Keys to Success for

Food Co-op Start Ups

in Rural Areas:

Four Case Studies

United States

Department of

Agriculture

Research Report 208
Keys to Success for Food Co-op Start Ups

in Rural Areas: Four Case Studies

A USDA-funded report prepared for Northcountry Cooperative

Development Fund by the University of Wisconsin Center for

Cooperatives 

By Greg Lawless, glawless@wisc.edu

and Anne Reynolds, atreynol@wisc.edu

October 2005

Research Report 208

Acknowledgements 

The University of Wisconsin Center for Cooperatives and the Northcountry Cooperative Development

Fund (NCDF) would like to thank the employees, managers, board members, organizers and advisors to

the cooperatives in this report: Iron River Cooperatives, Root River Market Cooperative, Tower Foods

Market Cooperative and Viroqua Food Cooperative. Their willingness to share information and opinions

was outstanding. Their assistance was invaluable in preparing this report. 

2 Keys to Success for Food Co-op Start Ups in Rural Areas
Keys to Success for Food Co-op Start Ups in Rural Areas 3

Preface

The four grocery cooperatives studied

for this report are all located in rural communities in Wisconsin or Minnesota. Each case study

begins by providing background on the local

community and why it ventured to start a grocery co-op. What actually drove the process? A

chronology of events leading up to opening

day proceeds to an update from the fall of 2004

or later. Each case is then analyzed in terms of

five components of the start-up process.

Following the presentation of the four case

studies, a comparative analysis of eight variables leads to the identification of “keys to success” and “potential pitfalls” associated with

the start-up and operation of cooperative groceries in rural areas. 

Based on the preceding analysis, we can

identify four key characteristics that contributed

to the success of three of the cooperatives in this

study: strong operational management; member,

community and industry support; “reasonable”

competition, and dedicated organizers. In the

one case study that ended in the failure of a coop, factors which seem to have contributed to its

demise include: high turnover of leadership and

management; too many “collateral” goals; lack

of rigorous financial analysis; a poor location

and a failure to change direction quickly.
4 Keys to Success for Food Co-op Start Ups in Rural Areas

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Root River Market Cooperative . . . . . . . . . . . . . . . 6

Viroqua Food Cooperative . . . . . . . . . . . . . . . . . . . 15

Tower Foods Market Cooperative . . . . . . . . . . . . . 26

Iron River Cooperatives, Inc. . . . . . . . . . . . . . . . . . 39

Comparative Analysis of the Four Case Studies . . 52

On the Cover:

Viroqua Food Co-op General Manager Jan Rasikas,

right, in the old store with an employee and her

daughter. The co-op recently moved to a much larger

store. Photo by Greg Lawless, courtesy University of

Wisconsin-Madison

Contents
Keys to Success for Food Co-op Start Ups in Rural Areas 5

The four grocery cooperatives studied for

this report are all located in rural communities.

Iron River Cooperatives (Iron River, Wis.) and

Root River Market Cooperative (Houston, Minn.)

are located in communities of about 1,000. In both

cases, they are the only full-service grocery store

in the community. Iron River is in Bayfield

County, a lightly populated county in far northern

Wisconsin. 40 percent of the employed residents

travel to neighboring counties for work, many to

Superior and Ashland. Iron River Cooperatives is

the only full-service grocery store within a 30-mile

radius. Houston is in Houston County, where

many residents drive about 20 miles to LaCrosse,

Wis., for work, or 30 miles to Winona, Minn. The

co-op’s 2000 business plan describes the trade

area population as 3,175. 

Viroqua Food Cooperative is located in

Viroqua, Wis., a town of 4,335. It is the only natural foods grocery store within a 30-minute

drive of community residents. There are 32,000

residents in the two-county trade area, with a

growing “alternative” community, attracted to

the Walden School in Viroqua and strong organic farming enterprises. 

Tower Foods Market Cooperative was

located in a rural area on property owned by

the Sovereign Oneida Nation of Wisconsin. It

was five miles from Green Bay, Wis., a metropolitan area of 226,778 residents. A market

study defined the trade area as 8,876 residents.

The co-op was a project driven and supported

by the Oneida Nation, which has 1,083 registered tribal households. 

Each case study in this report begins by

providing some background on the local community and why it ventured to start a grocery

co-op. What actually drove the process? A

chronology of events leading up to opening

day will proceed to an update from the fall of

2004. Each case will then be analyzed in terms

of five components of the start-up process: 

• The steering committee/board of directors 

• Consultants and advisors 

• The business plan 

• The project and general managers 

• The members and wider community 

At the outset of this research effort, these

five “building blocks” were hypothesized to be

critical to the successful start-up of a rural grocery cooperative. Upon completion of the cases,

further analysis led to a refinement of these

components and identified eight common variables which actually go beyond the initial development process: 

• Competition 

• Support from other cooperatives and

the community 

• Member support 

• Quality of the business plan 

• Business growth patterns 

• Market niche 

• Board and management leadership 

• Finance 

Following the presentation of the four

case studies, a comparative analysis of these

eight variables will lead toward the identification of “keys to success” and “potential pitfalls”

associated with the start-up and operation of

cooperative groceries in rural areas. 

Keys to Success for Food Co-op

Start Ups in Rural Areas:

Four Case Studies

By Greg Lawless

and Anne Reynolds
6 Keys to Success for Food Co-op Start Ups in Rural Areas

Root River Market Cooperative

This is the first of four case studies that

explore the factors contributing to the successful

start-up of cooperatively owned groceries in

rural communities. Root River Market

Cooperative of Houston, Minn., is a full-service

retail store providing a conventional inventory

of foods and other grocery items. 

Background and Chronology 

The banner on the local newspaper

describes Houston and the surrounding area as

“The Best of Bluff Country.” The small city of

1,020 is located in the southeastern corner of the

state. The co-op is named after the river that

runs through Houston and continues east for 25

miles, pouring into the Mississippi River just

south of the area’s largest population center, La

Crosse, Wis. (52,800 residents, 2000 census).

From the west, the new 42-mile Root River State

Trail ends in Houston and draws tourist traffic

to town every summer. 

Houston is located in Houston County,

about 12 miles northwest of the county seat in

Caledonia. The county population of 19,718 is

98.5 percent white, with a per capita income of

$18,826. About 70 percent of the land in

Houston County is devoted to agriculture.

However, with a declining farm population,

most area residents are not involved in farming, and many travel to La Crosse or north to

Winona, Minn., for employment. In fact, many

farms also send family members to those cities

to earn supplemental income and health insurance coverage. 

When city hall commissioned a feasibility study for a downtown grocery business,

Houston’s primary trade area was defined as

the 55943 ZIP code, which was said to contain

3,799 residents and 1,399 households. However,

the co-op’s business plan, developed in 2000,

would describe a slightly different target market: Houston and the surrounding communities

of Houston Township, Money Creek, Mound

Prairie, Sheldon and Yucatan—population

3,175.

Materials developed by the city of

Houston in the late 1990s declared that 44

percent of the local population fell within the

ACORN (a classification of residential neighborhoods) classification of Prairie Farmers: 

Prairie Farmers represent the farming community populations of the Plains states. By

lifestyle they are classified as practical and conservative. (They) are more inclined to save than

borrow. They are well insured, health and

home, and generally apportion little of their

budget for luxury items. Leisure activities

include hunting, fishing, picnics, barbecues,

and television. 

The two largest employers in the city of

Houston are cooperatives: ACE Communication,

a telephone cooperative, and Farmers

Cooperative Elevator. Both made substantial

loans to help start the Root River Market. TriCounty Electric Co-op also serves the area, and

it was that co-op’s attorney who helped develop

the incorporation documents. In addition, one

of the Root River founding board members and

her husband own a True Value hardware store

in town, which itself is a member of a national

purchasing cooperative. Even the Mound Prairie

Mutual Insurance agency adjacent to the grocery

has cooperative roots. 

Perhaps the predominance of well-established co-ops in the area provided some inspiration when the community suffered the loss of its

only grocery store in 1998. Prior to that, the residents of Houston had enjoyed access to a full-service retail food store for “eons and eons,” according to Larry Connery, co-founder and current

treasurer of the Root River Market. Originally

from Chicago, he moved to Houston in 1972,

when there were still two groceries in town. 

The 10-year-old building in which the latest grocery operated had originally been owned

by the wholesale grocery distributor Fleming, a

Texas-based corporation. (Fleming would eventually declare bankruptcy in April 2003, after

losing its biggest customer, Kmart.) According

to Connery, Fleming had much earlier made a

policy decision not to serve rural stores that

could not purchase full truckloads. That may

also explain the company’s decision to sell its

Houston property to the local city government

in the 1990s. 
Keys to Success for Food Co-op Start Ups in Rural Areas 7

Connery also explained that the former

grocery closed because its owner, who lived

and operated a primary grocery 12 miles away

in Spring Grove, had decided managing two

stores was too hard on his family. 

Nevertheless, the Houston store had

done reasonably well. It earned a 5.99 percent

net profit, annualized over its last three years.

That data is known, because the previous

owner shared his final three years of financial

information with the city of Houston, which

later passed the information along to Connery,

the Root River Market board treasurer. The

data was instrumental to projecting the co-op’s

own financial performance. 

But before the co-op idea developed,

Houston’s Economic Development Authority

spent about $50,000 to attract private investors to

re-open the store. It approached a major wholesaler in La Crosse. A couple from North Dakota

took a long look at the opportunity but backed

out. Another individual who considered it was

Tony Densted, whose family had operated a grocery for several decades in nearby Caledonia, but

had recently closed that store. He also turned

down the opportunity, unsure whether there was

sufficient community support. (A year later, the

co-op would hire Densted as its first general manager.) 

After failing to attract a private company, a core of people in the community came

together in early 1999 and decided to try a

cooperative approach. One was Connery, a

former IRS manager and now a self-employed

tax consultant with over 30 years’ tax law

experience. He was joined by Sharon

Onsgaard, a retired elementary school teacher,

and Peter Denzer, an 80-year-old artist, author

and potter who had previously taught in

Europe. 

Connery explained that as they

approached others for help, they did not look

for specific skills, but rather they focused on

people who shared their commitment to reestablishing a grocery in town. By the end of the

spring, at least 10 individuals had pulled together, including two farmers, a registered nurse, a

former corporate account manager for HewlettPackard, an office manager, a hardware retailer

and a pharmacist. While one of the founders

had previously served on the board of a food

co-op in Duluth, none of their group, Connery

explained, really knew anything about the grocery business. 

Nevertheless, they began meeting weekly,

sometimes more, and by July they were fully

committed to starting a cooperative. They put

up a booth at Houston’s annual Hoedown festival and started collecting membership fees and

applications even before the co-op was incorporated. That happened on Sept. 22, 1999, with the

help of the electric co-op’s attorney, who filed

incorporation papers establishing the Root River

Market Cooperative, Inc. 

But there was still much to be done.

Clearly one of the biggest challenges was raising

the money to open the store, which they eventually determined would cost $400,000. They

knew much of that would have to come from

member equity, so they incorporated with two

classes of ownership stock; 600 shares of Class A

“voting” stock (one per member) cost $100 each.

A membership covered a household, regardless

of the number of individuals. 

The Articles of Incorporation authorized

800 shares of Class B stock, also valued at $100

each. The organizers hoped the B stock would

eventually pay dividends, but the board basically saw the shares as a way to borrow money

from members. If all the shares from both

classes of stock were sold, they would raise

$140,000 in equity capital. 

By mid-February 2000, they had signed

up about 310 members, raising more than

$31,000 from Class A stock sales. But the sales of

Class B stock generated only about $5,000, far

short of their minimum equity capital goal of

$100,000. At that point, an advisor at the

Northcountry Cooperative Development Fund

(NCDF) in Minneapolis referred the co-op leaders to an attorney at the University of

Minnesota, who, in turn, helped them establish

what proved to be a successful vehicle for

attracting member loans. 

Her service wasn’t free, “but it wasn’t too

expensive,” said Connery. Among other things,

the law professor helped the board to develop a

Member Loan Program Information packet,
8 Keys to Success for Food Co-op Start Ups in Rural Areas

which built on information from an earlier citysponsored business plan, providing more realistic cost and income projections. The document

also unveiled the new co-op’s mission statement: 

...to meet the needs of the greater

Houston Community with quality foods and 

grocery products at comparative prices in

a friendly and helpful atmosphere. The 

philosophy of Root River is based upon the

principles of cooperation and ethical concern

for members, customers, staff and environment. 

The loan information packet also presented the “seven co-op principles,” as well as

the board members’ backgrounds, the terms

of the loans, the store’s target market and likely competition, and an explanation of what

the money would be used for. 

But perhaps most importantly, the document clearly explained that the venture would

involve “a significant degree of risk.” It stated

that their unsecured loans would be subordinate, meaning all other lenders would be paid

back first if the co-op experienced cash-flow

problems or failed altogether. The report also

explained that management had not yet been

hired, and that the current board had “no direct

experience overseeing the operations of a cooperative.” 

The legal purpose of the document was

to provide all the necessary information to

members so they could make informed decisions. And apparently it worked. Before the

doors opened, their fund-raising drive generated $139,700 in non-secured promissory

notes, in addition to the $31,000 in membership stock. The local telephone and farmer

elevator co-ops each loaned $10,000 to the

effort. The terms of the notes included: 

• Loans accepted only from Root River

members residing in Minnesota. 

• Notes are non-transferable. 

• Loans will have a minimum amount of $1,000. 

• Interest will be simple interest compounded

and paid annually. 

• Interest rates, once determined, will remain

fixed for the length of the note. 

• Loans will mature in four to six years. 

The final term for the promissory notes

explained that the principle amount, the interest

rate and the maturity date would be negotiated

between the co-op and each individual. The

maturity dates were selected as follows: $26,100

came due (and was repaid) in 2004; $30,700 will

come due in 2005, and more than half, $77,900,

was loaned for the maximum six-year period.

There was also a special $5,000 note for one year

that came in under special circumstances, and

has also been repaid. 

The interest rates that were negotiated

by members for the loans that came due in

2004 (for example) were: $5,000 loaned at 0

percent; $1,000 at 3 percent; $1,000 at 4 percent; $9,100 at 5 percent and $10,000 at 6 percent. Of the total amount of members’ loans,

about 18 percent, or $25,200, was loaned at 0

percent. 

Looking back, Connery said that raising

the equity capital was probably the hardest

thing, “asking friends and neighbors to trust

us.” Both the membership drive and the

fundraising campaign relied heavily on face-toface solicitations, “talking to people we knew,”

and through community events like “chili

feeds” and the annual Hoedown. They also did

mailings, and put announcements into newspapers and on local radio. 

It helped that most people in the area

were at least somewhat aware of cooperatives.

Most, if not all, belonged to the telephone and

electric co-ops, for instance, and received notices

The Root River Co-op on Highway 16 through Houston,

Minn. Photo by Greg Lawless, courtesy University of

Wisconsin-Madison
Keys to Success for Food Co-op Start Ups in Rural Areas 9

of annual meetings and, in good years, patronage refunds. When another local farm co-op was

bought-out, the farmers received a payout, and

some of them turned around and loaned that

money to the new grocery. 

Once they had raised over $170,000 in

member loans and equity investments, it

became easier to approach commercial lenders.

First, the co-op went back to the Northcountry

Co-op Development Fund, which specializes in

loans to cooperatives, particularly in the grocery

and housing co-op sectors. NCDF originated a

loan for $225,000 in partnership with the

National Co-op Bank and Home Federal

Savings Bank in La Crescent, Minn. 

It is a common misconception that significant grant funding is available to support cooperative development. The experience of Root

River is more typical. While Denzer was an

accomplished grant-writer and did manage to

secure three grants to support the effort, taken

together they totaled only $12,500, a small portion of the $400,000 in total project costs. 

The intended uses for the capital they

raised were described in the member information packet: 

Permanent cash operating minimum $10,000 

Working capital – first year $40,000 

Overrun allowances (10 percent) $37,500 

Inventory $120,000 

Equipment (POS System) $21,000 

Equipment and installation $109,000 

Leasehold improvements $32,500 

Start-up promotion $3,000 

Professional and consulting fees $10,000 

Start-up staffing $15,000 

Loan fees $6,500 

TOTAL $404,500 

It should be noted that one item missing

from the list is the cost of the building. Because

the city of Houston owned the building and

wanted to see a grocery established there, it

negotiated a deal with the co-op that included

no rent payments the first year. In the second

year, the coop would pay $224 per month and

$224 plus pay the property taxes in the third

year. Thereafter, the rent would rise until it

reached $1,000 per month at the end of 2005.

Essentially, the city’s subsidy of the project in

the first three years totaled $30,000, not including the foregone property taxes. In addition, the

co-op held an option to purchase the building. 

Once the funding was secured, it was

necessary to begin the work of designing and

equipping the store, selecting a wholesale supplier, hiring management, and taking other

steps to make opening day a reality. 

A few years earlier, when Houston public

officials were taking the lead in reestablishing a

grocery in Houston, they had called upon

Affiliated Foods for help developing the store’s

layout design and to identify its equipment,

inventory and other operational needs. (A

wholesale distributor based in Norfolk, Neb.,

and serving 12 Midwestern states, Affiliated

Foods is also a cooperative, owned by its participating retail customers. “Retailer-owned cooperative,” have long played a significant role in

the food distribution channel.) 

By early 2000, the co-op contracted with

Mel Braverman to help further refine the store’s

layout, design and equipment needs. A consultant with Cooperative Development Services

(CDS) of Madison, Wis., Braverman started with

the plans developed by Affiliated Foods, but the

7,200-square-foot building was still completely

empty when he arrived. They still had to run

new freon lines, install a walk-in cooler/freezer

and put a new refrigeration system in place,

among other things. Braverman also helped the

board recruit its first general manager. 

About that same time, the board

approached Affiliated Foods again as a potential supplier. But with its hub in Nebraska, it

made only weekly deliveries to the area. They

also considered going with Fleming, but as

mentioned earlier, they felt that the company

was not well oriented to working with small

rural groceries. Ultimately, they picked a

wholesale distributor on the recommendation

of Tony Densted. 

Densted had a good experience working

with Certco when he managed his family grocery in nearby Caledonia. Until very recently,

he explained, the Madison-based distributor

“didn’t even have voice mail,” which to him
10 Keys to Success for Food Co-op Start Ups in Rural Areas

was a positive indication that they were an oldfashioned, friendly company that took the time

to provide personal customer service. The board

also valued the fact that Certco’s largest customer, Woodmans, a Wisconsin-based chain of

superstores, had just opened a new store in La

Crosse. That meant Certco would be just 25

miles away, and they would be able to count on

a continuous and dependable flow of inventory. 

Densted had previously declined the

opportunity to open a store in Houston himself,

because he wasn’t sure that the community

could support it. When 310 households paid

$100 each to join and loaned almost another

$140,000 to the effort, he reconsidered the

opportunity. The board initially hired Densted

as a consultant around Easter of 2000. By June,

he was hired as the general manager and was

working full-time on the project. 

Finally, on the presidential election day,

2000, the Root River Market Cooperative

opened its doors for business. The store

offered 5,200 square feet of retail grocery

space and also housed a privately owned

pharmacy in the back of the building. 

One of the people involved early in the

project was Tom Witt, a pharmacist from Iowa

who wanted to open a branch in Houston. The

pharmacy would appear integrated into the

store’s design. Open from 10 a.m. until 2 p.m., it

was hoped this business would draw additional

customer traffic into the grocery. Seeing the

mutual benefit, the co-op agreed to rent the

space to Witt for just $200 per month. 

Mission accomplished? 

Despite all the planning, Connery admitted that there was still a lot of uncertainty. The

co-op leaders were not really sure what their

overhead costs would be, nor did they have any

guarantee of what sales level they would generate. Their market analysis had projected they

would capture one-third of the target population, with an estimated 1,058 customers spending about $30 per week, or more than $1.5 million annually. To be conservative, they lowered

the projection for the first full year to $1.2 million in gross sales, which was more in line with

the previous grocery store’s sales. 

As it turned out, they generated $1.06

million in the first year, about 12 percent off

the mark. Operational costs had also been

underestimated. “Not a lot,” the treasurer

admitted, “but labor costs in particular were

higher than expected.” The first manager,

Densted, agreed that the cost of employing one

general manager and three department managers was more than the store’s income could

support. 

Sales have been evenly split among

members and non-members. Located on State

Highway 16 near a popular state park, summer business has been the heaviest sales period, as expected. The average customer spends

$13 per visit. That’s less than half of the $30

estimate used for initial financial projections.

But the store has attracted more customers

than the 1,058 predicted.

In recent years, the co-op’s gross sales

have held steady at just over $1 million. The

store has been averaging a loss of about 1 percent or less. The gross margin held steady at

about 25 percent during the first five years of

operation. 

Unfortunately, the co-op was forced to

eliminate the meat department manager’s position, but that salary savings made a significant

difference to the bottom line in subsequent

years. The foresight of the co-op leaders in hiring a general manager with meat-cutting experience proved to be important — Densted now

manages the meat department as well as overseeing the entire store. Total labor costs in 2003

were $146,795, or 53 percent of operating cost

and 14 percent of gross sales. 

In addition to the four managers, the coop has one other full-time worker and employs

up to 15 part-time workers — mainly high

school and college students — during the busy

tourist season. In the first four years, aside from

letting the meat department manager go, there

has been no turnover among the full-time staff.

Unlike the case of “natural foods” cooperatives

in cities such as Minneapolis, La Crosse and

Madison, the store has no “volunteer” workers. 

The store opened with 310 member

households. At the end of November 2004,

there were 419. Given Houston County’s aver-
Keys to Success for Food Co-op Start Ups in Rural Areas 11

age of 2.58 persons per household, co-op membership is estimated to be 1,081 individuals.

Most of the new members joined soon

after the doors opened, perhaps waiting to see

if it was a sound investment. The cost of membership remains $100. Customers provide their

“member number” when they pay at the register, although cashiers have many of the numbers memorized. 

When the co-op first opened, management set up a table in the front of the store and

handed out applications. But the co-op is not

pushing memberships very aggressively at present, figuring that most local customers with an

inclination to join have already done so. Staff

say they get quizzical looks from tourists and

other first-time customers when asked for their

membership number. 

The co-op offers some member specials,

but no discounts. Densted said the biggest

member benefit should come after they get their

debt paid off and can start returning patronage

dividends. Most business is done with people

living in the Houston zip code. About 25 members have moved away but maintain their memberships; some have parents still living in

Houston and want them to have a grocery and

pharmacy. Others plan to retire to Houston and

want the store to succeed.

As expected, the pharmacy has drawn

customers, particularly elderly residents.

Densted noted that its midday hours draw customer traffic at a time of day when the grocery

trade slows. 

The store does not sell beer, wine or cigarettes. Given the store’s reliance on student

labor on evenings and weekends, the risk and

liability of selling those products would not be

worth the added income, Densted says. The

store has a deli, whose manager and has extensive background in food service. During the

week, she faxes about 27 menus to businesses

around town and prepares food and snack trays

for weddings, graduations and other events, 

Perhaps the best indication of the coop’s success is that it purchased the store

building from the city during the summer of

2004. As Connery explains, “When we

acquired the building, we also restructured

the prior debt. Consequently, the new monthly loan payment was less than the old monthly loan payment. The difference will allow us

funds to be used towards redemption of the

unsecured member loans.” 

As the general manager noted, “The bank

must have thought we were doing OK.” 

Factors Affecting Start-Up and Success 

This case study of Root River Market

Cooperative concludes with an analysis of five

components of the start-up process that appear

to be critical to success. They are presented in

an order that generally reflect the chronology of

the co-op development process. 

A. Steering Committee/Board of Directors 

Incorporation statutes for cooperatives

vary from state to state. For instance, in

Wisconsin, state statute Chapter 185 requires

that at least five individuals form a cooperative. In Minnesota, Chapter 308 (A and B)

requires only one original incorporator,

although it requires three-to-five board members, depending on the type of co-op. 

Regardless of the requirement, one of

the first and most critical steps in developing a

successful co-op involves pulling together a

core team of founders. Prior to incorporation,

this group is often called a steering committee.

Once incorporated, it may serve as the interim

board of directors until formal board elections

are held at the first membership meeting. It

The pharmacy in the corner of the store opens from

10 a.m. to 2 p.m. each day. 
12 Keys to Success for Food Co-op Start Ups in Rural Areas

also becomes their job to hire the general manager and continue to govern the organization

after the business opens. 

In the case of Root River Market, the coop was formed fairly early in the development

process, so the steering committee evolved

quickly into an interim board of directors.

Clearly, the make-up and on-going commitment of these founders was among the project’s strongest features. 

Through two years of development and

four years of operation, many of the original

leaders continue to serve on the board. Merle

Borchers, who worked for Northcountry

Cooperative Development Fund (NCDF) at the

time and provided advice to the board early on,

said this group of co-op founders was special.

“They had a very good steering committee with

a balance of skills. It was not the typical case of

one person doing 80 percent of the work. Larry

Connery, a retired IRS agent, understood numbers, figures and financial statements. Another

person was good at getting grant money to support studies and planning; another person

focused on store property and worked with the

city. People had specific responsibilities and

they reported back.”

Ranging in age from their mid-40s to

over 80 years old, the nine original board members absorbed a lot of out-of-pocket costs and

contributed hundreds of volunteer hours.

Connery estimated that his time and expertise

would have cost thousands of dollars. It was

not uncommon for board members put in 8 or

10 hours per day at the peak of the process. 

The co-op’s first manager recognized the

strength and commitment of these founders.

“The original board was very determined,”

Densted explained. “They just dug in — they

were going to have a grocery store, period.” 

The co-op has since revised its bylaws

and reduced the board to seven members, who

are now paid a small stipend of $150 per year.

Five of the original founders were still serving

at the end of 2004, almost six years after the idea

for a co-op was first presented. 

B. Consultants and Advisors 

Another indication of the effectiveness of

the board of directors was its judicious use of

consultants, advisors and other external

resources. An “advisor” is defined here as anyone who provides information and advice free

of charge. 

Clearly, the tax and financial experience

of Connery reduced their need to pay outside

consultants. But he and the other board members lacked experience with the grocery industry and the cooperative development process. 

The board was fortunate to acquire at no

charge the consultation that Affiliated Foods

provided the city of Houston prior to the co-op

effort. Likewise, the financial records of the former grocery owner were an extremely valuable

resource that came at no cost. The board also

tapped free expertise at Northcountry

Cooperative Development Fund on governance

issues. 

The board tapped two different attorneys

to handle the separate legal issues of incorporation and the drafting of member loan documents. Finally, they contracted with Cooperative

Development Services to refine and extend the

plans developed by Affiliated Foods.

It appears that the board recognized what

areas of expertise and skill it needed but lacked

internally. Consulting services were paid for with

a handful of small grants and with the equity and

loans entrusted to them by the members. 

C. The Business Plan 

In some ways, a business plan for a cooperative is not substantially different than it

would be for any other type of business in the

same industry. True, its organizational and

financial structures — based on member equity

contributions, patronage refunds, equity

redemption plan, etc.— are unique and require

specialized knowledge to develop. But what

every business plan must provide, regardless of

the form of business, is a sound analysis of the

market, a marketing and operational strategy to

succeed in that market and the means to capitalize the business to carry out that strategy. 

The founders of Root River Market

Cooperative were able to mine real market

information from the financial documents provided by the previous grocery’s owner. They
Keys to Success for Food Co-op Start Ups in Rural Areas 13

were also able to pore over a business plan that

the city had previously commissioned. They

tapped the knowledge of consultants and advisors and used their own local knowledge to substantiate and improve upon that data. 

The plan stated very clearly who their

competition was. People in their target market

were already shopping at the Wal-Mart

Superstore in La Crosse to the west, or the new

HiVee store in Winona to the north. Many of

Houston’s residents are employed in these larger cities and shop there after work. There are

also full-service groceries in nearby Caledonia

and Rushford. 

As they explained in their member loan

program information packets, the co-op hoped to

draw customers from surrounding communities

as well as tourist traffic anticipated from the

soon-to-open state bicycle trail. They hoped that

one-third of the target population of 3,175 “will

become members and/or patronize Root River

Market.” They planned to achieve this goal by

providing “courteous, friendly, knowledgeable

and helpful management and staff, selection,

quality and price sufficient to meet or exceed customer expectation, clean and attractive environment and customer loyalty due to equity investment.” 

Their business plan described a product

mix of “fresh produce, meats, dairy products

and other dry and canned goods. Our aim is to

provide the highest possible quality at the lowest possible price with excellent customer service.” Based on community interest, they

planned “to use local suppliers for produce,

meats and baked goods whenever possible.”

(After the store opened, they tried some natural

foods but, the general manager explained, they

“couldn’t get enough turn on it.”) 

The business plan also had to present a

strategy to capitalize the venture. The total cost

of the project, not including voluntary labor

contributed, was estimated at $400,000. As

mentioned above, the plan established a minimum goal of $100,000 equity capital. When

they raised over $170,000 from stock sales and

unsecured member loans, that was enough to

convince conventional lenders to kick in the

rest. As NCDF’s Borchers explained: 

The board recognized that the lender was their

partner, and they developed a reasonable financial structure — equity-debt ratio, terms of

debt, etc. Sometimes a supplier will contribute

a certain amount of inventory — for promotional reasons, to secure shelf space — and that

was also part of financial structure. The electric co-op kicked in some money. Home Federal

Savings Bank got involved. The board also

saw a difference between the “macro” numbers

(giving a formula for population to square feet

needed for various grocery operations) that

consultants use, vs. the “micro” of how is this

going to work. And that’s what lenders are

more concerned with, the details. The board

took responsibility for their plan, which is what

a lender likes to see.

D. The Project and General Managers 

In co-op development projects, the board

of directors may contract with an individual to

manage development operations. In the case of

Root River, the board handled most of those

duties, although it did contract briefly with Mel

Braverman of Cooperative Development

Services to handle development tasks associated

with opening a new grocery. 

In some situations, a co-op may select

and hire its general manager well before the

business actually opens. When that happens, the

person may take over the functions of the project manager.

However, the skills and knowledge needed to guide a business through the development

phase are not always identical to those that are

needed to manage an operating business. A new

co-op board is fortunate when they find one

person who can do both very well. 

The Root River Co-op board was prepared to pay a salary of $25,000-$30,000 to

attract the right person for the GM position.

The advertisement posted in area newspapers

described the background they desired and the

responsibilities of the job: 

We are looking for an individual with: 

• Work ethic demonstrating honesty and integrity;

• 5 years of industry experience, including purchasing;
14 Keys to Success for Food Co-op Start Ups in Rural Areas

• Excellent planning and organizational skills; 

• Excellent people management skills;

• Excellent customer service skills;

• Marketing / promotional skills; 

• Effective decision-making skills; 

• A dedication to community service;

• Meat-cutting experience. 

Responsibilities will include:

• Regular reports to the board of directors;

• Marketing, advertising, promotional management;

• Day-to-day operational management;

• Supervision and training of staff;

• Meet budget and profit projections;

• Purchase inventory;

• Stay abreast of industry and supplier trends;

• Building maintenance. 

Board treasurer Connery explained the

background of the man they hired: 

Tony Densted was raised six miles from

Houston, one of 10 children. He attended elementary and high school in nearby Caledonia.

He got a BA degree, married a local girl and

then managed his father-in-law’s family-owned

grocery for 25 years. The store was well known

in the area for quality meat. Tony gained meatcutting and marketing experience. Tony was

involved in that city’s civic and community

organizations. He knows a very large number

of people in and around the area and is well

liked by everyone. He is very likeable and has a

pleasant word for everyone he comes in contact

with. He requires all employees to be sociable

and friendly to all customers at all times. 

A site visit to the store in October 2000

confirmed this characterization of Densted, who

took over at the cash register on a busy afternoon for a sick employee. He appeared quite

cheerful and familiar with all of the customers,

while fitting the interview into the occasional

breaks in business. 

When asked about Densted’s compensation, Connery said: “It is commensurate with his

ability, experience, the availability of qualified

individuals and the area wage scale.” 

E. The Members 

The directors of a co-op board are usually

the first to join as members. They then try to

convince others to join and to raise enough

equity capital to finance the business. 

There comes a point in the co-op development process, typically during the equity

drive, when the support of the members

becomes critical. It is clear from the case of Root

River Market that the members stepped forward

at that juncture, investing and loaning $170,000

toward the $400,000 of capital required. 

Thanks to its summer business with

tourists, Root River Market generates 50 percent

of its business from non-members. But to maintain a grocery year-round, the on-going trade

with the co-op’s 419 paid members has to keep

the store in business. 

Final Observations 

This case will close with a brief consideration of the comparative importance of the

five so-called “building blocks” of successful

co-op grocery development in rural communities. These conclusions can then be compared

with those of the other three case studies. 

In considering the nearly two-year development period that preceded the opening of Root

River Co-op, it becomes apparent that the

strength of the board of directors was a major

factor in that successful start-up effort. The expertise and many hours that board members conGM Tony Densted emphasizes friendly customer service. Photo

by Greg Lawless, courtesy University of Wisconsin-Madison
Keys to Success for Food Co-op Start Ups in Rural Areas 15

tributed saved the co-op thousands of dollars. 

While consultants and advisors played a fairly

modest role in the development process, they

did provide important information and services

that were critical to the process. The co-op’s

business plan, particularly as it appeared in the

member loan document, appears to have been

quite thorough and based on realistic numbers.

The strength of that document likely helped to

convince members to contribute $170,000 in

unsecured loans equity investments. 

After all the hard work of starting the

business, everything might have collapsed if the

general manager was not up to the task.

Certainly the general manager’s good rapport

with customers and employees has contributed

to the store’s success so far.

On par with the strength of the board of

directors, the commitment of the members must

be considered as a major factor in the development of Root River Market Cooperative.

Without their substantial financial contributions

early on, and their steady patronage of the business over the past four years, there most likely

would not be a grocery store in Houston, Minn.,

today. 
16 Keys to Success for Food Co-op Start Ups in Rural Areas

Viroqua Food Cooperative 

The case of the Viroqua Food Cooperative

represents the only natural food store among the

four case studies in this report. While its nichemarket status presents very different circumstances than most conventional groceries face,

this co-op’s story provides an excellent example

of the “start small and grow” approach to food

co-op development. 

Background and Chronology of Co-op’s

Start-up

The hills and valleys of Vernon County,

Wis., have attracted successive waves of immigrants over the years. According to the La

Crosse Tribune, “Norwegian and German immigrants established homesteads there in the 1800s

because the terrain reminded them of their

native land. Norwegian Lutherans took to the

valleys and German Catholics to the ridge

tops.” 

The county population reached 28,351 in

1900. One hundred years later, it held steady at

28,056. Nevertheless, things have changed. 

Near the center of the Vernon County, at

the intersection of several well-traveled rural

highways, is the county seat of Viroqua.

According to U.S, Census, 47 percent of

Viroqua’s 4,335 residents in the year 2000 still

reported to be of Norwegian ancestry. Another

32 percent had German roots. 

Over the past several decades, however,

several new groups have settled in the area.

The Hmong emigrated from Southeast Asia;

the Amish transferred there from eastern

states; and starting in the 1970s a third group

arrived. Sometimes referred to as “back-tothe-landers,” they favored a more simple, rural

lifestyle, alternative schools for their children

and producing and eating “natural foods.” 

In the 1980s and 1990s, this “alternative

community” grew, as families arrived from all

across America to send their children to the

Pleasant Ridge Waldorf School, a private K-8

school that was established in Viroqua, based

on the teachings of the Austrian philosopher

Rudolf Steiner. Others came to work at the

nearby CROPP Cooperative, an organic dairy

company that started in 1988 that has grown

by leaps and bounds. 

One of these “alternative” transplants

was Bill McDonald. Trained as an engineer, he

and his wife moved to the area in 1990 and

bought an old farmstead. She started a home

business called Magic Cabin Dolls, selling

“Waldorf-style” toys and crafts. By 1996, they

had sold the business to a mail order conglomerate, but continued to run the operation along

with their 15 employees. 

Having settled in rural Wisconsin, they

sought a source of “natural foods” that fit their

values and lifestyle. The hour-plus round trips to

stores in La Crosse and Gays Mills grew tiresome, so for the sake of convenience, McDonald

started a food-buying club in 1991. He coordinated orders with other like-minded neighbors and

made bulk purchases from North Farm

Cooperative, a natural foods distributor in

Madison. 

After running the club out of his milking house for five years, he was approached

by the manager of another club in nearby

Viola. The Viola group had a storefront with

retail sales, but it was a much smaller community and was reportedly struggling to stay

afloat. McDonald’s group meanwhile had

grown to about 40 families, and it was becoming more than he could manage alone. 

He and the Viola manager proposed to

their respective members a merger and a move

to Viroqua, which, with its Waldorf school, had

become a hub of the alternative community.

While the members of the Viola club voted

down the idea, McDonald and his group decided to proceed working to open a new Viroqua

location. 

While there were several cooperatives of

long standing in the immediate area (providing

electricity, telephone service, credit, insurance,

etc.), the group was guided by the experience of

hundreds of natural food co-ops around the

country, many of which began in the 1970s. The

new Viroqua group moved quickly to incorporate as a Chapter 185 Wisconsin cooperative.

They received free and substantial support from

Jerome McGeorge, a local financial expert who

had earlier been instrumental in the start-up of
Keys to Success for Food Co-op Start Ups in Rural Areas 17

the successful organic dairy co-op in nearby

LaFarge. (His son would later sit on the grocery’s board of directors.) 

One advantage to starting very small is

low capital requirements. And with less at risk,

planning for the business can be somewhat less

formal. “A business plan? We might have gotten a book somewhere that gave us some idea of

what we should think about,” explained

McDonald, who became the co-op’s first treasurer. “But it was a lot like a household budget: this

is what our rent is, this will be our utility

cost...” 

While the new board of directors may not

have written a business plan or used professional consultants, they did have five years experience operating a buying club of 40 core families,

with financial records that clearly showed committed demand for natural foods. Based on

some very rough calculations, they determined

that they would need about $20,000 to get the

store up and running. 

Their incorporation papers had established two classes of stock. Class B shares were

the voting stock — one per adult. In an unusual

move, the cost of the shares was set at a sliding

scale rate of $18-$26, which had to be paid annually. 

The co-op’s articles of incorporation also

authorized $50,000 shares of Class A stock,

although it would be many years before they

sold that amount. As it was initially set up, the

Class A shares would not pay any interest or

dividends, but they would eventually be

redeemed at par value. “Basically, we were just

asking people to let us use their money for

free.”

According the U.S. Census Bureau,

Vernon County’s median household income in

1999 was $33,178, or 24 percent below the state

average. About 14 percent of the population was

living at or below the poverty rate. But the city

of Viroqua has generally fared better, having a

base of county government jobs and others at

Vernon Memorial Hospital and two utility coops. There was also that growing influx of new

residents from the east and west coasts, drawn

to the Waldorf School and its alternative community. 

Half of the new co-op’s financial goal was

met when one couple bought $10,000 of Class A

stock. As McDonald said, “They definitely got

the co-op off the ground. It helped tremendously.” The rest of the necessary funding was provided by smaller contributions from the 40 or so

families that formerly comprised the buying

club. 

The co-op leaders then started looking for

property. They found a very modest, but suitable, building one block east of Main Street. The

owner would not sell it, but he offered cheap

rent: $300 per month for the 1,900-square-foot

building. 

Without formal authorization from his

fellow board members, Tom Jerde went ahead

and paid the first two months of rent, which

essentially settled the issue of location.

Normally, this sort of “executive decision” is

poor practice in co-op development. But as

McDonald explained, “We were pretty anxious

to get going, and we all got along well enough.” 

Jerde was also an electrician, and his

skills would be needed. Another board member, Chris Cox, was a contractor who found

used coolers and other low-cost materials and

equipment. As McDonald explained, “In the

very early days, the most important founders

were those who had construction skills.” 

A core of about 20 individuals began

meeting on average about twice per month for

six months. Many of these were “construction

meetings,” where remodeling work was done,

followed by business discussion. Often spouses

also attended the meetings and took on various

tasks. Cox’s wife, for instance, designed the

stock certificates. Looking back eight years later,

McDonald couldn’t readily recall which spouses

actually served on that first board. 

Regarding their communication efforts,

McDonald said, “Back then, we weren’t constantly e-mailing each other, but there were

lots of phone calls. It was 10 to 15 families that

were really driving to make it work. We didn’t

get bogged down with the meeting scenario

per say; there was no public notice of meetings, for instance. Nobody (in the rest of the

community) probably knew what we were

doing half the time.” 
18 Keys to Success for Food Co-op Start Ups in Rural Areas

Nevertheless, as the remodeling continued, people started coming “out of the wood

work” expressing interest. “We didn’t have a

marketing strategy really,” explained

McDonald. “We had our original 40 buying

club members. But there were other people

having the same problem we had, having to

drive all the way to La Crosse or Gays Mills to

buy (natural foods).” 

Dave Ware, a volunteer carpenter for the

project who currently serves as board president,

recalled that it was only days before opening

that a decision was made to hire part-time staff,

and Sally Colacino and Sue Kastelson became

the first “co-coordinators.” Colacino had previously worked for natural food co-ops in other

cities, so she chose and developed the inventory

for the retail operation.

When the doors finally opened in

September 1995, the store offered about 600

square feet of retail space and the co-op had 95

members. At that time, the board invited the

larger community into a “stakeholders meeting” to get input for developing a mission

statement and a vision for the co-op. The session, facilitated by a former business professor

from California who had moved to the area,

attracted 25 people. 

Over the years, the document would be

refined, declaring “a commitment to natural

foods, superior customer service and the building of a cooperatively run business.” They

would achieve that by offering “one-stop shopping for natural food customers, with high-quality products, friendly and informed service, and

competitive prices.” 

Mission accomplished? 

Early on, the store continued to operate

more along the lines of the buying club model.

About 40 to 50 percent of purchases that first

year were members’ personal orders for cases

of products. “Now we all had a store where

we could come pick up our orders,” McDonald

said. “So we had a few things in there that

people could grab. To cover our costs, we

charged 10 percent on top of people’s bulk

orders, and for in-store items we had a flat

mark up of 30 percent. We had milk and some

local produce. It was like the classic co-op in

the ‘the old days.’ Bring in your own bags, fill

up on bulk flour and grains....” 

For the first several months, board member Cox kept the books for the co-op at his

home, because there was no computer in the

store. “Nowadays, no one should have to start

out that way,” explained Jan Rasikas, one of the

early co-coordinators, adding that the necessary

computer software and hardware are now much

cheaper than in 1995. 

While the first four months of business

were not presented in the latest computer printout, current records for the first full year of

operations in 1996 showed $174,330 in gross

sales; $138,279 for the cost of goods sold; and a

gross margin of 23 percent. They had about

$19,000 in personnel expenses that year, representing 11 percent of their sales, and they

showed a loss on the books of $1,343, or less

than 1 percent. Data for subsequent years is

shown in Table 1. 

According to the Cooperative Grocer, a

major trade publication for the natural foods

industry, the co-op’s 2003 financial performance

was on par with stores of its size. In the category of “small” stores (under $2 million in sales),

the Viroqua store was near the median quartile

in both gross and net margins. The number of

employees grew to the current level of 11 parttime and six full-time staff. Total labor costs as

a percentage of gross sales rose from 11 percent

in 1996 to 22 percent in 2003, the latter once

again on par with stores of its size. 

It should be noted that the co-op did not

take out any commercial or institutional loans

to capitalize start-up. About a year or two after

opening, however, it did approach

Northcountry Co-op Development Fund for the

first of three small loans to finance equipment

and other needs for the original store. Later

NCDF would provide a fourth loan for the new

store. 

In the co-op’s first several years, there

was considerable turnover in the co-coordinator

positions. In 1998, these positions were combined into a single general manager position.

Over the next 10 months, the co-op’s first general manager, Meg Torrence, coordinated a “mini-
Keys to Success for Food Co-op Start Ups in Rural Areas 19

expansion” which actually shrunk and

rearranged office and storage space in order to

increase retail space from 600 to about 920

square feet. 

While it was becoming obvious that the

business would soon outgrow the building, the

mini-expansion was a practical way to increase

sales in order to justify a move to a larger facility

in the future. This next development step proceeded much like the initial start-up process —

lots of volunteer labor to install drywall and

locate low-cost materials. The co-op also raised

another $15,000 in Class A stock and computerized the office so that bookkeeping could finally

be done “in-house.” In addition, the landlord also

made some improvements, and raised their rent

to $450, which was still considered very modest. 

When Torrence left the co-op in October

1998, the co-op asked board member Jan Rasikas

to apply for the general manager position. There

were several other applicants, but after a full

interview process, she was hired. 

Rasikas and her husband moved to the

area in 1996 from Ashland, Ore., to enroll their

son in the Waldorf School. They brought along a

couple of business plans, including an idea for

opening a private natural food store. They soon

learned of the co-op effort, and she served for a

time as a co-coordinator. Rasikas left that role to

work for the CROPP organic foods cooperative

in nearby La Farge prior to taking over management of a grocery business that was bursting at

its seams. 

In February 2001, the co-op invested in a

computerized point-of-sale (POS) system for

record keeping, which would allow it to compare data and activities to industry standards

and trends. That, in turn, would allow the co-op

to identify and correct practices that were not

profitable. For instance, they were able to manage inventory more efficiently and strategically

and to keep a closer eye on the cost of discounts

and specials for members and volunteer workers, which were taking a toll on the bottom line. 

“We stretched ourselves,” explained

Rasikas. “We were a very small store, but we

stretched for the kinds of tools and systems that

the larger stores use.” They found and adapted

a POS system that they could afford. They often

went begging to other companies like CROPP to

be allowed into their management training programs, and they joined what was then the

Midwest Co-op Grocers Association. “It was an

incredible boost of peer support for us and

training opportunities, but it was tough for us

because annual

dues were high

for a small store,

$2,000 to $3,000.

But the training

opportunities

were well worth

it.” 

In 2001

the co-op converted from an

annual membership-fee system

to an equitybased system.

Each adult is

charged $75 for a share of voting stock, with

optional payment plan. This was done primarily to improve the co-op’s books, because the

annual fees were treated as taxable income,

whereas equity is not. 

It was all part of an overall effort to generate enough business to afford to move in the

future to a larger store offering better service for

members. Key to that effort was their relationships with wholesale distributors. 

Being such a small store in a rural area,

Gross Sales Gross Margin Net Profit Labor cost as a

percent of sales

Sales per

square foot

1996 $174,330 23.0% -0.8% 11.0% $290

1997 $261,280 25.3% 0.5% 10.8% $435

1998 $344,050 26.5% 2.0% 13.0% $573

1999 $435,406 30.6% 1.4% 16.0% $725

2000 *$533,864 29.3% 0.4% 18.1% $580

2001 $633,997 28.6% -1.7% 22.7% $689

2002 $854,639 32.6% 2.0% 19.9% $929

2003 $1,072968 33.7% 1.3% 21.8% $1,166

Table 1 (*Expanded store from 600 to 920 square feet of retail space.)
20 Keys to Success for Food Co-op Start Ups in Rural Areas

keeping the shelves stocked with natural foods

was not easy. The two major distributors at the

time, North Farm Cooperative in Madison and

Blooming Prairie Cooperative in Iowa, initially

came to town only once per month. Service was

eventually increased to twice per month, but

that was not enough to keep consistently

shelves stocked with perishable goods. Getting

fresh produce delivered was sometimes impossible, and the co-op had to send a truck to La

Crosse to pick up a pallet of food. More sales

were needed to justify weekly deliveries from

distributors. 

By 2002, there were two major developments in the Midwest natural foods industry.

North Farm Cooperative went bankrupt, and

Blooming Prairie (BP) was sold to United

Natural Foods Inc. of Connecticut. Both events

were a reflection of the increased competitiveness in the natural foods industry. As a membercustomer of BP, the Viroqua Food Cooperative

received a substantial cash payment from the

“gain on the sale.” 

Halley Blessing, the co-op’s current

finance manager, points to that sudden windfall

as another example of good decision-making by

the board of directors. “We could have just

applied it to the co-op’s income that year and

recognized a sizable profit. Instead, we used the

money to pay for help to clean up our books,

and we wrote off some past losses. As a result,

we ended up with much more accurate financial

records, which became very important later.” 

For 2004, the co-op achieved $1.3 million

in gross sales. The co-op currently has 1,000

members representing 635 households, with 82.5

percent of sales going to members. Rent is now

$550 per month. Space is very tight. Extremely

limited retail space means employees must be

constantly stocking shelves. When deliveries

arrive, a “musical chairs” of pallets in the storage areas and coolers almost becomes comical.

The time has clearly come for a new store. 

Looking back, board member Jerry

McGeorge explained, “We’ve really been starting for nine years, constantly reconfiguring,

while we got our financial legs under us so we

could support a decent-sized endeavor here.” 

In 2002, the board commissioned consultant Pete Davis to conduct a feasibility study for

a potential move to a new location. His analysis

showed the co-op was obtaining 85 percent of

its business from a trade area that included most

of Vernon County as well as Crawford County

to the south. Within that trade area, which was

home to about 32,000 people, the data showed

the co-op was capturing only 8.9 percent of the

natural food market, and about 1 percent of the

overall grocery market. 

Davis’ report attributed these low marketshare levels to the store’s inadequate size, its

poor visibility (being a block off of Main Street),

its lack of “retail synergy” and insufficient parking. He concluded that the co-op could achieve a

market share of 30 percent or more of the natural

foods market if it relocated to a better facility.

About that time, Rasikas was approached

by the owners of a building on Main Street that

had previously housed an automobile dealership. The new owners intended to develop a

“mini-mall” and wanted the co-op to become its

anchor tenant. It seemed like the perfect opportunity. 

The new location was said to offer about

5,000 square feet of retail space. It would allow

parking for least 25 cars on Main Street and in a

lot behind the store. Davis explained that, ideally, a grocery should provide spaces for eight

cars per 1,000 feet of retail space. While the new

location would fall somewhat short of that, it

was a major improvement over the present location and was close enough to the ideal ratio to

be acceptable. Davis went on to project that the

co-op’s share of the natural foods market would

increase to 27 percent in the new facility, and

that sales would reach $2.6 million by the end of

its second year in that location. 

The estimated cost of the project was

$750,000. Before any commercial or institutional

loans could be arranged, the co-op would have

to raise significant equity investment from

members. So the board embarked on a major

fundraising drive to help finance the move. It

established a new system for accepting unsecured loans from members, with options for

interest rates ranging from zero to five percent,

three-to-five years maturation rates and a minimum loan amount of $1,000. By 2003, the co-op
Keys to Success for Food Co-op Start Ups in Rural Areas 21

had raised $159,000 for the move.

Board member McDonald credited the

successful fundraising in large part to “the

huge influx of alternative-minded folks, moving here from New York, California and

Colorado. They found housing a lot cheaper

here, and so many of them came in with

enough cash to figure out what they wanted to

do once they got here. And they invested in

projects they supported.” 

The co-op spent a year researching the

Main Street location, and negotiating for more

parking. In the meantime, the co-op’s sales and

membership grew to the point where the

board made the decision to look at buying

land and constructing a new building. 

Rasikas points to that decision as a

reflection of the flexibility and patience of the

board. She also said that the most recent analysis indicates had they gone forward with the

mini-mall location, they would have soon outgrown that building too. In that scenario, the

debt they would have incurred to remodel and

move would have prevented another expansion

for many years. 

And so, as McDonald explains, they

eventually came upon an alternative site — an

undeveloped corner lot on Main Street, about

two blocks from the original location.

Fortunately, the city agreed to sell the lot for

only $30,000. 

However, the earlier financing goal of

$750,000 was based on remodeling and renting

an existing building. For a new facility, the

total project cost more than doubled, to $1.6

million. The $159,000 they had raised from

member loans was not going to be enough to

leverage the necessary financing from outside

lenders. 

The board did not feel comfortable going

back to members for additional unsecured loans.

The biggest problem with the member loans was

that, when they came due, they had to be paid.

Given the delays that resulted from the change in

plans, some of the current loans with three-year

maturity rates were due to be paid before the new

store had even completed its first year of operations. That could present cash-flow problems for a

store adjusting to a much larger facility. 

So, the board came up with a new strategy for raising capital. It authorized $900,000 of a

new class of stock which, unlike their voting

stock or their Class A shares, would actually pay

dividends. The first series of Class C stock, totaling $400,000, is fixed at a 5.5 percent rate of

return. 

However, unlike loans with a fixed maturity date, the co-op won’t have to return the

new equity until people request it. Furthermore,

payment of dividends in a given year would be

at the discretion of board, although the interest

would accrue. That, McDonald said, gives the

board the flexibility it will need in the first few

years to ensure positive cash flow. The terms of

future series of the new class of stock will be

determined as the need arises. 

The paperwork for the new stock was

completed in June of 2004, and people started

coming forward. By the fall of 2004, nearly an

additional $100,000 in new stock purchases had

been made. The co-op also plans to convert

some earlier member loans into interest-bearing

stock. With these equity investments in place,

the co-op was in a position to approach outside

lenders. By the end of 2004, the co-op was negoViroqua’s old store exterior and an architectural

“line drawing” for the new store. From River

Architects, Inc.
22 Keys to Success for Food Co-op Start Ups in Rural Areas

tiating a substantial loan with a local commercial lender using a USDA Rural Development

guarantee, which they hoped to combine with a

subordinate loan from NCDF. 

The co-op contracted with a “designbuild” firm from La Crescent, Minn., for 6 percent of project costs, instead of their regular 16

percent charge, because it wants to develop the

experience with a “green building,” as the co-op

has requested. The co-op hired its own project

manager (not the general manager) to oversee

the contracted work but will also manage volunteers for “finishing work. 

The co-op moved to a new location in

June 2005. The new store covers 7,200 square

feet, with 4,400 square feet of retail space. In

the first two months of operation, sales were

running ahead of projections. 

Factors Affecting Start-up and Success 

The Viroqua Food Cooperative study

concludes with an analysis of five components

of the start-up process that appear to be critical

to success. They are presented in an order which

generally reflects the chronology of the co-op

development process. 

A. The Steering Committee/Board of Directors 

While some co-op development projects

start off with a steering committee, once

McDonald and his fellow buying-club members

decided to open a retail store in Viroqua, they

moved quickly to incorporate. Once incorporated, seven of them served as interim board of

directors until member elections three months

later made them official. 

It is important to note, however, that the

start-up effort in 1995 involved more than just

the seven-member board. Some 20 individuals,

including directors, their spouses and other volunteers, contributed brain power, manual labor,

time and money to establish the cooperative,

remodel the building and open the new store. 

The development period in 1995 was relatively short — about six months. This was partly due to the prior experience of the buying club

and the modest size and furnishings of the first

store. However, as some staff and directors

explained, it was in some respects a nine-year

development project, because only with the

opening of the new store next year will the goal

be fully realized of a consistent and complete

supply of natural foods. 

There was considerable turnover during

that nine-year period. Of the original board,

only McDonald still serves as a director, and he

left the board early on, returning several years

later. Directors serve two-year terms, and most

serve no more than two terms. There has never

been a problem finding people to run for the

board. 

While consistency of leadership is generally deemed critical to the start-up process, it

may become less important when the process is

spread over many years and new members have

time to become familiar with the business. 

The quality of leadership of the co-op’s

board of directors was demonstrated by its handling of a “mini-expansion” in 1999, which provided a stepping stone to a larger store.

The board also showed maturity in its

decision to use the Blooming Prairie windfall to

write off some losses and establish more accurate financial records, as well as by its patience

and flexibility when the first expansion plan fell

through. 

Merle Borchers, a lender at the time for

Northcountry Cooperative Development Fund

in Minneapolis, worked with the co-op board as

it sought loans to finance the expansion. “They

took everything in very reasonable stages,” he

explained. “The goal was to make money and

survive. They got advice about equipment, layout and other issues, but when it came down to

decisions, they took responsibility themselves.” 

B. Consultants and Advisors 

Typically, a steering committee or new

board of directors taps advisors (who are free)

and consultants (who charge) to “fill in the

gaps” where the knowledge and skills of its

member are lacking. The group must first must

identify “what it doesn’t know, but should,” and

then shop around for the best available support

at a price it can afford. 

In 1995, McDonald and his group tapped

Jerome McGeorge, Sr. to help draft and submit

incorporation papers to the state. They also
Keys to Success for Food Co-op Start Ups in Rural Areas 23

tapped a skilled community member to facilitate

a stakeholders’ meeting. That help aside, not

many external resources were brought into the

initial development process. 

With their modest plans and minimal

capitalization, the first board apparently felt it

did not need formal market studies and a

sophisticated business plans from costly consultants. However, as the co-op and its vision

grew, the board and its management increasingly demanded more diligent analysis of the current operations and future prospects. 

Eventually, the co-op tapped consultants

such as Davis, affiliated with Cooperative

Development Services (CDS) of Madison, to

conduct “an analysis of sales potential for a proposed relocation.” Prior to that, one of the

smartest moves by the board and Rasikas was to

tap into resources offered by a natural foods

industry that began some 20 years ahead of

them. 

Rasikas said the store was one of the first

to use a new business improvement program

developed for smaller food cooperatives. The

program is an adaptation of the Common

Cooperative Financial Statements (CoCoFiSt)

program, developed by CDS consultants, with

assistance from the Northcountry Cooperative

Development Fund. 

Ever since she was hired back as general

manager in 1999, Rasikas was determined to

acquire the same level of technology, training

and other industry support available to the larger, well-established food co-ops. She searched

out a POS system that her store could afford,

and she and finance manager Halley Blessing

took the resulting data and analyzed it in comparison to industry benchmarks. 

“That was a huge step for a us — being

able to analyze that information, get help and

see where we were doing well and where poorly,” Rasikas explained. 

C. The Business Plan 

Typically, once a co-op steering committee or new board of directors comes together

and has tapped the consultants needed to complement it own knowledge and skills, it can

begin to develop a written business plan to present to potential members and commercial

lenders. Often, a feasibility study is a step along

the way. 

As mentioned above, the founders of

the Viroqua Food Cooperative did not bother

with formal market studies or business plans.

Its success might argue that less planning is

necessary in the “start small and grow”

approach to food co-op development. 

While there may be some truth to this,

there were also special circumstances involved

in Viroqua. First, the margins on natural foods

are typically much higher than in conventional

food stores. This allows for a greater capacity

for absorbing mistakes. Furthermore, there

was a total lack of natural foods retail outlets in

the area, and an influx of new residents who

were clearly a potential market. 

In looking back at the record keeping,

the lack of planning, and other loose practices

in the early years, Ms. Blessing, the current

financial manager, declared, “We succeeded in

spite of ourselves. We were in the right place at

the right time. However,” she added, “we

were out there fishing for it too.” 

Certainly as the co-op grew, the board

and staff became more sophisticated. They fully

analyzed and planned their expansion project.

As Rasikas explained, “We would have been

shooting from the hip if we built a new store

based on what we thought we knew about ourselves. And we would have built too small.

When we told Pete Davis, who did our market

study, all about our alternative community, and

how special we were, he said ‘I don’t do special.’ It was based on the science of studying the

market.” 

D. The Project and General Managers 

When they lack the time or the skills

themselves (and if they can afford it), a new coop board will sometimes hire a person to manage the development process. A project manager

can provide the consistent attention to details

that large, complex development projects

require. In 1995, that obviously was not necessary or affordable in the case of Viroqua. 

Once the store opened, the co-op’s sales

grew quickly in its earliest years under the
24 Keys to Success for Food Co-op Start Ups in Rural Areas

direction of a rotation of co-coordinators. The

initial success probably was due in no small part

to the hard work and commitment of those first

employees and to the size of the market niche

the co-op grew to serve. 

But as current board member McDonald

says, in those early years “the co-op was doing

OK, but not great by any means. We were not in

danger of going under, but we [the membership] weren’t really expanding much. We hit 100

in that first year, but then we grew very slowly.

After three years, maybe we had 200 members.” 

He then went on to describe the impact

that Rasikas has had as general manager the

past five years. “Once she came on as GM, she

had the drive and background knowledge to get

the systems in place that we really needed —

managing inventory, managing margins. It’s

since she’s been there that things have really

taken off, to the point where now it’s so

cramped when you try to shop in the current

store. Four years ago, that wasn’t the case.” 

“She takes on (the job of running a grocery) and makes it an enjoyable experience for

the customers so they come back,” McDonald

continued. “And she gets things done. She

expects things to get done well. What she’s done

more than anything is steer us in directions so

that things run smoothly, while adapting to

rapid change and still managing to get huge

numbers of new members, large volumes of

sales. It’s really pretty phenomenal.” 

Rasikas herself frequently complimented

other staff. She introduced everyone who

appeared on her guided tour of the small store.

At one point, she explained that many. 

of the

employees had college degrees, which may

reflect that “in small, rural communities, meaningful work is not always available.

[Nevertheless] working at a community-owned

cooperative with its positive impact on our local

economy can be very satisfying, especially if we

can be a model for decent rages and benefits

and healthy working environments.” 

Throughout a lengthy interview in the

crowded office, she turned often to finance manager Halley Blessing for information, which was

always rapidly retrieved from the computer system. Afterwards, on a tour of the storage

rooms, she described the labor-intensive, and

therefore costly and frustrating, need for constantly stocking shelves and shifting piles in the

storage rooms. 

It was quite clear that Rasikas was driven

to make the co-op a success, and the long-awaited expansion into the new store would be a collaborative achievement. 

When asked if the general manager’s pay

was commensurate with the local market,

McDonald replied, “Well, we just gave her a big

raise. As a board, we’ve been doing really well

as far as overseeing store operations, making

sure things get done, but we haven’t done as

well training ourselves and learning about the

larger world of co-ops, so you ask ‘is her pay

commensurate?’ We’re certainly bringing her up

to that level. 

“But you have to make sure your other

employees get brought up too, and she’s very

OK with that. She makes less than a commercial retail grocery manager, but she’s right in

there for a natural food store of the size we’ll

The Viroqua store was one of the first to use a new business

improvement program developed for smaller food co-ops.

Above, General Manager Jan Rasikas with a staff member

and her daughter in the old store. Photo by Greg Lawless
Keys to Success for Food Co-op Start Ups in Rural Areas 25

soon have. We’re working toward a system

where some of her pay is based on results. This

is where our board will really have to step up,

to establish the results we want to see.” 

E. The Members 

The role and impact of the membership

can be evaluated at two critical points in the coop development process. First, members must

contribute sufficient equity capital to start the

business on solid enough footing. While grants,

gifts and loans can sometimes cover a large portion of the total capital requirements, commercial

lenders demand to see owners put some of their

own capital at risk. Second, once the co-op

opens, the membership enjoys the ultimate control over the fate of the business — as paying

customers. 

Simply stated, the members of the

Viroqua Food Co-op responded favorably in

terms of both capitalization and patronage. 

Closing Comments 

This case study will close with a brief

consideration of the comparative importance of

the five so-called “building blocks” of successful

co-op grocery development in rural communities. These conclusions can then be compared

with those of the other three case studies. 

Certainly the role of the co-op board of

directors was critical, during both the short startup stage, as well as throughout the prolonged

nine-year development toward the new store on

Main Street. While there was notable turnover

on the board over that period, there were several

examples and references to the hard work and

good judgment of the various directors.

While they only

tapped a few advisors in the

earlier days, the co-op

increasingly turned to paid

consultants and industry

resources to guide them

through their expansion.

Likewise, formal business

planning was not critical to

getting the co-op started in

1995, but clearly a great deal

of planning guided strategic

decisions since the time of

the mini-expansion in 1999.

In the “start small and grow”

approach that this case represents, it appears

that the judicious use of consultants and formal

business planning becomes more critical with

growth. 

It would appear that the role of the general manager in this case was critical to the co-op’s

success, particularly when viewed over the nineyear period. Rasikas commitment and abilities

are very apparent, and certainly enabled the

business to adapt to meet the growing opportunity. 

Arguably, in this case, the most critical

component of success has been the commitment

of the members to patronize and support the

store. Over 80 percent of sales in 2003 were

made to members. They have provided over

$300,000 in loans and equity to support the move

to the new location. More to the point, as a community of like-minded consumers, the thousand

or so individuals who joined the Viroqua Food

Co-op since 1995 represent a substantial and continually growing niche market. They demanded

a convenient source of natural foods in their

rolling corner of western Wisconsin, and they

got it.

The new Viroqua Food Co-op includes 4,200 square feet of retail space in a 7,200-

square-foot building.
26 Keys to Success for Food Co-op Start Ups in Rural Areas

Tower Foods Market Cooperative 

This is the third of four case studies that

explore the factors contributing to the successful

start-up of cooperatively owned groceries in

rural communities. Tower Foods Market has the

misfortune of representing the only “failure”

among the four cases studied. It is a tremendous

credit to the people involved that they were

willing to share their story, and they have

expressed a sincere interest in learning and

building from the experience. 

Background and Chronology of Start-Up 

Tower Foods Market was a project driven

and supported by the Sovereign Oneida Nation

of Wisconsin. The store was located about five

miles from Green Bay, Wis., a metropolitan area

of 226,778 people (U.S. census, 2000). Despite its

proximity to a large urban area, urban development has been limited, and the landscape is

largely agricultural. 

The Oneida tribe migrated to Wisconsin

starting in 1821. Initially, it shared five million

acres with two other tribes. However, by 1929,

the Oneida’s portion had been reduced to only a

few hundred acres through treaty, allotment and

scandal. More favorable U.S. policy stopped the

loss in 1934, but it wasn’t until the 1980s that the

court settlement of a boundary dispute with

three local governments, followed by the Indian

Gaming Regulatory Act, enabled significant

progress toward land reclamation by the

Wisconsin Oneida. 

Today, the tribe owns and controls 16,689

non-contiguous acres within a 65,000-acre rectangular territory that covers about ten miles of

Duck Creek watershed. 

It would require far more background

knowledge to fully understand the dynamics

behind the story of Tower Foods Market.

Examples of important factors that are at best

only touched upon within this study include:

the institutions and politics of the tribal government; the impact of casino economics; competition between large families and clans; and a set

of cultural values distinct from the non-Native

local population. 

Other limitations of this study deserve

mention. One is that the key informants do not

represent important perspectives. In October

2004, a meeting was arranged that primarily

drew only representatives of the Oneida

Community Integrated Food Systems (OCIFS)

program, which took over the co-op in its final

months. Contact information was not provided

for the former project manager, the members of

the first steering committee and early board

members, or for the four general managers who

served during two years of business. 

Another limitation of the study is that,

because the store was closed and empty when a

site visit was made in October 2004, first-hand

observations of the store’s image, design and

inventory could not be made. Within these constraints, this report will examine the process that

led to the opening in July 2002 of a cooperatively owned, full-service grocery on Oneida Nation

land — and its subsequent closure two years

later. Because of the sensitive nature of a failed

business experience, use of personal names has

been avoided in this report. 

A time-line of the development effort,

provided by project staff, traced the motivation

to start a co-op back to April 1995, when the

non-Native Schroeder family closed its private

grocery in the area. Later that year, the tribe’s

Economic Development Department considered

a proposal to start a new grocery on the reservation. The Schroeder facility was evaluated in

November but was not pursued. 

In December, a survey of elders was conducted to collect their input. Some 65 percent of

respondents favored a grocery store within the

tribal boundaries. A similar sentiment was

shared by the staff and participants in the

OCIFS program, which itself was started in 1994

to address issues of poverty and health on the

Oneida reservation. 

The OCIFS mission was driven by some

disturbing statistics: 80 percent of families in the

Oneida Nation school system were reportedly

classified as low- and very-low income.

Unemployment on the reservation was seven

times higher than the closest municipality. An

estimated 65 percent of Oneida youth were said

to be overweight or obese, contributing to a 300

percent increase in incidence in diabetes. The
Keys to Success for Food Co-op Start Ups in Rural Areas 27

disease was said to strike one of two tribal

members, and led to related complications such

as heart disease, blindness, dental disease and

amputation. (This data was presented in a

revised 2004 business plan for the co-op grocery.) 

While the growth and success of the

Oneida casino in the 1990s improved the tribe’s

economic well-being, there was concern about

over-reliance on the “golden calf.” As one project leader explained, “In a healthy economy, a

dollar should circulate seven times. It basically

doesn’t circulate once in Oneida. We felt we

needed to stop sending hard-earned dollars to

Green Bay and everywhere else.” 

Interestingly, in 1995 the Green Bay Area

Chamber of Commerce listed the Oneida Nation

and its collective tribal enterprises as the No. 1

employer in the area, with 3,391 employees.

However, many of those employees were nonNative, and many tribal members remained economically disadvantaged. 

The idea for a new grocery in the Oneida

Nation became a vehicle for achieving a number

of greater goals: economic development and job

creation, tribal self sufficiency, improved diets and

better health, food security for elders and young

children, even environmental stewardship.

In January 1996, the tribe commissioned a

study from the Texas-based wholesale distributor, Fleming Companies Inc. (which went out of

business in 2003). It was the first of two market

analyses conducted by major wholesale suppliers that would later prove to be substantially

over-optimistic. 

This first study defined a trade area of

10,660 persons, comprised of the non-contiguous Oneida reservation and their non-Native

neighbors. From the start, the organizers hoped

to attract both Oneida and the general public to

patronize the grocery. 

Based on a 10,000-square-foot facility, the

Fleming report projected a 19 percent market

share, per capita weekly expenditures (PCW) of

$27.59 and gross sales of almost $3.3 million in

the first year of operation. 

Bolstered by these projections, the

Economic Development Department conducted

another survey in June 1996, and by October,

according to the project’s historical timeline,

they generated a “plan of action.” However, no

details of the plan were made available, and at

that point the timeline jumps forward three

years to 1999. 

In December 1999, the tribe’s Community

Development Department took up the task of

restarting the tribe’s grocery initiative. A “needs

assessment survey” was sent to all 1,083 registered tribal households in the area, of which 256

people responded (a 23 percent response rate).

Of those, 75 percent expressed strong interest in

having a grocery located in the Oneida Nation.

The top reason given for wanting the store was

convenience, followed by the need to “keep

money on the reservation.” 

On the issue of ownership, the survey

asked simply: “Who should own the store?”

About 36 percent of survey respondents voted

for “community” ownership, but separate from

the tribal government. Another 28 percent

favored tribal ownership, 26 percent said it

“doesn’t matter,” while others favored individual ownership by a Native American (19 percent) or by a non-Native individual (2 percent). 

Asked what they felt would be “the

biggest obstacle blocking a tribal grocery,” 33

percent selected: “not enough community support.” A slightly higher percentage checked

“other,” while 17 percent indicated “limited tribal resources.” Another 8 percent said it “does

Tower Foods Market Cooperative was hurt by rapid turnover

in management and co-op leadership, and by having too

many collateral goals. USDA photo by Margaret Bau
28 Keys to Success for Food Co-op Start Ups in Rural Areas

not fit into the master plan of Oneida” and 8

percent felt that present area stores were adequate. The survey also found that almost 75 percent of respondents wanted a store the size of

Don’s Supermarket in nearby Seymour (18,000

square feet) or larger. 

Between June and October 2000, at least

nine meetings were held, bringing together various tribal agency staff, outside resources and the

wider tribal community. After some analysis of

alternatives, a core group of individuals settled

upon a co-op model of ownership. A co-op

development specialist from the USDA began

attending meetings. 

In September, the Oneida Business

Committee, the governmental unit which oversees all tribal business, passed a resolution to

provide $250,000 to the grocery store project

from the 2001 tribal budget. A subsequent project document would explain, “This was a

remarkable decision... because it was the first

time (the committee) separated tribal politics

from economic development.” 

Attention then turned to grant opportunities. Two public meetings were held for the

expressed purposed of gathering names to a list

to support a grant application. Soon afterwards,

an application was submitted in September to

USDA requesting $500,000. The Oneida tribal

government would ultimately receive the grant,

which was to be used as a revolving loan to provide debt financing to tribal businesses. The coop would become its first borrower. 

The minutes from the meetings in 2000

reflect a chaotic phase of discovery that may

well be common in co-op development projects.

Various people were attracted to the project,

then withdrew, some to return later. A series of

outside experts brought new, sometimes conflicting perspectives. Divergent ideas surfaced

about store location, design and product mix.

Along the way, actions were proposed, estimates

made, opportunities lauded, threats posed,

details debated... and much of it based on too

many assumptions and limited information. 

To make some order out of the chaos, it is

generally recommended that groups get their

ideas on paper, conduct a rigorous feasibility

study and, if that is favorable, proceed to develop a formal business plan. The Oneida had previously taken steps in this direction — the market study by Fleming in 1996 and the more

recent needs assessment survey. 

In early October 2000, three project leaders met with a representative from a wholesale

distributor in the region. He described a “menu”

of services his company could provide, including store layout, shelf management, market

analysis, décor packages, and an “operational

business plan,” which the minutes explained

was a “free service, and will only be necessary if

the retail sales are not doing well.” 

Later that month, the same three project

leaders met with the general manager of a thriving natural foods co-op in Milwaukee. She

explained that her 14,000-square-foot store

(9,800 square feet of retail space) served 7,000

members, with 50 percent of sales to non-members, and 6,500 shoppers per week. She also

shared some information about her board of

directors and member policies. 

Shortly thereafter, the organizers contracted for $5,000 with the aforementioned distributor to conduct an updated market analysis.

The study the company delivered two months

later was apparently enough for the project’s

leaders to deem the idea feasible, and the

report’s financial projections would play prominently in a business plan completed six months

later. Unfortunately, those projections would

ultimately prove to be grossly incorrect. 

To its credit, the firm’s report was only

about half as optimistic as the Fleming study

that preceded it, although it did base its calculations on a smaller store (8,000 square feet). A target market area was mapped, which was said to

be home to almost 9,000 residents. The report

projected that the store would capture 16.5 percent of this target market, with each shopper

averaging weekly expenditures of $30.33, generating $1.7 million in gross sales the first year. 

It is interesting to note that much of the

text that accompanied these figures was quite

discouraging, particularly on the subject of competition. Prospects for attracting “strong acceptance and patronage from the local tribal community...is dampened by the existence of four

large dominant supermarkets (in Green Bay)
Keys to Success for Food Co-op Start Ups in Rural Areas 29

with combined sales of $2 million per week.” 

The report further admitted that that figure did not include smaller stores in Seymour

($7.8 million in gross sales) and Freedom ($2.3

million), nor a 68,000-square-foot grocery that

was scheduled to open soon just five miles

south in DePere. Finally, after acknowledging

rumors that a new Wal-Mart Supercenter might

be on the horizon, it suggested that the success

of the larger supermarkets would likely close

the smaller conventional stores. It presented

that as an opportunity for recruiting freshly

unemployed store managers. 

Furthermore, on a scale of scale of 1-10,

the proposed Oneida grocery rated just 5 in

terms of “accessibility to site” and “traffic flow.”

It rated even lower on “proximity to population

density” (4) and “visibility of site” (3). The

report concluded: “The small size of the (store)

and its location, away from the highway and

lacking a major crossroads, would normally relegate it to a convenience store status.” 

In the face of these inferior attributes and

fierce competition, the consultant explained that

the Oneida store would have to achieve the following: 

• Overall pricing... competitive with small markets in Freedom and Seymour. 

• An aggressive advertising and promotional

plan.... 

• Key management personnel will have a strong

supermarket background. 

• Merchandising for the local Oneida community will be significant and pervasive through all

departments. 

• It is assumed that there will be an appropriate

and effective response to all competitive challenges. 

It also advised a large attractive pylon

sign, although the cooperative was restricted

from taking this step because of local county

and tribal regulations. 

All of this analysis was based on a grocery to be located in a “business park” near the

center of the Oneida territory. The site had been

suggested repeatedly early on in the process,

presumably because of the investment the tribe

had already made at that location. The park

was already home to a post office, a tribal office

building and a half-empty, 20,000-square-foot

warehouse. Set back about 300 yards from a

state highway with moderate traffic, half of the

warehouse housed a new food pantry for lowincome tribe members. 

With the market analysis report in hand,

the project leaders would spend 2001 developing a business plan, recruiting board members,

incorporating the co-op, developing by-laws,

and holding community meetings. In February

they met with a university co-op specialist who

explained the basic responsibilities of a co-op

board of directors and described various supporting resources. 

A community meeting in April 2001 drew

at least 51 people and was revealing in several

ways. First, one organizer from the Oneida

Community Integrated Food Systems explained

that the idea for an Oneida grocery resurfaced

in 1999 simply because someone found files

from 1996 that “stated that a grocery store in

Oneida was one of that organization’s goals.” 

The organizer went on to describe an

option that receives no other mention elsewhere,

namely: to open a grocery as a joint venture

with Sav-A-Lot, a private store chain. He also

explained that “the Lac du Flambeau and

Menominee have tribally owned cooperatives,

while our store would be owned by the community people.” 

The debate over ownership that was still

unsettled by April 2001 was accompanied by

hard questions from the community. One person asked, “Four groceries have already failed.

Why could a co-op be successful?” The meeting

leader answered, “We now have an economy,

when in the past we really didn’t,” and he

added, “We would start out small and expand

as the demand and support increased.” 

At this notable April meeting, nine individuals signed up to serve on the board of directors. Furthermore, a survey of 38 meeting attendees showed 34 still desired a grocery store for

the Oneida community. 53 percent indicated

they would do all their shopping there “if reasonably priced.” The business park location was

favored by 18 of 30. 

By July 2001, the minutes describe a
30 Keys to Success for Food Co-op Start Ups in Rural Areas

series of board of director meetings. They elected officers, voted on by-laws and established

five committees. Technically speaking, these

decisions were premature, for the co-op had not

yet been incorporated. But in practical terms, it

was progress. When the co-op finally incorporated in September 2001, the board was reduced

to seven members. 

As the facility was prepared, a serious

effort was made to publicize the forthcoming

store. The co-op was also advertised via radio,

direct mailings, TV calendars, newspapers and

posters. Much of this outreach effort targeted

both Oneida and non-Native target markets.

From January to July 2002, at least 12 community meetings and information booths were put

together. Minutes for one meeting indicated 97

attendees. 

At that event, one community member

commented that the present location was too far

off the road, and that a new location should be

found immediately. A board member answered

that they would never attract a grant to build a

new building until the business proved it could

attract a sufficient customer base. Their hope,

he said, was to achieve that measure of success

in three to five years, and at that point they

would construct a new building closer to the

road. 

By April 2002 extensive renovations were

finally underway to convert the empty warehouse space in the business park into a modern,

full-service grocery. The long lag time was partly related to delays in processing the USDA

grant to the tribal government, establishing a

revolving loan fund that would provide

$460,810 in financing to the co-op. It is worth

mentioning that well into the project, this

money was interpreted as a grant, not a loan, as

one of the organizers explained, “Originally, the

funds were requested as a grant, however, the

USDA required that we utilize the funds as a

revolving loan fund to help support future small

businesses. It was a great idea in theory, but the

profit margin is significantly low for this type of

business and created a hardship for the store.” 

The misinterpretation severely affected

the co-op’s financial projections and “started us

off on the wrong foot,” according to one former

board member. 

The debt load at start-up also included

the $250,000 contribution from the tribe.

Membership fees were treated by the co-op as

income, not equity, and they equaled less than 1

percent of total project costs. No commercial

bank loans were taken out to finance the opening of the store.

Most of the engineering, design and

remodeling of the facility was done under contract with various tribal departments. All new

equipment was required, because of a tribal policy that forbade purchase of used equipment

(put in place to discourage dishonest dealings of

the past). The lack of flexibility to bid out the

work and to purchase second-hand equipment

was said to be the cause of rather severe cost

overruns. 

However, one study informant noted that

there were some issues of alienation with the

first project manager, which may have negatively impacted the community buy-in with this

project. 

The co-op would also hire another nonNative man to become its first manager. A man

with significant grocery management experience

was hired well before opening day and took over

much of the project management. However one

observer noted, in hindsight, that while the

man’s previous background provided the knowledge and skills required to manage an operating

grocery, he was not as well suited to the process

of developing and opening a new store.

Despite all the delays and doubts, and

thanks to the hard work and determination of a

core group of leaders, Tower Foods Market

finally opened for business on July 18, 2002. The

store was named after a prominent water tower

located at the edge of the business park. While

several Oneida language names were considered, the organizers settled on something more

generic that would appeal more to the general

public. 

The store actually occupied 8,000 square

feet of the 10,000 available in the warehouse. In

front, 2,000 square feet were reserved for Oneida

entrepreneurs or groups for marketing tribal

crafts and goods. Minus storage, the store

offered about 6,000 square feet of retail space.
Keys to Success for Food Co-op Start Ups in Rural Areas 31

By all descriptions, the store was modern, well

lit, clean and new looking. 

The co-op would rent the four-year-old

facility from the tribal unit that owned it. In

keeping with the Oneida’s commitment to environmental stewardship, they invested money in

solar energy panels to help power the grocery

store. 

Members had an option of paying a $20

annual fee, or $100 for a lifetime membership.

Records show the store had 266 members when

the doors opened. Around the time of opening,

a whole new slate of directors took over the

board. While the 2001 business plan included an

allocation of $12,000 for board training, that

money was not spent, and a very inexperienced

board of directors took over governance responsibilities for the new business. 

Mission Accomplished? 

Nothing in the projects’ records indicates

that a formal mission statement was ever developed. Various tangential goals have already

been mentioned as associated with the Tower

Foods project: economic development, job creation, tribal self-sufficiency, improved diets and

better health, etc. While left unstated, the central mission was evidently to establish a full-service grocery that would serve the Oneida community for years to come. That mission, unfortunately, was not accomplished. 

With the tribe’s permission, the co-op’s

accounting firm faxed 80 pages of financial

records for this analysis. The most recent 12-

month income statement covered the period of

August 2002 through July 2003, which nearly

coincided with the first year of operation. 

Over that year, the grocery achieved

$452,589 in gross sales. The cost-of-goods-sold

(COGS) registered $355,372. Subtracting freight

costs and fees ($33,824), the statement showed a

total gross profit of $63,292, representing a gross

margin of 14 percent. 

The salary of the manager was listed as

$26,973, and the assistant manager earned

$21,781. In addition to these two full-time staff,

there were 13 part-time employees. The total

payroll expense, including salaries, wages, payroll taxes, workers compensation and benefits,

was $144,530, or 32 percent of gross sales and 28

percent of total operating expenses. 

Other major expenses included advertising and in-store promotions (about $32,500),

utilities ($30,700), accounting ($9,000), depreciation on equipment ($129,000), depreciation on

leasehold improvements ($24,000), intangibles

amortization ($18,100), interest ($51,000), and

rent ($25,000). Total operating expenses were

$509,923. Including the COGS and taxes, the

overall expenses that first year totaled $897,800,

resulting in a loss of $437,600, nearly 97 percent

of gross sales. 

The co-op’s most recent balance sheet was

dated May 15, 2004, about two weeks before the

business closed. At that time, records showed

only $60,678 in current assets, two-thirds of

which was inventory. Fixed assets, including

store fixtures and equipment and leasehold

improvements, totaled $423,866 after depreciation. 

On the other side of the balance sheet, liabilities included a short-term loan from a local

bank of $417,681. Since commercial loans did

not appear on initial balance sheets, this loan

was apparently taken out in early 2003 to keep

the business afloat. Long-term debt included

the $737,030 loan from the Oneida tribe, which

by May 2004 had accumulated over $80,000 in

unpaid interest. The majority of the loan represented the original USDA grant to the tribe.

Some Tribal members said Tower Foods had a “generic quality,”

and that “the name and feel was not Oneida.” The $12,000

allocated for board training was never spent, despite the

inexperience of the board.
32 Keys to Success for Food Co-op Start Ups in Rural Areas

Apparently the tribe also approved several

“influxes” of cash as the business struggled, in

addition to its original contribution of $250,000. 

Finally, member equity, which is added to

liabilities to balance assets, was reported as

minus $762,976. That figure represented negative earnings from nearly two years of unprofitable operations. 

Aside from these disappointing financial

figures, another sign of trouble was the turnover

in management. The co-op went through four

managers in two years (three non-Native, one

tribal). Of the four, the first manager was most

qualified in terms of grocery management experience. However, not long after the business

opened, he decided that at his age he could not

put in the long hours required to get a new store

off the ground. 

As late as May 2004, the co-op’s leadership was still trying to save the business. Two

months earlier, a small number of members

appeared at the annual meeting and voted to

turn over the board of directors to the leaders of

the OCIFS program. Notably, they also voted to

refund the $100 lifetime memberships that some

of them had purchased. 

The five individuals from OCIFS who

served on the final co-op board were listed as

coauthors of a revised business plan dated May

2004. However, it contained much of the same

text as the 2001 version, with some updated

financial figures. For instance, it stated that the

store was averaging about 100 customers per

day, each spending about $9 per visit. 

The 2004 business plan offered a host of

strategies to turn things around, including: (a)

reducing the annual membership fee to attract

more customers, (b) converting to a 501c3 nonprofit to attract more grant support, (c) vastly

increasing the marketing budget and (d) adding

more natural foods and Oneida-produced products. Even projecting moderate sales growth

well into the future, the store was expected to

still lose 30 percent by 2012. 

In June 2004, unable to attract further

support from grants, the tribe or local banks,

Tower Foods Market shut down for good. By

October, a site visit found the store completely

empty, although a large sign still hung above

the doors, advertising what might have been. 

Factors Affecting Start-Up and Success 

This case study of Tower Foods Market

concludes with an analysis of five components

of the start-up process that appear to be critical

to success. They are presented in an order,

which, in a very general sense, seem to reflect

the chronology of the co-op development

process. 

A. The Steering Committee/Board of Directors 

The fact that the various organizers of

Tower Market Foods stuck with the project

through two years of development does indicate

a level of commitment and determination.

Nevertheless, some shortcomings with respect

to the steering committee and board of directors

may be observed. 

Over the course of the project there was

considerable turnover among the project’s leadership. From late 1999 through June 2004, a rotation of at least 25 individuals had roles on the

steering committee and a series of self-appointed and elected boards. This may be a partial

cause of an apparent inconsistency of “vision”

that is discussed further below. 

The key organizers clearly had some difficulty finding people to serve on the board, as

evidenced by a long period of director recruitment. This may explain why the four committees they established — Governance, Owner

Relations, Nominations and Finance — were

never filled. 

It was reported that up until opening day,

most if not all of the directors who served on

the board were employees of one tribal agency

or another. Once the store opened, a new slate

of directors took over, only two of whom were

tribal employees. Perhaps the organizers felt

that the best practice in cooperative governance

is to have “regular members” serving on the

board. Or maybe the tribe felt that it had subsidized the co-op enough through the organizers’

salaries. Regardless of the reason, the repercussions of installing entirely new and inexperienced directors at such a critical juncture almost

certainly impaired the board’s ability to guide

and evaluate management. 
Keys to Success for Food Co-op Start Ups in Rural Areas 33

Perhaps the shortcoming that had the

most significant consequences was the collective

leadership’s inexperience with the business of

starting and operating grocery store. Or perhaps, more to the point, it was a case of “not

knowing what they did not know.” This

becomes apparent in the discussions of consultants, advisors, board training and the business

plan below. 

B. The Use of Consultants, Advisors and Other

Resources 

Perhaps it is logical that when a group

decides it wants to start a cooperative, regardless of the industry, they seek out co-op development expertise. However, it is equally and

arguably more important that they follow sound

business practices and seek out expertise specific to their industry. The Oneida case clearly

demonstrates how critical it is to obtain appropriate outside assistance to complement the

organizers’ knowledge and skills. 

The Oneida took several steps in this

direction. They tapped specialists from the

USDA and the UW-Madison to provide basic coop education. They met once with the manager

of a successful natural foods co-op to explore that

niche market. And they contracted with two different wholesale suppliers to conduct market

analysis. 

While the leadership garnered enough

co-op knowledge to get incorporated and operate within a basic cooperative framework, they

did not receive the level of co-op board training

that was readily available in Wisconsin. The

UW Center for Cooperatives offers an affordable, intensive three-day board training program that the tribe did not tap, despite the allocation at one point of $12,000 for such purpose. 

However, the failure to tap unbiased and

competent expertise with respect to the grocery

industry may have been even more consequential. The details of the market analysis conducted by the two separate wholesale distributors

will be discussed in the following section.

However, regarding their selection, a question

was raised about the objectivity of these consultants. 

On that issue, one key project leader

remarked, “Yes, they both had something to

gain if we went with their distribution company.” In addition, a private independent industry

consultant who reviewed one of the market

reports observed that “obviously, (they) have an

interest in opening new customers.” Another

general concern, according to one company representative, is that the biggest theft from grocery

stores comes from distributors, with employee

theft being second.” 

Even presuming that the companies’ market studies were unbiased, market analysis is

only one component of a business plan, and

shortcomings in other sections of both the 2001

and 2004 version of the co-op’s plans indicate

that further outside advice and consultation was

needed but not acquired. 

Some of those interviewed also indicated

that the co-op did not take full advantage of the

knowledge, capabilities and assets of the tribe.

For instance, someone observed that the

Oneida’s e-mail system was not fully used for

promoting the store. It was also said that certain tribal members had been involved with coop efforts in the 1970s, but their experience and

knowledge was not exploited. 

That the tribe was considered an “outside”

resource reflects the oft-stated position that the

co-op was a separate and independent entity. Of

course, the co-op’s dependence on the tribe was

apparent in the significant financial resources and

staff time that the tribal council and its departmental managers authorized. The tribe also purchased gift certificates for groceries and distributed them to its 3,000-plus employees as a holiday gift. Still, some argued that tribe could have

done more. The complicated issue of the interplay between the tribe and the co-op probably

cannot be fully understood by outside observers. 

C. The Business Plan 

The inadequacy of the co-op’s business

plan was arguably the fatal flaw in the Tower

Foods Market project. If the market analysis and

financial projections had not been so inaccurate,

the organizers might have decided against starting a grocery co-op, and the tribe’s own financial resources, its staff time and the USDA

revolving loan fund could have been directed to
34 Keys to Success for Food Co-op Start Ups in Rural Areas

other needs and opportunities. 

It must be noted that the organizers did

make repeated efforts to collect necessary information to determine feasibility and guide the

project. They regularly collected “primary” data

with the mailed surveys in 1995, 1996 and 1999

and at community meetings from 2000 through

2002. Certainly, much of this data indicated

interest by tribal members in establishing a grocery in their community. 

However, on several occasions community input raised doubts that were apparently

brushed aside. People indicated there was “not

enough community support.” They showed a

preference for a store twice the size as what was

developed. They displayed price sensitivity.

They expressed dissatisfaction with the location. 

The “greater goals” that the grocery came

to embody — economic development, tribal

self-sufficiency, improved nutrition, etc.— and

the fierce determination that is characteristic of

“project champions” may have prevented the

objectivity or detachment that is necessary when

evaluating a business opportunity. 

This tendency was also exhibited in the

leaders’ acceptance of the financial projections

provided by Fleming in 1996 and a second

wholesale distributor in 2000. Table 1 presents

the two market feasibility reports alongside the

actual records from the first year of business. 

In terms of gross sales, the more recent

analysis was roughly half as optimistic as the

Fleming study, though the latter was based on a

somewhat larger store. Meanwhile, the second

report projected a higher “per customer weekly”

(PCW) expenditure. 

The co-op’s business plan casually referenced an “outside market base,” including

Brown and Outagamie counties, with a total

population of more than 388,000 residents. But

for the purpose of projections, it used the second report’s target population. The actual PCW

was estimated at $9, less than a third of the second consultants’ prediction. An actual market

share of 4.2 percent was calculated from a $10.7

million total market that can be inferred from

the data, though it was probably a lower percentage given the growth of the market since

November 2000. 

A private independent consultant with

considerable experience in grocery market

analysis was asked to review the more recent

market study and to explain how its analyst

generated the projections, and why they were so

far off. 

He explained that the distributor used a

“gravity simulation model” for predicting sales

of supermarkets, based on premise that a store

operates like a magnet, with “iron filings”

spread across the landscape representing grocery customers. The larger the magnet, the

greater the customers it will attract. The model

also takes into account competitors and their

sizes, each pulling customers according to their

respective “power.” 

The model, he said, “works surprisingly

well with conventional groceries.” However, he

emphasized that the accuracy of the model

works depends on the decisions of person operating it. For instance, the analyst must “balance

the model” to reflect the relative power of each

competitor. That usually entails the use of gross

Target

Population

Store Size

(Total Sq Ft)

Year 1

Gross Sales

Average

PCW

Avg Market

Share

Sales/Total

Sq Ft

1st Market

Analysis,

Jan 1996

10,660 10,000 $3,256,552 $27.90 18.6% $326

2nd Market

Analysis,

Nov 2000

8,876 8,000 $1,762,748 $30.33 16.5% $220

Actual results,

first year 8,876 8,000 $452,556 $9 (est.) 4.2% (est.) $56 

Table 2: Comparison of projected and actual financial data. 
Keys to Success for Food Co-op Start Ups in Rural Areas 35

sales per square feet, but also the presence of

unique inventory or special departments that

will provide a stronger draw of consumers. 

When asked how the study concluded

that (for example) the Oneida store would capture 30 percent of the market in a defined

“Sector 2” but only 5 percent of “Sector 5,” the

consultant replied: “That’s the ‘voodoo’ of the

model.” When asked why the projections were

so wrong, he suggested that perhaps the analyst

did not do a good job of balancing the model. 

When it was explained that many of the

residents of the area are employed in Green Bay

and some presumably shop near their workplace, he said the model “does not really accommodate for travelers.” Again, it would be up to

the analyst to adjust the balance by lowering the

mathematical estimate of the primary store’s

“power” — a calculation used in gravity models

that a mathematician would call a “fudge factor.” 

The particular consultant interviewed

said he stopped using gravity simulation models 20 years ago, and instead bases his analysis

on interviews with actual customer in stores to

find out how much they spent, where they live,

and he maps the information to census tracts.

The information is used by companies to inform

their decision about where to locate new stores,

and, he added, an inaccurate analysis can really

do damage to a business plan. 

In defense of the second market study, it

must be acknowledged that it did include a

detailed discussion of the competitive environment, and it was critical of the store’s proposed

location, which it warned might “relegate it to a

convenience store status.” It also conditioned

its conclusions on several assumptions, including competitive pricing, aggressive advertising

and promotions and significant management

experience. To the extent that the co-op did not

meet these assumptions, the incongruity

between projected and actual gross sales can be

attributed to its own failures of management. 

Nevertheless, when yet another private,

independent consultant was asked to review the

market report, she concluded that the study was

“inadequate” and “superficial. Market share

seems to have been pulled out of the air. ...I feel

like this analysis was done without talking to the

Oneida people at all.” Furthermore, there was a

“disconnect” between the report’s admission of

fierce competition and the rosy sales projections.

The report “doesn’t really address this,” she

added. 

While the market analysis portion of the business plan

may be called into question, several other issues deserve mention. In particular, the decision

about where to locate the grocery has major implications. 

While the location of the

grocery was frequently debated, numerous indicators suggest that the selected site was

heavily favored by the organizers from the start. In the

revised 2004 business plan, the

location is touted as “a distinct

advantage in supply terms,”

because of its proximity to the

Oneida food and craft producers. Such an argument downplays the store’s less than ideal

proximity to customers.

According to one informant,

Although Tower Foods was located about five miles from Green Bay, Wis., the

surrounding area is rural and largely agricultural. An initial study defined its trade

area as having 10,660 people.
36 Keys to Success for Food Co-op Start Ups in Rural Areas

“there really was not great place to put it,

because there is no downtown Oneida, but

rather five clusters of homes throughout the

reservation.” 

A site visit to the store after it closed confirmed others’ impressions that it was set too far

back from road. With a setback of 900 to 1,000

feet, it looked to be three football fields away.

State highway signage restriction also limited visibility. The post office, tribal office building and

food pantry scattered throughout the large business park attracted very little traffic that morning. 

The business plan offered a solution to

these challenges: “Location of the store is an

issue for some customers, however if we are

able to provide excellent products at a competitive price this issue will be minimized.” This is

one of several examples where the problem was

not the business plan per se, but the failure to

implement its components. 

On the issue of price, after the store

opened, a tribal employee was directed to conduct a price comparison of 22 similar products

of the co-op and two of its competitors. While

the report concluded that Tower Foods’ prices

were equal to one of the competitors, interviews

with former shoppers disagreed. One woman

said she spent $249 at the co-op and the next

week $130 bought the same groceries elsewhere.

There was certainly a perception of higher

prices at the co-op, particularly when compared

to larger discount supermarkets in the area. 

Another disconnect between the business plan and the actual operation involved the

product mix. Despite the frequent connections

made between tribal members’ poor diet and

diabetes, and the purported better quality of

“natural foods,” the store would ultimately

stock an inventory of almost exclusively “conventional foods.” The revised 2004 business

plan’s list of vendors continued that policy

despite even greater emphasis on natural foods

elsewhere in the text. 

The business plan also frequently indicated that Oneida food and craft products would

be a central feature of the store’s inventory,

including Oneida-raised Angus bison and handcrafted corn husk dolls and blankets. Ultimately,

that did not occur. One explanation pointed to

the failure of one key organizer to deal diplomatically with certain families who were

involved in producing these products. 

Yet another issue related to the facility

was the design or décor of the grocery. Several

tribal members indicated that it had a “generic

quality.” One called it a “neon store,” adding

that “the name, the feel was not Oneida. It

was not a comfortable place for Oneida who

walked in. It just felt like a regular store. Not

inviting.” At the same time, because it was on

tribal land and set far back from the road,

“people thought it was for tribal members

only. We basically had an identity crisis from

the very beginning.” 

One final aspect of the business plan that

deserves mention is its financing strategy.

Almost the entire cost of the project was covered

by loans from the tribe and a large USDA grant.

One tribal member framed this issue in terms of

a book on Native American policy called “The

Gift That Hurts.” 

There are two implications worth mentioning. First, the availability of tribal and

USDA money meant that organizers did not

have to press members hard to contribute equity. A successful equity drive is a good indication of the commitment of members to support

the store as patrons. 

Second, the ready availability of start-up

capital meant that organizers did not have to go to

commercial banks or other private lenders. These

institutions likely would have demanded more

rigorous research into the feasibility of the business. That in turn might either have resulted in

far better business plan, or else it might have prevented what might have been inevitable failure. 

D. The Project and General Managers 

The lack of diplomatic skills on the part

of one project manager has already been mentioned. The resulting ill will that was generated within the tribal bureaucracy and among

certain tribal families certainly may have contributed to the store’s problems, including cost

overruns during development, and decreased

community support during the store’s two

years of business. 

However, it should be noted that pro-
Keys to Success for Food Co-op Start Ups in Rural Areas 37

ject management responsibilities were often

shared by several people. As one person

noted, “It was a wagon running by itself, and

every once in a while it had a different driver.” 

This inconsistency of leadership which

was present from the start, continued after

opening. Furthermore, the rapid turnover of

managers — four in two years — and the

decreased grocery management experience

after the first one left shortly after opening,

undoubtedly was a major reason for the co-op’s

failure. 

Examples of management mistakes

included the fact that an entire year passed

before the store certified to participate in the

USDA’s supplemental nutrition program for

women, infant and children (WIC). That meant

many low-income community members — one

of the target markets — were less likely to shop

at the store. 

One individual who approached the

general manager with simple ideas for

improving the décor to make it more inviting

for tribal members said it became clear he was

completely overwhelmed and could not even

absorb input, let alone implement new ideas. 

Even more damaging, one former

board member explained that the inexperienced managers consistently purchased much

more product from the distributor than could

be moved through the store, resulting in huge

losses. Ironically, the food pantry next door to

the grocery (which several people said was

not a source of competition) became a convenient way to dispose of perishable items that

became too outdated to sell at retail. 

E. The Members 

When a cooperative succeeds, it may be

appropriate to give the credit to the members,

for it is their continued patronage that keeps the

store in business. However, when a co-op fails,

one must ask whether the organizers developed

a grocery that met the members’ needs and

expectations, or indeed whether the community

ever needed another store in the first place. 

In other words, one can hardly blame the

Oneida community for shopping for groceries

where the price, selection, quality and convenience met their individual needs best. 

Some of the co-op’s leaders and supporters suggested that the “community wasn’t ready”

for the idea of a cooperatively owned grocery.

Perhaps more co-op education would have made

a difference. Others explained that “changing

people’s buying habits is harder than expected,”

adding that “much more marketing was needed

to change people’s shopping behavior.” 

The store’s best period of sales was

reportedly in the final weeks when word spread

of a close-out sale and exceptionally low prices.

“The parking lot was never so full,” someone

observed. When organizers asked people why

they had not shopped at the store more often,

people often replied, “I forgot about it.” 

This lackluster support should raise

doubts about the numerous surveys that indicated community members’ strong support for a

grocery on the Oneida Nation. As market

researchers often explain, what people say they

will do and what people do, are two different

things. Survey questionnaires need to be carefully worded to solicit respondents’ most accurate

and specific self-evaluations — and even then

the results should be viewed with some skepticism. 

On the subject of membership, a final

observation concerns the issue of Oneida identity and the local non-Native population. The

2001 business plan reported a goal to achieve a

membership base that was “40 percent Native,

40 percent White, 15 percent Hispanic, 5 percent

“Other Races.” It was later reported that the

actual membership was about 80 percent

Oneida. 

It is open for speculation whether the

Tower Foods Market might have fared better

had it conducted a membership drive and marketing strategy, and had a store design, décor

and inventory that attracted both Oneida and

non-Native people. 

In fact, the co-op’s revised 2004 business

plan presented an idea for grocery that sold natural foods at higher margins and drew customers from throughout the Green Bay area.

That more profitable inventory would help subsidize a “convenience store” section that stocked

the 50 items most popular among local shoppers. 
38 Keys to Success for Food Co-op Start Ups in Rural Areas

Together with a redesigned “Oneida

décor” that attracted both tribal members and

natural foods consumers, this “hybrid model”

was perhaps worthy of consideration. At least

one industry consultant with extensive natural

foods background reported a rising trend in

crossover or hybrid stores that offer natural and

low-priced conventional foods. By way of

example, he cited a store in Portland, Ore., that

took this approach as was grossing $500,000 per

week in a new, 24,000-square-foot store. 

Unfortunately, the idea came too late for

the organizers and members of Tower Foods

Market. Just two months after the revised business plan was completed, the store closed its

doors in June 2004. 

Closing Comments 

This case will close with a brief consideration of the comparative importance of the five

so-called “building blocks” of successful co-op

grocery development in rural communities.

These conclusions can then be compared with

those of the other three case studies. 

This analysis of Tower Food Market concludes that the project demonstrated serious

weaknesses within all five components of co-op

development. 

The frequent turnover among members

of the steering committee and board of directors, along with their inexperience with the grocery industry, were major factors contributing to

failure. The first and second market studies,

which should have identified the potential loss

of this project, led to a seriously flawed business

plan. 

The plan presented overly optimistic

financial projections, as well as marketing and

operational strategies that were either inappropriate or never fully implemented.

Furthermore, the financing plan was so

heavily dependent on tribal loans — including a

revolving loan supported by a USDA grant of

nearly $500,000 — that it likely contributed to

less diligence in business planning and less need

to develop and guarantee member support. 

The turnover and inexperience of the

store managers gave the business little chance to

succeed in the fiercely competitive grocery environment. Finally, the membership was not

interested in patronizing the store at a level that

could sufficiently cash-flow the heavily indebted business. 

Once again, it is a tremendous tribute to

the organizers of Tower Foods Market and the

Oneida people that they have been willing to

share their disappointing experience.

Hopefully, the lessons this case provides will

assist them and others to enjoy greater success

in future cooperative endeavors. In a final

review of this report, an Oneida representative

added the following comments: 

To end all hunger and food-related illnesses in

the Oneida Community will continue to be a

priority for Oneida Community Integrated

Food Systems as well as the Oneida Tribe. The

Diabetes Registry for the Oneida Community

Health Center continues to grow at astronomical rates, with 349 new diabetic patients in

2004. OCIFS ...will continue to pursue all

avenues to secure a means of bringing needed

food onto the reservation to eliminate hunger.

This (co-op failure) is but a brief and momentary setback that we are already moving forward from. We learned a significant amount

from this experience, and now have the policies,

procedures and the development of a revolving

loan fund that can grow and expand in the

future. The OCIFS members would like to

“wholeheartedly thank” the United States

Department of Agriculture, the Oneida Tribe

and the Oneida community. (This report)

gives Oneida an assessment of its past work

and a starting point for the future. 
Keys to Success for Food Co-op Start Ups in Rural Areas 39

Iron River Cooperatives Inc. 

This is the last in a series of case studies

that explore the factors contributing to the successful start-up of cooperatively owned groceries in rural communities. The preceding

three cases were comparatively recent projects

— one starting in 1996 and two in 1999. This

fourth co-op provides a different perspective. It

was started more than 90 years ago, on March

22, 1914. 

Offering more than historical appeal, the

formation the Farmers Co-operative Mercantile

Association, as it was originally known, provides certain insights into the contemporary

process of co-op development. The more recent

activities of this northern Wisconsin grocery are

also informative, as it progresses toward a $2.5

million expansion/relocation. 

Background and Chronology of Start-Up 

The first European settlers of Iron River,

Wis., were employees of the Northern Pacific

Railroad Co. The town developed rapidly in the

late 1800s, in conjunction with the massive commercial harvest of the state’s virgin forests.

According to a reprinted newspaper article in a

recent centennial publication, the year 1891

“saw hundreds of people rushing into the new

boom town and homes and businesses sprang

up almost overnight.” (Savage, 1967) 

As the 1900s began, the town boasted a

cement block plant, a wagon factory, two pickle

factories, as well as:

“...three churches, a Chinese laundry, two

banks, two lawyers, two dentists, two or

three doctors, two drugstores, three

department stores, five hotels, two schools,

a millinery shop, a funeral parlor and 38

saloons. At the height of the lumber boom,

as many as 3,500 people were residents of

Iron River.” (Snilesberg, 2002) 

But the good times would not last forever. By 1912 the closing of the town’s largest mill

marked the end of the timber boom.

Nevertheless, “forward looking business men

were trying to prepare the way so that something of a village could be maintained after the

milling quit.” (Savage, 1967) 

One strategy of the town leaders, as well

as the land speculators, was to attract Finnish

immigrants to the area to purchase and convert

the “cutover” timber lands to agricultural uses. 

Late arrivals to Wisconsin in terms of

European immigration, the first generation of

Finnish-Americans left behind a country that

had fallen under hard times and the harsh rule

of the imperialist regime of Czarist Russia.

They fled compulsory military service, crop failures and famines, overpopulation, mass unemployment and a highly stratified society that

precluded most of them from farmland ownership. They were predominantly unskilled peasants and entered this country “at the bottom

rung of the employment ladder.” (Knipping,

1977) 

Many of the Finns were attracted to the

extractive industries of northern Minnesota and

Wisconsin and the Upper Peninsula (U.P.) of

Michigan. “A hardy set of men, steady of purpose and habit, frugal, sober and industrious,”

they built the railroads, cut timber and toiled in

mines 4,000 feet deep as a means achieving personal independence. 

“One of their proverbs aptly summed up

the Finnish spirit, ‘Oma tupa, oma lupa’— ‘One’s

own home, one’s own master’” (Knipping,

1977). Land speculators and industrialists were

quick to exploit this dream, as one promoter

advertised: “Take hold, Finland man, of the

earth’s surface, from which you made a living in

Finland. Be your own master and boss! Let the

inferior bow to the lord and listen to the blasts

of the whistle!” Another advertisement concluded, “All letters answered in Finnish.” 

One cluster of Finnish agricultural settlement was located just north of Iron River, in a

farming community known as Oulu township

(named after Finland’s largest and poorest

northernmost province.) The settlers built single-room tupas (dwellings) from roughly hewn

logs, and immediately after (or sometimes

before) they constructed saunas (bathhouses),

which often doubled as a smoke house or childbirth facility. 

As they struggled to clear ground and

grow crops from the area’s hard-clay soil, they
40 Keys to Success for Food Co-op Start Ups in Rural Areas

traded farm produce with local merchants in

return for farm supplies and household goods.

A grocery store was started in Oulu out of a

farmer’s homestead at the turn of the century. It

had a rocky beginning, and subsequently went

through several owners and locations.

Furthermore, there was a shortage of many

needed goods, and barter with more distant

merchants offered unfavorable exchanges rates

for the farmers’ produce. In short, “the settlers

were not quite satisfied...with the retail store

services in the community.” (Snilsberg, 2002) 

On March 22, 1914, a meeting was held at

the local school to organize a cooperative grocery. Five farmers signed on as the first directors

of the Oulu co-op. Eventually they would allocate to themselves director compensation of

$1.50 per meeting. But first, they set out to “start

business as soon as capital of $2,500 had been

raised.” (Snilsberg, 2002) 

Foreseeing future capital needs, they

authorized $10,000 in stock and began selling

shares at $5 apiece. An account of the co-op’s

early years was presented in a commemorative

report from the co-op’s 2002 annual meeting: 

When the merchants learned of this movement

they cut off all credit and stopped trading butter and eggs for groceries. Money was very

scarce and only $640 in share capital had been

accumulated. But, impelled by the determination and “sisu” (Finnish word for ‘guts’) of the

immigrants, a decision was nevertheless made

to start the business, and on Nov. 11, 1914, the

grand opening was held. An old hotel building

in Iron River was rented for $10 a month.

Matt Jaakkola offered the loan of a safe, a stove,

a clock and some electric lights with an option

to buy after six months, if needed. 

The first manager, A.W. Bergman of Ogema,

Wis., was hired for $65 per month plus free living quarters. A clerk was also hired for $8 per

week and free living quarters. In 1915, a horse

was purchased to haul merchandise from the

railroad for deliveries. Two years later the horse

died. ...Credit business and the lack of working capital hindered operations. In 1916 the

directors decided to discontinue credit business,

except in limited cases and to collect all bills if

possible. 

In 1916, a branch store was organized in Oulu

because of transportation difficulties. A half

acre of land was purchased... for $5 and a

building for $15. The (branch) manager (was

paid) 7 percent of sales as his salary. ...The

Oulu branch was very successful and was very

much a factor in the success of the entire cooperative venture in the early years. Another

branch was started in Herbster in 1917 but

because of insufficient patronage it was discontinued in 1923. 

...There were many difficulties faced, none less

than the shortage of working capital and the

lack of business experience! Mistakes were

made, such as the purchase of a whole carload

of women’s shoes. This proved to be a burden

on the business for years. (Snilsberg, 2002) 

The experience of the Oulu cooperators

was shared by many of their fellow Finns across

the northern Lake Superior region. In companyowned mining towns and remote farming communities, “private storekeepers, who often held

a virtual monopoly in isolated centers, would

charge excessive prices for their wares.” In

response, “altogether during the 1903 and 1917

interim, about 65 Finnish-sponsored cooperatives were developed in the three states. Despite

the extremely difficult conditions faced by many

of the societies, very few cooperatives experienced ultimate failure during this period.”

(Alanen, 1975) 

It is worth noting that the Finns’ success

was in stark contrast to the widespread failure

of the cooperative stores started in many other

parts of the Midwest and Northern Plains in the

early 1870s. Developed in conjunction with the

national Grange Movement, a primary reason

given for the failure of the earlier stores was

“lack of solidarity.” There were “no bonds of

union except that of buying cheap.” (Keillor,

2000) As an 1874 Grange publication explained,

to succeed, a member of a co-op “must belong

to the same class; must have many interests in

common and must be drawn to each other by

such ties that they will feel a deep interest in

each other.” (Keillor, 2000) 

While the solidarity of the Finns may

have been a major reason their stores survived,
Keys to Success for Food Co-op Start Ups in Rural Areas 41

another key element was the support they

received from their cooperatively owned wholesale supplier, the Central Cooperative Exchange

(CCE). In fact, this federated co-op grew directly out of a meeting in 1917 that was initiated by

the Iron River co-op and another store in

Hancock, Mich. In the letter of invitation sent to

other co-ops in the region, they wrote: 

Why shouldn’t we gather our purchases into

one? We could buy sugar, salt fish and canned

fish in quantities of many carloads. Canned and

dry fruits could be ordered by carload and divided. We could buy flour, or even grain, and have

it milled ourselves. We could buy soap, coffee,

and other merchandise direct.... (Alanen, 1975) 

In the back room of a Finnish-language

newspaper in Superior, Wis., a hat was passed

around that collected $15.50 to begin capitalizing a grocery and dry goods wholesale cooperative. (Karni, 1975) One month later, the CCE was

officially incorporated. Given the influence that

the wholesale firm had in the development of

local co-ops, such as the one in Iron River, a

brief overview of CCE history is pertinent. 

During the early 1920s, the CCE gradually grew in membership and sales. By the mid

1920s there were 60 “store societies” claiming

nearly 20,000 members in Minnesota, Wisconsin

and the U.P. (Karni, 1975) By 1928,

the movement had grown to 84

stores with total sales of well over

$1 million. (IHRC, 2004) 

The August 1929 issue of

the CCE’s monthly publication,

Cooperative Pyramid Builder,

announced a sales goal of $1.75

million. Each of the wholesaler’s

123 members stores was assigned

a quota (which varied by store

and size) to achieve. The quota

for Farmers Co-op Mercantile

Association in Iron River was set

at $37,000, and by August it had

achieved $22,487.56. In fact, sales

for August ranked 10th best

among all the member societies.

The store’s 1930 quota of $40,355

made it the 15th largest store in

terms of projected purchases (CCE, 1929). 

Besides its bulk purchasing function, the

CCE established “a remarkable curriculum for

teaching would-be managers and employees the

rudiments of business and the principles of

cooperation.” It also developed “a simple but

effective method of bookkeeping that allowed

even the most amateur cooperators to keep their

books straight and their stores solvent.” (Karni,

1975) This technical support must have been

invaluable to stores like Iron River’s, given the

immigrants’ “lack of business experience.” 

Furthermore, The CCE established a

The original stock certificate from 1914.

An undated photo of a neighboring Finnish co-op in Maple, Wisconsin,

16 miles west of Iron River. Courtesy Wisconsin Historical Society. 
42 Keys to Success for Food Co-op Start Ups in Rural Areas

member education department “which carried

cooperative organizers and their copious literature into nearly every home in every Finnish

community in the western Great Lakes region.”

(Karni, 1975) Traveling productions of theater,

dance and song combined with co-op and worker education to fill local halls. 

The CCE and its local Finnish co-ops

were inspired and informed by a common ideology. “Although the Finnish American consumers’ cooperative movement embraced all

segments of the Finnish community, it had been

started largely by... the socialists, who viewed

cooperativism as an economic adjunct to the

working class movement.” (IHRC, 2004) 

In fact, the cooperative groceries they started were known interchangeably as “Finn stores”

and “red stores” by the non-Finns in the area.

(Karni, 1975) These co-ops’ socialist orientation

stemmed partly from the grassroots labor unrest

of Finnish miners, particularly in Minnesota and

Michigan. However, “in Wisconsin, the direct

influence of labor unrest was more peripheral.”

(Alanen, 1975)

Another major source of socialist ideology came from Finnish intellectuals who had fled

the Russian Czar’s tyranny back in Finland.

Many of them became leaders of the Workers’

(communist) Party of America, and they saw the

cooperative movement as a powerful — and

profitable — vehicle to achieve their militant

political goals. 

However, “a much larger, less homogeneous group of (Finns had) come to believe their

prosperous movement should attempt to reform

capitalism through economic means rather than

to serve as an arm of a revolutionary political

party.” (Karni, 1975) 

By 1929,“an irrevocable split” had developed in the CCE and across the local Finnishsponsored co-ops. Communist leaders in New

York and Moscow were attempting to bring the

CCE under its tight control, “demanding at one

point a “loan” of $5,000 from CCE to be paid

immediately. (Karni, 1975) After a fierce organizational battle, those favoring a more neutral,

non-political direction prevailed by a decisive

majority at an annual meeting of the CCE in

April 1930. 

“The struggle signaled the beginning of

the end of Finnish-American radicalism as an

ethnic movement... which had begun 30 years

before as a reaction against American values

and culture,” and thereafter the Finns “were

drawn into the mainstream of America, away

from purely ethnic concerns.” (Karni, 1975) 

In subsequent years, the CCE changed its

name to Central Cooperative Wholesale, and its

more radical leaders left the company. The coop also modified its red star trade label, abandoning the Hammer and Sickle logo for the

Twin Pines symbol of the politically neutral

“Rochdale” consumer co-ops. (Keillor, 2000) 

While some of the local co-ops clung to

leftist politics, most of these failed to survive

through the decade. Meanwhile, having broken

from its socialist origins, the revamped CCW

prospered and flourished, even in the midst of

the Great Depression. By 1940, its 100-plus

member societies combined sales totaled more

than $14 million. The majority of these were still

dominated by the Finns. (IHRC, 2004) In fact, it

is remarkable to note that the minutes of the

CCW were kept in Finnish through 1941, and

the last bilingual session of the CCW took place

in 1948. (Alanen, 1975) 

The progression of the CCW and its

member stores after World War II puts the

Iron River co-op into context: 

The cooperative complexion of the region was

transformed by new developments in agriculture and technology, general economic transitions brought about by World War II and the

broader horizons and new relationships resulting from military experience. ...The flush of

overall cooperative growth which ushered in

the post-war era was tempered quickly by the

agricultural recession of the late 1940s and

early 1950s. ...Consolidation, and even

retreat, now became more evident.... Not only

did many stores feel the pinch of population

declines within their market areas, but the spatial configuration of local trade areas also was

changing with improvements in the road network and ubiquitous automobile ownership.

...Recognizing that the lure of the supermarket

and shopping center was too great to be

ignored, the CCW, during the 1950s, began to
Keys to Success for Food Co-op Start Ups in Rural Areas 43

develop several such facilities in key cities

throughout the region. (Alanen, 1975) 

While some 30 local Finnish co-ops failed

between 1945 and 1963, the cooperative wholesale firm grew to almost $20 million in gross

sales. However, it too faced increasing competition, and in December 1963 it voted to merge

with the larger agricultural supplier, Midland

Cooperative Inc. The CCE leadership had concluded that they “could be more effective in furthering their objectives and improving their services if they ultimately amalgamated into one

central organization.” (Alanen, 1975) 

The merger effectively ended the Finnishsponsored cooperative federation. By the mid

1970s, of the approximately 175 cooperative

stores, branches and buying clubs served by the

CCE, only about one-third remained in business.

(Alanen, 1975) Midland itself merged with Land

O’ Lakes in 1982. By 2004, Iron River Cooperatives Inc., was the only confirmed case of the

old Finnish grocery co-ops still in operation in

Wisconsin. 

Mission Accomplished? 

The histories of the previous three co-ops

in this four-part case study concluded with

updates on their progress through the fall of

2004. In each case, the question was posed as to

whether the co-ops accomplished their respective missions. 

Ninety years later, it is difficult to fully

ascertain the original mission of the Iron River

co-op. It is not clear whether its founders shared

the militant goals of the Finnish Socialists of

their day. Certainly, the co-op would have provided a familiar haven for Finnish settlers and

helped preserve their ethnic culture and community, and that may have been one intended

purpose. 

If the co-op’s fundamental mission was to

provide a price-competitive source of groceries

to the local community, it would appear to have

met that goal for 90-plus years. And so today,

as the co-op approaches its own centennial milestone, its board of directors and management

strategize how to carry that success into the 21st

century. 

By the year 2000, the town of Iron River

had become home to 1,059 residents, of whom

96.5 percent were labeled White Non-Hispanic

(2000 Census). Remarkably, the U.S. Census

Bureau’s extrapolated ancestry data reveal no

residents of Finnish descent in Iron River.

Nevertheless, the presence of a sauna dealership

(still pronounced “SOW-na” by many locals) at

the entrance of town would seem to contradict

the Census data, as would the proliferation of

Finnish surnames in the local phone book. 

Iron River is located in the northwestern

corner of Bayfield County, which in the year

2000 held a population of 15,013. It is the second

largest of the state’s 72 counties in terms of area,

but is the third least populated, with just 11 residents per square mile. However, the population

increased 3.7 percent from 2000 to 2004, and the

net migration rate in Bayfield County of 4.1 percent was more than double the state rate of 1.6

percent. The in-flow is largely “older residents

looking to enjoy a less hectic life.” (DWD, 2004) 

While agricultural output is relatively

low compared to the warmer, more fertile counties further south, USDA reported 468 farms in

the county, averaging $6,383 each in net cash

farm income, or $2.98 million in total income for

2002. Manufacturing plays a small role in the

county, although a forestry equipment company

in Iron River employs about 60 people. 

One third of all jobs in the county are

with government, including all tribal governments, school districts, and state and federal

agencies. The annual average wage for these

jobs was $24,152. Tourism businesses provide a

quarter of county jobs, but these pay only

$12,778 on average. (DWD, 2002). Four out of

every 10 residents travel to neighboring counties

for jobs. Some 59 percent of those work in

Ashland, 30 miles east of Iron River. (DWD,

2004) 

The town of Iron River at one time supported three grocery stores. Today, the co-op is

the only full-service grocery within a roughly

30-mile radius. Its competition is in cities like

Ashland and Superior and other communities

where Iron River residents travel to work.

Currently, there are no “super-stores” in the

area, although a Super Wal-Mart is rumored to
44 Keys to Success for Food Co-op Start Ups in Rural Areas

be on the way in Superior and possibly

Ashland, too. 

Iron River Cooperatives Inc. owns and

operates a grocery and a hardware store in separate locations. Previously, the co-op sold groceries, hardware, clothing apparel and other

necessities out of one location. The grocery on

Main Street, one block off of State Highway 2,

contains 7,000-square-feet of retail space in a

10,600- square-foot building. 

The Hardware Hank store is 6,400 square

feet and fronts the highway about 1.5 miles west

of the old downtown. The business bought the

hardware store from a local family in 1996 as a

means of increasing retail space and sales in all

product lines. They paid off the loan on the second establishment in six years. The son of the former owner now manages the hardware operation.

In the fiscal year ending Jan. 31, 2004

(referred to as simply 2003 below), the grocery

and hardware store achieved gross margins, after

cost-of-goods-sold, of 26 percent and 39 percent,

respectively. The profit from the two operations,

before indirect administrative costs, was $167,640

for the grocery and $63,327 for the hardware

store, representing net margins of 5 percent and 8

percent. Labor costs were lower for the grocery

(14 percent vs. 20 percent of sales). 

About 86 percent of grocery sales were

made to members in 2003, with sales-per-customer of about $18. The grocery employs 10 fulltime, year-round workers and reaches a peak of

17 part-time employees in the busy summer

months. 

While the financial books for the grocery

and hardware operations are kept separately,

they are brought together to share certain

administrative costs and miscellaneous income.

They pay tax as one entity and distribute

patronage refunds based on their combined performance. The financial activity for the single

co-op entity over the past four years is presented in table 3. 

In 2003, the shared “indirect administrative expenses” of the two operations

totaled $144,394. That included director fees

and expenses ($2,622); salaries, payroll taxes

and benefits for the general manager and two

office staff ($114,208); office supplies and

postage costs ($7,983); service contracts on

computers and office equipment costs

($10,229); and professional services costs

($9,352).

After subtracting interest expenses and

miscellaneous income, the “local net margin”

from the combined operations was $80,181 in

2003. To that total was added a patronage

refund of $7,901 that the hardware store

received from its cooperative distributor (United

2000 2001 2002* 2003

Gross sales (million) $3.74 $3.78 $3.75 $3.88

Gross margin 24% 25% 27% 29%

Profit before distribution $88,870 $79,072 $73,698 $79,769

Profit margin before distribution 2.38% 2.09% 1.97% 2.05%

Current ratio 2.74:1 2.63:1 1.97:1 3.48:1

Debt-to-equity 55% 42% 35% 27%

Cash patronage refunds $13,083 $12,535 $10,500 $10,000

Retained patronage refunds $53,230 $50,137 $42,000 $40,000

Unallocated equity $22,558 $16,400 $21,198 $29,760

Retired equity $6,562 $9,383 $20,698 $7,147

Table 3: Financial Highlights 2000-2003 (*2002 data

omits one month of sales, when the fiscal year was

permanently shifted to a 2/1-1/31 cycle.) 
Keys to Success for Food Co-op Start Ups in Rural Areas 45

Hardware). 

Taken together, the net margin (or profit)

for the combined business was $88,082 in 2003.

Based on their auditor’s advice, they retained

$29,760 of that as unallocated equity and paid

$8,322 taxes on that portion (28 percent tax

bracket). Of the remaining profit, 20 percent

($10,000) was distributed to the members as

cash patronage refunds, and the rest ($40,000)

was allocated to members’ equity accounts in

proportion to patronage. 

Table 3 shows equity-related activity over

the past four years. Equity redemption strategy

is primarily to redeem estates at the discretion

of the board. All equity dating before 1976 has

been returned to members and their heirs. 

Currently, the membership of the co-op

stands at roughly 4,000 households, about 3,500

of which are “active.” In 2001, these members

approved a major revision of the co-op’s bylaws. Prior to that year, member equity was allocated in capital shares. They switched to an

equity account system, which puts equity on the

books as one lump sum. Customers are now

issued a number with their first purchase, which

gives them member status. However, to achieve

and maintain voting rights, members must do

$500 worth of business with the co-op each year. 

The bylaws revision addressed several

financial issues, such as the handling of

unclaimed property, which strengthened the coop’s balance sheet. It also represented one of

several steps the co-op has taken in recent years

that facilitated the forthcoming expansion of the

grocery into a new location. 

The current grocery facility, built in 1929,

appears “well-worn” on the interior, and the

exterior reflects the “frontier architecture” of

Wisconsin’s relatively undeveloped North

Woods. Despite the appeal that may offer some

visitors, at least one potential customer (the aunt

of one of the authors), reports that from her home

in Herbster, she could either travel to the co-op in

Iron River or to a private IGA store in Washburn

to buy her weekly groceries. While they are

roughly equal distance, she generally patronizes

the latter, dissuaded by the décor of the old Finn

store. 

The co-op’s membership presumably

shared her preference for a “modern” store.

Back in 1998 they voted overwhelmingly to relocate the store to a larger, new location. After a

period of preparation, the board of directors

finally authorized the purchased a tract of land

on Nov. 29, 2000. Debt-free at the time, they

bought the property for $190,000 with a cash

down payment and a loan from a commercial

bank that held their existing assets as collateral. 

About six months earlier that year, the

board made another important decision when it

hired Patrick Dooley to become general manager of the co-op. While his background was in the

hotel industry, he soon made the adjustment to

the grocery industry, and has since played a critical role in the process toward expansion and

relocation. 

Dooley oversees both the grocery and

hardware operations; as such, his salary and

benefits appear as indirect administrative costs.

The manager of the hardware store reports to

him, while he has day-to-day responsibilities for

the grocery. In 2001, he implemented the board’s

decision to invest $100,000 into a computer system for the business. 

More recently, he managed a difficult

transition to a new distributor. The Iron River

grocery was one of many across the country that

were adversely affected by the bankruptcy of

Fleming Corporation in 2003. That company

supplied a major portion of the co-op’s groceries

for decades, but in the latter years its service

had declined significantly, often leaving the coop short on products, which led to customer

dissatisfaction. 

This past Summer, in the peak of the

business cycle, the co-op switched to NashFinch, a private distributor out of St. Cloud,

The Red Star Chorus, from a 1929 issue of the CCE’s

Cooperative Pyramid Builder
46 Keys to Success for Food Co-op Start Ups in Rural Areas

Minn. 

Dooley expressed satisfaction with NashFinch thus far, in particular saying that the company’s advertising program for their “Our

Family” private-label brand has been a major

improvement over the Fleming experience.

Previously, they sold under the IGA-brand, but

with Fleming gone there is no longer a distributor of those products. So, while the co-op currently remains an IGA store and has access to its

purchasing power, training programs and other

support of that organization, it may discontinue

its IGA ties when the grocery finally relocates. 

When asked to explain the reason for the

big move, Dooley replied, “It’s what people

want.” Getting there, however, has been long,

drawn-out process. In December 2004, the co-op

was still negotiating with the major commercial

bank in town to obtain financing to build a new

15,000-square-foot building — a $2.5 million project. 

When asked to explain the long delay, the

general manager said that the switch of distributors contributed to the hold-up. “First, we had

to develop our relationship with Nash-Finch,”

he explained, “and we had to get the bank had

to get comfortable with them too.” 

Jane Snilsberg, who currently serves as a

director on the board and previously served as its

president, noted that despite the members’

expressed interest in relocating to a larger store,

nothing could move forward without the local

bank’s support. “Banks outside the area wouldn’t

lend to us,” she explained, “either because they

were unfamiliar with co-ops, or because they

wanted to see local lenders get involved first.”

Part of the issue, according to Dooley,

was getting a bank to see members’ equity not

as debt, but as an ownership stake in the business. Furthermore, they need to recognize that

the board controls when equity is redeemed, he

explained. The way a bank sees it, “the liability

is so spread out among members, and the board

of directors can just walk away. Basically, the

bank is afraid of being left holding the bag.” 

Part of the challenge, Dooley noted, is

that “a co-op can’t save up great sums of capital

to finance an expansion. First of all, while the

store needs to make a profit, it can’t out-price

the customers. And when there is a profit, you

either have to pay it out as patronage refunds,

or pay tax on it, or make big purchases and

expense it out. But you have to develop an

equity structure if you’re looking to expand.” 

Thus far they have not pursued selling

equity shares to members, nor do they intend to

ask members to make unsecured loans — two

strategies that other co-ops have used successfully to finance expansions. 

As 2004 drew to a close, prospects for

obtaining the necessary financing from the local

lender were improving. Part of the deal would

require the co-op to purchase and build upon a

parcel of land owned by the bank. The land they

bought in late 2000 would be held as collateral,

as well as the hardware store, and, “basically

everything else we own,” Dooley explained,

“The bank wanted to see the co-op with at least

a 25 percent equity position, and I think we’ve

met that and then some.” 

Ultimately, it is a question of the level of

debt load a store can support. In recent years,

the co-op’s debt-to-equity ratio has improved as

it first paid off the hardware store and more

recently the loan for the land purchase (toward

which it still owes $70,000 in December 2004).

But the burden of the next mortgage will be significantly greater.

“As a co-op, we’re just looking to pay the

bills,” the general manager continued. “We aren’t

aiming for a serious return on investment. But

the bank wants to see a return on investment

because they’re afraid if we run it too thin, they’ll

have to loan more money to keep it going. And if

we still go broke, they’re stuck with a building

that may or may not cover the default on the

loan.”

However, Snilsberg pointed out one of

the reasons the bank pushed for the co-op to

build on its land. “It lowers their risk. We’ll

improve their property if they do get it back.”

Still, she acknowledged that market studies

have been positive on the latest location. That

analysis, conducted by an independent company that Nash-Finch recommended, took into

account tourist traffic and a parking space that

would accommodate large RVs. They also collected geographic data from customers for three
Keys to Success for Food Co-op Start Ups in Rural Areas 47

days late in the summer of 2004. 

“Basically, we’re looking to put a store

where someone else wouldn’t invest,” Dooley

observed. “But it still must be profitable.” The

key, he said, would be location and management. “People are looking for service and convenience. Patronage refunds are not the hook.” 

Plans for the new store include refurbished, newer equipment. There will be a deli

and a limited service bakery. They will also

expand frozen, fresh and specialty departments.

Compared to current per-customer sales of $18

per visit, they will be looking to achieve $22 or

$23 in new store. 

“We’ve really worked at going over the

numbers to show that the store can pay for

itself,” Dooley explained, “and that’s given the

bank more confidence. We used Nash-Finch

numbers, not just pie-in-the-sky numbers.” 

Dooley added that the arrival of a WalMart SuperCenter in Ashland might not occur

as early as previously expected. If true, perhaps

the co-op will have time to prove itself and

develop customer loyalty. Dooley’s background

in the service-oriented hotel industry may pay

dividends if his insights are correct. “The grocery business is becoming a service industry.

People are looking for knowledge, how to cook

a roast, how to fix this or that. Some of the larger stores get away from that.” 

A follow-up interview with Dooley in

August 2005 provided and update. “The financing is finally in place,” he explained. While the

bulk of the debt capital will be provided by the

local bank, he noted that several smaller, but critically important, loans were offered very recently

that really made it all possible to go forward. One

of these came from the nearby Bayfield Electric

Co-op.

Dooley continued, “The plans are complete, and in September the board meets and

makes a final go/no go decision. It’s a gut

check: when you put all the final numbers

together, does it still work?” 

He also confirmed that despite fully owning an empty parcel of land on the edge of

town, the new plans call for building the new

store closer to downtown, next to the local bank

where they’re getting much of their financing.

“The market study showed this location offered

a slight advantage, and with the narrow margins in this business, you have to take that into

account.” 

The Iron River co-op, with many decades

of history behind it, is risking everything to

meet the changing needs of its members. Will

this old “Red Store” of the Finnish immigrants

succeed? Only time will tell. 

Factors Affecting Start-Up and Success 

The previous three case studies concluded with an analysis of five components of the

start-up process that appear to be critical to success. This unique case of Iron River

Cooperatives Inc. will consider these same components in the context of its early history as well

as the recent effort to expand and relocate the

business. 

A. The Steering Committee and Board of

Directors 

Apart from their names — Laure,

Jaakkola, Kiviso, Kamarainen and Maki — little

is known of the five Finnish men of Oulu township who, in 1914, founded the Farmers Cooperative Mercantile Association. Probably they

were farmers with scarcely any wealth and precious little business experience. 

The modern concept of a “steering committee”— meaning simply the “quasi-board”

that makes decisions prior to incorporation and

formal board elections — would have applied to

these five founders for about eight months.

After their initial meeting in March, the co-op

was incorporated in November of that same

year. 

As the first directors, they made a number of astute judgments and critical decisions.

For instance, they judged that the capital necessary to start and establish a co-op grocery

would be roughly $2,500, and they set out to

raise it. 

When they fell 74 percent short of that

goal, they had the sisu (stamina) to plow forward anyway. While that may have demonstrated more determination than good judgment,

they nonetheless went on to address some of the

fundamental issues of co-op governance, such
48 Keys to Success for Food Co-op Start Ups in Rural Areas

as: hiring and providing incentives for management (recall “7 percent of sales”); questions of

expansion and investment (a new branch in

Oulu on a “$5 half-acre”); balancing the interests of the members and their co-op (e.g., discontinuing credit when it hurt the business). 

Occasionally their decisions were wrong,

as the failed branch in Herbster reveals, with 80-

plus years of hindsight. As for the horse that

died, all investments carry risk. 

Perhaps the most important decision of

those early years (because it would ultimately

affect over 100 other co-ops) was to send the letter that spawned the formation of the Central

Co-op Exchange in Superior. While the idea may

very well have come from management, without board support it is unlikely the local co-op

would have become such a substantial customer

of the wholesale society. 

Research uncovered perhaps even less

about the contemporary board of directors, but

again it appears that these men and women are

proving equally critical to the success of the

cooperative. 

It was discovered that some members on

the current seven-member board have served

for 15 years or more. And while there has not

been a great deal of turnover during that period,

one new director came on board last year and

two more rotated on to it this year. They include

schoolteachers, state government workers, a

builder and — most recently — an employee of

the bank that may soon finance the co-op’s

expansion. One current board member has a

“significant grocery background,” and stepped

in as interim manager just prior to hiring

Dooley. 

It appears from a cursory examination of

both the earliest and the most recent boards that

leadership and commitment were critical to the

start-up and success of the business.

B. Consultants and Advisors 

The most important external support that

the Finnish co-ops received in the early years

appears to have come from the Central Co-op

Exchange, which they started themselves. The

CCE provided management and employee

training; it developed a simple bookkeeping system that each local store could adopt and adapt;

it provided member education in the form of

monthly publications and traveling road shows. 

By contrast, the modern-day co-op in

Iron River appears to operate with less reliance

on external support. Dooley reported that the

board of directors has received some training

from “CENEX,” referring to the agricultural coop out of Minneapolis now known as CHS Inc.

He also said the board got an independent audit

each year from co-op specialists at Carlson

Highland, also in Minneapolis. 

Both he and Snilsberg indicated that they

approached Northcounty Cooperative

Development Fund and the National Bank of

Cooperatives for financing, but they currently

do not carry loans from any cooperative lenders. 

If anything, the external resource upon

which the co-op depends most heavily is its distributor. When service from Fleming deteriorated, so did the co-op’s service and its sales. They

have been very pleased with Nash-Finch thus

far and have leaned on that firm to forecast their

current expansion. 

It is clear that the advice and support

from the CCE was critical to the early development of the Iron River Co-op. External support

appears to be necessary today as well, but much

of that support has come from a private source

Iron River General Manager Patrick Dooley and Board

President Lee Ruska. Photo by Greg Lawless, courtesy

University of Wisconsin-Madison.
Keys to Success for Food Co-op Start Ups in Rural Areas 49

within the industry. 

C. The Business Plan 

Today, most if not all lenders ask to see a

formal written business plan before they will

consider a loan to a new business. There were

no lenders for the Oulu Finns to turn to in 1914,

so there were no such requirements. How much

research and planning the five founders conducted to come up with their $2,500 capitalization goal, for instance, is hard to know.

As a co-op grows it will continue to need

a disciplined approach to gathering and presenting information, and — with good record-keeping — valuable information can be gleaned from

the business the co-op does. The CCE’s bookkeeping system would have facilitated this

process. 

As for the current expansion project,

Dooley reported that they “are currently in the

process of putting together a formal business

plan, using information that we have obtained

from wholesalers, customers, board members

and our employees.” 

Several market studies have been conducted, and the co-op has adjusted its marketing and operational strategies to better target

the summer visitors. Numerous financial projections have been plotted, which are continually checked for accuracy. 

The fact that the expansion project has

proceeded this far without a completed business

plan may stem from the local lender’s familiarity with the long-standing business, and it probably does not detract from the case for start-up

co-ops’ need for a formal written plan. 

D. The Project and General Managers 

A project manager is responsible for

activities that precede the opening of a new coop business, or that relate to a major expansion.

The general manager may manage start-up or

expansion projects, whether or not they have the

skills or the time in a given situation. 

The Oulu farmers probably shared project management responsibilities in their eightmonth start-up phase, although the contributions of director Matt Jaakkola (loan of a safe, a

stove, a clock and some electric lights) might

reflect an added commitment and more prominent role. 

They ultimately hired A.W. Bergman out

of Ogema. The salary of $65 per month and free

living quarters must have been incentive

enough to travel the distance to get there (about

a three-hour drive by today’s standards.) We

know little of his or his subsequent managing

capabilities, aside from business decision, to

which the board likely contributed (branch

expansions, the short-lived horse). 

If the mistaken shipment of women’s

shoes happened to be the fault of a clerk, the

general manager would share responsibility for

that, too. But whatever mistakes management

may have made over the years, they clearly kept

the business in operation. 

More recently, the hiring of Dooley has

made a “very big difference,” according to

board member Snilsberg, who added, “At the

moment we have extremely experienced, good

management. He ran a major business outside

of town. He’s got marketing experience, personnel experience, financial experience.” 

Prior to Dooley’s arrival, there had been

troublesome turnover in management. But in his

first five years at the helm, he has implemented

several major investments, including the land

purchase and the computer upgrade, a major

supplier transition, and now lender negotiations

and a $2.5 million expansion. He currently

serves as treasurer for the board. “I’m an officer,”

he explained, “but not a voting director.”

The scant record of management performance in the Iron River co-op’s start-up phase

provides little evidence to evaluate the importance of the general manager in that phase of

development. However, the integral role that

Dooley plays today in an expanding co-op confirms the notion that at a general manager is a

critical component of success. 

E. The Members

No co-op can survive long without members who consistently patronize the business.

Several generations of members have made the

Iron River Co-op not only the oldest cooperative

grocery in the state, but also one of the few that

provide full-service, conventional groceries to

rural Wisconsin residents. 
50 Keys to Success for Food Co-op Start Ups in Rural Areas

The co-op’s 3,500 active household members far outnumber the Iron River population of

1,100 residents. 

That is due to members who live in the

surrounding rural area and neighboring towns

and because many returning tourists and summer

residents apparently meet the minimum membership quota of $500 in purchases per year. With 86

percent of sales to members, only 14 percent of

customers would fall under that threshold. 

The general manager reported that there

are no member benefits, aside from the cash

patronage refunds when the store is profitable

and the board approves the allocations (which

they have done each of the past four years). The

on-going retirement of equity shows that

retained patronage refunds represent a postponed but real benefit as well. 

As Dooley further explained, “The members do have some sense that this is their co-op.

They feel they can complain if they’re unhappy.

Two hundred members showed up at the annual meeting.” 

When a visitor shops at the store, they

are asked for their “customer number.” If it is

not provided, the cashier presumably punches

in a generic “guest” account. Dooley admitted,

“We haven’t done a good job of marketing the

co-op. In the new store we plan to do better.” 

Some concerns may be raised about the

current level of member support. When members are asked to make equity investments in a

new or expanding co-op, even if they are small,

it can provide a measure of customer loyalty

and serve as a test of financial projections.

Because members were not asked to make capital contributions (as loans, preferred stock purchases or in other forms) their level of commitment to the store will not be known until the

new store opens. 

It is also important that a co-op receive

support from the wider community, meaning

those individuals and institutions in town and

the surrounding area that are in a position to

help or obstruct a cooperative venture. In the

early days, local merchants tried to punish the

founders and original members of the Iron River

Co-op by discontinuing credit and bartering

options. As a predominantly Finnish-American

endeavor, the new business undoubtedly leaned

on its ties within that ethnic community, and

that included the cooperatives across the western Great Lakes region via the Central

Cooperative Exchange. 

Recently, the co-op has faced difficulties

with its expansion project. Board member Jane

Snilsberg strongly emphasized that it is not

enough to have member support. “Members

voted to approve this move back in 1998. We

have their full support to go ahead and build a

new store. But here we are in 2005 and still no

store. Why? Local politics have weighed so

heavily on the ability of the co-op to make any

move.” 

Unfortunately, the sensitivity of current

situation precludes a detailed discussion of

those “politics.” The general manager also preferred not to elaborate on the obstacles that the

co-op has faced. However, by August of 2005,

with the financing finally in place, Dooley was

optimistic that the project would go forward

and construction of the new store would soon

be underway.

Closing Comments 

The case of Iron River Cooperatives Inc.

provides a unique perspective into the question

of what makes a successful co-op grocery in a

rural community. Both the distant and recent

history confirms that the board of directors and

general manager are critical components of coop success. 

The role of the Central Cooperative

Exchange in supporting Finnish stores all across

the western Great Lakes region exemplifies how

much external resources can be shepherded to

greatly increase the likelihood of co-op success.

In this case, having a centralized “second-tier”

organization dedicated to management and

member education seemed to have been critical

to the growth of the Iron River store and dozens

like it all across the three-state region. 

The important role of business planning

in the current expansion project confirms that

it is another critical component, particularly

when approaching lenders for debt financing. 

Finally, the importance of the members

in a co-op’s success is obvious in the sense that

without their patronage the business will fail.
Keys to Success for Food Co-op Start Ups in Rural Areas 51

However, this particular case study does not

provide evidence that it is critical for members

to provide new equity capital for an expansion

of a co-op that already has substantial assets. 

The solidarity of the early Finns helped

them build hundreds of co-ops in the first half

of the 20th century. For Iron River Cooperatives

to succeed after its latest expansion is complete,

it will have to succeed based less on the solidarity of members, but rather on its ability to

provide competitively priced groceries and

good service to its rural community.
52 Keys to Success for Food Co-op Start Ups in Rural Areas

Comparative Analysis of the

Four Case Studies

At the outset of this research effort, five

components were hypothesized to be critical to

the successful start-up of a rural grocery cooperative: the steering committee/board of directors; consultants and advisors; the business

plan; the project/general manager; and the

members. Upon completion of the cases, further analysis led to a refinement of these components and identified eight common variables

that extend beyond the initial development

process: 

• Competition 

• Community and industry support 

• Member support 

• Quality of the business plan 

• Business growth patterns 

• Market niche 

• Board and management leadership 

• Finance

Competition 

Three of the four cooperatives faced

direct competition from grocery stores in nearby

larger communities. In each case, many members of the local community commute to work

in these cities and often buy groceries on the

way home.

Root River Cooperative is the only grocery

store in Houston, but there are two full-service

grocery stores in nearby small communities, plus

a Wal-Mart Superstore in La Crosse, and other

large groceries in both La Crosse and Winona. 

Iron River Cooperatives is the only fullservice grocery store within a 30 mile radius,

but they are concerned about a planned

WalMart Superstore in Ashland. Tower Foods

Market Co-op faced the closest competition,

with four dominant grocery stores in nearby

Green Bay and a new 68,000-square-foot store in

DePere (five miles away). 

Viroqua Food Cooperative differs because

it’s a natural foods grocery store, with the closest

competition over 30 miles away. Viroqua is four

times the size of Iron River and Houston, and it

is more isolated from large population centers. 

Support From Other Cooperatives and the

Community

All of the cooperatives received support

from the cooperative community as advisors or

consultants. Two of the co-ops, Root River and

Viroqua, benefited directly from the presence of

strong cooperatives in their community. The two

largest employers in Houston are cooperatives

and each of them provided loans to Root River

during its start-up phase. An attorney from the

local electric co-op helped the steering committee file the articles of incorporation. 

In Viroqua, a local resident who had

helped start CROPP, a successful organic marketing cooperative, served as an active advisor

to the food cooperative. A long-time CROPP

employee serves on the board of directors and

provides valuable experience with marketing

and operating a co-op. The Viroqua co-op also

benefited tremendously from support of the

regional and national natural food co-op network. 

Iron River was part of a movement to

develop cooperatives across northern

Minnesota, Wisconsin and Michigan. The board

and management were instrumental in starting

and supporting a cooperative wholesaler (CCE)

in Superior and benefited from its services for

years. They occasionally attend trainings provided by CHS Inc., but don’t seem connected

strongly to the co-op community. The current

situation is similar to Tower Foods Market,

which received sporadic assistance from cooperative advisors and other food co-ops in the

region. But it had no consistent relationship

with a local supportive cooperative. 

Both Root River and Tower Foods Market

had significant support from local officials. The

City of Houston commissioned the initial feasibility study for a downtown grocery store, after

the previous store closed. They had also contracted with a grocery wholesaler to develop a

layout design and identify operational needs.

The co-op steering committee benefited from

these studies, and they got the support of a local

lender for their debt capital. 

Tower Foods Market was supported by

the Oneida Nation from its inception and

received grant/loan support based on its rela-
Keys to Success for Food Co-op Start Ups in Rural Areas 53

tionship with the Oneida. The cooperative was

located on tribal land, next to several service

offices. The co-op didn’t seek conventional

funding from local banks, and there is no evidence that it received support from Green Bay

or other nearby communities. The 2004 business plan recommended a strong marketing

plan to the larger trade area, but the store closed

before the plan was implemented.

Member Support 

Iron River and Viroqua both make over

80 percent of their sales to members. Viroqua

opened with 95 members in 1995 and had 1,000

members by 2004. Members’ support allowed

Viroqua to open debt-free in 1995, and members

continue to show their support with equity

investments and loans. Iron River has 3,500

active members, 200 of whom attended the last

annual meeting. They are not asking members

to invest in the relocation project, either through

loans or equity. 

Root River makes 50 percent of sales to

non-members – many of them tourists, who are

an important component of the co-op’s profitability. The co-op had 310 members when it

opened in 2000, and they raised over 40 percent

of the funds needed to open the store.

Membership has increased by 35 percent in four

years, to 419. 

The organizers of Tower Foods Market

held a number of community meetings to gather

support and feedback from potential members

and customers. It seems clear that the co-op

received overly optimistic feedback from surveys and interviews. The store opened with 266

members in 2002, among a target population of

8,876. The per customer weekly expenditure had

been estimated at $30, but was actually only $9.

While the co-op had aimed to garner 60 percent

of business from non-Natives, it was actually

closer to only 40 percent.

Quality of the Business Plan 

Each of the cooperatives in this study differed considerably in their experience with business plans. Viroqua, which grew from $290 in

annual sales per square foot in 1996, to $1,166 in

2003, was started without a business plan. After

start up though, subsequent expansions have

been well researched and planned. 

The organizers of the Viroqua co-op

never wrote a business plan, but they had the

advantage of five years of experience running a

food-buying club for 40 members. Like many

1970s-era natural food cooperatives, the co-op

was an outgrowth of the buying club’s desire for

a storefront grocery. Because they were able to

self-finance the start-up, they didn’t need to

write a business plan for a lender. 

The Root River Co-op didn’t start as a

buying club, but the organizers were basically

restarting a grocery store that had been reasonably profitable in the same location. The former

owner shared all of his financials with the steering committee, and the co-op also had access to

a business plan previously commissioned by the

city of Houston. Along with the substantial

commitment of equity and unsecured loans

from members, the business plan helped to convince a local bank to lend them the balance of

the needed start-up capital. 

The founders of Iron River Cooperatives

may not have written a business plan before the

co-op opened in 1916, but the co-op is in the

process of putting together a detailed plan to

support the request for the capital needed to

relocate the store. Co-op leaders have conducted

member surveys, and worked with a distributor

to create accurate sales and operating projections. 

Community members began planning for

a grocery in the Oneida area in 1996. Two market analyses were conducted by wholesale suppliers (in 1996 and 2000), and both were significantly overly optimistic. A needs assessment

survey was conducted among community members. It showed mixed support for the cooperative, and the 2000 market study identified

potential problems with the size and location of

the store. In spite of these concerns, the study

predicted profitability in the first year.

Finance 

The start-up financing for each cooperative differed considerably. One of the co-ops,

Viroqua, met its financial goals solely through

member investment. It needed $20,000 to open
54 Keys to Success for Food Co-op Start Ups in Rural Areas

the store, and received a major boost when one

member bought $10,000 worth of stock. Root

River financed its start-up with a combination of

member stock (310 members at $100 each) and

unsecured member loans ($137,700, including

$20,000 in loans from two local co-ops), in addition to a loan from a local bank. 

Iron River was financed by its members

at start-up in 1914, but it is working with a local

bank to finance its $2.5 million relocation project. Although the members voted overwhelmingly to approve the expansion, there are no

plans to raise funds from members. Members

invest through their patronage and the co-op

regularly pays a patronage refund. 

Tower Foods Market was funded through

a $250,000 contribution from the Oneida Nation,

along with a $460,810 revolving loan from

USDA (via the Oneida). Member equity was

less than 1 percent of financing at start up, and

there were no bank loans. The availability of

“institutional dollars” meant that organizers did

not have to press tribal members to contribute

equity, nor did they have to subject their business plan to the rigor of a commercial lender. 

Board and Management Leadership 

The three successful cooperatives have

had good continuity with experienced managers. The original manager at Root River is still

there, after four years. Viroqua has had the same

manger since 1998 and Iron River’s manager has

served since 2000. 

By contrast, Tower Foods Market had

four managers in two years. It also experienced

high turnover in community leadership.

Twenty-five individuals served on the steering

committee and board between 1999 and 2004.

When the store opened, a completely new and

inexperienced board took over. 

Viroqua has had regular board turnover,

but no trouble finding new people to run for the

board. When the cooperative was getting ready

to open, a core group of 20 members put in

hours of sweat equity to renovate the space. As

board members or regular members, the co-op

has been able to draw on a dedicated group of

supporters. 

Iron River has an experienced board,

with tenure varying from 1 to 15 years. Root

River also had good board continuity. The steering committee that started the co-op had a good

balance of skills and shares responsibilities well.

Some of these founders are still on the board. 

Business Growth Patterns 

Each of the co-ops opened in a different

environment, and each of them proceeded

slightly differently. Viroqua is a good example of

a business that starts small and grows steadily.

It started with a core of a successful, 40-member

buying club, opened in a small storefront,

remodeled it extensively, reached 1,000 members and recently relocated. The manager has

invested in training and efficient systems, so the

co-op has been able to increase sales steadily. 

Tower Foods opened in a new location

(for a grocery store), with a full-service, 8,000-

square-foot store. There were discussions about

changing the product mix to more profitable

natural foods, but the offerings never changed

before the store closed after two years. Sales

were significantly under projections during that

entire period. 

Root River opened on the site of an existing grocery store, and used that store’s figures

to estimate sales. This proved to be a reasonable

estimate, and sales have held steady since the

store opened in 2000. The manager cut operating costs in order to achieve profitability, which

has been modest but consistent. 

Iron River has operated for more than 90

years, but most details of its business growth are

beyond the scope of this report. The current

store has done well enough to develop plans for

relocating to a 15,000-square-foot store, which is

a $2.5-million project. The cooperative also owns

a hardware store at a separate location and

shares some administrative costs with that store. 

Market Niche 

Communities are very interested in having grocery stores, but don’t always support

these local businesses. A strong niche market

can be very helpful in overcoming the inherent

challenges of running a small, low-profit-margin

grocery. 

Three of the cooperatives were started as

full-service grocery stores, serving as small,
Keys to Success for Food Co-op Start Ups in Rural Areas 55

local competitors to large, regional grocery

stores that dominated the market. They benefited from their locations as the sole grocery store

in a rural community, but they also faced strong

competition from regional stores. 

Root River is located on a highway near a

state park, which creates heavy summer traffic.

It is on the site of a previous grocery store and

thus benefits from that site identity. It also offers

a pharmacy service, by renting space to a local

pharmacist. Iron River also provides an additional needed service in the community, through

its ownership of a hardware store. 

Tower Foods suffered from a poor location

and never drew enough customers through marketing. Sales figures were one-third below projections. The groceries stocked were “100 percent

conventional,” and members commented that the

store had no “Oneida identity.” Local products

were not available at the store. Tower Foods was

also challenged by the many collateral goals associated with its development: economic development, better health and tribal self-sufficiency.

Keeping all of these goals in balance wasn’t easy

for the organizers, managers or board members. 

Viroqua’s natural foods focus gave it a

unique identity in the marketplace. The founders

knew that there was strong support for natural

foods among some community members, and

the competition was over an hour away. 

Keys to Success and Potential Pitfalls 

Based on the preceding analysis, we can

identify four key characteristics that contributed

to the success of three of the cooperatives in this

study — Root River, Iron River and Viroqua. 

A. Strong Operational Management 

Each of the successful cooperatives

employed managers who were willing to innovate, make necessary changes, invest and grow.

The manager of Root River eliminated the meat

department manager’s position to improve the

bottom line. In Viroqua, the manager invested in

technology that helped the co-op benchmark

performance, improve profitability and gather

the data necessary to plan an expansion. Iron

River Cooperatives hired a new manager who

had run a major business in another service

industry, so he came with financial, personnel

and marketing experience. He is leading the

relocation effort.

B. Member, Community and Industry Support 

Viroqua, Iron River and Root River all

received substantial leadership and financial

support from their members at start-up. They

also benefited from strong cooperatives in their

communities that provided financial support

and/or shared expertise. Root River also got

support from local public officials, who were

very interested in attracting a grocery store to

Houston. Local support was a major factor in

convincing the local bank to make a start-up

loan. Root River was the only cooperative in the

group that received a commercial loan on startup, but Iron River is currently negotiating for a

major loan from a local lending institution. 

The role of organized industry support

should be further mentioned. Historically, Iron

River Co-op, along with dozens of other Finnish

co-ops, received significant support from the

Central Co-op Exchange. Part of the challenge

today is the co-op’s isolation as it works toward

a major expansion without a CCE to provide

advice, unbiased benchmark data and other

support. Viroqua Food Co-op meanwhile has

tapped into a national network of food co-ops,

which has clearly strengthened its management’s hand. While Root River, as a “conventional grocery” did not enjoy similar industry

support, the help it received from long-standing

local co-ops and from cooperative lender

(NCDF) was critical. By comparison, Tower

Foods was relatively isolated and independent.

C. “Reasonable” Competition 

Although travel for shopping is a fact of

life in rural communities, the successful cooperatives all benefited from a location as the sole

grocery store (or natural foods store) in their

immediate area. All three of the successful coops are located about 20-30 miles from their

competition.

D. Dedicated Organizers 

The three successful cooperatives all

drew on substantial leadership skills from a

dedicated group of volunteers. In Viroqua and

Root River, the volunteers had track records to

draw on from previous businesses’ experience.

They also took advantage of advisors from local

cooperatives, from the local community and

within the grocery industry. In Iron River, the

cooperative was instrumental in forming a
56 Keys to Success for Food Co-op Start Ups in Rural Areas

wholesale cooperative, which became an integral part of many successful retail co-ops across

the northern tier of Wisconsin, Minnesota and

Michigan.

Potential Pitfalls 

The case study of Tower Foods Market

Cooperative provides a detailed examination of

many potential pitfalls in starting a co-op grocery. Although it might be viewed as a unique

case because of its relationship with the Oneida

Nation, it is probably safe to make the following

generalizations as contributing to its failure:

high turnover of leadership and management;

too many “collateral” goals; lack of rigorous

financial analysis; a poor location and a failure

to change direction quickly. 

The story of Tower Foods Market also

points out the importance of the “cooperative

advantage.” A co-op that lacks member support,

especially during the critical start-up phase, will

lose out on the very tangible factors (financial,

leadership and expertise) that have made

Viroqua, Iron River and Root River successful

rural grocery stores.
USDA Rural Development 

Cooperative Programs

Stop 3250

Washington, D.C. 20250-3250

www.rurdev.usda.gov

Through its Cooperative Programs, USDA Rural Development provides research, management, and educational

assistance to cooperatives to strengthen the economic position of farmers and other rural residents. It works directly

with cooperative leaders and Federal and State agencies to improve organization, leadership, and operation of

cooperatives and to give guidance to further development.

USDA Cooperative Programs: (1) help farmers and other rural residents develop cooperatives to obtain supplies and

services at lower cost and to get better prices for products they sell; (2) offer advice to rural residents on developing

existing resources through cooperative action to enhance rural living; (3) help cooperatives improve services and

operating efficiency; (4) inform members, directors, employees, and the public on how cooperatives work and benefit

their members and their communities, and (5) encourage international cooperative programs. USDA Rural Development

also publishes research and educational materials and USDA’s bimonthly co-op educational journal: Rural Cooperatives

magazine (www.rurdev.usda.gov/rbs/pub/openmag.htm).

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of

race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or a part of an individual’s income

is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities

who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should

contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). 

To file a complaint of discrimination write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W.,

Washington, D.C. 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD). USDA is an equal opportunity

provider and employer.