FARGO — The losses were there right from the beginning.
Prairie Roots Food Co-op, a natural foods grocery store that had been located at 1213 NP Ave. in Fargo, officially closed its doors Jan. 11. Many Co-op and community members questioned what happened, and posited their own theories as to why the community-owned cooperative’s storefront shuttered in less than three years.
“In summary, we lost money every year, which builds up over time,” said Tim Mathern, Prairie Roots spokesperson, founding member, and board member since 2011.
Mathern, who supplied The Forum with the Co-op’s annual report and balance sheet, which shows activity through September of 2019, as well as a few more up-to-date figures, was able to give some concrete financial details of what led to the closing.
“The revenue was lower than our business plan pro forma from 2016 and consistently didn't meet the projections,” Mathern said.
The cooperative’s store, which opened in July of 2017, had a 10-year plan that projected it would take at least that long before it would make a profit, he said. In the end, expenses were higher than anticipated.
“That’s the general principle,” Mathern said.
Trying to tell the whole story
What it means in particular, however, was revealed in the Co-op’s 2019 annual report. While the business had a net operating loss of $108,232 in 2019, after cash infusions and principal loan payments, the net cash flow was negative $65,373.
In fact, the Co-op was operating at a loss from the moment it opened in 2017.
“We never paid any dividends to shareholders,” Mathern said.
But, even that doesn’t tell the whole story.
Monthly occupancy costs averaged between $15,000 to $16,000. The Co-op, Mathern explained, had what’s known as a triple net lease, in which rent, common area maintenance, shared space and utilities are combined.
“Yes, it is a big number,” Mathern said. “It includes all of the costs related to the use of the physical space. As such, it covers many things, and some costs are more for a grocery store than, for example, a professional office.”
Another “big number” is the nearly $1.4 million in loans the Co-op took out, according to the annual report. There are five of them, the most significant labeled as “member loans,” for $446,000, but the report also shows loans from Lake Agassiz Regional Council, Lewis & Clark Regional Council, Shared Capital and Bell Bank. Mathern said Jan. 20 the commercial debt portion was close to $800,000.
The outstanding liabilities were so great, he said, it got to the point where the Co-op was unable to place orders or even meet their payroll obligations.
“That became the peak consideration of all these things,” he said.
By January, he said, the board realized the only way to pay employees for the work they’d done would be to close the store and use the inventory revenue.
When it closed, the Co-op had 17 employees. Average monthly wages in 2019 were estimated to be $34,837.
Some also questioned the choice of the store’s location, but Mathern said the Co-op was acting on professional advice.
“We had a marketing analysis of where the store should be located,” Mathern said. “We paid for that analysis, and that actually noted that location: Between a food desert to the west, and a starting downtown community of development.”
He said their building was never fully occupied, but if it had been it might have helped.
They also tried various action items to increase revenue, he said, such as reducing inventory to only what was selling, but it wasn’t enough.
And, as he pointed out, some Co-op members weren’t regular store patrons.
“There was a group of members,” he said, “who became members, I believe, to support a community effort.”
Voting members are required to make a one-time payment of $300. Mathern estimated 1,653 members had signed up through June 2017. By 2019, he said 2,285 members had full or partially-paid memberships.
Too little too late
Fargo isn't alone in its struggle to keep a Co-op open.
Amazing Grains Natural Food Cooperative, which folded in May of 2017 in Grand Forks, ultimately closed due to lack of revenue, but the reasons were markedly different from Prairie Roots in many respects.
“First of all, we kept up with our bills,” said Dexter Perkins, who was board chairman at the time.
Even though Amazing Grains was solvent when it closed, he said, they had been losing a lot of money each month.
“You could draw a line on a graph,” Perkins said. “It wasn’t even close to sustainable. Not even close.”
While they had a niche market, and a small group of loyal customers, it wasn’t enough to keep the Co-op’s doors open.
“We just weren’t big enough,” he said, “and, ultimately, I think that’s one of things that led to our demise.”
Big chain markets moved into Grand Forks and started selling the same products more cheaply.
“The difference in price, we kept telling our customers, is not all that great,” he said, “but we may have been deluding ourselves.”
It turns out they were. Price checks at the time, he said, proved that.
“The final straw, in terms of competition, was Natural Grocers came to town,” Perkins said.
Sales at Amazing Grains at the time were reported to have been on the decline for years, and Perkins confirmed it was a struggle for them to pay their bills.
But that wasn’t all.
Embezzlement by one of its employees in 2016 led to the loss of “many tens of thousands of dollars,” Perkins said.
“We had a capital problem in there while all this was going on,” he said, “and it just wasn’t sustainable.”
Although the cooperative has technically gone on in name since Amazing Grains closed, Perkins said it has been largely inert and he suspects it will be disbanded entirely within a month.
They had considered investing the little revenue they still have in Prairie Roots.
“We tried to make that happen,” Perkins said, “but it was just going to be too little too late.”
Speculation on the future
In the case of Prairie Roots, Mathern insisted the reasons for the closing are myriad, and he was cautious to place too much blame on any one factor.
“One could say our consultants were inaccurate,” Mathern said. “One could say our membership just didn’t purchase at the level needed. One could say we had an aggressive plan towards organic foods greater than which our community was willing to take on.”
Competition, he said, changed over time, as well.
“We started this 10 years ago with almost no stores having organic produce,” Mathern said, “to almost all stores, now, having organic produce.”
And, while Mathern admitted the Co-op’s overall fixed expenses were high, he also said they were appropriate for the market.
But, in the end, the numbers were crippling enough to force the store portion to close. They surrendered their lease to their landlords, The Kilbourne Group, and their commercial lenders have a lien on their equipment.
“Right now, we’re in the process of negotiating with our lenders,” Mathern said, “and ascertaining the best method to move through this process."
Mathern wouldn’t confirm if bankruptcy would be filed, but he did say Co-op members wouldn’t be held personally responsible for any of the debt.
The nonprofit arm, known as the Prairie Roots Community Fund, is still operational, and the cooperative itself will still be functioning, even without the storefront.
What that means, Mathern said, remains to be seen, but at the Jan. 21 board meeting there was still hope.
“Those persons who attended the meeting expressed hope that a store would be reopened in some way,” he said.