Lexington’s plea to its members: ‘Your Co-op needs your help’

September 29, 2019

By Stephen T. Watson and Samantha Christmann | The Buffalo News

The Buffalo Niagara grocery sector already was crowded when the Lexington Co-operative Market opened its Hertel Avenue location in July 2017.

Since then, that competition stiffened, with Amazon’s Whole Foods Market setting up shop in Amherst and Dash’s Markets moving into an expanded store just blocks from the Co-op.

The Co-op invested $6 million in the Hertel store, knowing the organization would lose money for years after its opening.

The store is a success, management says, but the Co-op’s losses are deeper and its cash reserves are shrinking faster than expected.

That’s why the Co-op’s leadership recently wrote to the organization’s 16,300 members to detail these financial challenges and reveal the cost-saving changes they’ve made.

And the Co-op asked its members to do their part – buying more of their groceries at the Hertel and Elmwood Avenue stores and encouraging their friends and family to join them.

“To sustain the Co-op for the next generation, we need all hands on shopping carts,” general manager Tim Bartlett and board President Alison Wilcox-Lanfear wrote on Sept. 20.

The 48-year-old Co-op has crafted a reputation for its locally sourced organic and natural foods. Today, it faces a fundamental problem, managers said: how to pay their employees and vendors well while keeping prices competitive.

Further, can the organization reach a wider audience, including people who may not understand precisely how the Co-op works, what it sells and who can shop there?

Those are key questions for a Buffalo institution with a devoted following.

“It’s our happy place. That’s what we call it,” said Martha Chiavetta, an Angola resident who works for Lake Shore schools. She was at the Hertel Avenue store on Wednesday with her children Madi and Matthew.

Buffalo’s Co-op started in 1971 as an almost entirely volunteer effort, with early newsletters filled with pleas for members to fill more shifts.

The Co-op was located in cramped quarters on Lexington Avenue before moving into new digs in the Elmwood Village in 2005, following a $3.2 million investment that included $560,000 raised from its owners.

Members pay a one-time fee of $80 – it hasn’t changed since 1988 – to join. In return, they receive one ownership share, the right to vote in board elections, a piece of any profits and special discounts.

The Co-op now spends $3.7 million on food and other items produced within 250 miles of the stores, or 25% of all food purchases.

“What they’ve told us to focus on is local foods,” Bartlett said of their customers.

In 2015, the Co-op announced plans to open a second, larger location in a former CVS at 1678 Hertel Ave. The Co-op raised $2 million from owners toward the $6 million cost.

Bartlett said sales at the Hertel store reached $10 million in the fiscal year that ended in June.

Bartlett said the Co-op has turned a profit in 18 of the past 22 years. The exceptions were the two years after the Elmwood store opened and the last two years after Hertel opened.

However, the Co-op wrote to its members on Sept. 20, “Co-op losses have been higher than budgeted and cash reserves are below where we need them to be.” Bartlett said in an interview that losses are running at about 3% of its $23 million in sales volume.

Bartlett and Wilcox-Lanfear outlined changes the the Co-op started making in August. They include “restructuring” staff benefits; ending print publication of the LexTalk newsletter and annual report; and renegotiating certain service contracts.

Bartlett said in an interview the only change in benefits is the reduction the 123 workers saw in their employee discount: from 20% to 10%. All of the changes should save the Co-op about $200,000 per year.

Much of the letter covered what the Co-op leadership is asking of its members. Managers asked them to pitch their friends and family, and Bartlett said 30 new members joined in the week after the “Your Co-op needs your help” plea went out.

Bartlett said about 75% of purchases at the Co-op’s stores are made by its members.

He concedes that people may be turned off by the Co-op name, a misunderstanding that only members can shop there or a reputation for focusing on natural foods sold at high prices. But he said shoppers can find what they need at the store and that its prices are competitive.

“We pack a lot of products into this little space,” Bartlett said.

Stephanie Schuckers Burdo, editor and publisher of Edible Western NY magazine, lives in Lakewood but travels to Buffalo to distribute the magazine and shops at the Co-op while leaving copies at both stores.

She said her first experience with the Co-op was a vegetarian Thanksgiving tasting the Elmwood store hosted.

“It was magical,” Burdo said. “It was like discovering all of these products that, maybe they’re in other stores, but I didn’t see them.”

Shoppers interviewed outside the Hertel Avenue store on a Wednesday afternoon said they regularly stopped by for bulk foods, pre-made meals and free-range meat but that it was hard to buy a full week’s worth of groceries there.

Chiavetta said she likes how intentional the store is about the food it sells. She also appreciates the sales that let members buy items in large quantities, such as gluten-free pasta that is normally $4 a box. She said she bought nearly 50 boxes when it was reduced to $1 a box.

“That is a huge perk,” Chiavetta said.

Lexington’s board of directors is filled with “intelligent and highly credentialed people” from the worlds of health care, finance and technology, said Burt Flickinger III, a Buffalo native and managing director at retail consultancy Strategic Resource Group in New York City. There’s just one thing missing: someone with experience in food retailing operations.

“If they can get one or two people in there, they can start taking corrective action,” he said.

Buffalo shoppers respond to promotions. The sale items in its “Fresh Flyer” ad are competitively priced, are well chosen and are of high quality – there just aren’t enough of them. While the Co-op had 10 specials in its most recent ad, Dash’s had 280 of them. If the Co-op could increase its specials to at least 50 per week, it would make a big difference, Flickinger said.

“They missed a tremendous opportunity when Dash’s was closed to run a broader promotional program and convert Dash’s shoppers. Now Dash is converting Co-op shoppers instead,” Flickinger said.

Its Hertel location is also too close to its store at 807 Elmwood Ave. – just a little over 3 miles away – so they’re “cannibalizing their own customers,” he said.

Competition down the street

Dash’s Markets had operated on Hertel for 50 years. The company’s long-planned expanded store opened in May next to the site of its old store – and footsteps away from the Hertel Co-op.

Owner Joe Dash noted that he has had five decades to build loyalty among shoppers in the neighborhood with his Hertel Avenue store.

“I was surprised they still opened knowing we were opening the new store,” said Dash. “Not that it can’t support it, but you’ve got two stores right on top of each other.”

Dash said Lexington’s debut on Hertel affected sales at Dash’s now-demolished store down the street, before the new Dash’s opened.

“Our old store was held together with baling wire and duct tape. I’ve tried to build a world-class location here,” he said. “I’m sure we’ve had some kind of effect on them.”

The stores are within sight of each other, but Bartlett said the new Dash’s Market hasn’t had a big effect on the Co-op’s sales.

He said he believes the proximity will help, more than hurt, the two stores find customers, comparing it to a McDonald’s and a Burger King located across from each other.

Bartlett acknowledged the industry is more competitive than ever, and this puts pressure on the organization to operate as lean as it can. But he said he’s not worried, because the Co-op has weathered financial concerns before.

“The community feels a deep sense of ownership,” Bartlett said.