We have recently mailed our colourful new fund-raising brochure to Co-op members; it may already be in your mailbox! Space on a simple brochure is limited, so we’d like to share more detailed information here on our website. If you have specific questions not answered here, please don’t hesitate to contact our Capital Campaign Coordinator, Helen Hall, ccc[at]cortescoop[dot]ca.
As almost everyone is aware, the Co-op has been working for several years on the project of acquiring the property where our store resides, 800 Sutil Point Road in the heart of Mansons Landing. This effort has involved negotiations with multiple governmental agencies, much paperwork, many meetings, and extensive member participation. The membership has been consistently eager to purchase the land, voting in favour of the effort at several AGMs in a row.
After lengthy discussions with the School District (the primary partner in the deal) and one reappraisal last year, a price of $180,000 has been agreed upon.
The only problem — as with many of life’s challenges — is money. The store is still recovering from a period of financial difficulties (particularly 2010-2011). While there are many positive indicators — such as a 10-12% increase in sales from fiscal 2012 to 2013 — the store still doesn’t realize enough profit to enable us to meet the payments on a conventional mortgage. Despite several approaches, even our friendliest potential lender (Van City) is unwilling to give us any substantial loan; and based on our year-end ledgers, their loan officers are not being unreasonable. Last year, despite $1.3M in sales, the store broke even.
Many members may now be asking themselves, “Why is the store unprofitable? It seems busy and prosperous enough — why aren’t we making money?”
There are two answers to those questions; one is pretty obvious, the other requires a little clarification. The obvious answer is that CNFC has inherited obligations, commitments, and costs over and above our operational costs; these come in two flavours.
In the past fiscal year we spent over $15,000 paying back loans from community members incurred during our previous financial difficulties; if we had not been paying off those debts (in the form of prepays), we would have made a clear, if modest, profit.
In the past fiscal year, we spent over $15,000 paying back loans from generous community members who stepped up to help the store during our previous financial difficulties. Our friends have never required us to pay back these loans on a fixed schedule, but unfortunately we are obliged to disclose all debts to prospective lenders, and these loans show as liabilities on our books. To make our business look as eligible as possible for bank financing, we need to stay current with all our payables and minimize our debts. So we are highly motivated to pay off any outstanding loans as fast as we can. If we had not been paying off these debts (in the form of prepays), we would have made a small profit.
Adding up these two inherited costs, that’s $35,000 that would have been profit, almost enough to qualify us for a conventional bank loan to purchase the property.
The second answer to the question of profitability lies in the nature of the enterprise. Though in theory we are a profit-making business (we certainly don’t qualify for non-profit or charitable status), in practice the Co-op runs more like a social institution or a social enterprise. Our mission statement and principles include many other values which take priority over simple profit maximization. While we are required by Co-op charter to return any excessive profit to our membership, the core purpose of the business is not (unlike most corporations) to enrich shareholders. Our purpose is to serve our community as specified in our mission statement.
Because of our hybrid status (a business which thinks like a non-profit) we make decisions which sacrifice profitability to the greater good of the community. We don’t pay minimum wage; we try to do better than that for our local workforce (who are also our neighbours and friends, because the Co-op belongs to all of us). Last winter, the Board and General Manager decided to keep our bakery/cafe open throughout the off-season; Trude’s and the Cortes Cafe had both closed, leaving islanders with no cafe. We felt it was our social responsibility to keep our cafe open, at least three days a week with limited hours. We “lost” quite a bit of money by doing so; about $12,000 over the course of the winter. The store’s profits subsidized the cafe operation.
Any hard-headed corporate CEO would condemn our decision to keep the cafe open; it was clearly “bad business.” The community, however, benefited in more than strictly financial ways from having a warm and inviting social space available during the dreariest months of the year. Eric (our General Manager) and Kirsten (our Kitchen Manager) are even now working hard to find ways to streamline the cafe operation so as to reduce the cost of staying open during low-traffic months (and to increase the cafe’s margin during better ones); but it’s unlikely that we will will ever operate the cafe at a profit during the off-season. There’s a reason why other island businesses close their restaurants during the winter!
If we now add up the inherited costs and the bakery loss, that’s more than $45,000 that would have been profit last fiscal year: enough to qualify us for a mortgage. Our store, considered strictly as a grocery store, is actually doing quite well.
Why We Need Capital
The Co-op has been in this Catch-22 position for several years now. We can’t easily increase our profitability without shedding some of these heavy burdens; but shedding them requires some capital; and we don’t have any capital reserves, because we haven’t had any profitable years to build up such reserves. Our options for increasing profitability are limited. We don’t have the money ($80K-$100K for a conventional system) to replace the broken septic field, even though it would be an excellent investment with a short payback term; it would both free us of $20K/year in operating costs, and allow us to expand and upgrade our bakery/cafe operation in the high season. We could close our cafe for four months of the year, but that would be a difficult and controversial decision. We definitely can, and will, pay off our debts; by the end of October 2014, we will have finished paying back our community lenders, and that will mean $1300/mo more revenue for the store. At least one burden is about to be lifted. But that improvement isn’t enough to qualify us for large loans.
If we are to proceed either with a replacement septic system or with the land purchase (or both), we need capital. And that is why we’re approaching you, our members. Though we sometimes talk about “donations,” it’s more accurate to speak of “investment.” The Co-op is a business with several hundred partners. We own it — every one of us is an owner and partner. When we need to raise capital, it’s appropriate to turn first to our partners for investment.
Most people invest in a private corporation in the hope of multiplying their money by an increase in share value. But when we invest in the Co-op, our “payback” is, like the store’s mission, more social than fiscal. The Co-op’s “social enterprise” aspect means that, if we succeed in acquiring the land, it will be managed with community benefit in mind. The property already functions as a kind of commons, with park-like and garden-like aspects; children play there, people socialize and relax there. It’s also a minor commercial hub: small businesses find startup space there. Under Co-op ownership, that commonwealth would be respected and nurtured; the investment is in the quality of life for an entire community. If the Co-op finds ways to use this land that foster more micro-enterprise or expand our employment, then island residents benefit from local jobs and commerce (we are one of the three largest employers on Cortes).
The other payback for member-investors is in the long-term security of the store. We are doing well enough now to stay in business for as long as our customer base supports us; but if the land were to be transferred to another owner who was not friendly to the store, our prospects could be pretty dire. We don’t have the capital to bear the cost of relocation, nor is there any obvious place to move to. Some of our members may wish to invest purely for the sense of security, to know that their Co-op has a permanent home on the island.
Our sense is that our membership, collectively, has the resources to invest in that permanent home, in that social enterprise, and in that social space we call “the heart of the village”. Many people have expressed passionate enthusiasm for community-oriented ventures that could be pursued on the land if it was once secured under socially responsible ownership. Our Co-op membership spans a wide range of incomes, from people struggling to make ends meet to quite affluent residents and visitors; but if everyone invested an affordable amount by their personal standards, we feel that the target could be achieved.
Our target as of this asking is $200K — the price of the land plus some allowance for taxes, closing costs, legal fees and so on. We have hired a Coordinator to oversee and promote the campaign, and we have established various means by which members can invest. Small amounts may be directed towards the land fund at the till; other options such as monthly contributions (enabling members to spread their investment over many manageable payments) are offered via the pre-printed vouchers included in the brochure. Members wishing to give substantial contributions, please contact the Capital Campaign Coordinator directly. Some of us may have no spare cash at all; but there are also opportunities to help in other ways for example by volunteering for the fund-raising effort – if you would like to volunteer, please get in touch with the Campaign Coordinator.
This brochure mailing marks the launch of an intensified effort to attract community investment over the coming summer months. We hope you will support us and help us secure the future of the coop. Together, we can realise a longstanding dream and create a valuable legacy in “the heart of the village” — an evolving, vital community resource.
At our AGM in June the membership will have a chance to meet en masse and discuss all these issues further. In the meantime, we hope you will support our capital campaign, tell a friend, keep your membership current, consider volunteering, and remain a loyal customer and supporter of our co-op. Please direct questions, referrals to possible investors or donors, cheques, and comments to Helen, ccc[at]cortescoop[dot]ca, or to the Board, board[at]cortescoop[dot]ca.