Ownership Matters!

On September 28, members of Blooming Prairie Cooperative Warehouse voted approval, by 62 percent of the members and 73 percent of the votes, of a proposal from the board of directors to sell the cooperative to United Natural Foods Inc. A second proposal, to create a Blooming Prairie Foundation, also was approved. Comments appear below, in the editorial (p. 4), and in columns by Robynn Shrader and the editor of (CG #102, September-October).

Ownership Matters!

By Margaret Lund

Owners of Blooming Prairie have voted to disband the largest collective asset in the history of the food cooperative movement, choosing to sell the cooperative to an investor-owned competitor. Within the next few months, more than $26 million will be disbursed to the members of Blooming Prairie (BP), now mostly buying clubs and privately-held natural foods stores, as well as the cooperatives who started the warehouse. Unless we act wisely now to caretake some of these assets for the future of our movement, we will all be losers.

At a public meeting about the sale, I heard much rhetoric about "returning the money to the membership where it belongs." Excuse me, but this sounded like politicians returning a government surplus to taxpayers, avoiding thoughts of less opulent times and appealing to personal gain over any concept of long-term investment, assistance to the vulnerable, or even the efficiency of group purchasing. We all got federal tax rebates under this theory, and I got a generous one from my state too. Now my kids' school has to lay off two teachers due to state "budget cuts."

By the same logic, member co-ops could really save on capital gains taxes by passing through the gain to the real membership, the consumers. As a loyal co-op member, I figure my share of this $26 million is about $50. But you know what? I don't want 50 bucks. I want a movement.

Some don't think it matters who owns the warehouse, as long as we get the products. Many co-op shoppers don't really care. If they could get organic butter at a grocery chain or K-Mart, they would. But ownership does matter. It matters a lot. This movement is not only about the "what" (the product) but about the "who" (your neighbors), the "how" (cooperatively) and the "why." Our region has dozens of small town food cooperatives, outlets not only for organic butter, but for cooperative philosophy and working examples of economic democracy. Every day a kid somewhere asks her mom or dad, "Why do we shop at the co-op?" and the parent tells her. If our only outlet for soy milk is K-mart, both that question and its answer are lost.

I'm not arguing against the sale. It is pretty clear from the discussion that, despite BP's financial success, the failure of the cooperative warehouse sector didn't just happen last week. It happened a long time ago.

One choice, to sell the co-op, has already been irrevocably made. But another important choice, what to do with the assets, has not. We can simply accept this market allocation of winners and losers, and move on. Or we can do what cooperatives were meant to do — change the rules and create opportunities for small players in the marketplace (face it, we are all small players) to prosper, to become "winners." We can do this by designating a significant portion of those big BP checks for the purchase of stock in a new Equity Fund that will invest in the stock of growing and developing cooperatives of all sizes across the region.

Our BP stock is now an asset on our balance sheets. As a financier of cooperatives, I regularly stress balance sheets and the need to match sources and uses of funds. Most folks focus on income statements — the everyday, short-term, ins and outs of daily business. Less flashy is the balance sheet, home of the long-term, patient, future-oriented uses of funds. Many people I have spoken with talked excitedly about using big checks from the BP sale for things that are essentially operating expenses or, at best, assets that will depreciate and lose their value over 10 years. However, attractive, this is essentially converting a long-term asset into a short-term gain. Like using your members' equity to fund operating losses, it's not a beneficial long-term strategy.

A different idea would be for us to exchange one collective asset (the stock in our shared cooperative) which is evidently not serving us well, for another one that will. Change the form, but keep the investment in the movement.

The discussion over this sale question has been a divisive one. One thing that unites almost every cooperative, however, is the need for more equity capital. Maybe we don't need or can't have a warehouse anymore, but we all need and can have a source of long-term, patient capital for the growth of our businesses and our movement. The structure of an equity fund could take many forms, but essentially would be one in which co-ops could invest capital that would be used to buy stock of other growing cooperatives, both start-up and mature co-ops, helping them to leverage other funds for growth. The equity fund might not help everyone, but at least the allocation of its benefits wouldn't (as in the current situation) be decided just by size and location, but rather by opportunity and ingenuity.

The proceeds from the sale of Blooming Prairie represent the largest block of collective capital this movement has ever seen, or is likely to see again. Let's not blow it. In 20 years, let's be remembered for our foresight and courage in creating an asset of such enduring, collective value, that no one would ever think of liquidating it. To do this, we need significant capital. An equity fund can't work with less than $5 million, and is better off with $10 million. To pool that much, each co-op needs to designate more than a nominal portion of its big BP check to the fund. Spend some on yourself, but also invest some for everyone later. We can do it.

Northcountry Cooperative Development Fund has formed an equity fund working group of local and national cooperative leaders, including some from the BP board. We will soon present an equity fund proposal to each co-op member of Blooming Prairie. These members will have another decision to make. Vote for the future, vote for the movement, invest in the equity fund.

Comments: the BP vote,
the equity fund, the future

When service at North Farm declined in the early '90s, we tried to work with them to make changes, and when nothing changed we decided to switch our purchases to Blooming Prairie. It was a very unpopular move at the time (with North Farm, and in our small industry). But I believed as I was told that a retail is only as good as its best wholesaler. Blooming Prairie has proven that to me time and time again as they've been able to support our growth and business development. This year Outpost will write off over $17,000 in lost equity from North Farm's demise. This is in addition to the $9,000 we had to write off two years ago. I'm not going to wait to see if it's possible for this to happen again over the next 10 years when the people I elected at Blooming Prairie are telling me this is the right thing to do now.

-- Pam Mehnert, Outpost Natural Foods Co-op g.m.

BP is a cooperative. But it is owned by folks from a number of market segments: buying clubs, retail co-ops and private retails. They don't all have the same interests beyond a desire for protecting the integrity of our food supply, fairly priced natural foods and good service. The BP board wants to look into providing options for keeping a pool of capital intact, but doesn't want to mandate it.

-- Gail Graham, BP Vice Chair, Ms. Market g.m.

Cooperatives selling natural foods are still needed to promote our core "values" to the national marketplace. We can use monies that the Blooming Prairie sale gives us to create institutional structures needed to guarantee performance standards that meet our core values. Only through an organized cooperative voice can we insure that we have the market clout necessary to convince distributors that our values are their values.

-- Gene Hahn, Willy Street Co-op

Comments: Director Compensation at BP

When the members of Blooming Prairie approved the sale of their wholesale business, they managed to get a good deal for themselves. Building the business was no easy task for the members or the employees, and developing a deal that would save the dollars and the principles of the business was no easier. The board of directors of Blooming Prairie stood at the center of the efforts that made this whole deal possible. They first provided the stewardship that made the business grow, and they then oversaw policies and developments that protected the continued strength of the business.

Challenges that came with becoming a very large business motivated the board to explore many opportunities for strengthening the business, examining things from purchases of other businesses to mergers and from expansion of the product line to expansion of our target markets. The past years have not been idle or easy times, for there have been an increasing number of hurdles that had to be leaped. In the midst of all of these things, the buyout option appeared. The board and management realized that this choice could serve the needs of most members very well if it could be negotiated well.

The board insisted on presenting a deal to the members only if it were an excellent price and only if it were fair to everyone involved. The final deal protected our employees and rewarded them for their service over the years to our membership. Our staff did the work that created our value, so they shared in the reward. The final deal also returned excellent value to the members, giving them all of their money plus a profit to reward them for being the customers and members for the years that built Blooming Prairie into a large business.

The board provided the framework and the leadership to make this all happen. There was a remarkable amount of work required in the last year to steer this eventual deal in a way that turned out so well for Blooming Prairie's members. The demands on the board required professionalism along with a commitment of time and energy that was far beyond what would have been expected of normal board operations. The board demonstrated supreme diligence in providing the work and expertise to protect the assets while the negotiations went on for almost a year. The results that were provided are, in a word, outstanding.

For their work above and well beyond the call of normal duty, the board was granted some compensation as part of the deal approved by the members. With the money being finally available, it seemed the appropriate and deserved thing to do.

The board showed insight and courage in recommending that Blooming Prairie be sold. It never seems right to sell when everything feels right, but the board saw there was a chance that the time could come when the sale would take place with everything feeling wrong. The board stepped forward to share that vision with the members. Because the board stayed vigilant in honoring their fiduciary responsibility, the members of Blooming Prairie have realized rewards that will strengthen their community organizations and provide funds for better projects. Moreover, the establishment of the Blooming Prairie Foundation as part of the deal preserves a core of tradition and advocacy for years to come. It will do many of those things that are the cornerstones of members' operations, and it would never have been possible without the sale.

The board has provided leadership, vision and incredible effort to make these good things happen for the members of Blooming Prairie. The members approved a deal that allowed the board to be compensated for the success that everyone can now share.

-- Peter Roang, B.P. president and owner of Basics Natural Foods

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