Newsletters: March - April 2008
Owner Equity - Issues and Explanations
Natural Times-March/April 2008
Dear NLM Owners,
Earlier this year, many of you received a letter informing you that owner equity had increased to $100 and asked that those of you who joined NLM for a lesser amount to increase your equity to this new level. As noted in that letter, the owner equity actually increased to $100 in 2004. It was decided at that time that it would be necessary to increase the equity level at a later date so that all owners would be at the same level.
As Larrane notes in her GM report, the response has been very positive. A small number of owners have contacted board members directly with questions about the change in equity. Below are the most common questions and our responses.
What is the financial condition of NLM? NLM is financially sound and can finance the expansion without hardship. During the early stages of expansion planning, several banks approached us because of our excellent financial status. Our GM negotiated our loan with the National Cooperative Bank. However, the Board felt it is in the best interest of the Co-op to fund as much expansion costs as possible from owners, rather than borrowing additional monies entirely from a corporate bank.
How did the Board arrive at the $100 equity level in 2004? The equity level was set after we conducted a survey, in 2003, of 19 medium-to-large food co-ops and an additional 11 co-ops located in the southeast. Equity levels among the medium-to-large co-ops ranged from a low of $25 (NLM) to a high of $225 (People’s Food Co-op, Oregon) with an average of $112. The equity levels of the southeast co-ops ranged from a low of $5 (Life Grocery Natural Food Co-op Market and Cafe, Georgia) to a high of $250 (French Broad Food Co-op, North Carolina) with an average of $77. With the exception of NLM, all southeast co-ops with equity amounts under $100 are assessed on an annual basis.
After considering owner equity levels among food co-ops nationally and realizing that NLM has never altered its owner equity amount in any significant fashion, the Board increased equity to $100 with the belief that this change would enable the Co-op to meet the needs of its owners and further our goals in promoting our greater community in the foreseeable future.
We tried to make it as easy as possible for owners to meet the new equity level by offering a variety of payment options. We have also established an assistance program for owners unable to bring their equity level up to the new level.
Why didn’t we know in advance that owner equity was going to increase for everyone? The Board has discussed eliminating inequities among owners since the amount was raised for new owners in 2004. One of the guiding cooperative principles is that all owners should have an equal investment in the co-op. In retrospect, the Board probably should have notified all existing owners in 2004 that the one-time refundable equity amount had increased to $100 and required that everyone make up the difference from their current equity level. In hindsight, the increase in equity should have been communicated to owners directly through a newsletter article or an owner forum.
What happened to Crystal Connection? The owner of Crystal Connection wanted to sell her business and retire for the past three years. Several staff at her store wished to purchase it, but did not wish to maintain such a large store. Fortunately, they were able to negotiate with both the owner and the property manager and relocate to their prior space behind Olive Garden.
A Few Words on Expansion. As you can tell even before entering the store the expansion is in full swing. The Board wants to express our appreciation for your continued consideration, tolerance, humor, and sense of adventure as we collectively participate in our store’s expansion. Please be sure and express your appreciation to our staff that daily withstands the noise and commotion while making our shopping an enjoyable experience.
I hope this article addresses your concerns regarding the financial stability of the Co-op, as well as with its capacity to assume the unanticipated costs associated with the expansion project. In addition, I hope you have a clearer picture of the Board’s thinking and reasoning for the change in owner equity. If you have any additional questions, comments or suggestions for the Board you may leave a message at the service desk, fill out a customer comment card email us at board@newleafmarket.coop.
Sincerely,
Chuck Hungerford, Board President
