Co-op grocery proposal would restructure membership

By Rosemary McCoy

The Co-op Natural Foods is preparing to make changes to its membership model to give the grocery cooperative more capital for improvements and to engage its member-owners.

“It’s an exciting opportunity for us to update what it means to be a co-op owner,” said Patrick Sayler, general manager of the store at 410 W. 18th St.

The board will vote at noon Aug. 9 on a stock restructuring proposal that has been in the works for almost a year, he said.

“For at least 25 years, possibly longer, to become a member-owner, the investment has been very small, like $25, for a share of stock,” Sayler said. After that, active members paid a $36 annual fee to get a 5 percent discount on everything in the store, along with other benefits.

With the typical low margins of a grocery store, that financial structure doesn’t give the co-op much money to use for expansion or improvements, he said.

The proposal moves the initial investment to $200, which members can pay over five years. After that amount is paid, the members will be fully vested and won’t have to make any other payments, including an annual fee, Sayler said. Having an annual fee doesn’t help the co-op as much as it could because it’s taxed at a 15 percent rate, he said. The stock investment isn’t taxed, and it’s fully refundable.

The across-the-board discount on purchases will go away, replaced by deals on specific items. The effect of a blanket discount on the margin is impossible to project, he said.

“Most co-ops got away from having (across-the-board) discounts in the ’90s. We just never made the leap.”

The co-op features a soup and salad bar, and the kitchen also serves a hot meal for lunch on weekdays.

The co-op has been in Sioux Falls since 1973, starting out as East Dakotah Cooperative. While the structure involves member-owners, the public is welcome to shop there, too.

The co-op has more than 4,000 stock certificate owners, and 1,500 of them pay the annual fee, Sayler said. He hopes the change in the investment creates a more engaged membership.

“If they’ve invested $200, they will be emotionally invested as well.”

The co-op hosted a half-dozen meetings with its member-owners to share information and gather input on the proposal. A few dozen people came to each meeting, Sayler said. They also will be invited to the August board meeting, so they can be involved in the process.

If the proposal is approved, original stock certificates can be converted into the new stock, with a $25 credit going toward the $200 stock price.

With the change, member-owners also might see the possibility of getting a patronage rebate, which comes in the form of a store credit.

“If we make a profit, the board can declare a patronage,” Sayler said. “We can retain 80 percent tax-free, and 20 percent can go back to owners based on how much they spend. We’ve never been able to do that.”

The board isn’t sure “how quickly that will come, but we’re hoping within the next few years.”

In each of the two years since the co-op has been in its new location at 18th Street and Minnesota Avenue, sales have grown 35 percent, Sayler said.

“We’re one of the fastest-growing co-ops in the country.”

The changes to the financial structure “could mean that we start to be able to take advantage of ways to expand the co-op,” Sayler said. That could come at the current location or with a second store.

The co-op is working now to add online ordering and delivery as a new service in the fall, and that’s the type of improvement that could become more common with access to additional capital, Sayler said.

The structural changes would take effect Oct. 1, which is the beginning of the co-op’s fiscal year.



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Co-op grocery proposal would restructure membership

The Co-op Natural Foods is preparing to make changes to its membership model to give the grocery cooperative more capital for improvements and to engage its member-owners.

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