GM Report Annual Meeting June 4th, 2018
By Bobby Sullivan
What’s been going on with the co-op? In the retail world, we have been experiencing what’s being called the “retail apocalypse,” and that’s after we already experienced what the Asheville Citizen Times called “Asheville’s grocery invasion.” This is why Earth Fare closed a bunch of stores recently. The competition is getting fierce and the industry is changing dramatically with online sales.
An important aspect of our changing retail playing field to consider is what Price Waterhouse Coopers (PwC) called “nothing short of a revolution,” and in their words “the stakes have never been higher for retailers.” Chains all over the country are shuttering stores – from Toys ‘R’ Us, to Sears.
In the grocery world, as we found out the last three years, long-term trends are largely going in our direction. Unfortunately, the other stores have much bigger marketing budgets and are just better at their messaging. More and more they are positioning themselves to appear to do what we actually do. PwC points to insights to consider moving forward and these have driven our business planning for the last couple of years. And, as you’ll see, it does sound like many of these trends are going our way.
- We may live in the age of values, but price is still king.
- There is the need for an increasingly focused, curated and engaging brick and mortar store experience, even though online purchases are increasing.
- Retail talent (finally) matters – associates with product knowledge.
- Today’s consumers look to community.
- Social media is the “great influencer.”
- There is room for retailers to grab the “leading innovator” mantle.
So, the good news is, it’s stores like us that are likely to survive – smaller formats, and a distinctive customer experience. Through the staff we provide more information about food than your average retailer, and we offer an authentic approach to sourcing the food people want from environmentally sensitive foodways. We plan to leverage ourselves as “the experts” and we’re also venturing into offering more international food options, as you may have noticed with our new Asian and Indian food sets. We’re going direct to other suppliers for these items.
It’s an intentional deviation from our normal sourcing mechanism, because our main supplier is being controlled by the corporate giants that are now their bigger buyers. In addition, supply and demand are increasingly at odds. For instance, for a significant period we couldn’t get bulk nutritional yeast from our main supplier because the producer couldn’t keep up. That meant we had to get smaller quantities for higher prices. Also, when Safeway starting ordering from them, this supplier eliminated key items for us, so they could carry what Safeway wanted. Items we sold consistently were suddenly no longer available.
We will need to continue to be innovative when it comes to sourcing and this unfortunately takes more time and labor, which effects our bottom line – but it is fun, and in the long term it will ensure our survival. And frankly, it’s what we’re here to do. Plus, we get to work with great companies like Riojana and Equal Exchange, who are here today. By working directly with co-ops like these, we can make sure our customers are getting high quality products, instead of the bait and switch that is going on at the other stores.
With all this change in the air, on a sour note what’s not changing is the increasing wage gap in America. According to the US Census Bureau, our country is now “the most income-polarized developed economy in the world.” Expectations are that this will continue under this president, although according to retail consultants, there are opportunities here. “This polarization,” their reporting says, “will continue to drive success stories at both ends of the economic spectrum – increasingly catering to a wider income range.”
Appealing to a wider swath of our community is enshrined in our Ends Policies, and we would do well to follow suit – hence our Double Up Food Bucks Program. We were the first store in NC to implement it. In this program, we get grant money to give vouchers for free produce to EBT customers when they purchase local produce items – a win/win/win for local farmers, low income residents and our co-op. The grant money is part of the farm bill, so hopefully they can get that passed in Washington.
Also in this vein, work is being done on the national level by the National Co+op Grocers and they are working diligently to provide more services to individual co-ops, to help us economize on labor while offering more refined services. I serve on their board of directors to ensure their focus is where we need it. Increased training, betting pricing and newer technologies, all on the national level, will help us fulfill our goals in a profound way. Already the Co+op Basics program with the purple tags in our store, has given us a leg up in competing with other stores’ private labels. This way we’re able to offer premium products at an everyday low price. This program will continue to expand and branch out into more categories of products.
Leading up to our expansion, we are acutely focused on maximizing our sales per square foot in the current space. We’ve been largely successful at doing this, although we stalled a bit last year. Sales were down -1.2%. We also lost a little money due to higher occupancy costs and pricing pressures. It’s getting harder to sustain a living wage for our staff with lower profit margins, but we’re doing it. The first quarter of this year showed a daunting -2.4% drop in sales from the same period last year.
Luckily the difficulties in 2017 made us come up with plans for addressing this challenge and because we’ve done so well in April and May of this year, we now stand at around 1% growth YTD after that tough first quarter. April was up 4% and May was up 5%. What’s been amazing to watch has been the dramatic results of our produce reset, which we did at the end of April. In the first quarter, produce was down -9%. Produce is a category you can’t lose because when it starts dying, it’s a harbinger of overall store sales. I’ve always been told that if you can get produce up to 15% of your overall store sales, you’re guaranteed to have a rocking store. Because, if people are coming in for the fresh stuff, they’re definitely going to buy from your other categories.
So…. Results of the produce reset? Produce was up 11.5% in May and did 14.3% of overall store sales. In the first quarter it was only doing 11.6% of store sales, and we’ve got more to do. Soon we will completely transform the produce refrigerated case to get a more vertical set and next will be a massive grocery reset. HBC is holding their own. They were the only ones with positive sales growth in the first quarter, and we will depend on them to continue curating the right products for success.
Deli is unfortunately in transition with multiple leadership changes and we appreciate your patience there. This department is a huge opportunity for us to capture sales from all the people walking around downtown. After all, Asheville is a “food-topia” and we have the advantage of being able to offer quality ingredients in products that cost much less than the restaurants downtown. With the right focus, we can significantly grow this department, although our space is limited.
We are also focused on growing our business merchant program, since this has been the mechanism offsetting our losses at the store level. Currently we sell to around 50 local businesses and because of our buying power with the National Co+op Grocers, we are able to offer them a better price than if they were ordering on their own. This has increased our individual buying power too, and that’s in turn lowered our costs a few percentage points. We have awards today for the top purchasers in this program: Rosetta’s, French Broad Chocolate Lounge, Smiling Hara and No Evil Foods. TJ and the grocery crew deserve a lot of credit for building this program into generating almost $10k a week in sales, while simultaneously benefitting other local businesses.
Activity in the areas around the store continues to increase in the form of population density and more dominantly – tourist traffic. This could become a significantly limiting factor for selling groceries, as locals are less and less likely to make the trek downtown, even if they live close by. Biltmore Avenue continues to get clogged up by 6pm during tourist season, which is only getting longer. We depend on a basket average of at least $20 and tourists are more prone to purchase small amounts. This means we work the same or more for less sales per transaction. The good news is that apartment buildings are going in all around us and this bodes well for our future, as we continue to deal with the limitations of our small store.
The bottom line is there has never been a more important time for you – our owners – to rally around the co-op, singing our praises and spreading the word about why it’s important to shop here. Please use your social media prowess to promote the co-op on a regular basis. And this is the point of our break out session today. After all, you are the heart of the Co-op, and we want to hear about what the co-op means to you. So, here are the questions that you will be able to comment on at the tables you see:
- What makes you feel valued as a customer of the co-op?
- What do you think is the most important thing about the co-op?
- What do you wish we were doing differently?
- What products or experiences are you going to other stores for?
- What do you think would attract more customers/owners?
As a cooperative, we are a true example of the “power of the people,” the embodiment of food activism. But, because many stores have come to mimic what we do, many people have forgotten we are not only here to provide employees that will serve you. We are also here so you can provide a service. In other words, your involvement, your diligence, your passion, your power is what we are all about. Let us be a vehicle for you to express that. Let us be the vessel that houses your imagination and your potential. We are here so you can lead, and we all know our community needs that. As fast as Asheville is growing, imagine the co-op as the civic body that molds a future we can be proud of.
In our lifetimes, there has never been a more urgent time for true economic democracy. Politics have failed us. Bullying has tempered us, or worse, goaded us into thinking that’s the way to get things done, or that if we simply complain the loudest we will get what we want. Shopping here is good, but raising the profile of the co-op will ensure that this community-owned economic engine, which drives the local economy in so many profound ways, will forge a path to be the “transformative force” that our global ends policy compels us to be.
Thanks again for being here. We’re proud to do this important work.