Building Financial Partnerships

To be successful in today's competitive, global economy, you can't just be good at what you do. You have to be excellent. Natural food cooperatives are keenly aware of this. You battle daily on the front lines of competition from well capitalized, for-profit corporations seeking to capture the opportunities created by a surge in demand for natural products, a demand which you created when you pioneered this industry some 25 years ago.

Current standards of excellence in the natural foods industry require deepening levels of sophistication in operations management, a continuous upgrading of store formats and vigilant attention to the provision of quality service. Achieving the highest degree of excellence is becoming increasingly difficult to do alone. In this economy, no matter the industry, we are all coming to rely more and more on strategic partners and allies who share our goals and whose competencies complement our own. At their best strategic partnerships expand the realm of the possible, while ensuring financial vitality.

In a customer focus group we recently conducted at the CCMA conference in Cleveland, we heard very clearly that natural food co-ops want the National Cooperative Bank and NCB Development Corporation to work in partnership with them to help them achieve their goals. One participant remarked: "What people are really looking for is not just the loaning of money, but a financial partner who can advise them on how to do better with their business through financial management."

Solid partnership begins with open communication. We sincerely thank those who participated in the focus group for your frank and honest feedback on NCB and NCBDC's performance in meeting your financial needs. The information and advice we received is highly valued. Though some of your comments were difficult for us to hear, we were heartened by the level of commitment and loyalty expressed toward "your bank." You want us to be excellent so that you may achieve a greater degree of excellence, and so that co-ops can thrive in this era of intense competition. Beyond economics, however, you also want us to be excellent because we are a cooperative, and you are our members.

Because we had to limit the size of the focus group to ensure meaningful discussion, we decided to write this article, so that all of our customers and potential customers could benefit from the discussion. We will talk briefly about what participants viewed as our strengths, because that is the foundation we seek to build upon. However, we primarily want to discuss the major areas where you or your colleagues told us we need to improve, because those are the challenges we will need to overcome to reach the level of excellence in partnership we are striving for.

To NCB's advantage, focus group participants described us as committed to cooperatives. In one exercise, participants were asked to describe NCB as an animal. One person said: "NCB is like a cow. When we needed nourishment, NCB provided nourishment."

We were also viewed as stable and part of the co-op family. Customers expressed appreciation that they did not have to worry that we would be bought by another bank. One participant put it this way: "Because you are the National Co-op Bank, and because you're a co-op, you're not going to be bought out by Wells Fargo next week. That gives you tremendous opportunity."

The positive feedback was encouraging and told us what we need to continue to build on. However, the main purpose of this article is not to sell you on our strengths, but to invite you to join us in exploring how we can, together, build a partnership with our natural food customers so that we can, together, achieve excellence as an industry.

The major points of constructive feedback are presented below. After each point, we outline some steps that have already been taken , new steps we will take to improve the value of our service to you, and finally, some of our thoughts on major reforms we are considering in response to customer feedback. We invite your reactions to any and all of our comments and to the various ways in which we are responding.

Ease of access

"Slow" and "cumbersome" were two words used frequently to describe the process of getting a loan from NCB. One person went so far as to describe the animal NCB is most like as "a sloth." Ouch. "Too many requirements" was another phrase. There was no missing your message here.

We know that management teams face tremendous demands keeping up with the day-to-day operations of their stores. Spending time and energy responding to multiple requests for the same information or responding to different staff members about the same loan does not add a lot of value to your operations. You asked us to be clearer about the information we need to evaluate a loan, to only ask for the information that is necessary and relevant, and to only ask for it once.

While it is clear we have to improve in this area, we have already taken some steps you may not be aware of, steps we'd like you to know about the respond to. First, NCB recently underwent what is referred to as "process redesign." As a result, our loan underwriting and closing process was streamlined, and loan approvals are now done electronically. This was done precisely to make our decision making process faster and less cumbersome.

In addition, in early 1998, we finished a "Guide to Natural Food Co-op Expansions." This 30+ page guide includes specific information about how to plan for an expansion, a clear list of information we need to evaluate a loan request, and a checklist of construction-related issues and requirements. If you haven't seen it, let us send you a copy; better yet, we will be posting it on the Cooperative Grocers Information Network (CGIN) listserv. If you have seen it, let us know how we can improve it.

Over the next several months, we will review our information requirements with an eye toward weeding out the unnecessary, especially for existing customers with a strong credit history. We will put together a loan application form that is user-friendly and detailed with respect to the documents required to receive and close a loan. We will create higher standards of operational excellence that address the full range of issues raised, and will communicate those to you in a public forum.

Consistency in staffing and industry understanding

Officer turnover was cited as an obstacle to creating customer intimacy. Many participants experienced officer turnover as frequently as every year or two. One person noted: "If people are getting a new contact person or new officer every six months or two years, it takes away all this strategic advantage you have." This creates two major problems. First, it drains the co-op manage-ment's energy spending time getting new officers up to speed on your competitive environment, your track record, and even your history with the Bank. Secondly, it does not give you the benefit of having a loan officer who can provide industry-specific financial advice that actually adds value to your business.

This issue did not come as a particular surprise to us. We have been working on maintaining consistency in loan officers since we adopted a "team structure" in 1996. All natural foods co-op loans are now handled by the Community Ventures Team of NCBDC. Actually, since forming the team, we have had only one natural foods loan officer turn over, representing less than 25% of the portfolio. We now have much more depth in industry knowledge, so that when an officer does turn over, the institutional memory will not be lost. Our external examinations reports demonstrate a marked improvement in customer file maintenance. The handling of financial statements and other documents has improved tremendously over the past two years.

In 1997, we assigned two loan officers as market leaders for each of the five major markets we serve on the team. This has allowed loan officers to gain greater industry-specific knowledge. Sophia Raday and Kerinne McNicholas are the market leaders for natural foods. Sophia is on the west coast, and Kerinne is on the east coast, which means that between us, we can handle 90% of the loan requests from our natural foods customers. It also means that you can always call us, even if you are working with another staff member, if you need something clarified. We will return your phone calls within one business day.

Additional changes we are considering include limiting the staff members who contact customers. As part of our portfolio management process, we write credit memoranda on each borrower. These memos are often completed by credit analysts, who may not have full knowledge of the customer relationship. We will reexamine this process and come up with a solution that does not require customers to re-educate a staff member as to their loan history or business environment.


In the exercise where participants were asked to describe NCB as an animal, one person said: "NCB is like a cat because it's sort of lovable. But who knows what it's going to do next!" Our customers are telling us that we need to make clear what the rules are, make sure the rules make sense, and then stick to them..

NCB and NCBDC have always emphasized flexibility, but the cost of flexibility has been, at times, confusion over what is expected or anxiety over what is supposed to happen next. We have not been clear enough in narrowing and specifying only those requirements that meet a clear information gap, and communicating the need and the benefit to our customers of meeting those requirements. A good example of that has been our approach to construction lending.

Up until 1997, NCB/NCBDC did not consider itself a construction lender. "But you were" -- I'm sure many of you are crying out -- "you lent money to our co-op when we built-out a store in 1992!" Yes, we did make loans to projects involving construction, particularly in the natural foods sector because of our strong relationships. But we did those loans as "one-off" deals, and we didn't develop the institutional capacity to analyze the particular risks associated with construction. And guess what -- we lost more money than usual in those transactions.

In 1997, we decided to offer full-scale construction lending services to meet the needs of customers who are involved in store expansions. In order to do so, we had to change the rules for expansion loans. We didn't do a good job explaining how and why the rules had changed. We hear that message loud and clear. Here are some of the steps we have taken recently to explain the changes in the construction-related loan process: 1) developed the guide to expansion planning mentioned above; 2) developed clear internal policies of what constitutes a construction loan; 3) held a seminar at CCMA where co-op managers were invited to put on one of Terry Simonette's ties, become bankers, and evaluate a construction-related loan (and believe us, you were tough lenders!).

In the future, we will spending much more time with you early on discussing process and clarifying expectations. And, you will have all our expectations for the process in writing, up front.


This quote says it best: "What we've been talking about is to be a full partner. Have deep knowledge of the industry. Have trust and knowledge of the people involved. Be a resource. Bring yourself as a resource to markets that don't have local banks that either understand the industry or care about it."

This statement is very poignant because it highlights the fact that partnership, in the end, is built on trust. Trust does not get created by writing articles. It results from day-to-day experiences and is built incrementally over time. As bankers, it would be imprudent for us to blindly trust anyone who came to us for a loan. We develop trust by looking at the numbers, spending time with management, assessing the market, and reviewing future strategic goals and business plans. By the same token, we expect that you will trust us based on how we perform, not just on what we say.

One of the things NCB/NCBDC has consistently done, and will continue to do, is staunchly support industry development. We have found that many people are not aware of how much we are actually doing. In the past two years, we have spent more than $300,000 on innovative projects such as the Building Better Borrowers program, developed by North-country Cooperative Development Fund to help strengthen small co-ops; the University of Wisconsin Center for Cooperatives' project to create better operations manuals for co-ops; various projects sponsored by Cooperative Development Services; and projects benefiting the Howard Bowers Fund. In addition, we support Cooperative Grocer with annual sponsorship, and we matched co-op contribution of $7,500 to launch CGIN last year. For years we have supported all of the major co-op events such as CCMA, CMI and the co-op receptions at the Natural Products Expos.

By our own assessment, we feel that our efforts at industry development have not gone far enough. We want natural food cooperatives to succeed, and we want our funding of industry development to push the edge of the envelope in creating even greater success. We convened a group of industry developers (separate from the focus group) at CCMA in Cleveland to gain insight into ways in which we might better invest in the strategic development of the industry. We will be following up with the appointment of an advisory committee to guide us and provoke us as we proceed in the future.

Natural food cooperatives face unquestionable challenges. To meet these challenges, you need to be at your best. NCB and NCBDC, as "your bank," will work in partnership with you to add value to your operations and strengthen your competitive position. To do so, we need to be at our best. As one focus group participant said: "The Bank has provided a lot of services that would not have been there otherwise. We feel that connection and we want you to be the best. We have high expectations." Thank you for having those expectations. They will propel us to excellence, and, we believe, enhance the viability of the natural food cooperative community.

One final point concerning partnership that was not discussed in the focus group is that to be effective, partnership must be a two-way street. In a follow-up article, we want to continue this conversation by describing the world we experience on a day-to-day basis as lenders. The benefit we seek is to deepen your understanding of some of the challenges we face as we strive to improve our service delivery and broaden our relationship with you. Achieving efficiency as a national lender and effective risk manager are some of the topics on our minds. Please stay tuned.

Once again, we welcome your comments and feedback. Copies of the focus group report are available for anyone who is interested. Call us, write to us, or e-mail us. We look forward to hearing from you.

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