current location with poor visibility and ingress/egress, which made it tough to build sales.
On the other hand, the co-op also had a list of very important strengths and opportunities:
- a well-functioning, committed board of directors that was doing its best to lay the groundwork for co-op growth and accountability to the membership;
- a presence in one of the fastest growing, economically stable communities in Minnesota;
- a community focused on wellness and health;
- lots of unmet market potential in local, -natural and organic foods;
- a potential development site in a severely underserved area (defined by the federal government as “food insecure”), yet adjacent to one of the largest employment centers in the city.
During my discussion with Litwiller, we talked about options for how PFC could support the Rochester co-op in taking advantage of this opportunity. Simply acting as an investing organization seemed to be a bad choice because I understood that their lack of resources went beyond simply not having cash or equity. So, I mentioned the example of La Montañita Co-op of Albuquerque, N.M., which had merged with two smaller co-ops in neighboring communities of Gallup and Santa Fe, each of which was at least an hour drive from one another—similar to the distance between La Crosse and Rochester. Perhaps there was something for us to think about in that example?
But we were talking about new territory here. Not only were we in two different states, we also operated in cities with two very different demographic profiles. It was clear what the immediate benefits of working together could be for Rochester, but what about our La Crosse members?
Step by step
I called my Board President, John Knight, and asked, “Do you think our board would be willing to spend some meeting time considering this?” His response was, “Yes…but they will need some context.” So I did some homework. I put together a “Pros and Cons” sheet that listed, with as much brutal honesty as possible, both the potential benefits as well as the potential drawbacks of the idea. I also put together a “Next Steps” sheet of what the PFC board, the Rochester board, and I would each need to be able to make a good decision about whether to continue if the interest were present.
The PFC board met and decided that they were interested enough to have a meeting with the Rochester board to talk about the idea face to face. That meeting went well, with both sides willingly talking about their biggest hopes and fears—and there was nothing that wasn’t on the table during the discussion. PFC’s board decided to invest money in market studies to consider changes in our current La Crosse market as well as opportunities in Rochester, particularly those associated with the development site. We looked at opportunity costs as well as potential upsides.
After looking at the market research and considering the potential positive impact the pairing could have on the entire region and our local foods efforts, both co-op boards decided to recommend to their respective memberships that People’s Food Co-op and the Rochester Good Food Co-op merge, with the first order of business being the preparation for and development of a new, larger Rochester facility. The announcement of this recommendation came on June 1, 2011—approximately six months after the Rochester board had heard the developer’s proposal. On that day, both boards kicked off a joint member engagement plan, with a goal of having member votes on merger completed by mid-August. This would give us enough time to work out an agreement by the end of September 2011 to be the anchor tenant in the proposed development—the site was city-owned site and came with city-dictated timelines.
Throughout June and July, both boards and I participated in 11 member-information events (five in La Crosse and six in Rochester), and sent out member mailings detailing the plan. At the same time, I was working with both management teams to create a business plan to address internal readiness for expansion, while also creating relocation and expansion pro forma financial statements that the board would need to approve before we could agree to officially be a part of the development.
The process was inspiring, frustrating, exhausting, and totally worth it. We heard from people in both communities who were afraid they were “losing their co-op.” We heard from people in Rochester who were excited that they would have access to more products and services with the new store. We heard from folks in La Crosse who were excited about the concept that with two stores we could do more of the good stuff we were doing. We heard from staff in Rochester who felt like they were in jeopardy if the merger happened.
We all worked hard to be as open and honest about what the plan was and where we saw potential for those plans to fall apart. Both boards were exemplary in their cohesiveness and their visionary approach to this novel concept. I feel truly honored to have had a chance to work with them throughout the process.
PFC sent out member ballots as planned on Aug. 1, 2011, and when voting closed on Aug. 15, 83 percent of La Crosse members had voted in support of merger. Rochester had trouble getting their ballots out on time and had to extend their voting period for an additional week because some people didn’t get ballots, while others returned their ballots to the wrong address…let’s put it this way, it didn’t go smoothly. The outside accounting firm called with the Rochester voting results on Monday, Aug. 22. The vote came through with a 65 percent majority voting in favor of merger, which in the State of Minnesota meant that the merger failed! State statute requires cooperative mergers to pass with a minimum of 67 percent of members voting in favor. The effort was 11 votes shy of the requirement for passage.
One more try
The wind was knocked out of our sails. After about two hours of mourning, I realized, ‘Heck, any U.S. president would be happy to get 65 percent of the popular vote!’ The Rochester board convened an emergency conference call. Its decision was to seek advice from the legal team at Dorsey & Whitney, who had helped us navigate the cross-border issues and who had lots of experience with cooperative mergers in agriculture. Their advice: “There were enough voting irregularities in Rochester that it would be fairly simple to justify a re-vote of the membership.” The Rochester board decided in late September that a re-vote was in order.
The developers and I were able to convince the city of Rochester to give the co-op more time to work through its process. The La Crosse co-op board and I stepped back from the process at that point—this was up to Rochester’s members to decide. We weren’t interested in any shotgun wedding. After six weeks of additional member education, a second vote was conducted, and on Oct. 24, with 50 percent voter participation, 76 percent of the Rochester members supported merger.
On Jan. 2, 2012, the Rochester Good Food Co-op officially became People’s Food Co-op. Our stores are now working together on everything from procurement to management training to new-store planning. We secured a long-term lease for the new downtown Rochester development and intend to open a new 26,000-square-foot store (15,000 square feet in retail) in August of 2013.
We’re grateful for every day we have between now and then to prepare for enormous growth. Along with getting our operations ready, we’re also spending a lot of time getting our two communities and our members familiar with one another and reinforcing that our goals and values are the same. It was an enormous visionary leap that La Crosse members took that demonstrated their generosity and their commitment to the goals of building cooperation in our local food system.
Our work has only begun, but with our ability to leverage the financial strength of an existing co-op, we hope to share valuable lessons as food co-ops collectively look at how to better leverage and grow the positive community outcomes of cooperation.