There are lots of responses to competition in natural foods retailing. Stores can expand, contract, enhance their offerings, cut their prices, go out of business—or they can change their business model.
That's what New London, N.H.-based 14 Carrots did last year. The 18-year-old privately owned retailer in October 2002 converted to a co-op. Why it did what it did reads like a modern David and Goliath story with a twist—the fight isn't over yet.
Until March 2002, the 2,500-square-foot store was growing. Sales were increasing at a pretty significant clip—10 percent to 12 percent per year—according to General Manager Rick Libbey. Business, in fact, was great. The staff had reset the store in 2001 and 14 Carrots gave employees substantial raises across the board.
"Then 500 feet down the road in this tiny town, someone bought a car-parts building, duplicated lots of our inventory and damn near put us out of business," Libbey says.
Ingredients, the new store down the road, began with thousands of square feet more than 14 Carrots, and with abundant offerings in both gourmet and natural foods.
There still were differences between the stores, however. 14 Carrots, for example, doesn't carry what are generally considered gourmet foods. "We don't do the gourmet-sugar thing," says Carol Stedman, the original owner of 14 Carrots and current president of the co-op's transition board. The store has made a name for itself among natural foods retailers with its inventory of supplements and body-care products. It has 12 employees, a significantly higher number than most stores of its size, including a certified nutritionist.
Almost immediately after Ingredients opened, 14 Carrots saw its revenues halved. "We darn near tossed it in. We couldn't pay the rent or anything," Libbey says.
It was at that critical juncture in the store's evolution when the staff started thinking co-op.
"Our goal has always been to serve our community with products and information for healthy living. Part of the co-op decision was to redefine ourselves as the community market," Stedman says.
The co-op model made sense for 14 Carrots because it already was using a group management model and decisions already were being made with 14 Carrots' healthy living mission in mind. "It wasn't my vision; it was the vision of the group," Stedman says.
The question then became how to make the switch.
Libbey says the first phone calls he and Stedman made were to their distributors, Northeast Cooperative in Brattleboro, Vt., and United Natural Foods Inc. The folks at Northeast Co-op told them about the Cooperative Development Institute—a Brattleboro, Vt.-based nonprofit with 18 locations nationwide—one of which was relatively nearby in Greenfield, Mass. After attending CDI's Co-op 101 seminar, which essentially is an introduction to the legal, accounting and governance principles of cooperatives, Libbey says he learned one very important thing.
"What we really found out that day was all the work had to be done by ourselves," he says.
With that in mind, Libbey and Stedman formed a steering committee of residents in the New London community, population 3,000. It started meeting on a weekly basis to create bylaws, operating procedures and membership fees. The process was time-consuming and expensive. Ultimately, the group had to hire lawyers to transfer store ownership to the co-op from Stedman. To survive during the transition, Stedman took out a Small Business Administration loan and downsized 14 Carrots' staff and inventory. She still holds the note on the store.
The effort thus far has been worth it, Libbey says. The co-op became official in October and now has 170 members who paid $120 each for a lifetime membership. For their support, they get discounts on supplements all the time, and discounts on grocery items that vary from 20 percent to 40 percent.
Clearly, membership is what will make or break 14 Carrots. The first 100 were easy to get, Libbey says, because they came from the store's regular patrons. It's the next few hundred—the co-op is pushing to grow membership to between 300 and 400—that will be tough. "The really hard work is in front of us," he says.
Will 14 Carrots succeed as a co-op? Perhaps. Lynn Benander, Chief Executive of the Cooperative Development Institute says it is fairly routine for single proprietors like Stedman and for family-owned businesses that are providing services to a community to look to the co-op model. "It's a way to transfer a community asset they've been stewarding back into the hands of the community," she says.
Yet Benander also says the move away from the traditional private or investor-owned business model and toward the co-op business model is happening fairly frequently across many industries, but it's relatively rare in the food sector. "14 Carrots is the only one I know of in New England," she says.
Ultimately, 14 Carrots' success as a co-op will be based on solid adherence to the co-op model, says Robynn Shrader, executive director of the Iowa City, Iowa-based National Cooperative Grocers Association.
"Co-ops are formed by people wanting to meet unmet needs. Natural foods co-ops formed around an unmet need for access to whole foods. Owners must guide co-ops to where needs aren't being met. If it's just touchy-feely, then it's no different than a club store. It has to be a genuine restructuring, not a marketing tactic," she says.
Shrader suggests 14 Carrots tap into the co-op movement to gain its strength. "We are more connected and collaborative with each other than we've ever been. We're not just single stores in isolation. We have a system now to meet our common challenge."
Which for 14 Carrots is still 500 feet down the road.
Nancy Nachman-Hunt is a Boulder, Colo.-based freelance writer.
Natural Foods Merchandiser volume XXIV/number 3/p. 52, 57