The Little Co-op That Could
Vermont food co-op overcomes initial
skepticism to win hearts (and wallets) of city
By Dan Campbell, Editor
dan.campbell@wdc.usda.gov
hen word got out that
the city of Burlington,
Vt., had awarded a lease
to a natural foods co-op
to operate the
downtown area’s only full-service
grocery store, it sparked an intense,
emotional debate among residents. One
local senior cut to the heart of the
matter at a town hall meeting when he
shouted: “You better not take away our
red meat and make us eat granola!”
But fears that tie-dye-clad hippies
would be taking away their deep-fried
corn chips and force feeding them with
tofu proved unfounded. Today, Tony
the Tiger entices shoppers from boxes
of Kellogs Sugar Frosted Flakes, while
nearby shelf-mate EnviroKidz Organic
Amazon Frosted Flakes call out to
shoppers who are equally interested in
preserving the rain forest as in filling
their bellies.
In the words of Clem Nilan, the
store manager, City Market has become
a “hybrid co-op store,” offering
members a wide variety of natural and
organic foods, as well as a full line of
conventional groceries. Providing this
choice to members has proven to be a
highly successful business formula for
what Nilan calls “The Little Co-op that
Could.” Last year, City Market/Onion
River Co-op rang up $27 million in
sales. Receipts have risen by at least 10
percent the first seven years of
operation and by 7.5 percent during last
year’s recession.
The reasons for the co-op’s success
go well beyond offering both
conventional and organic/natural foods.
City Market also goes all out to procure
as much locally and regionally grown
food as possible, operates popular
community outreach programs to better
serve senior citizens and low-income
residents, supports and interacts with
other farm and food co-ops and is
striving to make the store a “green”
operation.
Evidence of the latter can be seen in
the 136 solar panels recently installed
on the roof, which are expected to
provide up to 3 percent of the store’s
annual power needs (with payback on
the investment expected in five years).
Store closure opens
door for co-op
As is often the case with food co-ops,
the Onion River Cooperative began life
as a food-buying club. When it started
in 1973, the co-op focused on procuring
staple foods, such as organic flour,
for its members. As demand increased,
it offered more foods and eventually
rented a storefront. Further growth
resulted in the co-op making several
moves to larger quarters around Burlington.
The opportunity to leap into the
ranks of full-service grocery stores
occurred in 1999, when the downtown
area’s only major grocery store closed.
“The city wanted to make sure there
was still a grocery store downtown, in
part to serve the needs of seniors,
people with limited mobility and recent
immigrants,” said Nilan, speaking as
part of a co-op panel at the USDA Ag
Outlook Forum in February. The city
put out a request for proposals to lease
a vacant city property and operate a
new grocery store there.
Since the co-op was getting ready to
move again anyway, it decided to
submit a bid. The competition
eventually came down to the co-op and
a popular regional grocery chain.
Winning the bidding competition
“should have been a walk in the park,”
for the regional grocery, Nilan says. But
the chain store placed a number of
demands on the city, including the
construction of a parking garage next to
the store.
The city had a number of demands
of its own, ranging from the hours of
operation to requiring a plan for how
the store would meet the needs of
seniors and people with low-tomoderate
incomes. The store operator
would also be required to carry an array
of home-grown Vermont products.
Onion River Co-op readily agreed to
meet those demands and did not ask for
a parking garage.
The city council eventually voted 12-2 in favor of offering a 100-year lease to
the co-op. The result was what Nilan
terms a “firestorm” of protest. “The
question came up over and over: how
could a natural foods store meet the
needs of all the people of the city?”
Many people were worried that prices
would shoot up under the co-op if it
replaced conventional groceries with
organic and natural foods.
The chain store backers launched a
petition drive to force a referendum,
calling for the city to provide an
$800,000 subsidy (primarily to pay for
the parking garage). The referendum
was defeated, but many residents still
felt the city was ignoring the will of the
people.
Early success and struggle
The co-op used a $3 million
Business and Industry (B&I) guaranteed
loan from USDA Rural Development
to convert the vacant building into a
modern grocery store. Despite the
controversy surrounding its birth, the
co-op was a hit with the public as soon
as the doors opened in early 2002.
“Sales were never an issue,” Nilan
says. Burlington is a city of 38,000
people (the state’s largest city), and City
Market counts 9,000 of its households
as co-op members. Even in the severe
recession, membership climbed sharply.
The co-op business model and the
sense of trust and goodwill it fosters
“really resonates” in the community,
Nilan says.
But as many a co-op manager or
director can attest to, strong sales do
not always convert to profitability, and
City Market’s success was far from
assured. Shortly after the store opened,
the work force was unionized, and cost
controls for both goods and labor
seemed to go out the window.
“We nearly went under, even with
great sales,” Nilan says. It took a couple
of years of struggle to get the ship
turned around.
Products purchased for resale are a
grocery store’s largest cost center, so
getting the co-op’s cost-of-goods in line
was the biggest challenge faced in
improving the store’s margins. Target
margins were set for each department
and best practices were identified.
Early on, the store had been
foundering due to not keeping a “live
time” connection between changing
costs and retail prices, Nilan says. The
situation began to improve with a push
to keep point-of-sale (or POS) records
accurate and with the introduction of
back-door scanning. The latter occurs
on the receiving dock as each newly
purchased item is electronically scanned
to verify that the cost is the POSrecorded
cost. If there is a discrepancy,
this scan raises a warning if there is a
margin issue.
Costs are now well in hand, and the
store has been profitable enough to see
its patronage per member shoot up
from $27 in 2008 to $77 last year. That
meant an extra $250,000 was pumped
back into the community around
Thanksgiving.
Valuing workers
The co-op operates on the basis of a
triple bottom line that stresses
commitment to: people/social
responsibility, environmental
stewardship and financial success. “Coops
pride themselves on treating people
fairly,” Nilan notes, and the success of a
food co-op is highly dependent on the
performance of its workers. So, City
Market does all it can to keep good
people on board.
The store has 173 employees,
including 129 full-time workers (or 75
percent of the total workforce). “That’s
many more workers than a conventional
grocery our size would typically have,”
Nilan says. That’s because grocery
chain stores have a much more
centralized infrastructure for functions
such as marketing.
Unlike many other stores — where
the goal is to maintain as many part-time
workers as possible to avoid having
to extend health and retirement benefits
to them — City Market takes the
opposite tack, trying to provide benefits
for as much of the staff as it can.
Nilan says the co-op pays wages that
average 25 percent more than those
paid by conventional supermarkets in
the region. Its wages average 93 cents
per hour above the “livable wage” for
Burlington, where 65 percent of the
workers reside.
The co-op does a dollar-for-dollar
match, up to 6 percent, of the pay
workers route into their 401(k)
retirement plans. Employees earn four
weeks of paid vacation in their first year
on the job, get benefits for riding mass
transit to work and receive a 15-percent
discount on purchases at the co-op.
Perhaps best of all, the co-op pays
100 percent of the cost for healthcare
insurance premiums for its full-time
staff. “Once staff begins contributing to
paying premiums, you are really just
reducing their wages — taking it out of
one pocket instead of the other,” Nilan
says.
The co-op has worked hard to
recruit workers of varied racial and
ethnic backgrounds to better reflect the
diverse demographics of the city, which
is changing due to immigration.
Promoting local/regional foods
City Market sold about $4 million in
locally grown foods last year. “We could
easily double or triple that amount if
more was available,” Nilan says. “We
have a lot of ‘holes’ that we would like
to fill with local foods.”
The goal is to offer at least 1,000
Vermont-produced products. Last
November it far exceeded that
benchmark, selling 1,700 home-grown
products.
Not only are co-op members eager
to buy more locally produced foods, but
this trade also has a big impact on the
local economy. Nilan notes that the
multiplier effect for agricultural trade in
Vermont is 2.5 (meaning every dollar
spent on farm products changes hands
two and half more times), one of the
highest rates for any industry. He
estimates that 65 cents of every dollar
spent at City Market stays in Vermont.
“When we buy from local producers,
even more of our money stays in
Vermont,” Nilan says. “Our state’s No.
1 export is money; our No. 1 import is
food. So growing more local food is a
great way to make Vermont’s economy
more sustainable.”
A big concern in New England is the
rate at which small dairy farms are
disappearing. “They are being lost at an
alarming rate, as are small bottling
facilities,” says Nilan.
To help support family dairy farms
while supplying members with highquality
milk, City Market and two other
Vermont Co-ops — Hunger Mountain
in Montpelier and the Middlebury Coop
— are buying whole milk from one
of the two remaining Vermont family
bottling facilities, Monument Farms.
The three co-ops retail the gallons
under the Co-op label. The label lists
the three dairy co-ops next to their
pledge not to use bovine growth
hormones.
“We told the farmers we will pay you
what you think you need for the milk,
and pay you the same rate every single
month, so that there’s none of this up
and down stuff,” Nilan says. “We like to
call this our way of promoting domestic
fair trade. When we put this label on
our milk, sales took off.” More than
100,000 gallons have been sold in two
years.
“Selling local food is not easy — it is
a labor of love,” Nilan says. “You have a
lot more vendors to work with, and you
need more people on the receiving
dock.”
City Market has developed a spreadsheet
to help keep track of what foods
are coming from what growers and
when. Missing all too often from the
local food matrix are products that
require more infrastructure, such as
oatmeal, because of the loss of
processing facilities in Vermont during
the past 20 years or so. “The lack of
this infrastructure and the high price of
land are serious hurdles to providing
Vermont with more local food,” Nilan
says.
The co-op works hard on in-store
signage to let members know more
about the foods for sale. Helping in this
effort is a color key under which purple
means local, green means organic, and
orange means conventional. The store
often posts signs about the farms that
produce the food.
City Market offers a discount of 5
cents for every reusable cloth bag a
customer fills, which resulted in 14
percent fewer disposable bags being
used last year. But Nilan says he thinks
it will require a statewide ban on plastic
bags to really wean most shoppers from
their “disposable bag dependency.”
He cites the co-op’s membership in
the National Cooperative Grocers
Association (NCGA) as a major factor
in its success. NCGA’s 112 member coops
support each other by sharing
financial and marketing information
and working as a virtual buying group.
“For example, if we want to see how
our produce section is doing compared
to others, we can pop online and see the
figures from other members,” Nilan
says. “This is very helpful when you
operate an independent store and need
some comparative data to see how you
are doing.”
Reaching out to the community
More than 1 million people entered
the store last year. “And we’re not a real
big store — just 16,000 square feet.”
The average size for a grocery store
these days is closer to 70,000 square
feet, he notes.
“None of the things we do, socially
or environmentally, would work unless
we won the hearts and minds of the
people,” Nilan says.
Burlington has won awards as one of
the healthiest cities and best places to
live in America. “It is a gorgeous place
to live,” Nilan says. But even here, one
in five children is living in food
insecurity. “And while we were doing a
good job redeeming food stamps, we
felt we could do better.”
So City Market launched the Food
for All Member Program, which offers
a 10-percent discount to any member
who uses food stamps, is enrolled in the
Supplemental Nutrition Program for
Women, Infants and Children (WIC),
or who has a disability. As a result, food
stamps sales have risen from about
$290,000 in 2005 to about $570,000 in
2009 and the co-op has gained over
1,000 new members.
The co-op also makes donations to a
local food pantry to help feed those in
need.
To better serve seniors, the co-op
offers a 5-percent discount to anyone
over the age of 60, and also serves 900
free lunches each month — or 4,000
free meals since 2005 —at the four
senior centers in Burlington.
Nilan says these programs have
helped change seniors from being major
critics of the co-op to being some of its
biggest supporters.
Just how much progress the co-op
has made in changing the attitudes of
seniors since the “red meat vs. granola
fear” days was apparent on a recent trip
to one of Burlington’s senior centers. A
sign had been posted in the lobby
listing what the residents liked best
about living in Burlington. No.1 on the
list: “Lunch with City Market!”
