Two Stores and Growing: Bloomingfoods Market and Deli

Nestled in the rolling hills of southern Indiana, Bloomington is an oasis of natural beauty and culture and is home to Indiana University, the state's largest school. Bloomingfoods was founded in 1976, and the cooperative's choice of sites was dictated by the inexpensive. We secured a two-story garage in a downtown alley and miraculously transformed it into a grocery store. The co-op operated exclusively out of this 2000 sq. ft. location (about 1600 retail) for the next fifteen years.

During those years the co-op grew steadily and added more professional staff. But we had outgrown the location by the end of the 1980s, with sales near $1.5 million, two parking spaces, and two-floor shopping. Rather than abandon a location that was cheap, near campus, and well known, the board of directors decided to grow by opening a second, much larger co-op grocery.

Our site search began in 1990 and uncovered what we sought: a free-standing location with ample parking on the east side of town. A former restaurant of 9,000 sq. ft. was secured and converted to a grocery with 6,000 sq. ft. in retail.

Bloomingfoods Market & Deli

Bloomington, Indiana
(FY 1997-98)Kirkwood storeEast storeTOTAL
Square footage (total)2,000 SF9,000 SF11,000 SF
(retail)1,600 SF6,000 SF7,600 SF
Sales$ 600,000$4,000,000$4,600,000
Average transaction$ 5.60$14.98 
Gross Margin  36.6%
Labor percent  21.4%
Member-owners  1250
Member percent of sales  25%

The process was a rocky one, with construction costs leaping to $200,000 over projections. Secondary financing was secured, and we opened in late summer 1991.

Sales at the new store fell below projections, and our staff structure, operating costs and increased debt service all contributed to a profound financial crisis. The staff pulled together, some taking pay cuts, and by our third year of operation we were in the black.

For the past four years, Bloomingfoods has enjoyed double-digit sales growth as well as profitability. We have retired all debt associated with our expansion, save our initial loan. Secondary financing, member loans, a salary recompense program to repay those who took pay cuts, and a huge accounts payable debt have all been retired. We now are able to look forward to improved operational efficiencies, physical plant improvements, and expansion.

Membership and market changes

A very significant change in Bloomingfoods history occurred in 1992, when the membership approved an ownership-based system. A monthly fee system was discarded for one requiring a $90 member equity investment.

We also restructured our member benefits package and discontinued a practice of allowing members a 5% discount on all purchases. Instead, we now offer a 5% discount on selected days, coupled with the possibility of a patronage refund, when the latter is financially sound. Membership rolls dropped dramatically after this change to around 200, but have been growing since then to over 1200 members currently.

We operate in a market where our primary competition comes from mass market stores. Kroger's, Marsh, and Mr. D's (a small independent) are our primary competitors, all three of whom have begun in the last two years to recognize the natural/gourmet market. Organic produce, organic dairy, soy and rice beverages, etc. are seeing a strong push at all our competitors' stores. Bloomington is also home to several small ethnic/gourmet groceries and a couple of pill shops. Wild Oats opened their first store in Indianapolis (60 miles away) last November, and we're sure to feel pressure from them.

Bloomingfoods is in a unique market position in relation to distributors. We currently support two cooperative warehouses: FORC (Federation of Ohio River Coopratives, nearing merger with Northeast Cooperatives), located in Columbus; and Blooming Prairie in Iowa City. A third distributor, Tree of Life Midwest, is located in Bloomington only ten minutes away. Doing business with all three greatly benefits our customers in terms of reduced prices and out of stocks.

Our strategy to extend our market share is relatively simple: provide the best possible customer service (courteous as well as knowledgeable), promote the advantages of cooperative/community ownership, be an innovative leader in the natural foods industry, continue to improve and operate the most efficient stores possible, and be prepared to grow and take advantage of opportunities as they present themselves.

Operating two stores

Operating two stores of disparate size presents its own set of challenges as well as advantages to our organization. On the positive side, we are able to leverage the buying power of our East store for case buys and volume discounts. Our Kirkwood store allows us to staff at lower levels and cross train to achieve desired results (staff wear multiple hats, in particular floor managers). Labor expense at Kirkwood runs in the 12-14% range. A food service operation at the East store is the production kitchen for Kirkwood as well and permits us to operate just one labor intensive kitchen instead of two.

The largest challenges we face at our Kirkwood location are both operational and market driven. Internally we have finally developed a system that allows us to accurately track items that are transferred from our East store to Kirkwood. By encouraging as much direct buying from distributors as is financially responsible, we have minimized the potential for error in our transfer process. It is our hope that improved technology may streamline this process further (scan it in at one store, scan it in at the other), and this possibility is being researched as we look at POS (Point Of Sale) systems.

From an external perspective, our two greatest challenges are customer expectations and marketing to a constantly changing student population (30,000+). While our buyers do have loosely established core sets for both stores, customers at the downtown store often will expect the same items as are found at the East store. An offer to transfer an item the next day, coupled with a smile and an explanation of 1600 versus 6000 square feet, usually makes everyone happy.

Marketing a grocery store located in an alley to a large, very diverse, and transient student population is indeed challenging. We are currently partnering with a student marketing class using Bloomingfoods as their semester-long case study. The perspectives of this sharp group may assist us in generating more student trade at our Kirkwood location.

Challenges, operational issues

Perhaps the greatest challenge facing our organization today is a problem that we should be thankful for -- one of growth. Bloomingfoods has experienced strong double digit sales growth for the last five years, and our internal systems have not kept pace with that growth. Our focus now is to change the culture ("That's the way we've always done it") and implement systematic change that will allow us to solve issues in ways other than just "throwing bodies" at our problems. Systems for ordering, receiving, pricing, product flow, merchandising, front end, customer service, and internal communications are all being reviewed and we hope improved.

Our need to improve internally is being driven home by labor expense numbers that are excessively high during our current fiscal year. Our approach to improving our wage line is three-fold: 1) Strive to increase sales departmentally by implementing new ideas and strategies. 2) Analyze in depth the hours scheduled and carry out productivity studies. 3) Look hard at our overall systems -- review our organizational chart, job descriptions, and physical plant layout for barriers to efficiency. We have a great, hard working staff and are confident that we will make the changes needed to bring that pesky wage line within budgetary constraints.

Bloomingfoods is committed to improving our organization by investing in training for our staff and board of directors. At the board level, we schedule an annual training retreat and have worked with some great folks -- Ann Hoyt, Karen Zimbelman, and Marilyn Scholl among them.

At the store level, we have implemented a customer service training program, Partners for Life‚ and have a natural foods training program ready for implementation. It has been a pleasure to work recently with Alan Seidner (food service) and Mark Mulcahy (produce) on department-specific issues as well as store-wide ideas. Our deli recently created an improved grab and go case and greatly expanded sandwich and beverage menu. (Hang 'em on the wall so folks can see them!) Behind the scenes, in the kitchen, a cost analysis and new production sheets are helping maximize productivity and minimize waste. In the land of produce, we have improved operating systems, structured an ordering system that minimizes shrink and is readily assumed by multiple members of the department. We also have enhanced our open/closing procedures to benefit both customers and the produce.

Another way in which Bloomingfoods attempts to elevate our performance is through affiliation with the CGA (Cooperative Grocers' Association) Midwest. The sharing of financial data, a project begun with Blooming Prairie and being refined through Cooperative Development Services, has enabled us to create operational benchmarks that are certainly useful. A joint deli training developed by our deli managers is showing results. And a potential large scale joint buying program is being developed. Sharing expenses for developing other training programs also has yielded results. Cooperation among cooperatives really does pay off.

Our next innovation: a POS system. With sales cresting $5 million this year, accurate data and improved efficiency at the front is more important than ever. The cooperative network is proving ever useful in our search (including the article in CG last issue). Systems receiving our current attention are the ICL and Dunn and Dunn systems. Anyone with thoughts or opinions can give a call to our operations manager, Pete Kinne (812/336-5400 or [email protected]).

Bloomingfoods is pleased with the progress we've made and excited about our future. With ongoing operational improvements and strategic planning, our continuing ability to grow and serve our community looks bright indeed.

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