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!”




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