Natural evolution

Among Chico businesses, Chico Natural Foods is a lovable eccentric, a store unlike any other in structure and services that has gone its own wacky but admirable way, narrowly dodging disaster on several occasions, for more than a quarter-century.

It has no owners, unless you consider its 2,200 members owners. (I’m a member, and I sure don’t feel like an owner.) It’s a nonprofit. It’s run by paid co-managers who report to an elected board of directors, not shareholders. It often makes decisions based on idealism, rather than what mainstream retailers would consider good business sense. It has a history of periods of chaos on the part of its board of directors. And one other thing: It has no capital.

Which is why it has been unable to grow as much as many of its members would like, and why, at times when revenues haven’t kept up with expenses, it has nearly gone under.

But CNF is also a resilient business whose members care deeply about it. It does more than $2 million a year in sales, has 32 full- and part-time employees and an annual payroll of $336,000, enjoys a rich history of community involvement and offers services and products that can be found in few other stores.

And now it’s about to do something about that capital problem. In what its managers say is the most exciting thing to happen since 1975, when the store was founded in a tiny storefront at 14th Street and Park Avenue, it’s about to change its structure dramatically. It is about to become a true cooperative—that is, if its members agree to do so.

Walk into Chico Natural Foods today, and the first thing you’ll notice is that it’s tightly stocked, to say the least. It’s bursting at the seams, in fact. Shelves are close together and stacked high, and aisles are narrow. The store desperately needs more retail room. Remodeling and reorganizing easily could add 700 square feet of new retail space to its current 4,300 square feet, says Co-manager Scott Richman, but the money’s not there.

You’ll also notice the sound of ancient refrigeration units wheezing and groaning, and that the linoleum floors, while spotless and shiny, are nicked and cracked in places. The place needs new equipment and upgrading badly. The produce refrigerator is piled high with a multicolored array of gorgeous organically grown fruits and vegetables, but next to it the store’s three registers are crowded into an island the size of a walk-in closet.

For about the last two years, the store has been recovering from a disaster and struggling just to break even, reports its other co-manager, Cheryl McCoy. A failed effort to move the store to the site of the former Holiday Market in the Longfellow Shopping Center ended up costing $250,000, she says, and pushing the store into debt.

“Many people don’t know how bad it was,” McCoy says. “When Scott and I started, it felt good just to keep the doors open.” Since then, shortly after the aborted move, the focus has been on bringing the store back to a break-even basis, which she says they’ve done.

Lost in the process, though, are some of the services that had made CNF extraordinary among local businesses—its monthly newsletter, for example, a lively mix of nutrition information, CNF news, recipes and commentary. Also gone are the many classes on everything from food and nutrition to aromatherapy, as well as such community events as CNF’s parking lot food fair.

Producing the newsletter cost $12,000 a year, McCoy explains. “We couldn’t afford it any longer.”

Gradually it dawned on McCoy and Richman, as well as the seven current members of the CNF board of directors, that the company’s structure—particularly its inability to raise capital—was keeping them from expanding and improving the store. And talks with the managers of similar stores elsewhere confirmed that.

CNF is a nonprofit corporation, but it isn’t tax-exempt, Richman explains. Like any profit-making business, its earnings are taxable. But without owners providing collateral, and without owning its own building, it can’t readily borrow money. And, despite being called familiarly “the co-op,” it’s not technically a cooperative.

Most similar stores—the Davis Co-op is a nearby example—are true cooperatives, he says. That means that their members are in fact shareholders—they actually own part of the company. If they choose to end their membership, they can sell their shares to the company and get their money back.

That’s not the case in Chico, where members pay a non-refundable $6 a year. For that they get to vote for members of the board and, more important for most, receive a member’s discount of 5 percent at the register.

But $6 a year times 2,200 members amounts to only $13,200, far less than the $95,000 the store gave in discounts last year, McCoy says. And that, Richman points out, is no way to run a business.

If CNF members decide to switch to a cooperative structure, their annual dues—or, more correctly, shareholder fees—will go up substantially, probably to $25 (though there is some discussion of having a one-year “transition” fee of $10 for current members). They will continue to pay that $25 annually until they either end their membership or reach a cap ($250 and $300 have been mentioned as possible amounts).

For that, they will enjoy the same privileges current members now have—voting rights and a discount. And the store managers will accumulate a tax-exempt fund with which they will be able to make the improvements the store so clearly needs.

Members need to remember, McCoy and Richman emphasize, that, while the new fees are higher, they are completely refundable. Even with inflation and loss of interest on the money, the cost to members ultimately will be lower. In the meantime, they will have a much better store to enjoy.

Not that CNF ever will stop being the most eccentric food store in town, even with a bigger capital base. This is the vegetarian store, after all, that for many years refused to carry most kinds of cheeses because they were made using rennet, which is obtained from the intestinal lining of cows, and therefore contained a minute element of animal product. The problem, McCoy says, was that rennet-less cheese wasn’t very good.

It’s also the store whose members have battled over such issues as whether to carry sugar or sugar-containing products and alcoholic beverages. Those have been resolved somewhat, and the store now sells sweeteners, including organic sugar, McCoy says. It also sells a small number of sugar-sweetened snack foods among its hundreds of more healthful products. And it has a growing beer and wine section that emphasizes microbrews and organic wines.

But meat and meat products, including seafood, remain verboten. Strictly from a business standpoint, this is a lack that clearly hurts the store. Any shopper who wants to buy meat or fish for dinner and doesn’t want to make two stops is likely to go elsewhere.

It’s definitely inconvenient, McCoy agrees. And it begs the question: Do you want your store doing your thinking for you, or do you want to decide for yourself what to buy? Besides, she notes, even some so-called “health food” is bad for you, if eaten in excess: “People worry about sugar, but we sell chips that are saturated in fat.”

On the other hand, CNF members have strong values, and not killing other animals for human benefit remains one of them. Both managers admire that and honor the commitment.

Last week, the CNF board of directors met and unanimously agreed to hire David Thompson, a Davis-based expert on cooperatives, as a consultant. CNF’s by-laws will have to be rewritten, and, more difficult, its articles of incorporation will have to be changed, a process that requires approval from the state.

The proposed changes also will have to go to a vote of the members.

The process will take several months. The big question is whether members will go for it. McCoy and Richman worry that too many of them will see the increased fee as too high, even though it will be refundable.

“I’m afraid we have a poverty mentality at the store,” McCoy says. Historically, the store has been afraid to ask members for the kind of support it really needs, fearing that they won’t be able to afford it. But one of the consequences is that, without growth, prices necessarily stay high.

“I want to see a bigger store with more products and lower prices,” she says enthusiastically. And the way to do that, she adds, is to become a cooperative and raise some capital.

In the meantime, CNF has joined the Pacific Cooperative Grocers Association, a trade association made up of 10 food co-ops in California. The association has the ability to buy in such volumes that it will receive discounts enabling its members to compete, price-wise, with chain supermarkets.

“This is an exciting time for us," McCoy says. "All kinds of possibilities are opening up at this very moment."