Best Price = Fair Price?

By Elizabeth Archerd

In response to the July StarTribune article about our new manager, a customer asked "If you're so profitable, why don't you lower prices?" What a great opportunity to talk about this!

The cooperative model (since 1844) focuses on a fair deal for everyone, not the Wal-Mart promise of always the lowest price (at what price?). The difference between a fair price and the lowest price includes paying local suppliers a sustainable price so they can stay in business. It also means paying medical and dental insurance for 75% of our staff, as opposed to 25% that is average at most grocery stores. If we were just aiming for "always the lowest price" we would reduce the size of the staff and their pay and benefits -- but I don't think members would enjoy shopping here very much.

But that said, we keep our prices competitive by routinely surveying other stores. (In a recent survey, we had the lowest prices in the area on bulk nuts.) Our profitability results from a combination of high volume, careful buying and control of expenses. Even if it were possible to set prices to break even instead of turn a modest profit, the price difference would be so small on each product that customers would hardly notice, since the profit from each dollar spent here is only a few pennies.

Technical details: The StarTribune article printed our 2004 Gross Profit. Gross profit is the difference between our cost of goods (what we pay for the products we sell) and our total sales (what you pay when you buy those products from the co-op). Gross Profit pays for everything it takes to run the co-op including: labor, insurance, proper ty taxes, utilities, accounting and payroll services, staff development, the newsletter, computers, rugs, cleaning, shelving, cash registers, register tape, office furniture and supplies, stoves, ovens, coolers, the espresso machine, box cutters, name tags, signs, trash and recycling pick-up, trucks, hand trucks, and security systems. To name a few.

Our Net Savings, AKA "profit," is considerably lower than the Gross Profit mentioned in the article. What do we do with that? If you are a member we send you your share every fall, based on your purchases. We've sent over 1.5 million dollars back to members from 2000-2004. Profit retained for reinvestment in the co-op is recorded in the books as belonging to members. That's the part of the Wedge that is "ours," rather than "mine," including the property and the building.

P.S. Profit derived from sales to nonmembers stays in the business forever. The members can't divide it up among themselves -- co-op principles and Minnesota law forbid it. So shoppers who don't join are making a contribution, but, really, we'd rather have them join so they can share the wealth.