Taking Stock: Rural Food Cooperative Case Studies Reveal Critical Retail Success Factors

Article excerpt

Editor's note: This article is excerpted from the authors' new report: Keys to Successful Start-Ups for Rural Food Coops: Four Case Studies, CIR 63, produced by the University of Wisconsin Center for Cooperatives. Hard copies of the report can be ordered by e-mail: dan.campbell@wdc.usda.gov, or by calling: (202) 720-8381. It can also be downloaded from the Internet at: www.rurdev.usda.gov/rbs/pub/newpub.htm. The report was prepared for the North Country Cooperative Development Fund, with funding from USDA Rural Development.

What factors contribute to the success or failure of a rural grocery cooperative? To find some answers, four case studies were conducted of Upper Midwest co-ops: Iron River Cooperatives, Iron River, Wis.; Root River Market Cooperative, Houston, Minn.; Viroqua Food Cooperative, Viroqua, Wis., and Tower Foods Market Cooperative, Oneida Nation, Wis.

This article begins with brief overviews of the four coops, followed by analysis of key factors that influenced the success or--in one case--failure of these co-ops.

Root River Market Cooperative--Houston, Minn.

The Root River Co-op is a full-service retail grocery store that provides a conventional inventory of foods and other grocery items in a city of 1,020, located in the southeastern corner of Minnesota. The community suffered the loss of its only grocery store in 1998.

After failing to attract a private company to run a store, a core of people in the community in early 1999 decided to try a cooperative. A study showed it would cost $400,000 to launch a co-op store. Some 310 members joined, who contributed $170,000 in member equity and loans. North Country Cooperative Development Fund (NCDF) then originated a loan for $225,000. About $12,500 in grants were also raised.

The store generated $1.06 million in the first year, about 12 percent below the projection. Operational costs had also been underestimated. To reduce costs, one of three department managers was reluctantly laid off.

Sales have been evenly split among members and nonmembers. Summer has been the heaviest sales period, driven by tourism to the area. In recent years, the co-op's gross sales have held steady at just over $1 million. A pharmacy (which rents space from the co-op) has drawn customers, particularly elderly residents. The gross margin held steady at about 25 percent during the first 5 years of operation, and it earned a 5.9 percent net profit, annualized over the past 3 years

At the end of November 2004, membership had risen to 419. Based on an average of 2.58 people per household, coop membership is estimated to be 1,081 individuals.

Viroqua Food Cooperative--Viroqua, Wis.

Located in a town of 4,335 which has become a hub of the "alternative, back-to-the-land community." As a natural food store, it faces different circumstances than most conventional grocery stores. It serves as an excellent example of the "start small and grow" approach to food co-op development.

It started as a food-buying club in 1991. Members decided to open a retail outlet in Viroqua, incorporating as a Chapter 185 Wisconsin cooperative. While the new board did not have written a business plan or use professional consultants, it had 5 years' experience operating a buying club of 40 core families. The co-op's incorporation papers established two classes of stock.

When the doors opened in September 1995, the store had 600 square feet of retail space and the co-op had 95 members. In 1996, the co-op had $174,330 in gross sales. By 2003, the co-op's gross sales had risen to $1.07 million.

The co-op did not take out any commercial or institutional loans to capitalize start-up. About a year or two after opening, it approached NCDF for the first of three small loans to finance equipment and other needs.

The co-op currently has 1,000 members representing 635 households, with 82.5 percent of sales going to members. …