As part of its approach to budget development, the Board of Directors set three targets for management to address in developing the details of the operating and capital budgets for fiscal year 2009 (June 30, 2008 through June 28, 2009.). Those targets included sales of $17 million, gross margin of 36% percent, and net income of at least of 1%. In addition, we also encouraged management to develop a budget that would promote utilization of the Willy Street Co-op Kitchen and improve systems and processes that will support multi-site operations. Both budgets were reviewed carefully by the Finance Committee and then presented to the full board and approved on June 17.
We project sales of $17,714,253 for fiscal year 2009 (FY2009). This sales estimate represents a 3.6% increase over our actual sales for FY2008. To provide some context for that level of growth, the graph below provides a picture of our sales growth over the past several years. You may wonder why our projected sales growth for 2009 is projected to be much smaller than the previous year. We expect the physical limitations of our present facility and a continued sluggish economy will combine to cool off our recent pattern of double digit sales growth.
The budgeted margin of 35.65% represents a target that is similar to the actual margin we have achieved in the past two years. Gross margin refers to the percent of sales that is left after we subtract the cost of goods sold. It is the revenue that allows us to fund all store operations, including paying staff, paying rent, publishing the newsletter and all other operating costs. If we are careful with these operating costs, it also allows the Co-op to generate a small profit. While sales margins are sometimes achieved by raising prices, the Board and management are working hard to do just the opposite. We are focused on maintaining current prices whenever possible and plan on hitting our margin targets by reducing losses, increasing operational efficiencies, and negotiating better vendor discounts.
After ramping up personnel in expectation of a second store, we are back to staffing for a one-store operation. FY2009 personnel expenses are budgeted at 24.89% of sales—comparable to the last several years when staffed for one store. While store staff continue to find ways to work more efficiently with higher sales volumes, the Co-op has also experienced increases in the Dane County Living Wage and health care expenses.
Personnel expenses represent two-thirds of total store operating expenses. The rest of the store expenses include occupancy, operating, depreciation, administrative, governance, and communications, which are budgeted at 11.09% of sales.
After cost of goods and personnel expenses, the five highest budgeted line items are:
- Depreciation expenses
- Credit/Debit card fees
- Courtesy Discount
- Repair & Maintenance
Overall, operating expenses are budgeted at 35.98% of sales. Our income from operations is improved below the line from other revenue, including non-member surcharge, rents, and other miscellaneous income.
We are again budgeting 1.02% of net income on the total sales which equals $180,233. While not a large amount, this figure will assist with financing for a second retail site and demonstrates our continued ability to operate a fiscally sound natural foods grocery store.
The FY2009 approved capital budget total is $121,089. The capital budget includes assets purchased by the Co-op that have a value of greater than $2,000. These higher value items are then depreciated over its useful life as opposed to recognizing the full expense in the year that it’s purchased. Items included in the capital budget typically involve investments to support strategic initiatives (sales growth and/or operational efficiency) or replacement of equipment. We additionally allocate money in the capital budget for unanticipated equipment replacement.
- To support sales growth and operational efficiencies, the Co-op will purchase a double-deck convection oven and dough sheeter for the Kitchen. This equipment investment will be complimented by minor renovations in the Deli/Bakery area at the store. Additionally, the Wellness department will add a larger refrigerated case.
- There are a handful of basic information technology (IT) infrastructure investments that are being carried over from FY2008.
- The Co-op has planned a major resurfacing of the parking lot, and the replacement of a produce prep sink and sundries shelving. There are additional funds allocated for other equipment scheduled for replacement.
- We maintain an annual repair and maintenance schedule for all major pieces of equipment, and we choose to have items repaired rather than replaced when possible. However, there are items that choose to stop working without adherence to our replacement schedule. $30,000 is budgeted for unanticipated equipment replacement in FY2009.