Good Foods Co-op needs investments to stay afloat. It’s looking to owners for help
A locally owned grocery cooperative is in financial trouble, again.
Good Foods Co-op, a Lexington health-food grocery that has operated since 1972, is looking to raise $200,000 through an owner loan program. And they are starting to make changes to combat cash flow problems, including possible layoffs.
Steve Kay, a former vice mayor of Lexington and business consultant who was named president of the board of directors May 20, said the co-op has been strapped for cash for the past two years.
“Competition has increased in a variety of ways. That’s not news. Over the 50-year history of the co-op, for most of that, there was no Whole Foods, there was no Fresh Market. There was no opportunity for shoppers at Kroger and Mejier and wherever they like to shop outside the co-op to get organic food or food from local farmers,” he said.
“All of that has changed in the last decade.”
The specialty grocery, which just celebrated its 50th anniversary two years ago, sells local, organic food and supports over 250 Kentucky farmers. Since its inception, the co-op had been housed in six different buildings.
The group started in 1972, when seven University of Kentucky students met in each other’s homes to divide up bulk food. It became a real cooperative in June 2003, with the sale of its first share.
Good Foods had a net loss of $636,032 last year, despite $8.9 million in sales.
Back in 2017, the co-op was in a similar financial position, losing almost $500,000 even with $9.8 million in sales. The annual owner report from 2017 noted an increase in local competition, like a new Whole Foods and an increase of organic products at Kroger.
Competition only grows, with the construction of two Publix locations expected to be completed in Lexington by the end of the year.
“The loans are needed to offset one-time costs and operating losses incurred over the past two years and ensure the co-op’s ongoing financial stability,” an email sent to owners said. “We are confident that this infusion of capital will allow our new management team to return the coop to profitability.”
Why is Good Foods strapped for cash?
The cash flow issues have been percolating since before the new management team started two months ago, Kay said.
But the co-op will be changing leadership following the resignation of general manager Dean Sparks, which is still in negotiation. Sparks just started as the general manager two months ago.
Employees of Good Foods voted to unionize last year, with a contract securing the right to food safety protections for customers and employees, guaranteed yearly pay increases, discipline for cause only, a right to representation, increased employer contributions for health insurance including dental and vision, additional holidays paid at time and a half, and formation of a labor-management committee.
Kay said Good Foods incurred about $100,000 in attorney fees during union negotiations, and the loan program will help address that cost. He also said the co-op had costly maintenance issues with the refrigeration system last year.
The loans have a term of three to four years with up to 4.5% of annual interest. There is a minimal investment of $1,000, according to the loan packet obtained by the Herald Leader. Only the 10,000 current owners are eligible for the loan program.
Along with the loans, Kay said the co-op is also pursuing a loan from the National Co+op Grocers, an organization aiming to grow and maximize the success of grocery cooperatives nationwide. The amount of the loan is still up in the air.
“If we do not get enough capital through the owner loans and the NCG, the co-op will eventually be out of cash and we will close,” Kay said.
Owners have already started helping Good Foods keep its doors open, with 11 loans already in the books. Kay said an additional 50 people have expressed interest in the program.
“We have a very dedicated owner group who values what is unique about the co-op,” he said. “We’re still the best source of local food. We’re still a store that has a small store feel to it.”
The collective ran a similar owner loan program back in 1999, wanting to raise $550,000 to help pay off a bank loan to move its store front and triple its size. In 2017, the high rent of the larger space caused financial trouble, and the co-op considered moving.
“We are left with a critical choice: We can have a co-op on Southland Drive, or we can have a co-op for our kids and grandkids. We probably cannot have both,” then general manager Bill Bickford told owners.
As of today, the co-op has not relocated.
Good Foods will make changes to combat cash flow
The co-op is making changes to reduce operating expense, the board announced in an email to owners on May 30.
Owners will no longer get a monthly 10% discount on purchases, and layoffs are being considered. The once monthly discount will be suspended on June 3 and reinstated as soon as possible.
“We believe these changes are crucial to re-establish the financial stability of the co-op in the short term and to ensure the co-op’s viability in the long term. Both are meant to immediately reduce operating costs,” the email said.
The announcement encouraged owners to spend more money at the co-op. Kay said increasing the average number of items bought by shoppers is a main focus during this season of financial trouble.
“Our average basket costs $23.25 per shopper. If we can raise the average basket by one dollar and we have 2,000 shoppers, that makes a big difference,” he said.
This story was originally published May 28, 2024 at 4:59 AM with the headline "Good Foods Co-op needs investments to stay afloat. It’s looking to owners for help."