Case Study: New Pioneer Co-op — Improving Profitability During a Recession

Case Study: New Pioneer Co-op — Improving Profitability During a Recession

Columinate | 30-07-2009

newpiNew Pioneer Co-op
Iowa City, Iowa
Founded: 1971
Number of members: 18,000
Number of employees: 160

  • Retail square footage:* Iowa City, 5,500; Coralville, 8,000

Equity investment: $60 householdIn the nearly 40-year history of New Pioneer Co-op in Iowa City, Iowa, they had never sustained negative sales growth. In fact, until last summer, the co-op had been experiencing double-digit sales growth. But it was the accumulation of certain forces that led the co-op to what general manager Matt Hartz called its wakeup call.

Last June, Iowa was hit by severe flooding and that turned out to be a pre-shock to incipient falling sales. When the national financial meltdown occurred last October, the store went into negative sales growth and has stayed there. Yet they’ve found ways to be more profitable than ever.

“It’s a new environment for us,” said Hartz. “But it’s also been good in some ways.” Hartz said it forced the co-op to come to terms with some things that were not working well. That old adage about good sales hiding inadequate systems seemed to be true for New Pioneer. “We found some data systems were slow right when needed to get good analysis. These were things we didn’t need as much when we were pushing growth. But now we needed to move faster on making change than we have been used to and to make broader changes right away” he said.

As part of that process, communication to staff about management’s plans to weather the recession were paramount. The lack of sales compounded with the media coverage of the economy and massive layoffs was, frankly, oppressive. “There was a lot of staff anxiety. We worked to address that,” Hartz said.

To Hartz, one of the most surprising outcomes of the process of doing this was how much impact better systems had on payroll expenses. New Pioneer’s goal during this recession has been to keep staff on the job and receive their usual wages and benefits, which are a high load of expenses for the co-op. “We had to get focused on managing payroll on a daily basis.” The management team asked people to do more with fewer hours. “That’s been key to our strong cash flow,” Hartz said.

“Our direct payroll expenses have declined at a faster rate than our sales decline,” he said. “We are aggressive about labor and productivity, so we’ve been able to continue to give scheduled wage increases…we’ve done all this to adhere to the promise we’ve made to our employees: no layoffs, no cuts, and no reduction in benefits or raises.” The co-op has managed to do this through efficiency and attrition, and for a seven-month stretch they only hired one person.

That’s not to say they didn’t invest in a few things they believed were critical to their long-term success. They hired someone to do information technology so data collection and disbursement could happen faster. They also improved their customer service training program. “We didn’t want what was happening to denigrate the shopping experience. We wanted to ensure we can continue to earn people’s business. We know budgets are tight and we want to provide the best experience we can,” Hartz said.

In the long history of the co-op, the recession’s impact on the business is a “blip” according to Hartz. “A pretty big one for sure,” he said, but the board and management are confident the economy will come to a new cycle. “We can’t lose sight of the long term. The current situation can inform our decisions, but not decide them all.” The co-op continues to plan for the future, perhaps to build another store, all while taking care of the basics: building cash, lowering inventory, reducing capital expenditures. “It was healthy for us to get knocked around a bit,” Hartz said. “It made us more focused on the quality of our activities.”

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