Twin Cities Co-op Partners Annual Report 2018

2018 TWIN CITIES CO-OP PARTNERS

ANNUAL REPORT

Letters from the CEO and Board • Financials • Giving Report

Le t ter From the CEO

By Josh Resnik

W

e recently completed our first year as a consolidated organization — Twin Cities Co-op Partners.

I am pleased to report the organization is doing very well. Two years ago, owners at the Wedge Co-op and Linden Hills Co-op voted overwhelmingly in favor of joining together in cooperation to become one organization. I appreciate the trust that owners placed in us and am happy to report that in the first year we have delivered on many of the advantages promised as a consolidated organization.

We have lowered prices on thousands of items, increased our owner discounts and expanded our low-income affordability and Change Matters programs to all retail locations. All of this while retaining the unique character of our two heritage co-ops: The Wedge and Linden Hills Co-op.

have introduced 3,144 new items across our retail locations.

On an everyday basis, we evaluate owner requests, sales trends, and new products to continually refresh our product offerings. This has led to an increase in everything from plant-based pastas to new beverage options (switchels, kombuchas, cold brew coffees, and juice shots).

We often see buyers from other food retailers walking our aisles to learn about food trends.

We have a very talented and experienced staff and we are always trying to raise the bar on customer experience. This year, we hired a full-time trainer for the organization who led a customer service training that all employees attended.

Looking Ahead: In continuing to keep ahead of retail trends and improving the shopping experience for our customers, we are completing store refreshes at both Linden Hills and Wedge. At Linden Hills we have freshened up the store with new painting and lighting and installed better produce tables. At the Wedge, we’ve expanded the hot bar and soups and added more space for sale items and ready-to-heat meals. We’ve also installed a self-serve kombucha tap and integrated the breads into the grocery aisles for easier access.

Overall TCCP saw 2.8% growth in fiscal year 2018 — finishing the year with sales of $69.8 million. We also saw increases in our operational efficiency and, as a result, saw profitability in FY’18. The growth was spread fairly evenly across the organization with growth in each of our business units. The following is a summary of some of the biggest accomplishments of the past year, and a look ahead to what is coming in the next year.

R ETA IL ( Wedge and Linden Hills Co-op) FY’18 Accomplishments: The year started with aligning pricing on like items in grocery and Health and Body Care across all retail locations, resulting in lower prices on thousands of items. In our Produce, Meat & Seafood, and Prep Foods departments we worked on providing better values on high quality items through the adoption of our new weekly Fresh Flyer program. Additionally, we introduced Flash Deals, which offer customers amazing prices on popular items. Through effective centralized buying, we were able to provide these price savings to our customers without negatively impacting margins. In fact, we improved our overall operational efficiency across the business for strong financial gains.

We continue to differentiate our stores by being first to market with new on-trend products. Over the past year, we

This fall, we launched our “pulse periods” program that celebrates things like the fall apple season with big displays around our unique items, direct mail discounts for owners, and special seasonal products (like the apple sausage in Meat & Seafood or apple pastries in the bakery). We will be celebrating six of these month-long events over the course of the year that highlight the best of local.

W H O LE SALE (Co-op Partners Warehouse) FY’18 Accomplishments: In the past year, we have continued to expand our business, connecting small farms and producers with

2018 ANNUAL REPOR T — 2 —

Le t ter From the CEO retail outlets in a 7-state area of the Upper Midwest. We added 55 new customers in the last fiscal year, expanding the number of active customers to 450. Our list of new accounts covers a wide range of geography and types of business, including food co-ops (Prairie Roots in Fargo, ND and Manna in Detroit Lakes, MN), independent grocers (North Market in north Minneapolis and Healthy Harvest Urban Farms in Rock Island, IL), popular local restaurants (Young Joni, Fig & Farro, and Evan’s Organic Eatery), local cafes (Geek Love Café, Penny’s Coffee, and Northern Coffeeworks, and juice bars (Vibe in St. Louis Park and Velo Café in Cable, WI).

As the Twin Cities continues to build a national reputation for local food startups, CPW plays an important role, allowing the companies to focus on their core business (and not spending all their time making deliveries), and taking vehicles off the road to save energy usage. Among the local products we have begun distributing for in the past year are: Spoon Optional (soups), Sacred Blossom (herbal tea), Big Watt Cold Brew (coffee), Gustola (granola), and Forage (kombucha) to name just a few. One great strength at CPW continues to be our flexibility in finding logistics solutions for like-minded businesses. We assist with logistics for Seward Co-op and have expanded our shared real estate relationship with Equal Exchange.

Looking Ahead: We continue in fiscal 2019 to expand our reach through new customers, new products, and innovative partnerships.

One of our goals in the coming year is to do even more to share our unique business model more broadly and increase our impact. We are doing this by creating improved sales materials and a new website, hosting our first CPW “food show”, and hiring a new sales manager to help support the business.

FO O D SE RV I CE ( Wedge Table, Catering, Wedge Kitchen and Bakery) FY’18 Accomplishments: If you’ve enjoyed lunch at the Wedge Table, stopped in at 3:30 after Waldorf School’s dismissal, or attended a free yoga class on a Wednesday evening, you know that Wedge Table serves as a community hub on Eat Street.

We continue to welcome groups for good food and

conversation through our community events and meeting spaces. The Wedge Table is at the forefront of food trends in everything from smoothie bowls to turmeric lattes to the latest grain bowl recipe.

Back of house, we significantly increased our production in the commissary kitchen and bakery. In addition to “selling” more product to our own retail locations, we have established relationships with most local co-ops in the Twin Cities and several coffee shops. We rolled out a new program that provides made-from-scratch deli salads and hot bar meals for co-ops in the region and are distributing those through CPW. With the increased production, we have adopted many operational efficiencies while still emphasizing the highest quality ingredients and craftsmanship of production.

Looking Ahead: We have come such a long way in the past three years in improving the quality and efficiency of our culinary operation. I’m so proud of our team for the advances they’ve made. In the next year, we’ll continue to move the business forward through new cutting-edge recipes for the Wedge Table and our grocery stores, heat and serve meals, the rapid expansion of our catering business, new bakery wholesale accounts, and new equipment to help us operate more efficiently.

S TAK EH O LDER S As we evaluate our performance, I think it is important to ask — who are we in business to serve? Ultimately, for us to be successful as an organization we need to provide value to all of our stakeholder groups: our owners and shoppers, employees, vendors, and community.

Owners/Shoppers: At the core, as a consumer-owned co-op, we need to serve the needs of our 22,500 member-owners. That starts with a great shopping experience at each of our retail locations.

Through some changes to our owner benefits program at consolidation, we provided over $850,000 in owner benefits over the course of the year — that averages $40 in owner benefits for each owner household. And these are immediate, real-time benefits that owners can enjoy through the year when they shop. By comparison, the Wedge and Linden Hills combined provided $750,000

2018 ANNUAL REPOR T — 3 —

Le t ter From the CEO in owner discounts a year ago and $650,000 three years ago. In addition to these monthly owner benefits, we used our power of improved scale to provide lower prices on thousands of items every day, and more value through the introduction of flash sales and our expanded weekly Fresh Flyer specials.

vendors. We sell ingredients to Local Crate through CPW, sell Local Crate meal kits at our co-ops, and also distribute their kits to other co-ops through CPW. 3) In the hot bars at the Wedge and Linden Hills, we began featuring Thai curry basil tofu and five spice chicken using recipes from popular local Thai restaurant Sen Yei Sen Lek.

Great shopping experience and benefits aside, our owners are part of something bigger, investing in a business that is truly local and supports a strong local food system.

Community: When the Wedge and Linden Hills joined together, we evaluated the best examples of community partnership at each co-op and applied some of those across the organization. For example, the Co-op Affordability Project, which was launched at the Wedge in 2015, was extended to Linden Hills Co-op. Through this program last year, we provided $225,371 in savings for low income households, providing greater access to healthy food. Linden Hills adopted the Wedge’s Change Matters program in January and through the leadership and coordination of the TCCP staff and generosity of our owners and shoppers, we donated over $120,000 to a dozen community organizations in the last fiscal year.

At the Wedge, we brought over the successful Co-op Explorers program from Linden Hills to provide free fruit to over 1,500 kids during their trips to the co-op.

Employees: Supporting a strong employee base is one of our biggest assets as an organization. We are proud of the fact that we provide meaningful career opportunities and have many employees who have been with the organization for 10, 20, or even 30 years. We’ve shown our commitment to employees by investing in a full-time training coordinator who has developed programs around customer service, diversity training, and safety. There have been economic benefits to employees through consolidation including decreases in employee healthcare contribution costs (compared to continuing with individual plans) and benefits improvements for many employees in in-store discounts, retirement plans, and life insurance levels. At Linden Hills Co-op, employees voted in the Spring to be represented

by UFCW 653. We conducted an amicable negotiation process that resulted in a contract that both employees and management felt good about ratifying.

Vendors: In the past year we continued to connect our shoppers with the very best in local ingredients. We have always sold produce shipped directly from local farms and been one of the first retailers to sell products from local companies. But this year we expanded our definition of how we support a local food economy with three unique partnerships.

1) Rise Bagel developed a loyal following through the Fulton Farmers Market and then opened their own retail location in the North Loop. Now TCCP is the sole retailer of Rise Bagels outside of their shop. We receive fresh bagels every day at all three retail locations.

2) Nationally, meal kit services are on the rise, with companies like Blue Apron, Hello Fresh, and Plated shipping readyto-cook meals directly to homes. TCCP partnered with Local Crate, a local meal kit company that features ingredients from local farmers and

— While the world of food continues to change at an ever faster-pace around us, we find that the fundamentals that created our success for the last four decades continues to be our best guide for how to operate today. By building trust with customers through transparency and stringent product standards, creating connections for customers with our staff and those who grow and produce their food, and supporting a more just and equitable food system and community, we succeed both in business and in upholding our values. It is an honor to serve all of you, and we truly appreciate your support of Twin Cities Co-op Partners.

2018 ANNUAL REPOR T — 4 —

Le t ter From the B oard Clockwise from top left: Sarita Parikh (Treasurer), Emily Anderson (Vice President), Tom Pierson (Secretary), Emily Paul, Matthew Larson, Jane Schommer, Alex Slichter (President).

T

he Twin Cities Co-op Partners Board of Directors is pleased to report a year of positive changes. The consolidation of the Wedge and Linden Hills was a huge undertaking. The TCCP board spent this year focusing internally to ensure the success of the consolidation and improve operations. As we look back, we can confidently say that the results were markedly better than expected.

With consolidation, we planned for at least $100,000 in savings without eliminating positions. After our first year as a consolidated organization, our cash-in-hand savings are more than double that amount. Many savings came from increasing efficiency and consolidating administrative offices. Leveraging our wholesale and commissary businesses into all our locations continues to improve our consistency and bottom line while keeping business “in the family.” Savings like these allowed us to lower prices on almost 2,000 items throughout the stores.

Aside from the financial success of the consolidation, I am most proud of how easily the two co-ops joined together.

Staff focused on what could be learned and what was best for the entire organization. The board heard frequent examples of store departments talking about how to best promote an item, improve store areas, and share resources.

While each store certainly has its own feel and vibe, we are stronger together.

The TCCP Board navigated the first few months of the new consolidated cooperative by forming committees, writing and amending policies, and aligning cultural norms and processes. We decided to adopt the Wedge’s resultsbased governance model rather than Linden Hills’ policy governance. During such a dynamic time, we believe it was the best approach to setting a clear priority for the year.

As one year ends and another begins, we naturally begin to plan for the future. In the 2018/19 year, we plan to shift our focus outward to seek out new opportunities and unmet needs. With better financial footing and a clear operational plan, we are eager to continue working with our owners, employees, and communities to chart the next course for Twin Cities Co-op Partners.

TRE ASURER’S REPORT

By Sarita Parikh TCCP Board Treasurer

T

his fiscal year marks a notable upswing for the newly consolidated Twin Cities Co-op Partners (TCCP): Pre-tax net income is a positive $134,000 compared with a pre-tax loss of $1.9 million last year.

The staff did an excellent job of growing sales while closely managing expenses.

Sales were $2 million higher than the prior year, while expenses were actually $600,000 lower than the prior year. This is the result of focused, thoughtful execution by the team.

Over the last fiscal year, TCCP has returned over $1 million directly to owners through monthly rebates, the Co-op Affordability Program, special sales, and C-share dividends. Owners received $850,000 of discounts throughout the year. TCCP contributed $240,000 of food to local food shelves. In October 2018, C-share dividends were paid to the 315 owners who have made equity stock investments in the co-op. In short, TCCP has shifted from once-a-year, small patronage payments to providing ongoing monetary value to all owners, throughout the year. The newly consolidated organization also continued to support and promote local food producers, community initiatives, and education.

TCCP continues to have a strong balance sheet and cash position. Cash generated by operations was over $1 million. TCCP’s external auditors noted that the organization has strong financial checks and balances.

Two significant accounting adjustments resulted in a P&L net income loss of $422,000: Firstly, the corporate tax rate was reduced from 35% to 21% in early January 2018, reducing the value of TCCP’s deferred tax assets by $500,000; Secondly, the sale of the Gardens of Eagan property resulted in a $200,000 loss.

Looking back over the last year, I’m proud of the efforts and success of the TCCP staff in their work to both consolidate and grow Twin Cities Co-op Partners in the extremely competitive natural food environment. They have focused on growing a stronger customer experience and increasing operational excellence while maintaining the co-op values of democracy, sustainability, equality, and inclusivity.

Thank you for supporting your co-op.

2018 ANNUAL REPOR T — 5 —

Twin Cities Co-op Partners

BALANCE SHEETS PRO FORMA (UNAUDITED)

ASSETS

JUNE 30, 2018

JUNE 30, 2017

CURRENT ASSETS Cash Investments Inventory Prepaid Receivables TOTAL CURRENT ASSETS

$ $ $ $ $ $

4,264,716 2,272,964 2,644,137 173,708 1,381,922 10,737,447

$ $ $ $ $ $

4,101,608 1,568,347 2,436,237 110,544 1,275,793 9,492,529

FIXED ASSETS Property & Equipment, Net Farm Prop. & Equip. Held for Sale TOTAL FIXED ASSETS

$ $ $

12,862,660 - 12,862,660

$ $ $

14,099,462 949,582 15,049,044

OTHER ASSETS Investments Investment in Other Co-ops Other Assets TOTAL OTHER ASSETS

$ $ $ $

1,529,677 1,495,333 721,766 3,746,776

$ $ $ $

944,682 1,453,089 1,453,089 3,778,693

TOTAL ASSETS

$

27,346,883

$

28,320,266

L I A B I L I T I E S CURRENT LIABILITIES Current Portion of Long-term Debt Accounts Payable Accrued Expenses Accrued C Share Dividends TOTAL CURRENT LIABILITIES

$ $ $ $ $

510,107 1,702,917 1,530,641 228,463 3,972,128

$ $ $ $ $

522,171 1,463,933 2,308,639 76,257 4,371,000

LONG-TERM DEBT

$

4,466,631

$

2,874,409

EQUITY Class A Stock Class B Stock Class C Stock Refund Equity Certificates Accum. Other Comprehensive Income Retained Earnings TOTAL EQUITY

$ $ $ $ $ $ $

222,600 1,981,593 1,897,500 8,701,071 (12,863) 6,118,223 18,908,124

$ $ $ $ $ $ $

881,760 2,715,215 1,905,500 8,701,071 442 5,668,457 19,872,445

TOTAL LIABILITIES & EQUITY

$

27,346,883

$

28,320,266

2018 ANNUAL REPOR T — 6 —

Twin Cities Co-op Partners

Statement of Income and Retained Earnings PRO FORMA (UNAUDITED)

JUNE 30, 2018

JUNE 30, 2017

GROSS SALES $ 70,508,723 $ 68,446,157 Less: Member Discounts $ 849,222 $ 753,490 NET SALES $ 69,659,501 100.0% $ 67,692,667 Cost of Sales $ 45,317,249 65.1% $ 44,640,108 GROSS PROFIT $ 24,342,252 34.9% $ 23,052,559

OPERATING EXPENSE Payroll $ 15,696,049 22.5% Shipping & Delivery $ 2,107,387 3.0% Farm $ - 0.0% Depreciation & Amortization $ 1,096,672 1.6% General & Administrative $ 5,012,402 7.2% TOTAL OPERATING EXPENSES $ 23,912,510 34.3%

$ $ $ $ $ $

15,204,042 1,858,019 146,498 1,110,373 6,226,446 24,545,378

100.0% 65.9% 34.1%

22.5% 2.7% 0.2% 1.6% 9.2% 36.3%

OPER ATING PROFIT $ 429,742 0.6% $ (1,492,819) -2.2%

OTHER EXPENSE Interest Expense $ $(190,519) -0.3% $ (143,858) -0.2% Interest Income $ $39,786 0.1% $ 35,144 0.1% Other Income $ $83,811 0.1% $ 308,737 0.5% Other Expense $ $(29,382) $ - One-Time Expenses $ $(199,268) -0.3% $ (622,118) -0.9% TOTAL OTHER $ $(295,572) -0.4% $ (422,095) 0.6%

INCOME BEFORE INCOME TAX INCOME TAX (EXPENSE)/BENEFIT

$ $

0.2% -0.8%

$ $

(1,914,914) 133,221

-2.8% 0.2%

NET INCOME $ (422,145) -0.6%

RETAINED EARNINGS $ 5,668,457 (Beginning of year) CONSOLIDATION ADJUSTMENTS (NET) $ 1,024,113 Less: C SHARE DIVIDENDS ACCRUED $ (152,202)

$

(1,781,693)

-2.6%

RETAINED EARNINGS (End of year)

$

2 018 B OA R D O F D I R E C T O R S T I PE N D S President $11,358.82 Vice President $9,736.13 Secretary $9,736.13 Treasurer $9,736.13 Directors $8,113.44

134,170 (556,315)

6,118,223

$

7,526,570

$ $

- (76,420)

$

5,668,457

Annual Board Stipends adopted by the TCCP Board of Directors for 2018–2019.

2018 ANNUAL REPOR T — 7 —

Open Arms of Minnesota Joyce Uptown Food Shelf Groveland Food Shelf Sabathani Community Center The Food Group

Co-op Affordability Project keeps growing!

386

new co-op owners through CAP over the past year.

In FY’18, TCCP provided

$ 225,371 in discounts

to CAP owners to provide greater access to healthy, affordable food.

$ 240,000

S

AT

NG E

in change was collected at the registers for 5 local food shelves.

HA

M

$5,270.57

C

GIVING REPORT

TER

Ever round up at the register?

That’s Change Matters!

This year we raised

$ 120,701

for 12 local organizations!

We expanded the program to Linden Hills in January.

24th Street Urban Farm – Mashkiikii Gitigan Kulture Klub Collaborative North Country Food Alliance Early Childhood Family Education Open Arms of Minnesota Vail Place Frogtown Farm Land Stewardship Project Minnesota FoodShare Tanka Fund* Midwest Food Connection Appetite for Change

*Tanka Fund received the highest amount of the year,

$13,223!

They’re using their Change Matters funds to help return buffalo to the land, diets and economies of American Indian people.

distributed in food to local food shelves Staff volunteered over

476 hours at organizations like...

Free Arts Minnesota Full Cycle Girl Scouts of Minnesota Great River School Hennepin County Library Bookstore

We supported

120

local organizations

with gift cards and in-kind donations totaling

$7,220.

50,000 samples

of new and nutritious foods were distributed to local students in

46

schools through our sponsorship of the Minneapolis Public Schools (MPS) True Food Taste Tests, which encourage children to think critically about food. This year, Wedge Catering chef Nick provided a Moroccan Freekeh recipe that will be integrated into MPS salad bars!

Midwest Food Connection Open Arms of Minnesota Open Streets MN AIDS Project Secondhand Hounds