- from “To a Mouse” by Robert Burns
As I write this, the bad taste of the souring of our deal with Metropolitan Place for Willy Street Co-op’s second store is still in our mouths. But, although it’s only been a little over a week since the announcement of the Board and management decision to end the lease negotiated with Metropolitan Place Phase II (MPII), work is already going on to find another site for our second retail location, as well as salvage whatever we can from the Metropolitan Place project.
There is probably nothing more frustrating than a situation where outside circumstances—circumstances over which you have no control—conspire to upend carefully laid plans. The lease negotiated with Metropolitan Place was 14 pages long, designed to protect the Co-op in just about any circumstance. Unfortunately, the breakdown of the deal was due to the developer’s personal financial situation—Cliff Fisher fell behind in his payments to his lender—and there was no way we could have either foreseen or prevented this.
Some of the media coverage has made Willy Street Co-op’s plight sound worse than it really is—the Co-op has been said to be as much as half a million dollars in debt after this failed real estate deal. In fact, the Co-op is not in debt; we spent money to start the project, but have not taken additional bank loans or used any line of credit to pay bills. Everything possible is being done to minimize losses—for example, orders for specialized equipment for the MPII store have been canceled. While we are not in a financial crisis at the moment—Willy Street Co-op can weather this loss—we do not want to suffer additional losses, a major reason for the decision to back out of the MPII lease.
As the poet Robert Burns said, even the best plans can go astray. It’s only natural for us to think a lot about “what ifs” and how a bad situation could have been avoided. After an interval of this kind of thinking, though, we need learn from our mistakes, and move on.
For our March Board meeting, Board members had a homework assignment to read an article about a co-op expansion gone wrong. Sacramento Natural Foods Co-op (SacNat) opened a new store in Elk Grove, a suburb of Sacramento, California, in 2005. SacNat’s second store ran into costly construction delays early on, and was never profitable, and they were forced to close it in 2007. SacNat emerged from the fiasco with their original store stronger than ever—as soon as they closed the suburban store, sales surged at the downtown store—but with a heavy debt load, close to three million dollars. There are a number of similarities between SacNat’s experience and Willy Street Co-op’s, but fortunately for us, significant differences as well!
Like Willy Street Co-op, SacNat had gone through a long process of reviewing sites and doing market research, before selecting the site for its second store. One of the biggest differences between SacNat’s failed expansion and Willy Street Co-op’s is that rather than opening their second food co-op in an urban location, SacNat’s expansion was into a brand new suburban development. Pam Mehnert, general manager at Outpost Natural Foods in Milwaukee, that has two urban and one suburban locations, sees going into a brand new development like Elk Grove as very risky. “It’s a big difference,” says Mehnert concerning operating in the suburbs versus in the city.
Although SacNat’s market research showed that the residents of Elk Grove would support a natural foods co-op, the advantages of membership and organic foods did not catch on with enough Elk Grove citizens, who are used to shopping by car, and unfamiliar with grocers who are not major chains. To these suburban shoppers, natural foods co-ops have an image of being more expensive and less convenient than traditional supermarkets. In retrospect, SacNat feels that they did not do enough work to reach out to the Elk Grove community, especially the approximately 1,000 existing SacNat members living there.
In addition, Elk Grove has been hit hard by the subprime mortgage crisis. Sacramento Natural Foods board president Barbara Mendenhall says, “People bought on speculation and are bailing out. Lots of houses are abandoned by their owners and issues of upkeep and vacancy are bringing down property values. It’s a very significant issue.” She also says, “The perception over our prices overwhelmed their concern about healthy food...the person we were going after was going to be a hard sell.” In other words, in Elk Grove, even though there was an awareness that natural and organic foods might be of higher quality, in difficult economic times, the perception of higher prices kept too many people away.
Their construction delays and costs ate away at any financial cushion that Sacramento Natural Foods could have used to keep their second store open long enough for it to achieve profitability. From this perspective, Willy Street Co-op’s decision to abandon MPII before incurring more cost overruns was the right choice.
SacNat went into a new suburban development, which was hit hard by the downturn in the economy. Willy Street Co-op attempted to go into a new development in an established urban area, whose developer has been affected by the slowing market for condominiums in Madison. Market research indicated that both SacNat’s site and Willy Street Co-op’s site would be profitable, although one was suburban, and the other urban infill. A crucial difference is Willy Street Co-op’s efforts to avoid SacNat’s failure to effectively connect with the community near a second store. Plans were in place for a downtown membership drive, outreach to students, and carrying products (such as more prepared deli foods) to appeal to downtown residents, as well as people who live in other parts of Madison and come downtown for work.
Sacramento Natural Foods says they survived their crisis by sticking together. In comparison, Willy Street Co-op is in much better shape, a little bruised, but not in debt, and still ready to pursue the goal of opening a second store, to better serve our 17,000 members.