Pro Formas and the New Competitive Challenges

Pro Formas and the New Competitive Challenges

  |  October 26, 2017

In the grocery world, we live in challenging times. Costco and Wal-Mart carry organic products. Supermarket chains tout local produce and have a house brand of organics. Home delivery has everyone buzzing; even Amazon is getting into the action.

Pro forma financial statements are forward-looking projections of how your co-op will perform given a specific set of assumptions. They are useful in many ways, especially for new stores and expansions where your co-op is headed into uncharted waters.

Intensifying competition has many implications for your co-op and all of them in turn impact your pro forma financial statements. Let’s take a closer look at some key areas impacted—sales, gross margins and labor.

Sales. If you’re contemplating a new store, an expansion of an existing one, or a new competitor, one of the tools you’ll need is a market study by an experienced analyst like Debbie Suassuna of CDS Consulting Co-op. That study will predict your co-op’s sales potential over a three-year period based on how a mature store should perform. The study reflects the market in which your co-op is located and the increasing competition from other consumer channels. One trends we’re seeing is that even though sales potential exists in the market, co-op sales are taking significantly longer to reach maturity. Therefore in the pro forma we conservatively discount projected sales from the market study during the first three years.

Margins. With more channels now providing the products and services that your customers are used to finding at your co-op, there’s pressure to lower prices to stay competitive. If your prices need to come down, but your product costs are steady, you’re going to have lower gross margins. We will work with you to accurately project what margins you should expect in the years ahead.


Labor. After subtracting margins from sales, what remains has to cover a lot of costs—labor, packaging, rent, utilities, interest on loans and a whole lot more. Many of those other expenses are primarily fixed. Reducing labor costs is the one place your co-op can meet the new competitive landscape. There are two ways to do that: work the same number of hours but lower the cost per hour (which could be counterproductive) or lower the number of hours required to do the work. If you measure efficiency in sales per labor hour, you can increase that measure by reducing the labor hours. Actually, there’s a third way— increase sales without increasing the labor required. The bottom line: your co-op needs to examine every task with an eye towards being as efficient as possible.

The grocery industry is changing rapidly, and it gets more challenging every day. Sales, margins and labor are all impacted, and in turn pro formas are clearly indicating the new challenges. There’s good news, though! Co-ops can provide an attractive value proposition for customers by understanding their niche and being responsive to the market.


About the Author

Don Moffitt

Pro formas, Feasibility & Project...

[email protected]

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