The Co-op Food Stores

added 05/11/09

Board Report
by Donald Kreis
Board President

Based on 2008 sales and expenses, the Co-op paid $267,224 in patronage refunds to its members this year, half in cash and half in shares of capital stock in our cooperative. The Co-op’s operations yielded less money for patronage refunds in 2008 than they did in 2007, when the comparable figure was $561,080.

So far in 2009, the economic and business realities we face have not improved. Accordingly, I am writing to share some thoughts about how our cooperative is faring in these hard times.

Please be assured that your Board and management team are keenly aware of the importance of maintaining the financial health of the Co-op. Based on the financial statements in the 2008 Annual Report, we think the Co-op is in sound financial shape.

Our balance sheet was stronger at the end of 2008 than it was a year earlier as we continued to invest in our future. In particular, we opened the wonderful new Co-op Community Food Market on Lyme Road in Hanover. As planned, we incurred new debt to finance the project. Nevertheless, our ratio of total liabilities to total debt—a key indicator of solvency—remained low, and therefore robust, at 1.12 to 1.

What your Board found disappointing about 2008 is that real sales growth—i.e., after adjusting for inflation—was negative 1 percent for the year at our food stores. Much of this negative growth is attributable to the last quarter, when economic conditions grew particularly dire.

Although we do not subscribe to the “bigger is better” approach of profit-maximizing businesses, both the Board and the management team believe that modest real growth in sales is an important sign of success, even at a cooperative. General Manager Terry Appleby has provided the Board with a written plan for how he intends to address the situation. This mainly involves adjusting the product mix and pricing strategy to reflect that members, and shoppers generally, are buying fewer luxury goods and more food staples.

Liquidity—the amount of cash the Co-op has on hand—remains of concern to the Board. Thus we are paying only half of your patronage refund in cash, issuing shares to reflect the rest. We are asking, in effect, that you leave that other half invested in the Co-op. We have taken similar steps in recent years and want you to know that the practice may continue as the Board keeps its eye on the financial strength of the cooperative. We know that members enjoy their refund checks. But we are also confident you understand that a refund is really just a small part of the value our 73-year-old institution provides to each of us and to our community.

Retail grocery is fundamentally a low-margin business. In other words, our wholesale costs are a relatively high percentage of our prices. Adding to the challenge is our commitment to high quality customer service and to a workforce that is compensated and treated fairly. We are committed to local sources of food and other items, doing business with those sources on favorable terms. We have a growing commitment to conducting our business activities in a sustainable fashion. All of these factors reduce the amount of money available for patronage refunds.

We expect these commitments and values to continue to guide our cooperative. But, in the coming months, your Board also plans to be vigilant about returning value to our members. After all, you own the Co-op. You have a right to expect it to do good things for you. And you can expect it to be transparent and forthright about the realities it confronts and the results it produces.

Tough economic times represent an opportunity for the Hanover Consumer Cooperative Society, and the cooperative movement generally, to shine. Our founders started the Co-op during the Great Depression to serve unmet needs. Now, as newly unmet needs emerge, we will redouble our efforts to be of service in ways that investor-owned businesses cannot. We will look to you, our members, for guidance and support as we confront the interesting times that lie ahead.

Want to See the Board in Action?

Come to a Co-op Board meeting! They are typically held the third Wednesday of each month. Meeting dates and locations are subject to change. Call 603-640-6340 in advance or send us an email. Upcoming Co-op Board Meetings: May 20, June 17, and July 15, 2009, 5:30 p.m., Hanover Food Store Boardroom.

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