New Pioneer: Successful by Working on the Basics

In 1981, New Pioneer Co-op was a small, floundering storefront with stagnant sales growth, unpredictable margin, infighting, and poor capitalization. This scenario has given way to a relatively well capitalized, profitable food store with an annual sales growth rate of 30-40% for the last two years. The ingredients in this recovery are not new or clever. The board and staff together became committed to the basics of the food business:service, broad product line, margin control, quality products, and an appealing facility.

We relied heavily on examples of progressive co-op stores, especially Wheatsville in Austin, Arcata in California, and Puget Consumers Co-op in Seattle. Consultants from Community Consulting Group (CCG) have contributed immeasurably to our turnaround. It was critical in tough times to bring in an outside mentor to attune us to what in retrospect is so obvious.

1. Member capital increased

"We need money to make money." This old saw was our theme in the summer of 1981. A visit from Walden Swanson of CCG got us moving toward developing a member share system to replace our annual membership fee of $5.00 per member. We spent a year(!) selling the idea to the members. In July 1982 we began requiring members to invest $60.00 each as a "share" purchase. We have an installment plan option to make the share purchase unimposing ($10.00 per month).

The response was very positive, and in a few months we had $10,000 to upgrade our presentation. Our lengthy promotion of the share system as a means to improve the store and the unity of vision of the board and staff were crucial to the quick acceptance of the plan by members. As share investments grew, we eliminated eyesores. The bulk oil nightmare became a clean bank of stainless steel spigots on the wall, new hardwood bulk bins replaced worn out plywood bins, electronic cash registers moved in where obsolete clunkers had been. Standard grocery shelves replaced an array of makeshift shelves. Refrigeration equipment was added to display more cheese and dairy and to upgrade the produce department. The single front door was converted to "in" and "out" doors for greater convenience.

2. Changing the line on products and the product line

The member investment enabled us to build up inventory, too. We relaxed our staunch pure-food limitations and added selected conventional grocery items, beer, coffee, meat, imported cheese, paper products, and household cleaners. We began to see our purpose shift from presenting food doctrine to creating a consumer-owned medium for commerce. The member ownership heightens the responsibility to act with integrity on behalf of consumers, and this leads us to natural foods. But the plurality of a co-op membership means serving diverse needs and accommodating contradictions.

Like many co-ops, we suffered under a fixed, product exclusion thinking. When our co-ops are viewed as places of ideology, the net effect is actually less natural food served to people. The crossover shopper will find such stores intimidating at best, and they will relegate them to occasional use. The inconvenience forces our regular shoppers to use other stores more when they need coffee, beer, meat, etc., and thus other stores pick up the produce and cheese dollars that would have gone to us.

The expansion of frozen and natural food grocery products enabled us to win back a lot of the sales that a competing natural food store enjoyed when our focus was on bulk foods and our packaged foods were limited. Sale size per customer is steadily rising.

The upgrading of the facility equipment, and inventory was piecemeal, as resources grew, and it began with the most glaring deficiencies. We focused on aesthetic improvement, sometimes overlooking return on investment priorities. Perhaps scheduling projects more according to revenue potential could have sped the recovery. The overall effect, however, was a strong increase in revenue.

The capital system continues to finance our development today, but with a new twist. With 1000 members at $60 each and a moderately profitable performance, we can now finance improvements with commercial loans. This past year we have financed an expansion/remodeling project, equipment additions, and inventory increases with a combination of member share growth, net earnings, and commercial loans. This further development of the facility and product line is paying off: recent growth rates (over the same periods last year) have climbed to 50-60%.

3. Born-again merchandisers

As our capital increased, merchandising became the theme. In Principles and Practices of Food Merchandising, by Theodore Leed and Gene German, merchandising is defined as "maximizing customer satisfaction, profitably:" This distilled definition covers all the bases: promotion, display, pricing, margin control, convenience, selection.

Our initial disdain for the mainstream grocery biz obscured many of the basics of the business we are in. We are still catching up, but we have transformed our presentation this past year. Our promotions are through weekly newspaper ads, our monthly newsletter, and occasional radio spots for special events. Ads highlight quality, selection, price and are increasingly thematic and coordinated with in-store demonstrations. The appearance and content of our ads have really developed this year. Customer comments are consistently positive. We budget 2% of our sales for ads/newsletter.

Improvements in display brought greater coherence in product grouping and consistent and active use of end aisle displays. Conventional grocery stores can give a lot of clues here. We were pretty loose with product groupings in the past, but we now see the grocery department as a series of sections: canned fruit, crackers, cereal, canned fish, Mexican, Asian, cookies, etc., and we build up each to fill a four or eight foot section, with tight borders between the sections. This reduces confusion and exposes more products as customers grow familiar with the distinct sections. The creative and changing end aisles keep the shoppers interested and highlight various products as well as providing a place for consumer information. We are fortunate to have excellent sign makers on the staff to enhance these displays. In addition, we put special attention into our front window display. Our promotion coordinator makes this a special place for seasonal and holiday themes, and a sense of humor prevails.

We continue to suffer from a high-price image. Let's face it, we are small fish in a big volume/low margin pond. So, we choose to compete mainly on quality and selection. Price is still an important consideration. We increasingly single out price sensitive items (e.g., tuna and orange juice) for special low margins. In areas in which we compete strongly, import cheese, for example, we take higher than average margins, still offering lower prices than competitors.

Through variable pricing we are increasingly able to produce predictably better results in many departments and to raise margin overall. Our department managers have studied the contribution to margin of groups of products within each department. Cheese, for example, has a few leaders with low margin, a midmargin area, and a high margin area (imports). By determining the volume in the low, mid, and high margin segments, we have played with pricing and pushed margin up overall, while maintaining some very impressive low prices on key items. In a high volume area like cheese (10% of sales) the improvement of margin makes a major contribution to the co-op's gross profit.

High quality produce is such a good way to gain customer loyalty and build more frequent patronage! In a natural food store, the role of produce is especially critical: whole food shoppers use more of it, and it serves to demystify our "health food" image for the new customer. Produce is familiar, while many of our products are not.

The produce department has improved over the years. It got a big boost in July of this year when we cosponsored, with Blooming Prairie Co-op Warehouse, a produce merchandising seminar featuring Jack Alexander from California. Jack helped us transform our produce presentation in many ways: abundant displays, use of color sensible product groupings, and extended life of product. We were inspired to care more about our produce and to dedicate more payroll to it. And, of course, we studied margin control. We now avoid competing on price alone, but focus on superb quality. This means going with higher prices and ruthlessly culling any poor quality. We were timid at first, as we boosted prices and tossed so much food we would formerly have tried to sell! But the results were immediate -- produce volume shot up from 12% to 14.5% of sales. Customers now rave about our produce. Some new members say they joined because of the produce. We get a few comments about high prices but not many. The faster movement covers shrink, raises the margin, and enables us to run hot price specials.

4. The personal touch

"Whose store is it?" All the improvements in facility, equipment, product line, and merchandising contribute to better service. The additional element is the personal touch. Our merchandising is telling shoppers that we care about the food we're offering. Our staff must show we care about the people.

A fierce irony of so many co-ops is the hostile attitude towards the public. Sometimes the ideology implies it -- sometimes the staff shows it directly. It is as if we don't need to appreciate the customer because it is their store anyway. How wrong! If the staff does not express appreciation to all customers on behalf of the co-op, we are at risk!

At New Pioneer, we are in the midst of undoing the coldness of earlier years. The staff is encouraged to make every customer count. We take suggestions seriously, carry out groceries, search for information, give away samples, and give refunds for any dissatisfaction. If one does not enjoy serving people, then the food business is the wrong occupation!

The development of New Pioneer was possible because of its dedicated, competent staff and board, as well as the members' response to share investment. Financial records have been excellent throughout. Management skills, so lacking earlier, are constantly building. We have benefitted a great deal from consultants we've brought in, and from outside training seminars. As we learn more, our department managers rework and tune up the store layout and the merchandising style. There is so much we have yet to improve that I'm optimistic our growth can continue.

We have done little market analysis so far. We have mostly "shot from the hip" and done the obvious to create the kind of store we envisioned. The gross deficiencies of earlier years were easy to detect, though tougher to correct. The development in the future will require greater sophistication. As we grow, our expansion moves get bigger and riskier; we will increasingly evaluate our market and consciously position New Pioneer to gain market share.

The changes we've experienced in the past four years should give hope to struggling mid-size co-ops. Someone is getting the food dollars in your community -- but is it the co-op? Is the facility beautiful and convenient? Is the product line broad? Is the staff dedicated to serving people, and capable of margin control and expense management? Is there member capital to work with?

If we can get our members to put up the capital and we can learn the basics of the trade, then we can create for them a vibrant, successful, and pleasant store that will make their lives a little better.