New Leaf Market Finds New Life
Looking at New Leaf Market now, it would be hard to discern any of its history The new and sparkling clean store gives no hint of the struggles that this cooperative has overcome. Aisles are full of natural foods groceries and health and beauty aids. A large produce department stretches down one wall. Professionally lettered signs, easily seen from any location, designate the different departments. The staff is cheerful, and their emphasis on customer service is evident.
Only last summer New Leaf Market, then known as Leon County Food Co-op (LCFC), was housed in a deteriorating building in a fairly run down section of town. And as recently as two years ago, the directors were faced with the possibility of closing the doors.
Early growth, then decline
While there have many changes made over the last sixteen years of its existence, the one constant has been the community's dedication to the cooperative. Started as an offshoot of a buying club whose intent was to provide inexpensive food in a community spirit, LCFC grew rapidly. A building was eventually purchased, the membership rallying to finance the downpayment through a system of member loans and a 1 percent surcharge at the register. Sales and membership continued to grow, and by 1980 LCFC was grossing more than $1,000,000 annually.
But as member lifestyles changed and the political climate became more conservative, maintaining membership became more difficult. We have just now been able to turn around the declining sales trend which began in the early 1980s.
The management, which had operated as a collective, and the board of directors, which was involved on the operational level, wrestled long and hard with steadily declining conditions. The equipment was aging, and the building and parking lot were in need of repair. A small scale renovation, financed once again by a 1 percent surcharge at the register, was completed in 1984. Member pricing was changed from a markup system to a discount system. These changes, while pleasing the membership and improving the overall appearance, had no effect on the decreasing sales trend. Conditions became worse.
A task force was convened to devise a survival plan. As a result, collective management was replaced by a general manager. Holding to this plan has been a key to our survival.
The corporate president was appointed as acting general manager to develop and effect the necessary changes. Our basic internal systems were evaluated and revamped as necessary. During this time LCFC's existence was at its most precarious. We were caught in a vicious "Catch 22" cycle and could not find a way out. Cash flow became tight, thus making it difficult to put sufficient inventory on the shelves. Customer dissatisfaction increased along with product out-of-stocks. This decreased sales and placed even greater stress on our cash flow. Paying vendors became a serious problem.
A person with traditional retail business knowledge was hired as a consultant and later became general manager. When he left for personal reasons the search committee realized the importance of findmg a general manager with a strong base in financial management, an infectious "can do" attitude, and experience in the cooperative movement. We were fortunate to find the right combination of these traits in our current general manager, Carol Wilkinson.
As Carol came on board in August 1987, the first financial statements in six months were completed. We were insolvent on paper, and cash flow was the worst it had ever been. The board of directors began to consider closing the doors and filing for bankruptcy. While certainly unable to afford it, they decided that seeking help from the outside was the least they could do before succumbing. The board contracted with two consultants on the national cooperative level, Rex Stewart of Renovations and Dale Bramhall of Pathfinders. Their first impression was that LCFC needed to close its doors immediately. After spending time in our community, however, and assessing the level of commitment people have to this cooperative, they decided that if anyone could turn the tables around, we had the community spirit to do so.
The first step in initiating a turnaround was to assess the strengths and weaknesses of our organization. Dale was our facilitator for this process. Upper level staff and the board of directors were involved in clarifying our purpose and developing a strategic plan that would define our direction and outline the changes needed in order to become a viable business once again.
One of the most important recommendations from this team was that we would never realize our potential without sufficient capitalization. This had been another one of our ongoing, underlying problems. Our members, who had supported the existence of their cooperative, had never really owned their business. Originally, lifetime memberships were sold for $25. Later, this was changed to an annual $5 non-refundable membership fee. Although this fee was subsequently increased to $8 annually, it never generated sufficient capital. In addition, it had been allowed to become part of operating income during difficult times.
In the course of deciding whether or not LCFC should remain in business, the board decided to implement a member equity program that would test member commitment and generate substantial working capital. This program was crucial in reviving the business and has been a resounding success.
There are three membership options, allowing the membership to choose their level of commitment: refundable equity investments of $25, $100 and $200 earn purchase discounts of 2, 5 and 7 percent, respectively. There also is an annual $5 administrative fee. Payments plans are available; and seniors and handicapped people receive the 5 percent discount for $25.
New Leaf Market
Quarter ending 1/31/90:
|Total discount percent||3.8|
|Gross margin percent||37.5|
(includes 350 sq. ft. deli operation)
|Members' percent of sales||46.4|
|Total equity deposits||$65,348|
The consultants also recommended that we move the business to a new location - an option the board of directors had considered the previous summer. Due to lack of interest in the proposed location and reluctance on the part of the board, the sale had never materialized. A movement to renovate the building into an alternative mini-mall began. It was not until the financial situation became dire that the board became unified and placed the building on the market again. It was sold to its former owner. After several false starts, the search for a new location became earnest and at times desperate.
We were looking for a freestanding site, but when that goal was set aside the ideal spot was located. The "ideal spot" is the first store of a newly renovated strip shopping center located at one of the busiest intersections in Tallahassee. We now operate our business out of 6600 square feet. Retail space is 4500 square feet, 350 of which belongs to our deli. The remaining 2100 square feet are offices, stock room, kitchen and walk-in coolers. Following lease negotiations, the co-op ended up paying only $100,000 of the $250,000 total renovation costs. The co-op's money for the renovations came from gains realized on the sale of the previous building, member equity funds, and a $35,000 bank loan.
The general manager developed the layout of the store, with assistance from Tree of Life, our largest vendor. Existing electrical wiring determined where heavy equipment, such as coolers, freezers, and the deli would be located. With traffic patterns in mind, the remaining fixtures and shelving were then put in place. Minor adjustments and refinements occurred as the plan became finalized.
For approximately a year previous to the move, new and used equipment had been purchased and refurbished. New items included Trade Bins displays for the herb department, glass display shelves for the health and beauty aids (HABA) department, a cooler, a walk-in freezer, and bread ovens for the deli. An additional produce cooler, a drink cooler, dairy displays, used shelving, and deli and kitchen equipment comprised some of the used equipment. We retained only the equipment that was in good working conditions; the rest was sold or scrapped.
New name, new image
During the year between the sale of the building and the move, many changes were made. The first of those was deciding upon a new name for the store. While the final decision of a new name rested with the board of directors, ideas were solicited from the membership and from the professional advertising agency contracted to advertise the move. In "New Leaf Market" the board attempted to capture the spirit of the changes that were being made. A new logo and a peach and green color scheme were the result of a cooperative effort between the advertising agency and several members of the marketing committee.
On August 10, 1989, New Leaf Market opened its doors. Anticipation was high on the part of everyone. The store was flooded with people who had never before been in a natural foods grocery. It was fascinating to wander around the store the first week and just eavesdrop on customers' conversations.
On September 15, New Leaf held its grand opening, complete with live remote radio broadcasts, food demonstrations, and a tasting fair. Many of our vendors supplied products and samples. Sales for the day more than tripled our previous highest day ever.
Sunny market conditions
Tallahassee has the perfect demographics for a natural foods grocery store. While there is one other health food store, it is quite small and offers no serious competition. Several of the large grocery chains offer a small selection of cereals and snacks. The market for our cooperative exists. With the right effort, education and publicity, we can establish New Leaf as the place to shop for those concerned with conscious eating. We have changed our image, from a "hippie" store that catered basically to the alternative culture, to a place where everyone feels welcome. The entire front end is managed by one person who makes sure that every customer receives the best attention possible. A customer service desk is staffed almost entirely by full-time paid employees. In addition, every cashier and deli food server is given training in customer relations.
We are the only source of organically grown produce in the area. Once the decision was made to spend precious salary money for this department, produce sales began to grow. When the store move was made, the amount of space in produce was enlarged from 20 feet to 34 feet. Purchasing the correct type of equipment has decreased the amount of labor required to maintain a full and attractive display. Our only problems in this department are the seasonal availability of produce and our distance from suppliers. This situation may change soon if a bill addressing the regnlation of organic produce in our state passes during the upcoming legislative session.
The same technique of spending more in salaries and equipment than department sales initially supported has been used in our HABA department. This area received several new displays and is also staffed full time by paid employees. The product line has also been expanded considerably in HABA, and sales are increasing steadily. The department now accounts for over 20 percent of store sales.
We have always known that there was a market for healthy prepared food in our town. In the summer of 1987, a program was developed to raise capital for a deli. The program called "Deli Dollars," was not very successful, but we were able to purchase a few pieces of equipment in order to begin selling prepared foods. The venture was profitable, but due to health code restrictions and lack of capital the deli remained a very small operation. With the move, we decided to capitalize on our market. A larger, sit-down deli was developed. The deli now serves a wide variety of sandwiches and salads, a daily special which usually consists of a main entree or two, including soup, and freshly baked goods such as breads, cookies, and muffins. Deli sales have grown from around $500 to approximately $2000 per week.
We have also continued to refine our member worker system. Historically, as we grew it became necessary to have more people who were aware of the operational functions of the business, and these eventually became paid staff positions. Over time, supervising the member workers began to require tremendous energy on the part of the staff, so changes were made to create a system that assists the staff in the overall smooth functioning ofthe business. We are now moving member workers out of the daily operations into special functions. This plan is being phased in as we are able to afford additional staff hours. After we moved, several changes in the system were implemented, making the member worker more like an "employee" with the the same sort of responsibilities as other workers. For their two hours of work per week, they receive a 12 percent discount off shelf prices.
For the present, even though our sales have risen from $20,000 to approximately $30,000 per week, we're not yet completely in the clear. While we exceeded our projected gross sales for the first three months in our new location, we did not reach projections in the next three months. Some expenses, mainly payroll costs, utilities and store maintenance, have also been higher than anticipated.
Although it will not be a profitable year, we are now having some break even and profitable months interspersed with lower losses. Sales seem to be more steady in this location, and we have not experienced many "highs" and "lows." We look forward to next year as perhaps our most profitable ever. Having succeeded in dramatically changing our cooperative to serve a broader customer base, we have achieved security for the future of our business in this community.
Gretchen Hardin is corporate president at New Leaf Market.