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Natural foods co-op finds solid ground

Rochester Business Journal
November 27, 2009

In less than a decade of operation, natural products retailer Abundance Cooperative Market has undergone two turnarounds, but in the last three years it has achieved consistent profits even as the economy was weakening.

While consumers have tightened their spending, sales at Abundance increased 7 percent to $2.5 million in fiscal 2009, which ended June 30. And last month the store paid its first dividend to its 1,300 shareholders.

Shareholders, each of whom pays $100 for a share in the for-profit cooperative corporation, received dollar refund dividends up to $600 based on the value of individual purchases over the 2008-09 fiscal year. The store also shared profits with its 27 employees, paying bonuses equal to almost two weeks' pay.

The upward trend in organic food sales was one of the top 10 surprises of the recession, Time magazine reported in July. While the growth rate in 2009 declined to 6 percent from 20 percent in recent years, national data show that one-fourth of U.S. adult shoppers continue to purchase organic food or beverages frequently. And one-third of them are willing to pay more for organic products.

Packaged Facts, the market research firm that generated the data, attributed the growth trend to consumers wanting to take better care of themselves.

Defined as premium consumers, shoppers who earn at least $75,000 a year are the most apt to shop for organic foods, Packaged Facts found. At Abundance, the typical customer is someone over 50 with an advanced degree. Recession or not, those customers tend to shop for value over price, General Manager James DeLuca said.

Abundance posted first-quarter growth of 3 percent, compared with 14 percent the year before.

Sales at cooperative markets in general are rising, and if growth rates and profit margins are lower, that is due to higher fuel prices and commodity costs, said North Carolina-based Peg Nolan, development director for the Eastern corridor of the National Cooperative Grocers Association.

Among the 111 grocers in the association, Abundance compares well, Nolan said. The market was in the upper third of all stores of comparable size for sales growth last fiscal year, and its net profit was in the upper quartile.

"For quarter-over-quarter sales only, Abundance sales growth was on par with other co-ops in its medium-size store grouping," she added.

Compared with the rest of the economy, cooperatives say, the recession's impact on organic food sales has been minimal. However, it has affected the types of sales at co-ops. At Abundance, for example, people are buying more frozen foods than before, DeLuca said. Instead of going out to dinner, he said, customers now are cooking more meals at home.

The bulk department also has seen a spike in sales, and that makes sense too, DeLuca said.

"The bulk department is where you can get the least expensive organic products: rice, beans and all the grains, nuts and all kinds of things. And you can buy as little as you want; it's not packaged," he said.

At least as important as cost, nutrition is an increasing concern among Americans, and that bodes well for natural food grocers. Beyond a general interest among customers in maintaining health, health problems and diet restrictions draw people to Abundance, said Melissa Marquez, the store's board president.

Low-salt, no-wheat and similar restricted diets bring people through the door as much as a desire to buy local, she added.

But while national trends are helping to spur growth at natural food grocers, that was not always enough to sustain Abundance. High startup costs in 2001, and then high operating costs in 2005, caused serious problems, Marquez said.

As president of Genesee Co-op Federal Credit Union, Marquez was recruited to the store's finance committee in the fall of 2001 to address cash-flow trouble shortly after Abundance opened. Startup costs were higher than expected, and sales failed to meet projections, she said.

"There needed to be closer management of the financials," she said. Tough decisions were necessary, including personnel cuts, pay reductions and strict inventory controls.

Keeping costs in check while providing adequate inventory to bring in customers was a balancing act, she said. The store needed to raise money too; it did that through equity and low-interest and no-interest shareholder loans.

"That turnaround took probably eight to nine months before we could really see that we were going in the right direction and producing the right kinds of trends," Marquez recalled.

Abundance opened at its location on Marshall Street near downtown shortly after Genesee Co-op Natural Foodstore Inc. closed. Today, Abundance retains the legal name, doing business as Abundance Cooperative Market.

Many of the initial shareholders in Abundance had been customers of the Genesee Co-op food store on Monroe Avenue, Marquez said.

Establishing the right formula for the new store took some time. High operating costs, a change in management and adding too many staff positions led to the second crisis in 2005.

"We had a couple of years of positive net income and very strong growth, and then we had another financial crisis, and used the National Cooperative Grocers Association to help us reset the store, which moved our produce from the back to being in the front," Marquez recalled. "I think that was really key to having a look to our store that was more inviting and gave us more options for what could be offered."

Balancing cash flow with staffing and inventory took some time, but all of it helped Abundance streamline operations by honing the focus and reinforcing the engagement of stakeholders-board members, managers, employees and customers.

"For me, it teaches there are cycles to businesses, and you just have to always be aware," Marquez said. "You can't rest on any laurels. If anything, even as things have been really turned around in the last couple of years, I'm still mindful of that.

"You just take each quarter and look carefully, and make sure you have a strong general manager in place, who's minding the business very carefully, and a board that is involved."

The trick is to be involved but not overbearing, DeLuca said, and that is what the Abundance board in 2005 was trained to do.

Through a program called Cooperative Board Leadership Development, provided by Cooperative Development Services of St. Paul, Minn., and Madison, Wis., the Abundance board laid out the extent and limit of its role to allow operational staff members the leeway they needed for day-to-day operations.

The training allowed the board to focus on strategy and long-term vision, which Marquez said has been as instrumental to growth at Abundance as the NCGA's work with the staff to improve operating margins and store layout.

For DeLuca, who joined Abundance in January, the fact that the board had a clearly defined role was a primary reason he chose to come to Rochester.

DeLuca has been managing co-ops since the 1970s, most recently in Ithaca. Abundance is the fifth one he has managed.

In his experience, the best co-ops define the roles of their board and general manager very strictly in order to maximize the performance of each. They do not step on each other's toes, but they also stay in step with each other.

"This board has been trained for a couple of years, so that made it really a wonderful experience for me as a manager to feel comfortable that the board knows what they're doing, and they're not coming in and telling me I should buy this or do this or fire this person," DeLuca said.

For the board, focusing on the future is a lot harder than the general manager's job, he added.

"It's a lot easier to focus on the operations because it's tangible-stuff is coming in and out, people are there-whereas the visionary governance leadership part of it is a lot more difficult in some ways because it's intangible," he said.

For Marquez, being on the board for the last four years has been challenging but also eye-opening and enriching.

"In itself, it is a very organic process that has developed over time with a very clear vision of wanting to operate a natural foods store in the city of Rochester for the benefit of the shareholders, as well as other customers who come," Marquez said.

"And I think it's really been exciting to see the synergy of so many different individuals come together and unite for a common cause. It hasn't been easy," she added. "It's been really hard, but in the end, it's been really good."

11/27/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.


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