Trouble in store

The new Elk Grove Co-op is no hippie enclave. Settled between a Pet Club store on one side and a Dos Coyotes on the other, the 20,000-square-foot market fits seamlessly into John Saca’s shiny new shopping center just east of Highway 99. Inside, no rainbow bumper stickers adorn the check stands, no barefooted love children wander the bulk-food aisles, and no one flashes you the peace sign. Instead, the new co-op looks and functions like a big, bright food boutique, a well-stocked grocery complete with a meat counter; a deli; a coffee bar; and a large, inviting demonstration kitchen. In spite of the upscale look, not everyone in Elk Grove found the idea of a co-op very appealing.

“People didn’t know what a co-op meant,” explained General Manager Paul Cultrera. “They thought they had to be owners. … They thought it was run by a bunch of refugees from the hippie days.”

The community’s misperception of the new store, which anyone can shop at, is just one of many reasons why, on its one-year anniversary, the Elk Grove Co-op is lagging dangerously behind projected sales.

“We went into it debt-free. We had a lot of cash,” said Cultrera. “Now, we have a lot of debt and very little cash.”

The Sacramento Natural Foods Co-op, which started as a small buyers club in the 1970s, was part of a national boom in cooperative businesses, many of which flamed out in the 1980s. Once unique for providing organic produce and products made with all natural ingredients, co-ops weather increasing competition as conventional stores stock similar items.

In spite of a new Whole Foods in Sacramento and competition from the new Safeway on 19th Street, the Sacramento co-op has continued to thrive, offering cooking demonstrations and community dinners. For years, the organization flirted with the idea of opening new stores in Folsom or Natomas, but Elk Grove was chosen because it already had the greatest number of Sacramento co-op members.

Two different research firms, both familiar with cooperative businesses, projected that the new store would make about $8.5 million in its first year, said Cultrera, who assumed those estimates were conservative.

Based on enthusiasm and perhaps a little hubris, the co-op sunk nearly $5 million into building and refining a large, ecologically friendly, upscale market.

After making only $6 million in the first year, Cultrera now jokes that he keeps meaning to ask the market researchers when they’re going to send along the check for the missing $2.5 million.

Even with a small, sustained boost at the beginning of 2006, the organization finds itself selling off buildings it owns near the Sacramento store, accepting loans with the help of other co-ops around the county and cutting wages to pay for Elk Grove’s slow start. The 100 people hired to run the store have dwindled to 60, said Cultrera, and in February, the union agreed to pay cuts.

“It was the last thing we wanted to do,” said Cultrera. “We probably waited about three months too long. We laid it all out and made people understand, ‘We either do this or we go into the hole, and maybe we can’t get out.’”

In the May/June edition of the organization’s Co-op Reporter, Cultrera detailed the 2- to 6-percent cut for union employees, the 4- to 7-percent cut for non-union employees and cuts of up to 10 percent for management. Co-op members also were asked to defer benefits. Altogether, said Cultrera, these efforts trimmed $40,000 a month from expenses. It’s helped, but maybe not enough.

“At a certain point, you have to say, ‘We can’t do this anymore,’” said Cultrera. “We haven’t reached that point.”

Though Cultrera insists that the Sacramento co-op will survive, regardless of what happens in Elk Grove, he wants shoppers to think about how and where they shop.

“Close your eyes and imagine Sacramento without the co-op,” said Cultrera. “If you like what you see, keep going to Whole Foods.”

Elk Grove’s sluggish start came as a surprise to the co-op management team, which was so proud of its ecologically friendly building. (Near the demonstration kitchen, a little framed hole in the wall shows how insulation was made from the denim scraps of a Levi’s plant.)

It was only through follow-up research that managers realized there were some barriers to attracting Elk Grove families. There were those who mistakenly thought they had to become members or volunteer their time or somehow buy in if they wanted to shop there. Others were looking exclusively for the lowest prices and had never tried locally grown organic produce. “They think, ‘It’s expensive. I’ve got a family. I’ll go to Costco,’” said Cultrera.

And some interested shoppers couldn’t find the store because the architect chose to limit the signage. Though the phrase “Food, Inspiration, Community” was lettered on the outside wall, only a small sign identified the building as a market.

The co-op has recently hung new signs, but in the mid-afternoon, the store is still nowhere near as busy as the bustling Sacramento location.

“In Sacramento,” said Austin Cunningham, front-end assistant manager in Elk Grove, “it’s such a tight-knit thing. The customers know each other. … We’ve got an uphill struggle, I think.” But Cunningham also said that every day he meets new customers who are in the store for the first time.

The Elk Grove location might have fared better in its first year if not for some early bad luck. A new store had been discussed for years but wasn’t set to open until right before Thanksgiving 2004. The opening was continually delayed, and the project ran way over budget and became even more expensive after a spike in the cost of building supplies. In the meantime, a Trader Joe’s opened within a few miles, beating the co-op’s June ’05 opening by about 10 months.

When the Elk Grove store did open (1,500 people attended the kickoff party), it was plagued by electrical problems that left the store nearly dark for three days.

Matt Garcia, first mate at the Elk Grove Trader Joe’s, wouldn’t share detailed information about projections or profit but did say that his store has been right on target since its opening. “We’ve been doing really well,” he said.

Like a lot of Elk Grove residents, Garcia hadn’t yet visited the new co-op, though he hears it’s beautiful.

Cultrera says he believes the new store can succeed and that it’s so large it could even surpass the Sacramento co-op in sales one day. Most co-ops take about a year-and-a-half to become established, he said.

Though the future is still up in the air, Cultrera said that the Sacramento store is safe and doing almost $20 million in sales a year. The one thing members can do to help, he added, is shop.

There are 11,000 co-op members on the books, he said, and 8,000 of them actively shop at the co-op. “If each one brought one friend,” he said, “that would pull us through.”