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New Food Co-op Opens in Rural Paoli, Indiana

Paoli, Indiana is a rural community of fewer than 4,000 residents, located 50 miles south of Bloomington (home to the Bloomingfoods Co-op) and 50 miles west of Louisville, Kentucky. The demographics are not typical of most co-op communities. Household income levels are low, and conventional groceries dominate the market as they do in most lower-income areas. However, there is very little competition for the natural foods pie, and Lost River Community Co-op plans to claim a big piece of it in a regional market area of over 50,000.

The concept for Lost River Community Co-op grew from activities of an all-volunteer, nonprofit community development organization, Orange County Homegrown, which also has developed a highly successful farmers market in nearby Orleans and a fledgling summer market in the tourist destination town of French Lick. The organizers of Orange County Homegrown hoped to expand the market for local growers and to strengthen the connection between consumers and local suppliers through a full-service natural food grocery store. Beyond that, organizers recognized that a co-op grocery could also become a community and social center, help revitalize the downtown square, and rehabilitate an existing historic building. It could create employment not only in the store itself but also for craftspeople, growers, bakers, and others who could offer their wares for sale.

There were several pivotal moments in the development of Lost River Community Co-op. At each junction the Food Co-op 500 program and its network helped move the project along. One such moment was during the first general interest meeting in September 2005. Sixty interested people showed up for the first meeting, in response to a simple newspaper announcement and word of mouth-a remarkable turnout for a small rural community. We certainly didn't know where the journey would take us.

At the front of the room were friends from the Indiana Cooperative Development Center, Bloomingfoods Co-op, the USDA, and the conveners from Orange County Homegrown. On a table at the front of the room were all the cooperative documents and brochures we had been able to get our hands on.

Front and center in the literature was the How to Start a Food Co-op handbook. People volunteered to read sections of that handbook and other documents. During a subsequent meeting we shared our growing collective knowledge. How to Start a Food Co-op helped us start down a path, and stayed with us every step of the way.

Allies and grants

The fact that Food Co-op 500 existed was an important catalyst as we started to develop our local co-op idea. We thought we had reasons to start a food co-op, such as offering healthy food choices to an underserved area and helping to develop a market for local products. But it was pivotal that the national cooperative network also felt it was important to grow the number of food co-ops in the country. Outside experts with co-op experience knew that co-ops were a viable and sustainable economic development model. We weren't alone and we weren't crazy.

While the co-op started as a project of Orange County HomeGrown, the organizers decided early on to form a new organization, named the Orange County Cooperative Development Corporation, to promote this and other cooperative businesses. We chose to do business as Lost River Community Co-op, taking the name from a local landmark.

As we went down the path of gaining more knowledge and finding a direction, we met more competent people who helped steer us. Many of our consulting relationships grew from suggestions by Bloomingfoods staff and board members. We met Bill Gessner from Cooperative Development Services (CDS). Two of us attended a board retreat Bill led in Ohio. During that session we first heard of the four cornerstones developmental model developed by CDS and used by Food Co-op 500. That model made sense. We went back home and crudely drew the outline, showing the planning, development, and implementation timelines at a board meeting. We were able to recognize where we were on the development grid.

Another pivotal moment came when Lost River Community Co-op was applying for the Seed Fund grant. With the help of Richard Dines at NCB Capital Impact, we completeded the grant application, which forced us to answer fundamental questions about the status and direction of our project while identifying our current needs with respect to talent, capital, vision and systems. Having a complete concept narrative as part of that grant application paved the way to developing a real business plan. We have referred to that concept narrative often.

The Seed Fund award and grants from the Indiana Cooperative Development Center were key to getting us off the ground. An early ICDC grant allowed us to incorporate and to get a market study completed by Pete Davis. The Seed Fund grant was used to develop marketing materials, which allowed us to address the community about the food co-op idea and to begin membership recruitment. It allowed us to construct a business plan with Bill Gessner and other CDS consultants. The grant also enabled us to find professional accounting services and advice and to launch our member loan program.

A subsequent ICDC grant helped us finish what we started-in business planning and financial projections and board development-and to implement the store opening. Without grant backing, it would have been much harder to raise enough funds to use all the professional tools to recruit members, attract member loans, or find other financing.

Through the Food Co-op 500 program we also have been able to talk to other startup groups around the country. From that, we realize that our early grants helped us to obtain professional services such as a feasibility study, business and financial plans, and board advice that were essential to our development.

Once Stuart Reid was on staff for Food Co-op 500, he became an additional resource. He was the first consultant to visit and confer with the board. Stuart has been particularly helpful with practical advice on opening and operating a store. His experiences with another startup have been invaluable. From the beginning, Stuart was included in our board Yahoo group discussions and could "pipe in" on any subject or issue. He has been readily available and is a participating partner in our endeavor.

The Food Co-op 500 Seed grant also allowed us to get the best from Cooperative Development Services (CDS) and the larger food co-op community. Bill Gessner helped us face financial realities and helped us prepare to present our co-op story professionally to the community and to funders. Mel Braverman has been invaluable by helping with board development and many operational needs. PJ Hoffman from CDS and UNFI helped us develop a store design despite our great mountain of ignorance.

Local foods naturally and natural foods locally

The store we created is a full-service grocery store featuring natural and organic foods, some conventional items, a large produce department, prepared deli foods, regional cheese, and dairy products. It includes over 150 bulk food items; over 120 bulk teas, herbs and spices; and a full line of bulk, fair trade coffees. We also carry a large selection of local and craft beers and wines, nutritional supplements, and health and beauty aids. The co-op features a self-service deli with daily salad bar selections, prepared sandwiches, and hot soups. Indoor and outdoor seating areas are available.

We have a beautiful store with friendly staff and happy customers-but not as many as we had planned for. As with most new co-ops, things have not gone exactly as planned. Sales will need to double in order to reach the daily average that the original financial pro formas were based on.

Location may be a part of the problem-although the co-op is only a block off the town square and near major thoroughfares, it does not have ideal accessibility, and off-street parking is limited. In addition, cost of food is a major issue in a low-income community, and Lost River does not have the buying power of larger stores. To address these issues, the co-op has increased signage and advertising, promoted member discount coupons, and adjusted its inventory to include more conventional basics.

It would be simple to say that we opened with not enough money and members in a less than ideal location, and that got us into trouble. But the challenge is actually more complex. It is about setting new expectations for a market like ours and figuring out what makes members shop enough to support the co-op every day. We may not reach $1.5 million in our first year, but can we make this work at $870,000 and growing? We think we can.

But we couldn't do it without our general manager, Brad Alstrom. He did an outstanding job at developing a viable 2008 plan based on our experience in the first three months. The 2008 plan has stiff criteria to meet. We must grow revenue, we must add 20 members each month (we've met early targets), and we must bring in $7,500 in member loans each month (so far we are reaching this goal also). We are in line to get a community grant, $20,000 of which can go toward our 2008 budget.

Alstrom recognizes that a lot remains to be done. "It's been an exciting few months since we opened our doors-a bit of a roller coaster ride for all of us. Now we have the challenge of keeping our shoppers satisfied, to make sure they keep coming back.

"In some respects I think we have done quite well. The deli has especially been a huge hit with lunch customers. The produce department dazzles shoppers. And we've heard a great many customers remark how glad they are they don't have to drive to Bloomington anymore to do their shopping.

"In other respects, we still have loads to learn in order to make our store a success. Our sales have not yet met projections or our expectations. We are still working to introduce the food co-op to many of our potential shoppers throughout the trade area. We know that we need to grow our sales quickly in order to remain a viable cooperative for the long term."