About that Red Ink at the Co-op
The management team at the Hanover Consumer Cooperative Society noticed my post from yesterday, highlighting the fact that unaudited financial results for 2020 show pre-tax red ink of $355,000 on sales of about $85 million. They were kind enough to provide a bit more information in an effort to put those losses in context.
First let me reemphasize -- as I tried to stress yesterday -- that the Co-op plans to take advantage of the loan forgiveness offered by the federal pandemic relief effort known as the Payroll Protection Program (PPP). In fact, the Co-op expects to see a $2.3 million boost via forgiveness of the PPP loan it received last year. When that happens, the red ink (savings before taxes, in the accounting parlance of consumer cooperatives) will disappear and there will be positive savings before taxes of $1.9 million for last year.
I don't know whether an edgier approach to accounting would have allowed the Co-op to assume foregiveness of the PPP loan in its preliminary financial results. I certainly can't criticize the Co-op for being more conservative than that in its initial reporting of its 2020 financials.
What's the moral of the story? I think it's that the Payroll Protection Program has been an economic savior at a time when communities are as stressed as they have been in my lifetime. Without that PPP loan, the Co-op would likely have had to trim its payroll and curtail its operations, right when the members and employees of the Hanover Consumer Cooperative Society needed the Co-op most. The PPP has been a critical lifeline to many employers.
In reaching out to me, General Manager Paul Guidone highlighted a number I did not mention yesterday -- earnings from operations in 2020 that showed a small loss ($41,000). Paul didn't say this, but I will: that basically means operations were a break-even proposition last year for the Co-op. He correctly pointed out that sales last year were "very strong" and that because of the pandemic the Co-op had to invest in protective equipment and temporary employees (to get curbside grocery delivery up and running). Finally, as Paul noted, the Co-op deserves credit for maintaining its compensation and health benefits at a time when grocery store employees were (and are) on the front lines of the pandemic.
Page 26 of the January Board packet reports (unaudited) earnings from operations of approximately -$41,000 and Savings Before Tax (SBT) of approximately -$355,000. I will put these figures into context.
"In an employee email, and communication to the Board and the member community, I stated that we would reinvest our (gross) margin back into our employees and our facilities," said the General Manager. "That is exactly what we have done. . . . [W]e effectively reinvested our earnings from operations . . . and broke even by losing only $41,000."
At their best, consumer cooperatives are tailor-made for economic crises. It is no coincidence that the Hanover Consumer Cooperative Society was born in 1936, as the nation was climbing out of the Great Depression. When you shop at one of the Co-op Food Stores, nobody is wearing heroism or courage or fortitude on their sleeve -- you just see a normal grocery store. But in these times, that very normalcy is a profound statement and a source of reassurance to an addled community.
In the long run, as the pandemic (I hope) abates, the Co-op will need to continue the hard work of assuring its longterm financial viability in the face of intense race-to-the-bottom competition from the investor-owned supermarket chains. The Co-op will have to combat the widespread but incorrect belief that shoppers get a better deal at the supermarkets.
That makes this a great time for people of goodwill to seek election to the Co-op's Board of Directors. If you are reading this on or before February 1, check out this excellent opportunity!
[Do you recognize the spot in the photograph? Hint: it was taken in 2007 (so the kid in the photo is now a college student).]