Check here often for new questions and updated answers.
How does the Viroqua Food Cooperative know it is time to grow?
The decision to pursue expansion is made by the Board on the recommendation of the General Manager and her leadership team. We’ve been soliciting feedback from owners about expansion since 2013. (See sidebar). Expansion has been taking place for several years.
Recent Expansion Projects
• 2011 - the east parking lot was added to address limited parking
• 2014-15 we added 1000 square feet to our back room to address safety and stocking issues.
Important issues remain:
• $7 million annual sales through three checkout stands is hard on our cashiers
• We produce nearly $5,000 in Deli Department sales daily in a kitchen built for $1,000 of sales
• Insufficient seating that is limiting our ability to serve owners and draw new customers
• Demand for new services that cannot be accomplished with our current space limitations
• During peak shopping hours both parking lots are full.
A professional Market Study and analysis was initiated by the VFC Board and completed in 2015.
The Market Study found that our market area could support a much larger retail store. The Market Study indicated that with more space we can meet our needs with a more complete bakery program, greater selection of meat, poultry and seafood, a more full-service deli with a larger seating area, along with more space for our current departments.
Did you ask the Owners about expansion?
Yes. The Board of Directors are the elected representatives to envision and articulate the future of the VFC. For the past three years the Board has been seeking input from our Owners about the growth question. To kick off the idea, in 2013 they hosted a Community Conversation event for Co-op Stakeholders, followed by Coffee with the Board events in the winter months, as well as were present and identified at numerous in-house Co-op events. Expansion was discussed at the October 2015 Annual Owners Meeting. The 2016 Owner Survey results showed that 75% of survey respondents either strongly or weakly favored growing the Co-op in the next 1-5 years. The top five design features VFC Owners wanted in an expanded VFC were: expanded indoor seating area (21%), green technologies and building practices (18%), additional parking (16%), classroom and/or meeting space (9%), and outdoor seating (9%).
See the sidebar on the right side of this page for past articles about the expansion process and the Expansion Updates page.
Will VFC owners get to vote on the expansion?
Owners do not vote on an expansion project, as that’s not how the VFC’s decision-making model is set up. Rather, the Board of Directors has and will continue to seek owner feedback through a variety of channels, so that we can use that direction in our decision-making process.
As part of our cooperative structure, each VFC Member-Owner is able and encouraged to vote for Board of Directors candidates each year. These Directors are elected to represent owner interests, and are empowered to make important decisions on their behalf. The Board carries the fiduciary* responsibility for the VFC, and must approve any real estate purchases or construction projects.
The Board has spent the last three+ years learning about co-op expansions, consulting with experts, and soliciting feedback from VFC Owners on the idea of a growth project. We are prepared to make the complex decisions to best serve the VFC Owners. The Board studied the April 2016 Owner Survey data to ensure it aligns with the owner input we have received thus far.
*A fiduciary is a person or group who holds a legal and ethical relationship of trust with one or more parties. When a party knowingly accepts a fiduciary duty on behalf of another party, they are required to act in the best interest of the party whose assets they are managing.
Will VFC Owners continue to have input into the project process?
Yes. VFC Owners, along with VFC Staff and Board, participate in a community process that enables the Co-op to gather feedback on our plans for expansion. Owners gave feedback through the Owner Survey, in Spring 2016, with a special section on expansion. You can download a summary here. As always, the Board welcomes owner feedback and questions through the form on the Board Section of the VFC website, and during co-op events like our P6 Tailgate Party and Coffee with the Board.
How does expansion serve the VFC community?
We’ve been hearing from VFC Owners that they’d like to see the VFC make local and organic food even more accessible than it is now. This includes more ready-to-eat foods, more fresh meat/deli items, and a wider array of product options. We’ve also heard that our Deli and seating area is very valuable to the community, but people want more of it.
We’ve been exploring ways to provide Owners with what they want, and have also done a Market Study to see where there are unmet needs in our community. The newly updated facility will serve the community of Viroqua by providing access to healthy, organic food and produce. With considerably more space and more customers, VFC can expand its product lines and buying power which will intrinsically generate deepened support for the small regional farmers and producers and increase the accessibility of fresh local food offered at the Co-op.
What’s the ecological impact of an expansion?
A bigger store will of course use more energy and water, but we’ll also be providing services that some people drive to La Crosse or elsewhere for now. We are eager to explore green building and renewable energy options for the expansion project. As our overall sales increase, so will the sales of local and organic products, so we’ll be helping support more sustainable farming practices, which is one of our goals.
Here is a list of some of the energy efficient features that are included in the expansion.
- Electric Vehicle (EV) charging station
- Refrigeration rack with reclaimed heat for hot water. This is a computerized system that reduces loss from cooler crashes, has a comprehensive alarm system, and runs super efficiently compared to individual compressors.
- LED lighting throughout
- Air Pears will replace the large fans in the ceiling peak. These will circulate air up or down for a 30% savings in energy and heat
- Energy efficient coolers and freezers. Refrigeration is the biggest big piece of the equipment budget.
- Retail refrigeration is predominantly glass door front, rather than open cases.
- New backroom freezer is accessed inside the coolers, which means less energy loss when opening the freezer doors
- Choosing concrete for the parking lot is a long-term savings vs spreading petroleum based products on asphalt every year, though this adds expense up front. We are using porous asphalt for watershed requirements on the east side of the parking lot.
- Low and no VOC products throughout the store. This is a challenge for high traffic areas, where products have to hold up to extreme wear and tear.
- Pollinator gardens around our perimeter not only beautifies our community but supports bees and butterflies
- Natural daylighting throughout – this creates added costs for dormers, sola-tubes, windows and transom windows in retail and workspaces, etc.
We’ll have many opportunities to make other environmentally-friendly product choices on a smaller scale throughout the store.
Will food prices at the Co-op increase because of the project?
No. The costs associated with expanding our store will not impact prices of products. Retail prices are driven by several factors, including: cost of goods from vendors, costs for product ingredients, packaging, and transportation. Weather events that impact product availability can also contribute to price increases.The VFC is like other grocery stores in that the more food we sell, the lower our cost of goods. As our sales increase, we would expect to see cost savings that we then pass on to shoppers. It also can be expensive not to expand when your sales exceed a certain dollar value per square foot. Employees make due with less than ideal work spaces, it takes more labor hours to stock the shelves since all product delivered cannot be put out, creating inefficiencies.
Will the Co-op carry more conventional food brands in the expanded store?
No. We will continue selecting product for VFC in the way we always have, consistent with our mission. “We emphasize selling organic and local foods and products to promote the long-term health of individuals and the environment.” 33% of our sales are locally grown or produced within 100 miles of Viroqua. 42% of sales are USDA Certified Organic.
We serve over 3,500 owners and the wider community. Among those thousands of owners and shoppers are a variety of opinions about products. We conduct periodic shopper surveys and observe our sales closely to determine what products our owners want to purchase. Our goal is and always will be to meet the needs of our owners while staying true to our mission.
Will the expansion include more parking?
Yes. We purchased the Sidie Lawn & Sport Center property located on Broadway and Center. Phase I of the parking lot construction project is now complete (CLICK HERE for details). We are working with the city to connect our parking to the store by closing the portion of Center Avenue directly behind the VFC. This will also create a safe and inviting entrance for those who walk and bike to the Co-op. The parking lot will be completed in August of 2017.
Will the expansion include solar panels?
VFC is working with Ethos to apply for a grant this fall to include a solar array. (The timing of the grant schedule last year was too soon in our process.) We are investigating if it makes more sense to use the Co-op roof or build carport covers in the parking lot.
Will an expanded store offer services that aren’t currently available?
Yes. Through years of research and inquiry, we learned that VFC Owners want more of what the Co-op does well: access to natural, local and organic foods and a wider array of organic product options. The larger space will feature an expanded deli, full service meat and seafood counter, catering, fresh juice, full bakery, beer and wine, more cash registers/check out lines, additional indoor and outdoor seating an added multipurpose educational area as well as the expanded parking lot (which you are already using). Check out the display in the Owner Services area (near the bathrooms) to look at the preliminary drawings.
How will the expansion be financed?
An expansion project will be financed with a mixture of owner capital (Class C Stock), our current local lender, Bank of Cashton (with a 90% loan guarantee by the USDA Rural development program) grant opportunities and New Market Tax Credits, a national gap funding program. The NMTC, which provides over a quarter of the funding, is interest-only funding that is forgiven after seven years. The TID (Tax Incremental District) funding returns to VFC over a ten-year period, including interest. The line of credit is used if needed.
Can I purchase Class C Stock?
Yes! We launched our Capital Campaign June 15, 2017. Our goal is to raise $1 million in interest-bearing Class C Preferred Shares by August 15, 2017. Viroqua Food Co+op Class C Shares are a nonvoting, preferred stock only available to VFC owners who are valid residents of Wisconsin. Series 2 offers a dividend of 3% with a minimum investment of $500. Series 3 offers a 4% interest rate with a minimum $10,000 investment.
An equity investment from owners helps leverage the support of our local bank and community development agencies who seek to invest in our project. If you are interested purchasing Class C Preferred Shares, email email@example.com or call Christina Dollhausen at 608.637.7511 (x32).
Will an expansion project impact my Patronage Refund?
It may. In years in which the Co-op is profitable, the Board of Directors declares a Patronage Refund. In the midst of an expansion project, it is possible that the Co-op will not be profitable, and therefore a Patronage Refund may not be declared.
Is the Co-op expansion project financially viable?
Yes, an expanded store is financially viable. Once the expansion is completed, our sales are projected to jump from our current $7 million annually to $11.9 million within 3 years. The expansion will also encourage growth in membership, create more than 35 living wage jobs over three years and boost neighborhood and community building. We completed a market study that supports the size of the project.
Another way to assess the viability of the project is the number of institutions and organizations outside of VFC who are looking at the numbers and/or participating in the project. Each entity has independently analyzed the project and decided to partner with us, recognizing the project's viability.
- City of Viroqua (CDI grant & Tax Incremental District-TID)
- Wisconsin Economic Development Corporation (CDI grant)
- US Dept of Treasury Community Development Fund (NMTC)
- USDA Rural Development -Guarantees 90% of VFC loan for expansion
- Bank of Cashton - Local Primary Lender
- NCG Development Cooperative
- Wegner CPAs
When will the expanded store be opening?
VFC plans to stay open during the entire expansion process. Our hope is to get shovels in the ground July 2017. The construction project will be completed in several phases and will take 11 months.
Why is the VFC forming an LLC?
VFC has applied for a U.S. Department of Treasury Community Development Financial Institutions Fund New Markets Tax Credit Program (NMTC) for the VFC expansion.This process adds $2 million of gap funding to the VFC expansion. VFC pays interest only on this amount for seven years and, after that time, the $2 million is forgiven to the Co-op.
One of the requirements of this process is to form a Limited Liability Company. The New Market Tax Credit (NMTC) transaction is complex, but we are happy to discuss more details with investors who are interested in discussing the specific tax code section and applicable regulations.
The NMTC is structured as a leveraged transaction. A separate LLC is required so the tax credits flow back to the investor during the 7-year NMTC structure. The IRS requires that the LLC cannot be solely owned by VFC, because otherwise the NMTC transaction lacks economic substance. Therefore, VFC can own 95% of the LLC, but the 5% ownership interest must be different. Long-time VFC members have agreed to be the 5% owners. Their ownership interest is an investment only; there is no decision-making authority attached to the LLC or the 5% owner. The LLC is organized as a manager-managed LLC, which means VFC, as the manager, is in total control of the LLC. The 5% owners will receive a return on their investment during the 7-year NMTC period and then will receive their initial investment back when the project is unwound. The NMTC program allows VFC to utilize $1.97 million for the project, while paying interest only for 7 years, and then the $1.97 million is forgiven to the Co-op.
At this time, the LLC has been formed, but no assets have been transferred to the LLC. We are very early in the NMTC project and the asset transfers are still being negotiated among the parties.
The 5% owners will make a cash contribution to the LLC and receive a return of investment on their money over the 7-year period. For privacy purposes, VFC has not disclosed the names of the 5% owners. If those owners give VFC permission to disclose their names, VFC will do so, but will respect their privacy until that time.
Once the NMTC transaction is completed and we know what assets will be held in the LLC, this information will be included in the consolidated financial statement. Please send us any questions about the NMTC or the LLC and we will answer with the assistance of Cindy Hangartner, the Co-op’s attorney for this process. If you want further information about the NMTC structure, you can purchase the Novogradac New Markets Tax Credit Handbook for $358.
What happens if VFC does not sell enough Class C shares to do the expansion? Will it be postponed? If so, will the next batch of investors have to pay more for the shares?
Our Co-op is owned by the consumer members and so, when we want to get a loan from a bank we need to have a certain percentage of dollars as owner equity for the new loan – similar to putting your own money down when taking out a car loan, a mortgage, or investing in your personal business.
Preferred Shares act as owner equity in Cooperative business structure and is special to registered cooperatives like us. But Preferred Shares are not the same as stock market shares. Each co-op preferred share has a par value that never changes; VFC par value on Class C shares is $25 each. We pay an annual interest rate to our owner investors (compounded annually) and this collective equity shows the bank that we’re ready for the loan.
Finance is in place for the project, and the Preferred Shares (what we call “Class C shares”) are the owners part of the finance package. However, the more money we put down, the less we borrow. For proper perspective, in 2005 VFC owners invested $600,000 for the building we’re in today. Now 13 years later, we’re ready to grow again. While $1 million is quite a goal for our community, we are two+ weeks into the Capital Campaign are already 1/3 of the way there!
Our local bank loan is also protected with a 90% loan guarantee by the USDA Rural Development program, specific to this project. It is important to note that this enables our bank to extend a favorable Line of Credit as back-up if we don’t get all the way to our goal.