Great promise in CPW growth, catering gains and Lyndale store renovation. Future profit and patronage refunds are expected, but not this year.
By Elka Malkis, Wedge Community Co-op Finance Director
This past fiscal year (July 1, 2015 to June 30, 2016) has been challenging on many fronts. Our budget going into the year projected annual net income of $681,000. We expected to make enough money at Lyndale and Co-op Partners Warehouse to offset losses at Nicollet. We expected a small sales drop during the remodel, and we knew that more stores opening (other co-ops, Hy-Vee, Fresh Thymes, etc.) would have an impact on sales. We did not anticipate the Lyndale Avenue road work that has had a significant impact on traffic to the store. Ultimately, all three factors had a negative impact on sales, resulting in a greater drop in sales than we anticipated.
Sales at our Lyndale store declined by 12%-a drop of almost $4 million. The average number of customers per day dropped 11%-303 fewer people on average per day, even as the number of owners grew by almost 600-the fastest growth in many years. Owners spent an average of $200 less this year than in the previous 10 years. Two hundred dollars may not sound like much, but repeated over 16,500 owners, it amounts to about $3 million less in spending by owners at the Wedge. The result is a net loss for the year.
This net loss for the year means that there is no profit available for patronage refund. The patronage refund in a consumer cooperative is the equitable distribution of surplus (net income) to the owners. Without surplus there is no distribution. The loss is NOT due to remodel costs. The vast majority of those costs are for new assets (equipment and building) and are not treated as an expense. Think of it as trading one asset (cash) for another (equipment). Our Lyndale store remodel is unsettling in the short term, but without investment in infrastructure (roof, heating and cooling system), necessary equipment updates, safety and sustainability improvements, more retail space, and new amenities desired by owners (seating, sliced meats, salad bar, rotisserie chicken), we would risk far greater future losses.
Some of our customers have actually enjoyed shopping during our long overdue remodel. It’s like a treasure hunt -your brain gets a workout finding your way around and discovering new items. However, other shoppers feel more inconvenienced by the ongoing changes and the traffic delays on Lyndale. About 300 people each day are deciding to shop elsewhere. We are all owners of this business and the more we shop here, the stronger the business becomes. With fewer people shopping this year, the financial impact was inevitable. Our new businesses on Nicollet were key to our necessary Lyndale remodel and unmet demand for catering services. While not yet profitable, the overall enterprise- bakery, deli and catering production, market and café-is steadily moving toward profitability. Our deli kitchen was built to accommodate multiple stores and will get a big boost with the recent reopening of the deli at Lyndale. The proposed consolidation of the Wedge with Linden Hills and Eastside Co-ops likely will also provide a boost to the commissary success in the short run and stronger overall profitability in future years.
Though the FY ’16 results are disappointing, we do have some positives to report as well. After receiving national attention as a key link in strong regional “food hubs,” our warehouse, Co-op Partners Warehouse (CPW) continues to grow. Sales to external accounts increased by 11.5%, marking the fifth consecutive year of double-digit growth. The growth was driven by strong product availability and a growing account base that is better served by our improvements in technology and customer service. Likewise, our catering business saw an incredible 72% increase in sales over FY ’15 and is on track for further growth through expanded marketing and partnerships with neighboring businesses.
We continue to keep a sharp eye on all expenses as we strive to reduce operating costs while at the same time continuing to improve the work environment and shopping experience. Your continued support as a shopper and owner is vital to the success of this valuable community asset.