Arroyo Food Cooperative

Groceries Deli Community Classes Caf Brew Pub Farm

Business Plan

Developed By Patrick Reagan and the Founding Team

10/09/2009 v2 This business plan has been developed to establish the Arroyo Food Cooperative: to foster community support, inform new Board of Director candidates and to support membership/loan campaigns necessary to raise community capital.

Table of Contents

Sunseed Food Co-op, Cape Canaveral, FL (used by permission)

Executive Summary.........................................................................................3 Mission Statement...........................................................................................4 Vision Statement..............................................................................................5 Company History and Biographies..................................................................6 Market Area.....................................................................................................9 Industry Analysis: Diagram...........................................................................10 Industry Analysis: Description.......................................................................11 Industry Analysis: Characteristics.................................................................12 Market Analysis.............................................................................................13 Profile and Position of Market Competitors....................................................14 Phases of Development: Explained..............................................................16 Phases of Development: Diagram................................................................17 Organizational Structure................................................................................18 Funding Needs..............................................................................................19 Financial Statement Projection Five Years.................................................20 Conclusion ...................................................................................................22

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Executive Summary
This business plan will introduce the opportunity to develop a consumer food cooperative (co-op) business in the Altadena, California area. This type of business is similar to health food stores but is community owned. They have operated successfully in the United States for decades. Arroyo Food Co-op will be the second food cooperative in the entire Los Angeles area - a market where going green is a rapidly growing trend. The Arroyo Food Co-op will offer more sustainable products than other grocery stores in the market area, will be a more practical choice than what's available from the neighboring Pasadena markets and will empower its members through thoughtful education/social events.

Food Conspiracy Co-op, Tucson, AZ (used by permission of tucsonfoodieblog.com)

The economics and demographics of this opportunity look promising. The Founding Team has been researching this issue since March 2008, have made connections (both locally and nationally) to useful resources and have received much positive feedback from area residents. This is an opportunity to develop an organization that will be the catalyst for further community involvement. The Arroyo Food Cooperative will significantly contribute to the commerce, fellowship and green culture of the greater Altadena community.

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Arroyo Food Cooperative Mission Statement

To engage the ecologically-aware hearts, minds and stomachs of our area by offering the most earth-friendly grocery products and services available. To consistently search for better offerings and to support suppliers that are working toward the same goals. The Arroyo Food Cooperative will differentiate itself in the marketplace by empowering our members with practical product choices, thoughtful education/social opportunities and substantial entrepreneurship encouragement all with an emphasis on supporting a sustainable local economy and strengthening our community.

Weavers Way Farm, a part of Weavers Way Co-op, Philadelphia, PA (used by permission)

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Vision Statement
To become a thriving cooperative grocery store whose core business areas include a juice/coffee bar, deli, prep kitchen, eating area and community room. Additional planned business areas include a bakery, rental kitchen, business incubator program, caf, brew pub and farm. To develop these business areas while pursuing the triple bottom line of profit (for business success), people (consideration of employees and the community) and planet (encouraging a sustainable economy). To become an important, trusted and enjoyed community asset because of its integrity and contributions to the greater Altadena area.

Ocean Beach People's Organic Foods Market, San Diego, CA (used by permission)

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Company History and Biographies

The Arroyo Food Cooperative (AFoCo) is the result of an exploratory committee formed by Patrick Reagan in March of 2008. Kristin Petherbridge attended the first public meeting and has become the second major part of this Founding Team that has sustained the organization so far. The initial goal was to carry out basic research - to identify available resources, tasks to be accomplished and approach to engaging the community. Someone once said that each community has only one chance in each generation to start a co-op. So the team agreed early on that it wanted to manage the community's expectations by limiting publicity efforts until the team had a realistic grasp of what it was undertaking.

Florecita Farm, Altadena CA (c. 1945) Courtesy Julius Shulman

During 2008 Patrick attended the Consumer Cooperative Manager's Association conference in Portland Oregon and made connections with other cooperatives. He visited the Isla Vista Co-op in Isla Vista and the Natural Foods Co-op in San Luis Obispo where he met with store managers. Contact was also made with the Co-opportunity food co-op in Santa Monica where Patrick attended a board meeting, joined that co-op and later, with other members of the team, met with the general manager for a detailed discussion. The founding team's web site (www.altadenawantsacoop.com) was launched in December of 2008. Here results of research began to be published and means were established to collect community feedback. A short time later some founding team members attended a seed swap event to carry out an informal survey of possible co-op names and to look for additional team members. Just as the AFoCo celebrated its first year of operation, Harry Redinger joined the team to assist with the development of the business plan and formation of the first Board of Directors. With his encouragement and guidance this business plan came into being. Patrick attended the 2009 Consumer Cooperative Manager's Association conference, this time in Pittsburgh, PA. This helped the Team with more information and contacts for our startup efforts. He also attended the California Co-op Conference in San Francisco where he learned more about our State's co-op laws and met the attorney later chosen to review the Team's incorporation documents. Throughout the summer of 2009 momentum began to build as the Team strengthened its ranks, held more organized social events, tabled at the events of other groups and more frequently published to the web site. Patrick Reagans life story is the apt alignment of skills and experiences to initiate this form of community organization. Raised on the coast of New Hampshire, both his parents had lived through the depression and impressed upon their children the value of being frugal. Due to the harsh New England weather, the close proximity to the Atlantic ocean and the pollution issues of the day, he developed a strong awareness of the environment and man's impact upon it. He acknowledged the very first Earth Day by collecting litter from his neighborhood roads. His parents introduced him to the joy of home gardening - which he's practiced nearly everywhere he's lived. The New Hampshire coast at that time bristled with cold war activity: a nearby Navel shipyard built and serviced submarines; an Air Force base maintained a constant aerial nuclear deterrent. Growing up within sight of these weapons instilled in him how short life can be. Page 6 of 22

Arroyo Food Cooperative Business Plan

Patrick's career path always sought a balance between art and business. In college he received a degree from the Rochester Institute of Technology that combined photography and business. He first worked in Seattle for a professional photography laboratory where he soon realized that he wanted to be involved in a more creative and growing industry. He next established a Film and Video production partnership in Denver CO which struggled for being under capitalized. He then moved to Southern California where he quickly landed a job with the Walt Disney Company. His affiliation there lasted 14 years during which he was involved in animation production: "Prince and the Pauper" (Production Secretary), "A Goofy Movie" (Associate Producer) and "Twisted Tales" (Production Manager). Animation projects are long and detail intensive. To maintain control over his projects Patrick developed his own computer software tracking tools. He eventually transitioned into developing custom applications to support all animation production, and most other business functions, of the Television Animation Division. He assembled and managed a small software development group to support the 300+ software users there. Leaving that company in 2004, Patrick has since run a successful software design consultancy. Throughout his life Patrick Reagan has regularly organized or helped organize small groups. Starting from a Boy Scout pack in his youth, through an association of fellow college students, to the Seattle Jaycees, the Arroyo Seco Green Party, the Glendale Peace Vigil and now the Arroyo Food Co-op. While living in Seattle, Patrick was a member of the Puget Consumers Co-op. He was impressed by the strong connection the members felt to this organization. He frequented the smallest of that successful cooperatives many locations and found it to be a smart alternative to conventional grocery stores. For the past ten years or so, both he and his wife have slowly and consistently adjusted their lifestyles to reduce their ecological footprint. This includes recycling, design/installation of a solar electric system, replacing (when needed) appliances/automobiles with more efficient alternatives and seeking more responsible grocery choices. Patrick's effort to organize a food cooperative in Altadena is culmination and continuation of these many consistent factors in his life. Like others in our community he has noticed the lack of contact we have with each other even though we share the same issues of food safety, environmental degradation and failures of large corporations that weve become dependent upon. He sees the cooperative model as a compelling solution to these issues and more. Used successfully for decades around the world, it takes a small group of people to get started but then engages the community to offer new and more rational alternatives. His vision is to begin with a grocery store then use it as a way to educate and encourage budding entrepreneurs so that they may start their own businesses to supply the co-op with eco-friendly products. All parties prosper from this cycle. Along the way the community will have a pleasant green store as a source of daily grocery needs. Patrick also sees how a successful grocery cooperative store could branch out into other businesses areas that agree with its core principles.

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Kristin Petherbridge: Kristin Petherbridge joined the Arroyo Food Co-op efforts at the initial meeting in March of 2008. She is a full-time mother of two young children and her interest in bringing this co-op to life stems from her desire to have more sustainable, whole, real food options available locally and affordably in our community. She also hopes the non-grocery aspects of the co-op (presentations, workshops/classes, member-to-member benefits, etc.) will strengthen the sense of community in the Altadena area. Kristin served on the Board of Directors at the Sierra Madre Community Nursery School, a parent run cooperative nursery school, in the capacity of Corresponding Secretary and Membership. Kristin earned a Ph.D. in molecular cell biology from Baylor College of Medicine in Houston, Texas, and holds a B.A./B.S. degree in biology from Truman State University. She has experience in both academic and pharmaceutical research. She is a member of the United States Patent Bar and was a scientific advisor and patent agent with Akin Gump Strauss Hauer and Feld, LLP. Just prior to becoming a full time mother, she was a selfemployed freelance editor for scientists.

Harmony Natural Foods Co-op, Bemidji, MN (used by permission)

Harry Redinger: Attended one of the team's social events in March of 2009. He consequently began attending the weekly team meetings to assist with the development of the business plan and formation of the first Board of Directors. He joined the Arroyo Food Cooperative efforts to get in on the ground floor of what he believes will become the center of Altadenas community. Harry Redinger is a management consultant, author, and international lecturer on the subject business and career plan development using the Myers-Briggs and Strong Interest Inventory. Since 1993, Harry Redinger has been teaching a business plan development course at UCLA Extension. Because of Harrys area of expertise in business plan development, he quickly realized that one of the primary needs of the AFoCo to initiate its growth and development in the Altadena community was a business plan. Harry Redinger, earned his Masters in Business Administration from Pepperdine University and his Bachelor of Science from California State University Long Beach in Industrial Technology specializing in Construction Management. Before Harry went into business plan development consulting, he logged over 15 years of experience in the Construction and Real Estate Development Industries. Harry is very committed assisting with the formation of the Founding Team and the creation of the business incubator programs.

Many other community members have attended meetings held by the Founding Team. Some were just curious, others wanted to show support, but a few stayed with the team and helped with specific tasks. Starting in May 2009 interest in the co-op effort seemed to increase significantly. Since then the Founding Team has regularly benefited from the skilled assistance about about a dozen volunteers.

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Market Area

Primary Market area Altadena Secondary Market area Pasadena La Canada Flintridge Sierra Madre South Pasadena San Marino

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Industry Analysis: Diagram

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Industry Analysis: Description

Food cooperative stores operate much like independent grocery stores. They offer a wide variety of products and services with the goal of satisfying as many grocery needs for their customers as possible. Co-ops are also similar to health food stores in that their offerings focus on items that are either made from healthier ingredients or are produced in a way that has less impact upon our environment than products offered by conventional stores. For the most part they all rely upon other industries for the products that they sell. Cooperative food stores stand apart from health food stores in that they are member owned. Anyone can shop at the co-op, but those that become members through capital investment benefit in additional ways. Members are eligible for special sale offers and for distribution of some co-op profit through patronage refunds. Members can also vote for or run for Board of Director positions. This way they can have a say in the direction that the enterprise is heading. Moreover, all successful businesses try to keep their owners happy. So member-owners tend to receive more attention from the co-op than they would from a conventional grocery store. All these additional benefits tend to build store loyalty. This helps to keep the business profitable but also provides a healthy number of shopper requests and suggestions that allow the co-op to refine how it interacts with its supplier industries. Without having to live within a multi-store corporate model, cooperatives have more freedom to adjust based upon member feedback. Some co-ops have decided to be strictly vegetarian since this is what the members requested Other co-ops aggressively search out local businesses to provide better products than are available through existing supply channels. This local factor seems to be a part of many existing cooperatives at least informally. The AFoCo Founding Team would like to encourage this in more formal ways. We'd like to offer classes to introduce our community to skill sets that could help them personally and might lead a few to undertake business ventures that would end up supplying the co-op with specialty products. We'd like to be able to offer a code-compliant kitchen on a rental basis and some kind of business development services to help these new ventures get started. We hope to make use of the bounty of fruits and vegetables that our area is already producing. Ideas put forth but subject to full vetting are: selling the produce in the co-op, offering a neighborhood farmer's market and/or purchasing the produce and processing it into salable items. We also want to offer the community more options for socializing. Hence the inclusion of a caf and a brew pub in our plans. Although Altadena does already have establishments that offer similar services we would benefit from variations that offer more green selections. These options will build loyalty and provide more feedback to help our cooperative thrive.

Wheelbarrow Farm, Sunderland, Ontario CAN, a partner of Karma Co-op, Toronto, Ontario CAN (used by permission)

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Industry Analysis: Characteristics

Economic Size of the Co-Op Industry According to the US Census, all Grocery Stores (SIC code 54111) had 1997 sales of $350 billion. The National Co-op Grocer's Association (NCGA) reports that their 111 independent co-op member stores, operating over 140 storefronts in 32 states, had a 2007 combined annual sales of over $1 billion. The largest cooperative operates nine stores, generating over $100 million in annual sales, with over 35,000 consumer owners. The smallest cooperative has less than $1 million in annual sales. NCGA member average sales growth in 2007 was over 10%. According to the Organic Trade Association: sales of organic food and beverages have grown from $1billion in 1990 to an estimated $20 billion in 2007, and are projected to reach nearly $23.6 billion in 2008. This continues to be a fast growing sector, growing 20.9 percent during 2006. Operating Principles of the Co-op Industry All cooperatives, be they food, electricity, banking, housing or some other, are based upon principles that are different than normal businesses. These guiding values were developed during the Industrial Revolution in Rochdale, England and have proven to be successful. - voluntary and open membership - democratic member control - member economic participation - co-op autonomy and independence - member education, training and information - cooperation among cooperatives - concern for community Economic Model Cooperatives may be the only business organization that has to make sense of Karl Marx... From each according to their ability, to each according to their need. ...and Adam Smith... It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest. Cooperatives find a balance by adjusting their policies, membership structure and product selection to meet the needs of their community.

Co-opportunity, Santa Monica, CA (used by permission)

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Market Analysis
Altadena Demographics As of the 2000 US Census, Altadena had... - a population of about 43 thousand people - a population density of 4.8 thousand per square mile - a diversity of 47% white, 31% black or African American, 1% Native American, 4% Asian, 10% from other races, and 6% from two or more races. Also: 20.39% of the population were Hispanic or Latino of any race. - an average household income of $61k per year - 10% of its population under the poverty line - 40% has a Bachelor's degree or higher - municipal neighbors with significant populations It's the opinion of the Founding Team that the spirit of Altadena is marked by these general qualities... - diversity of incomes and cultures - a fairly strong independent streak - a propensity to get along well with each other - a fairly well developed awareness of social and ecological issues

Bellingham Co-op, Bellingham, WA (used by permission of flyingom.com and GetEnchanted.com)

Customer Profile The typical AFoCo customer will be interested in not only good food but also food that's good for the world. They understand that our conventional food system has serious flaws that are already having a negative effect upon our air/land/water and also upon the quality of life for those that produce our food. Of course this customer is looking for good grocery values but they understand that high quality food sometimes costs more because it is not borrowing resources from the next generation. Co-op customers may be looking for specific items to help deal with a health issue. They may be trying to save money by choosing to purchase basic bulk items and fresh produce at reasonable prices. Some co-op customers may want to save time by choosing prepared foods that are wholesome and ready to eat. At other times they'll want something special, so they'll choose from unique local products that were produced responsibly. Sometimes they'll be in search of urban homesteading items that they know only the co-op will offer. At all times our customer will feel relieved to walk into our co-op because they know that this institution is on their side. They'll enjoy what they find and who they find in the store. They'll leave satisfied with their purchases and energized because they've contributed to a more sustainable economy.

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Profile and Position of Market Competitors

Two buyers clubs are already in operation within the market area: NELA and Our Little Market. These groups pool their orders and buy directly from wholesalers. Product offerings currently range from moderate to quite limited. Savings tend to be substantial. What's common is a certain level of inconvenience: shopping hours are limited, more work is necessary to obtain and handle the food, often the orders need to be placed many days ahead of pickup. In the past cooperatives often started as buyer's clubs. The Founding Team takes the prospering of these groups as an indication of significant interest in better food. In meetings with the organizers of these groups, neither has expressed an interest in growing into a full service store. Instead of starting as a buyer's club we're planning on raising capital to open a store so that we may quickly appeal to a larger number of shoppers in the Altadena area.

At least three farmer's markets are in operation: two in Pasadena and one in South Pasadena. These offer high-quality produce, much of it grown in an eco-friendly manner. Some non-produce items are offered for sale. Each of these is open only one day per week and hours of operation are limited. Parking can sometimes be a problem since these are well attended. Prices can sometimes be better than at grocery stores but the main attraction seems to be quality. AFoCo should be able to compliment farmers markets by having more convenient shopping hours and by offering a wider variety of non-produce items.

At least one CSA (Community Supported Agriculture) service exists: South Central Farmer's Co-op. Here customers use a web site to place an order for a box of produce. The delivery is made to a Pasadena church on Sunday mornings. The produce quality is excellent since the harvest probably was done that very morning from their farm outside of Bakersfield. The price is very good at $15.00 minimum. The drawback is that customers have no choice as to what kind of produce they get. Although all is seasonal, personal preferences are not considered.

Two large Whole Foods stores are in open: These stores tend to offer a very wide array of grocery items but receive criticism for high prices, lack of local products and not being true to green values. Their business model relies upon central distribution systems that tends to age produce somewhat and require high volumes that only large concerns can supply. Hence the freshness, intrinsic local qualities and uniqueness of their offerings is limited. These companies also are not locally owned so profits leave the area. Our cooperative should compete well against this organization by being more sustainable and more locally oriented.

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Profile and Position of Market Competitors (cont'd)

Trader Joe's has been in operation in this area for many years although now they're owned by a foreign corporation. They have more human-sized facilities than Whole Foods and offer some organic items but also rely upon a central distribution model and suffer from the same drawbacks of this approach. Complaints are regularly heard about the quality of their produce offerings. Their product selection is somewhat limited but their prices tend to compare very well to other grocery stores. They offer interesting products from around the world. We hope to compete by offering interesting products from around the neighborhood. It's unclear if AFoCo pricing will be competitive when taken at face value, especially while transportation costs are currently low. Assuming fuel prices rise again, their central distribution business model may have trouble competing against locally sourced goods.

Fresh and Easy is attempting to establish themselves in the Southern California area. One store is planned to open in Altadena. They differentiate themselves by offering more convenience but this comes at a cost of greater amounts of packaging. Like Whole Foods and Trader Joe's they rely upon a central distribution model with all the drawbacks that this entails. As with Trader Joe's they are foreign owned. Although this group makes some efforts to be environmentally responsible, they seem not to be connecting with this segment of the market. Nor do they seem to be connecting with any other segment of the market as published accounts indicate that they are having trouble reaching their operational goals. We should compete well against this company since AFoCo's local focus and member ownership tends to build strong customer loyalty.

Many conventional markets operate in the AFoCo area. These range from neighborhood shops to full service conventional grocery stores. Some organic products are available at these locations, especially at the larger ones. Local products either are not offered or are not generally identified as such . (The source of produce is rarely identified.) They seem not to be able to offer enough green products to satisfy the needs of our target market. Private or publicly-traded ownership means that profits do not necessarily return to our area. For our target market we should be able to compete well with these operations because of our local and environmental considerations. Another reason we compete well against the larger stores is that some members of our community remember the Supermarket Strike a few years ago and were disappointed in how those companies handled themselves.

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Phases of Development: Explained

1) Organizing Here we did preliminary research and attempted to judge the communitys support. Other cooperatives were studied so that we could learn from their experiences. We found people with the same enthusiasm to join our Founding Team. We began to build credibility by explaining our goals to community leaders. A web site was launched as a means to publicize our learning to those already involved and for others to catch up with our progress. We listened to feedback. The goal was for the Founding Team to become the local experts on food co-ops. 2) Feasibility Here we created our preliminary business plan to pull together what weve learned, to describe our shared vision and to project a financial future. We recruited individuals with specialized skills to help refine the business plan. Public meetings will be held to better judge the enthusiasm and commitment of the community. The end goal is to allow the Founding Team to make a decision: Is a food cooperative feasible for Altadena? If the answer is yes, then we continue. 3) Planning & Fundraising (starting 10/10/09) Here we do everything necessary to allow us to commit to a particular location: we incorporate, hire accounting services, open bank accounts, develop materials necessary for the membership drive and seek out volunteers to help us get the word out and bring memberships in. Through a series of proposals on our web site we systematically explain the details of our vision. Through a series of community meetings we explain our vision personally. The goal is to work with and support the green cultural phenomenon; to secure enough members, capital and loans to be able to commit to a location. Along the way we identify professionals necessary to actually construct the store. We may also decide to commission a professional market study. Assuming we raise enough funds, then we continue to the next step. 4) Construction & Preparation At this point we commit. We sign a lease or purchase agreement. We select an architect, store planner, construction contractor and other professionals necessary to bring our store into being. We still actively seek more members and member loans, but we carry forward with construction with what funds we have. We hold back on some features until we obtain additional funding to build them. The general manager and employees will be hired, product sources will be chosen and the new store will be stocked then opened. The goal is to create an appealing store in a way that we can set it up for long-term success. 5) Sustaining For the first few years we adjust the details of the operation to make it more efficient. We concentrate on the financials to make sure we can begin paying back loans on schedule. If all goes well we may add to the operation in a very limited way. The goal is to establish the long-term viability of the business. 6) Expansion As our finances stabilize and we prove the success of the store, we can begin to pursue other areas that align with the core principles of the co-op. These efforts will be undertaken with due consideration - never seriously risking the future of the already-established enterprise. The goal will be to broaden the effectiveness of the business: to offer more sustainable goods and services to our community, to further support our local economy and to continue to empower our members to embrace green principles. Page 16 of 22

Viroqua Food Co-op, Viroqua, WI (used by permission)

Arroyo Food Cooperative Business Plan

Phases of Development: Diagram

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Organizational Structure

This diagram indicates the staffing needed for a fully developed store of approximately 7,000 square feet.

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Funding Needs

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Financial Statement Projection Five Years

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Financial Statement Projection Five Years (cont'd)

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Conclusion
Ecologically sound products and services are in strong demand these days. Organic product sales have increased significantly in the past few years - so much so that the concept is now being adopted by large chain stores. With energy and resource concerns becoming more apparent, local products seem to be following the same pattern: a small minority initiates the market demand, agile suppliers sense the opportunity and more products become available. As shopping options increase so does the appeal to the general public. Cooperatives are well positioned to take advantage of this process since they are large enough to influence the marketplace but small enough that they don't require huge product volumes as do major chain stores. Altadena is a perfect location for a food cooperative. Existing grocery establishments do not offer an appealing mix of green products, local content, convenience and selection. Demographic factors such as eduction levels, average income and ecologic/social awareness are positive indicators of a sound community foundation from which the Arroyo Food Cooperative co-op membership will grow.

Seward Co-op new building ceremonies, Minneapolis, MN (used by permission)

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