follow the money...
by Django Zeaman
Maybe you’ve heard from the board or the new General Manager (GM) that La Montañita Co-op is in financial trouble, that we have to change and if we don’t we’re going to perish. This was the message delivered at the Co-op town halls and board meetings in Albuquerque and Santa Fe over the last five months.
The Board President, GM, and senior staff talked about "The New Normal": [1] how shoppers can now buy organic food just about everywhere. They say look around town and you’ll see Whole Foods, Sprouts, Trader Joe’s and more. That’s why in times like these we have to change.
Our management, our values, the products we sell, even our mission. Everything has to change.
And we also have to expand and open new stores. We must always strive to get bigger. If that means taking out a loan, if that means going into debt, so be it. We have no choice.
Doesn’t really sound like a co-op does it? Sounds like a publicly traded corporation that’s under tremendous pressure to grow every quarter or else its stock tumbles and the CEO gets fired.
And yet, the Board and GM are telling us that we have to expand:
“Without growth we put ourselves at risk for simply not making it."
- Martha Whitman, 2013, National Co+op Grocers (NCG) Event [2]
(Martha Whitman was the La Montañita Co-op Board President from 2011-2014.)
“Dennis Hanley [the new GM]... said he expects to be talking about a new store ‘sooner than later.’”
- Article in the Albuquerque Journal, January, 2016 [3]
There’s one small problem: we weren’t in financial trouble until we expanded three years ago by opening a new store in a strip mall near a Walmart.
The Numbers Don’t Add Up
Let’s look at the net income (profit) for our Co-op from 2008-2013. These figures are pulled from the Annual Reports: [4]
2008 - $564,758
2009 - $690,861
2010 - $364,741
2011 - $915,664
2012 - $597,301
2013 - $766,484
Looks pretty good, right?
In fact, here is the language the former Board President and GM used in the Annual Reports:
“Healthy net income…”
- 2011 Martha Whitman Board President [4]
“…‘another good year’ is perhaps an understatement.”
- 2013 Martha Whitman Board President [4]
“Our financial ratios are strong.”
- 2011, 2012, and 2013 Terry Bowling, GM [4]
Then in 2014 and 2015 our net income (profit) dropped: [5]
2014 - $231,301
2015 - $142,548
The language in the Annual Reports changed too:
“A New Day
The days of the Co-op as the only natural foods game in town are over! The corporate chains with whom we must compete have more resources and money than we will ever have.”
- Terry Bowling, GM 2014 [5]
“The New Normal
Never before has the competition in the natural and organic food industry been so intense. Cooperatives across the nation are facing these increased market-share pressures.”
- Bob Tero, Interim GM 2015 [5]
The current board and GM used very similar words at the town hall and board meetings over the last five months.
How could there be such a huge shift in the market in just one year? In 2013, we have a net income of $766K and “another good year is perhaps an understatement,” [4] then in 2014 we have a net income of $231K and “The days of the Co-op as the only natural foods game in town are over!” [5]
Did a bunch of Whole Foods and Sprouts open here between 2013 and 2014? No.
Did shoppers drastically change their buying habits between 2013 and 2014? No.
So what happened between 2013 and 2014?
The Real Culprit
Guided by an outside consulting firm called CDS Consulting, and by our Board President Martha Whitman (now a paid consultant for CDS), [6] our Co-op expanded and opened a new store in late 2013. That store is called Westside. It’s located in Albuquerque.
Let's look at recent annual net income figures broken down by store: [7]
Santa Fe: $600,000
Rio Grande: $50,000
Nob Hill & GRABnGO: $50,000
Gallup: Break Even
Total that up and we have a net income of about $700,000.
That’s very good. The average net income from 2008-2013 when times were good was $649,000. So those stores are actually performing above the historical average during the “healthy" times.
However, we have to add in the annual net income at the new store:
Westside: -$550,000
Yep, the new store almost wipes out the net income from all the other stores combined. Our total net income goes from a healthy $700,000 down to $150,000.
We were doing very well financially before we expanded and we would still be doing well. We were not in trouble.
So, not only was expansion unnecessary, expansion is what caused a positive financial picture to turn negative.
The Extent of the Damage
How much might we have lost in the last three years due to this ill-advised expansion?
It looks like we’ve lost between $2 million and $5 million. We won't know exactly how much until we remove the current board and GM and conduct a thorough financial investigation.
Who Makes Money When Co-ops Fail?
Retail businesses sometimes open new stores that don’t work. It happens. We could assume the expansion of our Co-op was all in good faith and we just didn’t choose the right location.
Unfortunately, the consulting company advising our board has a troubling history of pushing co-ops to expand even when expansion places co-ops in financial jeopardy.
Why would consultants do that? It’s important to think about all the ways consultants can make money from a co-op’s expansion:
Whether the new store succeeds or fails, consultants still make a lot of money. In other words, it’s in their best interest to advise co-ops to expand. Always.
So why does our Co-op leadership explain these losses as being about “The New Normal” instead of about the new store? Why do they continue to advocate for expansion, even after expansion cost our Co-op millions? Are they really working for us—the member-owners—or are they working for the outside consultants?
Next: A National Takeover...One Co-op at a Time
References:
1: http://www.abqjournal.com/748176/the-times-they-are-a-changing-at-the-co-op.html
2: https://www.youtube.com/watch?v=TMrWM4sFMAQ; 00:24; Martha Whitman, speaking at a Cooperative Cafe in 2013, sponsored by National Co+op Grocers (NCG)
3: http://www.abqjournal.com/706855/changes-in-store-for-la-montanita-as-it-turns-40.html
4: http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2011annual.pdf
http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2012-Annual-Report-FINAL.pdf
http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2013-Annual-Report-FINAL.pdf
5: http://lamontanita.coop/wp-content/uploads/2013/03/2014-Annual-Report.pdf
http://lamontanita.coop/wp-content/uploads/2013/03/2015-Annual-Report.pdf
6: http://www.cdsconsulting.coop/consultants/martha-whitman
7: Multiple independent sources confirmed these ranges
Maybe you’ve heard from the board or the new General Manager (GM) that La Montañita Co-op is in financial trouble, that we have to change and if we don’t we’re going to perish. This was the message delivered at the Co-op town halls and board meetings in Albuquerque and Santa Fe over the last five months.
The Board President, GM, and senior staff talked about "The New Normal": [1] how shoppers can now buy organic food just about everywhere. They say look around town and you’ll see Whole Foods, Sprouts, Trader Joe’s and more. That’s why in times like these we have to change.
Our management, our values, the products we sell, even our mission. Everything has to change.
And we also have to expand and open new stores. We must always strive to get bigger. If that means taking out a loan, if that means going into debt, so be it. We have no choice.
Doesn’t really sound like a co-op does it? Sounds like a publicly traded corporation that’s under tremendous pressure to grow every quarter or else its stock tumbles and the CEO gets fired.
And yet, the Board and GM are telling us that we have to expand:
“Without growth we put ourselves at risk for simply not making it."
- Martha Whitman, 2013, National Co+op Grocers (NCG) Event [2]
(Martha Whitman was the La Montañita Co-op Board President from 2011-2014.)
“Dennis Hanley [the new GM]... said he expects to be talking about a new store ‘sooner than later.’”
- Article in the Albuquerque Journal, January, 2016 [3]
There’s one small problem: we weren’t in financial trouble until we expanded three years ago by opening a new store in a strip mall near a Walmart.
The Numbers Don’t Add Up
Let’s look at the net income (profit) for our Co-op from 2008-2013. These figures are pulled from the Annual Reports: [4]
2008 - $564,758
2009 - $690,861
2010 - $364,741
2011 - $915,664
2012 - $597,301
2013 - $766,484
Looks pretty good, right?
In fact, here is the language the former Board President and GM used in the Annual Reports:
“Healthy net income…”
- 2011 Martha Whitman Board President [4]
“…‘another good year’ is perhaps an understatement.”
- 2013 Martha Whitman Board President [4]
“Our financial ratios are strong.”
- 2011, 2012, and 2013 Terry Bowling, GM [4]
Then in 2014 and 2015 our net income (profit) dropped: [5]
2014 - $231,301
2015 - $142,548
The language in the Annual Reports changed too:
“A New Day
The days of the Co-op as the only natural foods game in town are over! The corporate chains with whom we must compete have more resources and money than we will ever have.”
- Terry Bowling, GM 2014 [5]
“The New Normal
Never before has the competition in the natural and organic food industry been so intense. Cooperatives across the nation are facing these increased market-share pressures.”
- Bob Tero, Interim GM 2015 [5]
The current board and GM used very similar words at the town hall and board meetings over the last five months.
How could there be such a huge shift in the market in just one year? In 2013, we have a net income of $766K and “another good year is perhaps an understatement,” [4] then in 2014 we have a net income of $231K and “The days of the Co-op as the only natural foods game in town are over!” [5]
Did a bunch of Whole Foods and Sprouts open here between 2013 and 2014? No.
Did shoppers drastically change their buying habits between 2013 and 2014? No.
So what happened between 2013 and 2014?
The Real Culprit
Guided by an outside consulting firm called CDS Consulting, and by our Board President Martha Whitman (now a paid consultant for CDS), [6] our Co-op expanded and opened a new store in late 2013. That store is called Westside. It’s located in Albuquerque.
Let's look at recent annual net income figures broken down by store: [7]
Santa Fe: $600,000
Rio Grande: $50,000
Nob Hill & GRABnGO: $50,000
Gallup: Break Even
Total that up and we have a net income of about $700,000.
That’s very good. The average net income from 2008-2013 when times were good was $649,000. So those stores are actually performing above the historical average during the “healthy" times.
However, we have to add in the annual net income at the new store:
Westside: -$550,000
Yep, the new store almost wipes out the net income from all the other stores combined. Our total net income goes from a healthy $700,000 down to $150,000.
We were doing very well financially before we expanded and we would still be doing well. We were not in trouble.
So, not only was expansion unnecessary, expansion is what caused a positive financial picture to turn negative.
The Extent of the Damage
How much might we have lost in the last three years due to this ill-advised expansion?
- $1.5-$1.8 million in total annual losses from the new store
- Hundreds of thousands of dollars in consulting fees
- A long-term lease which we can't get out of without more losses
- A new GM (including his increased salary, bonuses, and other compensation)
- A loan of over $2 million to cover construction, improvements, and other costs
It looks like we’ve lost between $2 million and $5 million. We won't know exactly how much until we remove the current board and GM and conduct a thorough financial investigation.
Who Makes Money When Co-ops Fail?
Retail businesses sometimes open new stores that don’t work. It happens. We could assume the expansion of our Co-op was all in good faith and we just didn’t choose the right location.
Unfortunately, the consulting company advising our board has a troubling history of pushing co-ops to expand even when expansion places co-ops in financial jeopardy.
Why would consultants do that? It’s important to think about all the ways consultants can make money from a co-op’s expansion:
- Developing store designs and architectural plans
- Brokering loans for co-ops to pay for expansion
- Loaning money directly to co-ops who go into debt
- Consulting on the search for a new GM
- Providing bookkeeping and inventory services
- Receiving payments from distributors who now sell more product through these co-ops
- Conducting board training and facilitating off-site retreats and conferences
- Placing consultants in co-op management positions
Whether the new store succeeds or fails, consultants still make a lot of money. In other words, it’s in their best interest to advise co-ops to expand. Always.
So why does our Co-op leadership explain these losses as being about “The New Normal” instead of about the new store? Why do they continue to advocate for expansion, even after expansion cost our Co-op millions? Are they really working for us—the member-owners—or are they working for the outside consultants?
Next: A National Takeover...One Co-op at a Time
References:
1: http://www.abqjournal.com/748176/the-times-they-are-a-changing-at-the-co-op.html
2: https://www.youtube.com/watch?v=TMrWM4sFMAQ; 00:24; Martha Whitman, speaking at a Cooperative Cafe in 2013, sponsored by National Co+op Grocers (NCG)
3: http://www.abqjournal.com/706855/changes-in-store-for-la-montanita-as-it-turns-40.html
4: http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2011annual.pdf
http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2012-Annual-Report-FINAL.pdf
http://192.185.4.53/~lmcoop/wp-content/uploads/2014/02/2013-Annual-Report-FINAL.pdf
5: http://lamontanita.coop/wp-content/uploads/2013/03/2014-Annual-Report.pdf
http://lamontanita.coop/wp-content/uploads/2013/03/2015-Annual-Report.pdf
6: http://www.cdsconsulting.coop/consultants/martha-whitman
7: Multiple independent sources confirmed these ranges