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How Lakewinds Food Co-op is carving out a niche in the competitive suburban grocery scene

Courtesy of Twin Cities Business
Lakewinds Co-op’s general manager and visionary Dale Woodbeck

Lakewinds Natural Foods Co-op, founded as the Minnetonka Buying Club in 1972, is one of the country’s first grocers to sell organic and natural foods. With locations in Minnetonka, Chanhassen and Richfield, Lakewinds is one of the largest natural food co-ops in the Midwest. Given its suburban competition — Target, Kowalski’s, Lunds & Byerlys, Hy-Vee, and now Fresh Thyme Farmers Market, a Chicago-based natural food chain — Lakewinds’ durability in the most competitive era in local grocery retailing is no small feat.

Given the urban nature of most local co-ops, Lakewinds’ success in the ’burbs is improbable and owes much to Dale Woodbeck, who leads the enterprise. Woodbeck, with a background in start-ups, founded and sold his own manufacturing firm, Formative Engineering, at age 44. Now at 61, in what he defines as his “third career,” he is an unexpected co-op mogul.

“I like taking risks, investing in a business and then creating something of value in an uncertain marketplace,” he says. “Being innovative and staying ahead of the curve is exciting; it means getting your hands dirty, understanding the nuts and bolts and problem-solving. I’ve had my share of failures, walked away from one business. But learning when to take risks, based in data, not intuition, is key,” he says.

“I told my wife, Ann, when we were first married that I wanted to make enough money that when we turned 45, I could do whatever I want. Right out of college, I went to law school because I wanted to work in civil rights and change the world, but I dropped out after a year. Ironically, the co-op is a good fit.”

Lakewinds operates in one-sixth the space of a new 90,000-square-foot Hy-Vee. “We operate Lakewinds on five pillars: locally sourced healthy foods, irresistible stores, environmentally friendly practices, community partnerships and an awesome workplace,” says Woodbeck. “Many of our customers buy their staples and paper goods at other stores, but then come to us to shop the perimeter of the store. That’s where we shine.”

Competition is stiff. If you include the expansion of Target, Walmart and Costco into grocery, there’s been a 50-percent increase in grocery retail space in this region over the past 10 years. All are expanding their organic and natural offerings.

Those conventional grocers have expanded into the organic, natural foods niche Lakewinds once owned. “It was easy for them; they had the infrastructure and just needed to change the product mix,” says C.E. Pugh, COO of National Co+op Grocers, a purchasing cooperative serving food co-ops.

Co-op stores were created by member-owners and guided by the shared mission of providing whole, healthy, organic and local foods from farmers and producers that use sustainable practices, pay fair wages, use fair trade and contribute to the local economy. Their ability to continue to drive growth with substantially smaller stores and more limited selections of all manner of goods than their commercial rivals is due to their mission-driven approach. “Conventional stores are marketing organics,” ” says Kevin Edberg, executive director of Cooperative Development Services, an advisor to co-ops. “Co-ops do more than sell product; their value proposition is relationships—relationships with members, employees, the community and the environment.”

That value proposition drew Woodbeck to Lakewinds’ board of directors in 2005. He was a newcomer to the grocery business and the opposite of a co-op lifer. Soon after, Lakewinds’ recently completed Chanhassen store was off to a slow start and the board was challenged to make adjustments, address costs and update systems and marketing. By 2010, senior management was ready to move on, and Woodbeck seized the opportunity.

Organics everywhere

Forty years ago, if you wanted a locally grown organic apple, you had to shop a co-op. The Twin Cities, home to one of the first natural food co-ops, continues to host the most co-op food businesses per capita in the nation: 20 natural-food retail grocery stores, two restaurants, three bakeries and one distribution warehouse.

Natural and organic are hot eating trends, especially among millennials, and now 44 percent of all natural products are sold by conventional grocers according to trade publication Natural Food Merchandiser.

1972 Lakewinds founded as Minnetonka Buying Club.
1975 Becomes a co-op, located behind St. Luke Presbyterian Church, Minnetonka.
1995 Moves to the corner of Highway 101 and Minnetonka Boulevard.
2005 Opens second store in Chanhassen; Dale Woodbeck joins board of directors.
2006 Minnetonka store expands.
2010 Woodbeck assumes leadership of co-op.
2014 Richfield location opens.

The unique market position co-ops occupied was driven by a different business model and product mix. The former was hard to copy, but the latter quickly became fashionable. By 2010, conventional grocers had jumped into the niche and saw a 20-percent spike in organic and natural food sales.

“When North Country Co-op, on the West Bank in Minneapolis, closed in 2006 after a 35-year run, it was a wake-up call for all of us working in co-ops,” says Sean Doyle, general manager of Minneapolis’ Seward Co-op. North Country, one of the country’s first co-ops, had not updated its facility or systems, and relied heavily on volunteer-members rather than staff. “We knew we had to become more businesslike.”

By 2012 local co-ops had begun making changes in management, creating tighter strategic plans and updating facilities. “The co-ops got smarter with advertising and social media. There were changes as many of the original leaders retired or moved on,” Edberg says. “All in all, the co-ops were more secure when competition got really tough.”

Good feelings aren’t enough

“We are first and foremost a business,” notes Woodbeck. “We are not a nonprofit; we function as businesses. I remind my staff at every meeting: ‘No money, no mission.’ ”

44% of all-natural products are sold by conventional grocers.

And by national industry standards, Lakewinds is a very good business. Last year, it realized a 4-percent increase in sales. In 2017, Lakewinds purchased products from 230 local farmers and producers and realized $9.8 million in sales. Profits were $1.54 million (before tax and patron dividends) up nearly 1 percent last year. So far, the outlook for FY18 is positive: “Right now, we’re seeing an overall 4.5-percent uptick from this time last year,” Woodbeck says.

Woodbeck has attracted a team from the corporate world to management positions in marketing, finance and operations, and given them the authority to structure and run their part of the organization. Take Amy Campbell, Lakewinds’ director of marketing and communications, who brought extensive experience at General Mills and Target to member engagement through events, outreach, and vibrant and interactive social media campaigns.

74% of Twin Cities co-op sales are to members

“Lakewinds, like all co-ops, is under downward price pressure and upward wage pressure in a niche market within the grocery marketplace,” Woodbeck explains. “So we keep a relentless focus on the customer experience. This means investing in technology for online shopping, delivery, click-and-collect and loyalty programs. We spend time finding and analyzing trend information to innovate and improve the in-store shopping experience.”

Woodbeck draws on the skills honed as an entrepreneur to guide Lakewinds’ management team. An avid gardener and outdoors enthusiast, Woodbeck enjoys the professional friendships he’s cultivated with farmers, growers and producers, and has become a leader in the local food industry and an advocate for sustainable farming practices.

“While many of our employees were drawn to the co-op because of its values, few understand the grocery business,” Woodbeck notes. To educate and engage the staff, he relies on what he calls “open-book management.” Every week, employees are encouraged to gather at the loading dock to review performance on a big whiteboard: “We track sales, labor, gross margins so that employees see how income is divided among member-owners, the business and the staff.” Participatory management creates a positive and vibrant work environment. “Our employees are great at helping us improve operations,” Woodbeck continues. “For example, an employee committee helped us reduce waste removal costs significantly through composting.”

There are 330 food co-ops in America, 130 of them founded within the past 10 years.

Empowerment is a deliberate goal. “We’re more powerful when power is distributed,” Woodbeck notes. “The goal for everyone in the organization is to know how their actions and decisions contribute to the overall goals and objectives of the co-op, including how they relate to our values and our financial position.

“Employees know members’ names and they know the products we carry,” Woodbeck continues. “Cashiers can direct a customer to the right aisle to find what they’re seeking. Produce staff do more than stack apples—they know the different varieties and the names of the orchards,” he says. “Shelves don’t sell product, people do. Our staff is better at telling our story than any advertising; they take pride in their workplace.”

Growth mode

As a member-owned institution, Lakewinds is under pressure to make patronage refunds while continuing to grow at a rate faster than inflation. “Our growth strategy includes increasing membership and adding new stores,” Woodbeck says. “There are opportunities in the southwestern metro because land is still available; though, as in the residential market, it’s overpriced.”

Food co-ops by the numbers

Co-ops are not nonprofits, though this is a common misconception; they are business entities that are owned and governed by members. (Land O’Lakes is a farmer-owned co-op.) Each store’s surplus is reinvested in the business and returned to the owners each year as patronage dividends. “Now that the corporate tax rate has been cut to 20%, though, co-ops lose the little advantage they once had over corporate grocers,” says C.E. Pugh of National Co+op Grocers, a business-services nonprofit serving food co-ops. (That same bill gave farmers an enormous tax break on sales to co-ops.)

Membership creates loyalty. Owners benefit when the business prospers; they also enjoy special discounts, classes and events. Three-quarters of the metro’s co-ops’ sales are to members. A one-time household membership fee ranges from $75 to $100. On average, a co-op adds about three new household memberships a day.

Community investment is evident in the business model.

• Co-ops spend 24% of revenue on wages and benefits vs. 16% at conventional grocers.

21% of a co-op’s products come from local or cooperative producers vs. 2% in conventional stores.

• The average co-op recycles 81% of its plastic waste and composts 74% of its food waste vs. 29% of plastic waste and 36% of food waste, respectively, for corporate grocers.

Source: Natural Co-op Grocers

Lakewinds financed its Richfield store, completed in 2014, with a mixture of loans from members and banks. “Members loaned money with four-, six- or eight-year terms at interest rates based on the length and amount of the loan,” says Woodbeck. “Our members have told us that they’re proud of the store they invested in, that it’s in line with their commitment to Lakewinds’ values.”

Lakewinds is now paying down its bank loans, thanks to the store’s rapid success. “Running my own business, I learned a lot about risk management,” Woodbeck says. “So before we commit to any new project, we spend a long time on sales projections and market analysis. We co-ops can learn a few lessons from traditional grocers in the fundamentals. For example, we’re still learning to access and use data to inform good business decisions.

“We are always looking for new ways to gather information—trend information that might help us make decisions about capital investments that are innovative and improve the in-store shopping experience,” Woodbeck continues. “We’re studying ways to expand online shopping and delivery. We take member requests seriously. For example, in response to surveys about purchasing foods in bulk, we installed a scale that weighs and prices items at the bulk bins. This improves the whole process; it’s now quicker, cleaner and speeds up the checkout so lines are shorter.”

The ultimate goal is deepening the pool of members, the source of the bulk of sales. “As the grocery business becomes more consolidated, and stores become larger and larger,” says Pugh, “co-ops are increasingly focused on the role of members and on growing membership,”

Rooted

To provide high-quality, local and organic products, along with transparency on how the food is sourced and produced, Lakewinds works closely with local and organic farmers, ranchers and processors in a variety of partnerships. Unlike most grocery produce buyers, who can switch vendors or brands on a dime, Lakewinds produce buyers commit to purchasing quantities ahead of the growing season. This provides the farmer with reliable income and helps Lakewinds secure specialty crops, while sharing the farmer’s risk. “Investing in our purveyors is good business strategy,” Woodbeck says. In addition to these buying partnerships, Lakewinds distributes grants to its most promising growers through the Lakewinds Organic Field Fund.

In March, Lakewinds distributed $63,000 in grants to 11 farms. “It was such a privilege to call each of our grantees,” Woodbeck says. “This is capital that small farmers just don’t have access to because there’s no direct ROI. But it’s critical to running a farm. For example, one farm will be able to purchase moveable fencing for its hogs; another will install a concrete floor in the packing shed; another will add a high-tunnel house for season extension. This is the power of local economic development, and the results are tangible. It may sound small, but an $8,000 grant will strengthen that small business and ensure it will remain viable year after year.”

Along with investing in growers, Lakewinds supports local producers who use local produce. Maker to Market, Lakewinds’ partnership with the Good Acre, a nonprofit food hub, is an innovative local food business accelerator. Good Acre supplies the local produce, the commercial kitchen space for processing and warehouses, and distributes the products to Lakewinds’ three stores. Lakewinds advises the vendors on labeling, packaging, pricing and marketing while helping them navigate the labyrinth of regulations and health codes that can hamstring food-business startups. Maker to Market connects the dots between the co-op scene, the “maker” culture and the network of local growers. “This is the first full-circle, farm-to-shelf retail program in the country,” says Campbell.

The impact of Lakewinds on the local economy is greater than the sum of its spending. A portion of the money spent locally recirculates, creating a multiplier effect. The $1,000 a shopper spends at one of the metro-area co-ops generates $1,604 dollars in local economic activity—$239 more than if that person had spent the same amount at a conventional grocer in the same community, according to the National Co+Op Grocers. Co-ops buy from farmers, who use the money to buy local supplies, hire local technicians, purchase goods and services from local retailers.

Woodbeck believes educated consumers are the linchpin of Lakewinds’ long-term growth and outperforming the growing commercial market for natural and organic foods. Twin Cities co-ops were the first to provide markets for organic farmers. “Co-ops have always had high product standards that underline our emphasis on quality,” Woodbeck says.

“Today’s consumer wants to know where and how their food is produced, and many are willing to pay more in order to support the environment, animal welfare and small local farms, while keeping dollars in the community,” says Pugh. “Consumers are voting with their dollars, buying from places they feel are transparent.” “Because our profits stay in the co-op and in our communities, we are able to plan for and invest in the long term,” Woodbeck adds. And, that, he believes, is the co-op’s competitive edge. 

Author Beth Dooley writes on food, agriculture and cooking from a Midwestern perspective.

This article is reprinted in partnership with Twin Cities Business.

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