A Letter from the Co-op General Manager
To Our Community,
When history looks back on 2020, one event will define that year—COVID-19. That is not to say other very significant events did not occur—demonstrations over police tactics, violence wreaking havoc in our cities, and a presidential election to name just a few—COVID-19 changed the way we as a society think, believe, act, breathe, dress, shop, socialize, work, attend school, funerals, and hospitals, and care for ourselves and others.
Businesses were hampered by broken supply chains, rising prices for finished goods, a dramatic decline in foot traffic, a scarcity of employees comfortable to work or remain employed in retail, and a cash crunch of mammoth proportions that laid asunder many an established business.
Through it all, our Co-op persevered, but not
without our own challenges.
We began the year focused on implementing against our SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. Among the many items to be pursued, we focused on refinancing existing high-cost debt and securing long-term financing needed for critical infrastructure projects. Specifically, we focused on:
- software upgrades in our Member Services department;
- implementing perpetual inventory across our stores;
- increasing mechanic realization rates in our Service Centers;
- ramping up our employee-development programs;
- making improvements in our physical and digital infrastructures;
- developing personas to better understand our shoppers’ needs; and
- breaking down the silo mentality that has existed within our Co-op for a very long time.
And then, COVID–19 hit hard in mid-March, and many of the best laid plans were put on hold. While we were able to implement our debt refinancing, many of our other initiatives were put on slow burn so we could address the daily changing requirements and recommendations on how to respond to the pandemic. Teams focused almost exclusively on:
- developing signs and communication pieces;
- installing Plexiglas;
- developing proper protocols for more intensively cleaning our facilities and sourcing personal protection equipment (PPE);
- implementing our curbside/online program sooner than intended; and
- developing planning scenarios to account for a rising employee unemployment rate or a material decline in sales, just to name a few activities of necessity.
The Small Business Administration (SBA) developed a program called the Payroll Protection Program (PPP). The PPP was designed to enable businesses to receive money to help them to keep their business up and running. Recipients of money under the program were required to spend upwards of 70% on employee and payroll related costs, with the remainder available for certain fixed costs like leases, mortgages, and utilities. We applied for and received money under this program. This loan enabled us to weather the increased costs associated with COVID-19 (described above) and to provide discretionary bonuses for our employees. Without this assistance, the Co-op would have endured a significant financial hardship (a loss) well north of one million dollars in fiscal year 2020!
Fortunately, and despite the unexpected challenges, our Co-op did not experience the draconian outcomes of many a business—closing permanently. Rather, as an essential service we experienced increases in total sales, items sold, gross margin, and basket size. Although these levels remain higher than the levels pre-COVID they have begun to level off over the past several months. Nonetheless, this put our business in a strong position as we entered an unpredictable fourth-quarter holiday season.
Other specific takeaways from 2020 include the following:
Financials. Consolidated basket size was approximately 43.4% (or $16.99) greater than the same period last year and has averaged between $53.61 and $56.15 since May. Member and non-member basket sizes were higher by 43.3% and 39.1%, respectively, with the average member basket size almost twice that of those not using a member number. Gross margins (sales minus cost of sales) were 13.3% greater than same period last year.
Sales. We continue to experience strong overall sales growth. Transactions were approximately 22.2% below the same period for 2019, 1.31 million versus 1.68 million. Consolidated unit volume sales (items) were 8.1% (10.6% and 0.8% for members and non-members, respectively) ahead for the same period, 19.01 million versus 17.59 million. Members accounted for approximately 78.2% of sales during this period versus 76.6% for the same period last year.
Supplies. Supply chains are slowly recovering from the initial impacts of the pandemic. That said, industry-wide, retailers are experiencing decreases in the variety of available products, and fewer opportunities for price negotiation and promotions.
Workforce Planning. Open positions have increased. This trend is not expected to abate any time soon. We will be changing the way we operate and utilizing new strategies in our stores to better deploy the resources we have. Some examples of this are cross-training employees in multiple departments and designing jobs where one employee works in multiple departments throughout the day, moving to those areas that need extra labor during peak hours. By the end of the year, we expect that new hires for our stores will start out in the Front End department as cashiers.
Web Cart. Several thousand products are now available on Web Cart, a significant increase in a short amount of time, representing all major departments. Selection has been driven by member request, an approach met with positive feedback and loyalty.
Gasoline. Savings from Operations from gas sales are positive and ahead of budget. This is in spite of the fact that gas sales nationwide continue to decline. On a year to date basis, we have pumped 267,197 fewer gallons at an average price of $0.36 less per gallon compared to the same period last year. Telecommuting became a popular option for many area businesses, with the largest reporting more than 1,000 employees working from home.
Discounts and Allowances. At the request of members, we changed our member-discount days from the 15th and 16th to any day of the month. Members met the change with great enthusiasm. Discounts and allowances on a year to date basis total $1.56 million (approximately $1.85 million annualized), up from $797,000 (approximately $956,000 annualized) for the same period in 2019.
A BRIEF LOOK AT 2021
For fiscal year 2021, these are some of the highlights we are excited about:
- The full implementation of Salesforce, a state-of-the-art, feature-rich database that expands our Co-op’s ability to enhance our members’ in-store and online experiences.
- The return of new promotional marketing strategies in addition to pandemic and social-distancing messaging.
- Revising and expanding shopper personas.
Business Unit Operations
- New Bulk resets that eliminate the use of scoop bins, allowing us to offer a safe, clean shopping experience in the Bulk departments with as many products as possible.
- A revised, multidisciplinary emphasis on local that includes a definition of what local means to the Co-op, which differentiates us from our competitors.
- A focus on the Service Centers and Co-op Kitchen, two key differentiators.
Public and Governmental Affairs
- A commitment to strengthening alliances, supporting housing, transportation, and local food production, and advocating for cooperative businesses at the regional and national level.
- Plans for next year that include a “best of show” of our commitments.
- A working plan that can best be summarized as striving to do the most for the least amount of money.
- Conversion of the inventory valuation system from First in First out (FIFO) to a weighted average cost system, with full integration with ECRS.
- Implementation of Member Share software and related accounting policies and procedures.
- Delivery of financial statements no later than 10 business days after monthly closing.
- For 2021, we expect discounts and allowances to approximate $1.85 million, compared to annualized forecasts for 2020 and 2019 of $1.85 million and $956,000, respectively.
- Upgrades to our physical locations and equipment, particularly refrigeration units in Lebanon, which will provide both employees and shoppers with an enhanced experience.
- A commitment to becoming a learning organization, i.e., employee learning will be an organizational priority going forward.
- Continued work on IT networks and systems to build a stronger, more reliable platform.
- Emphasizing change management, executing initiatives in a project management environment and being accountable for the work we do.
At this writing, the pandemic is not going anywhere, so surely more unexpected challenges lay ahead in 2021. That said, our business plan provides ample room for that, as our Co-op will always be nimble in its response to change.
None of this will be easy of course. We have hard work ahead of us. The pandemic boosted fiscal year 2020’s sales in excess of what had been budgeted. While our business units are budgeting for higher sales in 2021, it is not prudent to expect a repeat performance of the growth we experienced in fiscal year 2020. In addition, we will be faced with factors beyond our control, such as the ongoing costs associated with providing a COVID-free environment (approximately $73,000), rising healthcare and other employee benefit costs (approximately $647,000), an increase in discounts and allowances (approximately $783,000 using 2019 discount levels), and the challenge of finding qualified candidates who want to work in a retail store in the current environment. These costs approximate an additional $1.5 million of expense.
That said, I am very proud of the work our teams have done to put us where we are today. Clearly this progress has been made possible because of our employees’ focus, hard work, and professionalism.
My thanks to all of our members and shoppers for your support through a very challenging year. As always, I welcome your comments and questions. Please reach out to me anytime. In the meantime, have a happy New Year, and remember to be kind to one another and to yourselves. We look forward to serving you in our stores and at the curbside.
Onward and upward,
 Growth led by Grocery, Meat, Produce, Dairy, and Frozen Foods. PFD is underperforming, an impact of the outbreak of COVID-19. See Business Unit Operations report.