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From the GM Perspective: Patronage Dividends

Understanding the numbers
By: LeAnna Nieratko, General Manager | 2018-01-02

With our first patronage declaration coming into effect as of January 1st, I wanted to share my thoughts.

There are multiple categories of stakeholders at the Co-op: The Board, Managers, Employees, Member-owners, Customers, and the Erie community. My job is to make decisions that impact these groups and I must consider, for each decision, who will be on the receiving end of the maximum benefit and who could potentially be losing out. I am given guidelines in the form of Board written policies as to what considerations I am to be weighing; daily challenges require a lot of interpretation of broader policy which can difficult at times.

Patronage can be an especially tricky balance of satisfying the needs of the Board/member-owners while continuing to use additional income to reinvest in the Co-op. A member-owner’s patronage dividend amount is calculated from net income of member-owner sales. This net income is the difference between what we made in sales and what we spent to run the Co-op. With consideration of these two variables, a high net income can indicate money that could otherwise have been reinvested into the business.

Net Income Variables for Patronage

The sales considered for a patronage refund come from member-owner’s purchases. Prior to patronage, our sales results appeared inflated due to the large discount expense that came from the 15% off monthly member-owner promotion (averaging almost $28,000 a month). To ensure we had a large enough margin (the amount left over from sales after the cost of goods), many prices in the store at that time were inflated to absorb the impact of the 15% off. When we discontinued the discount, we were able to lower the price on thousands of items in the store. We also worked in some new promotions including the $25 off of a $100 purchase and the Buy One Get One Free sandwich special in the café. These strategies continue into this year to keep member-owner benefits, while also being more equitable for nonmember-owner shoppers. Increasing sales will always be a great strategy to bringing in a high net income (and thus potentially distributing a sizable patronage refund), so it is always front-of-mind for considerations impacting the Co-op.

The other net income variable is expenses. Expenses cover a number of things; some consistent and predictable (payroll, Cost of Goods) and some are periodic investments in the facility, staff, or property. For example, in the 2016-2017 year, we took on a few expenses that we felt met our Ends statements and provided community benefits including: raising the wages of over 52% of our staff to be above the living wage for Erie county, offering a variety of free classes in our community room and installing the 26th street rain garden. These expenses come out of our total potential net income, which also pulls from potential member-owner year end patronage refunds. For each large one-time expense, I share with the Board the cost and benefit. They then vote on whether it seeks to meet the Ends and mission. This was the case with the rain garden and the beautiful new dry tables for the produce department. The Board does not need to approve more consistent expenses that are small in total, but large over time (wage adjustments and additional employee benefits). In these cases, I must carefully weigh the long-term benefit against that cost as it relates to our Ends, as well as ensure that it aligns with our policies. We have to weigh the options between what will drive a higher net income and what will be a necessary investment in the Co-op’s future or its mission.

2018

For this upcoming year, to continue to encourage sales, we are introducing many new promotions (stay tuned)! We will continue to invest in training for our staff to meet the needs of customers and continue to drive healthy revenue. From the expense side, we are investing in the food truck and a hot bar/salad bar for the café. We are now offering a retirement package for employees for the first time, and are continuing to look into how we can meet the living wage needs of our staff. This is just to name a few things for the upcoming year!

If you ever have questions about the value of investing in the Co-op, please feel free to reach out to me at GM@wfcerie.coop. Member-owners are also invited to attend our Board meetings on the third Wednesday of the month at 5:30 pm in our community center.

I hope this better explains the patronage refund. I also hope you are excited about the positive changes we’ve made for you, our member-owners and shoppers, as well as our dedicated employees and the Erie community.

I am excited about the Co-op’s future. Stick around to see what we have coming for you!

Sincerely,
LeAnna