Making an End of It at New Pioneer
Editor's note: The reality of business development is that our best laid plans are often led astray. When that happens in a cooperative, after making sure that everything that could improve a bad situation has been done, the board of directors must be able to make the difficult decision to close a business if necessary.
New Pioneer Co-op has operated a natural foods store in Iowa City for twenty years, with recent years marked by strong growth in sales and services. Sandwiched between downtown and the University of Iowa campus, the co-op sold over $1,160,000 in groceries and deli in the quarter ending September 30,1991.
New Pioneer's attempt to establish a second co-op store in nearby Cedar Rapids, however, was unsuccessful. Excerpted below is the report in the New Pioneer newsletter of this past April by Member Relations Manager Theresa Carbrey, followed by a more recent interview with President Denise Chevalier.
In 1987 the board of directors of the Good Foods Co-op in Cedar Rapids approached the New Pioneer board of directors and asked them to assume management of their failing operation. The New Pioneer board and general manager John Higgins considered this request seriously over a period of time. The idea of bringing quality foods to as many people as possible through a cooperatively owned enterprise held great appeal. Remodeling and expansion of the Iowa City store had been enthusiastically received by the Iowa City shoppers. The board felt optimistic about achieving greater mainstream acceptance. The decision was made to establish a New Pioneer in Cedar Rapids. It would be an attractive modem facility in an area with ample parking. It would feature the same product line as its Iowa City sister: seafood, deli, produce, grocery, wine, mean, mercantile and so forth. The general manager, marketing manager, educationoutreach and department heads would oversee both stores. Hopefully the co-op could achieve greater economies of scale, as programs created for one store could now be realized in two with relatively little extra effort.
Construction on the new facility began in April of 1988, with the grand opening taking place in August 1988. A full color insert in the Cedar Rapids Gazette announced the grand opening to 80,000 households.
Lackluster first year
Sales were strong the first week, then slacked. Low sales and higher than anticipated expenses meant the CR store did not break even its first year of operations (income expenses). The Iowa City store was experiencing unprecedented growth at this time, however, and the board was not overly alarmed by a lackluster first year in CR. Concern did grow among board and staff alike over the lack of a trend toward profitability.
The board and staff scrutinized the facility and operations for ways to strengthen sales. Certainly having the road and parking lot torn up was not helpful. A relatively inexperienced store manager and a staff unfamiliar with the product line also posed problems. It was an extreme challenge to keep fresh foods fresh in a store with such slow turnover. Acting on these concerns, programs were created and put in place to coach the manager, educate the staff, and monitor product quality.
Attracting shoppers to the store
In Iowa City, the New Pioneer marketing style, product line and cooperative ownership were big pluses. Significant numbers of shoppers were attracted to New Pioneer food and philosophy. Surely Cedar Rapids would find New Pioneer appealing, too, if we could get the word out. Rochelle Prunty, John Higgins and the marketing team created a comprehensive campaign designed to do just that. Weekly ads appeared in the Gazette. A direct mail flyer went to 5,000 households each week also, offering recipes, cultural information and promoting special prices on featured food items.
Many Cedar Rapids people were unfamiliar with cooperatives as an alternative form of business, and the product line was unfamiliar throughout the store.
Education/Outreach made presentations to various groups around town offering samples and literature. A free weekly cooking class was created. Store-wide samplingevents featuring seasonal foods were received in Cedar Rapids with as much enthusiasm as in Iowa City. Various coupon programs offering substantial savings on staple items were created. These were placed in the direct mail flyer, the local newspaper, local business establishments and even were offered as bag stuffers at check-out counters in the store. Many took advantage of the "Super Shopper" program offering Cedar Rapids shoppers a $5.00 certificate after five purchases of $10.00 or more.
Sales bolstered briefly after each promotion or event and then sagged to previous levels. We could attract shoppers, but we couldn't keep them. We needed to have people see us as their main grocery store and shop regularly, but it just wasn't working. Sales needed to be at $18,000 per week to break even. Promotions boosted them to $14-15,000 per week, then they would sink back to $11-12,000 per week.
Brynn Rhodes took the store manager position in July 1990. Under her capable direction, staff morale was the best ever. Store presentation was focused and appealing. Quality control was kept high, yet sales continued under the projcted budget.
What was wrong? There was plenty of opportunity for second guessing. Had shoppers been turned off by the quality control problems of the early days? Was our success in Iowa City due mainly to our location, with lots offoot traffic, one block from the heart of downtown? To get to the Cedar Rapids New Pioneer store, one virtually had to travel by interstate.
Were the towns really so different? New Pioneer had built community interest and support in Iowa City over two decades, but arrived as an accomplished fact in Cedar Rapids. Many Cedar Rapids people were unfamiliar with the concept of cooperatives as an alternative form of business, and the product line was unfamiliar throughout the store.
Tough decision for the board
It was a difficult position for the board. Sales of $700,000 per year were good -- just not good enough for the operation as it was planned. Eight hundred members in the Cedar Rapids and Marion area seemed a significant number, but we weren't getting sales figures that reflected that level of interest. It was not acceptable to continue losing money. New Pioneer had invested a significant amount of capital and staff time in the CR store and the board really needed to be sure everything possible had been done to make it a success.
Was there a market for New Pioneer in Cedar Rapids? The board consulted Magad, a local marketing firm, to survey the town and make recommendations. Results were not clearcut. Yes, there was a market there, but it would take considerable further investment of time and money to reach the break-even point. We learned that New Pioneer was perceived as selling odd, expensive food and that the store was a "specialty" shop not a "regular" grocery store.
The board felt that the Cedar Rapids store must get into the black financially or shut down. The sales were simply not there, despite all efforts. With much regret, the board decided to close the store, effective March 30, 1991.
Closing the Cedar Rapids store was difficult for the CR staffers, the board and the co-op management team. Certainly the Cedar Rapids staffers did a great job of creating an attractive store. It's sad they never experienced the financial success and overwhelming customer appreciation that the Iowa City store enjoys. Staffers each received severance pay and all vacation and personal time. They will be notified of any openings in the Iowa City store.
The board will now regroup and strengthen our position financially. The imagination and vision demonstrated in creating a second New Pioneer store was fully in accord with our mission -- to bring quality and natural foods to the maximum number of people. It was in the spirit of one co-op assisting another that we first considered Cedar Rapids as a location. Certainly every effort was made to make Cedar Rapids a success. Now, acting to protect the members' investment, the Cedar Rapids store has been closed.
In October 1991, several months after the store was closed and the above article published, President Denise Chevalier was asked for additional remarks:
Dave Gutknecht: What further evaluation or other action has the New Pioneer board of directors taken since the closing of your second store?
Denise Chevalier: The first evaluation was the cost analysis made prior to closing the Cedar Rapids store, estimating closing costs, sales levels, and cash flow. Two months after closing we looked at that again and compared what had happened to our earlier projections.
Our costs were much less than expected. We had anticipated cash flow problems for the Iowa City store from the loss of the Cedar Rapids store and from slower summer sales, but cash flow wasn't as bad as projected in our worst case scenario.
The other reason our closing costs were down was that we had very good management during the closing by our management team. Actions were well thought out and efficient. They made a big difference in what actual closing costs were compared to projected costs. [The co-op's manager, John Higgins, left in December 1990 after being with New Pioneer for seventeen years; he was replaced by a management team of five department heads; in October 1991, New Pioneer announced that one member of this team, Rochelle Prunty, had been appointed general manager.]
We also had a line of credit established at the bank for purposes of compensating for any cash flow problems we might have, but we did not use it.
Since the closing, Iowa City sales have been growing -- over budgeted growth in our most recent quarter by 2.8 percent. We broke records in our member drive and have over 4000 members now. We continue to get Cedar Rapids customers. There was minimal loss of shares to former members after the closing.
DG: Why didn't the Cedar Rapids store make it? What were the leading factors?
DC: Let me quote from a recent report to New Pioneer members by Treasurer Rick Stewart:
"The exact reasons for the Cedar Rapids losses could be debated eternally. From a financial perspective, it is easiest to say, in descending order of significance:
- Sales were too low.
- Margins were too low.
- Expenses were too high."
DG: What about the location, the market, management, more subjective and more complex factors?
DC: I think that's a critical thing you said -- they are subjective. For example, did the sales level reflect the market? Many people think that Cedar Rapids was not the market for an Iowa City store. When we went in, we expected to take an Iowa City store there. But Cedar Rapids is different, has its own personality. What was enthusiastically received in Iowa City, when you think of presentation and product offering, was not necessarily so in Cedar Rapids.
Regarding location, Cedar Rapids is roughly divided into quadrants, plus neighboring Marion, and there are boundaries. It appears that people tend to stay in their quadrant when shopping. So despite the larger population of Cedar Rapids, in our location we had only one or perhaps two quadrants to draw from. The population is not necessarily indicative of the market and the market share we might garner from that. The particular location, the shopping center that we were in, is across from a large and established shopping center in Cedar Rapids. The store that shared our building also went out of business, yet they do very well in Iowa City.
DG: What has been the effect on the board and its attitude toward the future?
DC: I would say that the board and management will be prepared. We will have done our homework. We are enthusiastic about things that New Pioneer might do. We are a grocery store, but we also realize the impact that we can have in other areas, such as in fostering education, in promoting organic product, in nurturing the diversity of lifestyles, and in advancing environmental concerns. We have learned a very valuable lesson in what happened with the Cedar Rapids store. It has made us more introspective and hopefully has given us some wisdom for future endeavors.
DG: And, among other things, open to the idea of a second store again?
DC: Well, that's a scary statement! No, I would say that's not out of the question. But there isn't one thing that we are looking at right now. We are looking at poising ourselves for future ventures. What that means is a time for the management, staff, and board to conduct some internal development: board education, management education. We're looking at workshops for board and management that relate to not only defining your goals but also readying the organization for expansion into new endeavors.