Following Your Money...
Tracking $10 Spent at the Co-op
by Kathy Humiston, Newsletter Writer
Following Your Money...
Tracking $10 Spent at the Co-op
by Kathy Humiston, Newsletter Writer
Have you ever gotten home with your groceries and wondered about the total on your receipt? Maybe you’ve even asked, “What the heck does Willy Street Co-op do with all that money?!” It is not unheard of for customers to tell us that prices are too high; in fact when we compiled the results of our member survey last fall, we found that 34.9 percent of respondents listed high prices as a reason for not shopping here more often. At the same time, most survey respondents indicated that supporting local farmers, independent producers and staff was very important. Fulfilling those member expectations requires a certain amount of cash flow. That seems to leave us in a bit of a conundrum, doesn’t it?
Influences on the cost of food
There are many factors that influence the cost of food including weather-related crop losses, transportation costs, labor and marketing costs and the size of a retailer. Large supermarket chains and warehouse stores are able to cut their costs substantially by buying huge quantities of a product and then storing it and distributing to retail outlets as needed. Some of the biggest chains dictate wholesale prices to their suppliers. Our Co-op does not have the space to stockpile enough backstock to last for days or weeks, so you will find trucks at our loading dock almost daily. Many of the shipments we receive have surcharges added to cover volatile transportation costs. And, like it or not, we can’t control the weather.
Where does our money go?
According to a USDA report from February 2004, consumers spent over $709 billion in 2002 on food grown and processed in the U.S. These seem to be the most recent numbers available and include food purchased in restaurants as well as grocery stores. On average, only 19¢ of each dollar spent went to the farmer; in 1920 farmers received about 40¢ of each dollar spent. This is one of the major factors contributing to the loss of farmland and decrease in the number of farmers in the U.S. In 1920, there were more than 31 million farmers in the country; by 1990, that number had dropped to less than three million. Americans now spend only 8.4 percent of income on food, down from 24 percent in 1920—less than any other country in the world, regardless of economic status. The percentage of our food dollar that goes for processed and restaurant foods has been on a steady increase since the 1950s.
In every facet of the food industry, labor costs, except farmer labor, eat up a big chunk of the money. The marketing labor cost of food consumes just over 38¢ of each dollar spent. This labor force includes workers and executives at every stop along the way—processing facilities, distribution centers, transportation, and restaurant staff or store employees. When you choose locally produced food, you eliminate many of those middlemen, returning more money to the grower.
The “Vendor Break”
The Co-op takes pride in providing members with as many locally grown or produced products as possible. You will find purple shelf labels identifying local goods in every aisle. A check of our database during May showed 795 local items on the shelves in the Grocery and Cheese departments. We are proud of the good working relationships we have fostered with local producers, too. For many small, local grocery suppliers, whose production costs are higher than a large manufacturer’s, we apply something called a “Vendor Break” to the pricing of their products. This means that we use a lower margin to determine our retail price; that allows the selling price for Bountiful Bean tofu, at $1.59, for example, to be competitive with national brands, which in turn should mean a fairer share of tofu sales going to Simple Soyman. That gives Simple Soyman (and other local companies like them) more income to reinvest in employees, community projects and the local tax base.
The Co-op’s Produce buyers negotiate with each local grower every year to arrive at a mutually agreeable price. Our Produce buyers will be bringing in over 170 local, organically grown fruits and vegetables over the coming months, as well as nine local conventional items. Some of those fruits are really multiples when you consider that there will be several varieties of apples or pears for example. The actual daily numbers on the shelf will vary due to seasonality and general availability, but you can see that many of our purchases are from local vendors. What does that mean on your grocery receipt? Let’s put a few popular, local items into a shopping basket and take a look.
Starting off in Produce
We can add mung bean sprouts from Troy Community Gardens at $2.49 to our basket; then pull a pound of plain Bountiful Bean tofu from the Refrigerated case—that’s an ESP promotional item at $1.59. Visit the cheese cooler and add a package of Cedar Grove mild white cheddar for $3.29, also an ESP item. Grab some Nature’s Bakery pita for $2.55 and that brings our basket to $9.92; we can contribute the remaining 8¢ as a CHIP donation. (The prices for our hypothetical shopping basket were accurate at the time of this writing in mid-May.) The ESP program was instituted a few years ago to make prices on commonly purchased, natural, staple foods more accessible to people that may have to juggle a more limited income. Currently, there are 32 products with ESP pricing. As much as we might like to price everything this aggressively, we just can’t do it and still remain a viable business. The one percent, voluntary donation to Community CHIP helps to support more than 60 community non-profit groups, but where is the rest of your money going?
How it breaks down
For the first quarter of 2007, our cost of goods sold was 63.8% of sales, or $6.33 of our basket. (These calculations are made using $9.92, which is our basket total not including the CHIP amount.) Personnel expense amounted to 24.7% of sales. This includes wages, insurance and other benefits for all Co-op employees. In this case, personnel expenses would be $2.45. In 2004 the average national wage for unionized supermarket employees was $10.35; by contrast, a Wal-Mart grocery employee received only $8.23. Our latest fiscal statement reported an average wage of $11.87 for Co-op staff, reflecting our commitment to paying a living wage, as well as the longevity of many staff members.
Occupancy costs are our next highest expense at 2.8%, or 27¢ on this order. These costs include water, gas, electricity, property taxes, etc. Operating expenses are 2.5% or 25¢ and cover things like credit card fees, telephone costs, paper and plastic bags, aprons, towels, vehicles and gasoline. Depreciation and amortization amount to 1.6% or about 16¢ in this case. Administrative costs are 0.8% or 7¢; governance adds 0.4% or 4¢ and promotions make up 1.7% or 17¢, bringing total expenses to 34.3% of sales for the quarter.
The promotions budget includes many different things. Part of the cost of this newsletter comes from that budget, as well as some advertising costs. It also covers the courtesy discounts we offer to senior citizens, low income and disabled customers in order to make natural foods more accessible to a wider population. We sponsor various events through the Marquette Neighborhood Association; we are a sponsor of WORT Community Radio and contribute food during their pledge drives. We also sponsor the Wil-Mar Pie Sale each Thanksgiving season, and our Farmer Appreciation Dinner, and contribute to the Upper Midwest Organic Farming Conference, Bike to Work Week, and many other organizations. These types of promotions cost $16,000 for fiscal year 2006. In addition, we donated over $4,500 to various non-profit groups in the form of food vouchers and $13,500 in grants from our community reinvestment fund.
If we subtract a few odds and ends like taxes and interest and our CHIP donation, we are left with net income of about 10¢ on this purchase. Our average net income amounts to about one percent of sales. FY2006 was only nine months long, due to a change in our accounting calendar. For FY2006 our total net income amounted to $112,322. Part of the reason that number seems very low is because of our commitment to reinvesting in the community and maintaining a fair and humane workplace, but in addition, the Board of Directors is charged with making sure we do not make too much profit. We only want enough profit to be a fiscally sound business.
The vendor’s share
It can be difficult to track what happens to a vendor’s share of the money. Big corporations are not always forthcoming about their spending habits. One of the benefits of working with local businesses is that they are often more transparent about their business practices. When their money is staying in the community, business owners are usually happy to share that information.
In the case of the Nature’s Bakery’s whole-wheat pita bread, we pay the bakery $2.05 for each package of pita. Nature’s Bakery keeps a big chunk of that money right here in the neighborhood. An eight-member collective staff operates Nature’s Bakery, and each of them commits to at least two years with the business; one of the current bakers has been at Nature’s for ten years, and a couple are approaching the four year mark. Each collective member performs specific managerial duties and also logs 20-25 hours each week in production. Staff members receive an hourly wage, monthly stipends for health and vacation, a shoe allowance and food or time from the bakery as needed for themselves and their families. Nature’s Bakery is committed to local and regional procurement of their raw materials. They purchase their flour from an organic mill in Minnesota, having found this to be the best quality product they can obtain regionally. Their eggs come from New Century Farms in Shullsburg; honey is from Ranum’s in Darlington and maple syrup comes from Tigerton; their packaging materials are from a cooperative in Greenville, Wisconsin and labels are made in Seymour. Local printing and copying is done at Lakeside Press and the crew is stoked with java from Just Coffee. These folks are really committed to local and regional purchasing!
The staff at Nature’s Bakery enriches the community in many other ways. They donate baked goods to a variety of organizations and charities, sell “day-old” products at a discount and incorporate many sound environmental practices into their daily routines. Jessica Tollner, Communications Coordinator for the bakery, told me that they are considering the feasibility of solar water heating and a hybrid delivery vehicle in the future.
The Co-op pays $2.56 for a pound of Cedar Grove mild white Cheddar cheese and sells it at $2.99 as an ESP promotion. Cedar Grove cheese is located just outside Plain, Wisconsin, about 35 miles northwest of Madison. It is a lovely drive through the countryside and they welcome visitors to the store—if you call ahead, you can schedule a tour of the cheese making facilities. The rBGH-free milk for Cedar Grove cheese comes from farms near the plant; some of the organic milk they use is produced by Amish farmers near Darlington and is trucked about 45 miles, the farthest any of their milk travels. Other ingredients must be certified to be GMO-free and meet other requirements as well.
Bob Wills, owner of Cedar Grove, believes in supporting his community and makes donations to causes ranging from local sports teams to Wisconsin Public Radio. He is also involved with several groups that promote sustainable agriculture and regularly works with farmers to help them obtain Food Alliance certification. Wills works with Family Farm Defenders to promote sustainable pricing for farmers. He says he is on “a never ending quest to improve our footprint” and has instituted numerous environmental improvements at the Cedar Grove plant. The most visible of these is the Living Machine that purifies wash water from the cheese-making process, filtering it through a series of tanks of water, plants and other organisms until it is clean enough to be discharged into a nearby stream. Cedar Grove has installed energy-efficient boiler and refrigeration systems, uses efficient motion detector and zone lighting, and reuses boxes and other packaging material. The employees at Cedar Grove Cheese receive benefits that include insurance, flextime, bonuses and other perks.
R Jay and Barb Gruenwald own Simple Soyman in Milwaukee. Among other things, they make Bountiful Bean tofu, which is found in the refrigerated section of the store. We pay $1.41 for a one-pound tub of plain tofu and sell it for $1.59 as an ESP promotional item. The Gruenwalds use some of that income to pay the eight people that make up the staff at Simple Soyman. Employees enjoy a relaxed work atmosphere with very flexible scheduling. Simple Soyman buys Wisconsin-grown organic soybeans for its products, paying a premium price to secure their position in the market. Their herbs and spices are purchased from Frontier in Iowa. They prefer to buy from small distributors when possible.
Simple Soyman also has a policy of reinvesting in their community; they regularly donate to a variety of non-profit groups including Hunger Task Force, Bicycle Federation, and Repairers of the Breach, a Milwaukee homeless outreach organization.
Troy Community Farm
Growing organic produce on a small-farm scale involves a tremendous amount of hands-on labor and that needs to be reflected in the price a farmer receives for his/her product. Troy Community Farm charges $1.50 for each package of sprouts our Produce department buys. Troy is unique among local produce farms in that it is an urban farm sponsored by the Friends of Troy Gardens. The farm is comprised of five acres on the north side of the city and is part of the 31-acre Troy Gardens, which includes community gardens, co-housing, and restored natural areas. Troy Community Farm is primarily a CSA farm, but also sells some produce wholesale, at their farm stand and at the
Northside Farmers Market.
Claire Strader, the farmer at Troy, works with one assistant, eight interns, ten share workers and up to five volunteers each week. The two permanent staff members have access to insurance, vacation pay, sick and holiday pay. Everyone who works on the farm has access to “farmer food”-crops that have blemishes, are producing in excess or are leftovers from the markets.
The farm provides a range of training to sixteen high school students through its “Farm and Field” Youth Training Program in Sustainable Agriculture and Natural Areas Restoration. This program teaches youth basic job skills, sustainable farming methods and rewards them with a paycheck for their labor. The students in the program come from a variety of cultural and economic backgrounds. Many of them have never had a job before and one of the most important things they learn is how to work together as a team. They also participate in workshops that include leadership skills and basic employment skills such as how to fill our job applications.
In addition to the intern and Farm and Field programs, many local schools bring students to Troy for tours that give them hands-on experience with things like chickens in the Children’s Garden; they often harvest and clean salad vegetables to eat with their bag lunches; and they learn about bees and honey making and about controlled prairie burns and how to use the back-up fire control equipment. Turn to our Producer Profile on pages 18-19 for more on Troy Community Farm.
These are just a few examples of where your money goes when you shop at the Willy Street Co-op, but they should give you some idea of how we operate our business to help benefit the neighborhood, community, staff and other small businesses.