Blog post

Market Studies for Small Communities

Here’s a question we recently received:


We are starting a co-op grocery store here in Small Town, CO.  Small Town has a population of just over 5000 and a busy tourist trade but no fresh food access. The community is very supportive of the idea of a food co-op. Your materials talk about hundreds of members. I wonder how that number relates to the town's population size? Market study? When a town is a food desert, is a feasibility study still necessary?

 

Stuart Reid responds:


I'll try to give you some perspective on co-ops in smaller communities, keeping in mind that there are some considerations for Small Town that would result in different outcomes.


The membership goals for a new co-op are usually based on the startup budget and financial projections for the store. The startup budget is directly related to the size of the store, and the size of the store is based largely on the sales projections you will get from a market study. Of course, you will not have that information until you have gotten farther down the organizing path, so most co-op organizers start with "generic" benchmarks.


No matter how small the community, stores with less than 3,000 sq. ft. of retail space have a hard time surviving. Can your community and people traveling through it support a co-op of that size? Sales will probably need to be $1.2 -$1.5 million/year to cover overhead, debt service, labor, etc. Your location, with significant tourist traffic, could easily provide far higher sales potential than a typical community of your size. Planning your store to take advantage of that will be important (e.g. visible location, product mix, ready-to-eat meals and road food.)


However, all those tourists are unlikely to become owner-members, no matter how much they spend at the co-op, so your reasonable membership target may be smaller than other co-ops of the same size. Based on 2,452 households, what percentage can you expect to support the co-op by joining? I would guess 20-30%, or about 600 household memberships.


We might recommend 1,000 members for a co-op of 3500-4,000 sq. ft of retail space, so you will probably need to look closely at your sources of capital. Member loans are usually the major portion of your startup capital, and fewer members means fewer potential lenders. Can you make up the difference with bigger loans from some members, community economic development funds, or other sources?


As far as the need for a market study, the answer is always, "YES, you do need one." It is not enough to know that there is a need for grocery access, you really need to quantify that need in order to create viable business plans. Since your co-op may depend on non-resident patronage for a large portion of its sales, professional assessment is even more important.


As you can see, it can be difficult to establish clear membership goals and budgets early on. If you have a strong and committed group of people who are willing to put in the time to organize your co-op, lots of local interest, potentially viable store sites, and a reasonable likelihood of being able to raise $1 million or more in startup costs... the rest will become clear and fall into place as you proceed along a structured timeline.

 

Send us your questions at info@fci.coop