Bottom Line: Hanover Co-op sales surge in pandemic, but expenses were way up, too

Valley News Business Writer
Published: 5/15/2021 11:01:17 PM
Modified: 5/15/2021 11:01:37 PM

The Hanover Co-op had a banner year in 2020, with sales jumping 11% to a record $85.4 million. And the bottom line swung to a profit of $1.8 million, the fattest the Co-op has recorded in its 85-year history.

But, despite the stellar results, the Co-op’s “patrons” won’t be seeing a refund check in the mail, which, with the exception of a modest check last year, has become more the norm in recent years.

What happened?

Roaring sales driven by people dining at home during the COVID-19 pandemic were accompanied by an even more roaring increase in wholesale costs and higher payroll expenses to handle the workload, as detailed in the 2020 financial report presented at the Co-op annual meeting last month.

But, thanks to the federal government’s Paycheck Protection Program, which funneled $2.3 million to the Co-op, red ink turned to black.

Without the PPP money, Co-op General Manager Paul Guidone wrote in his 2020 Ends Report submitted to the board in March, the Co-op would have reported a loss “well north of” $1 million for the year.

The federal aid, 70% of which had to be used for payroll, could be used only to meet a business’s operating expenses. It could not be disbursed — even if there is cash remaining on the balance sheet — as payments to owners (or “members” in the case of a cooperative society).

Still, given the circumstances, Guidone counted 2020 as a good year for the Co-op.

“Despite the unexpected challenges, our Co-op did not experience the draconian outcome of many a business — closing permanently. Rather, as an essential service we experienced increases in total sales, items sold, gross margin, and basket size,” Guidone wrote.

But costs rocketed up — leaving open the question of what 2021’s financial results will look like when there is no PPP funding to prop up business.

Wholesale costs — what the Co-op pays suppliers for the items it sells — rose 10.3% to $57 million, while wages and benefits, fueled by bonuses, additional part-time help and curbside pickup, shot up 16.5% to $19.1 million, driving up overall operating expenses by 14% to $28.4 million.

Those markedly higher costs are the main reason why the Co-op’s operating income of about $314,000 in 2019 fell to an operating loss of about $75,000 in 2020, even though gross profit margins rose 12.4%.

The operating income does not include the federal payments. Patronage refunds can only paid out if there is positive operating income.

And the higher sales volume at the Co-op in 2020 happened even though customer store visits nosedived.

After holding steady for the past several years, “customer count” fell nearly 200,000 at the flagship Lebanon store, more than 100,000 at the Hanover store and about 30,000 at the White River Junction store, according to the financial report.

But, despite fewer customer transactions, the “average basket size” leaped 42% which, along with the rise in grocery prices, powered the Co-op to a record year in sales.

Given 75% of the transactions at the Co-op were by members — on par with prior years’ levels — that means that customers were making fewer trips to the Co-op during the pandemic year but spending a lot more when they did go.

“With all the panic-buying and COVID-19 concerns throughout 2020, the Co-op’s goal was to reinvest in the business of the Co-op,” Mark Langlois, the Co-op’s CFO, said via email. The investment included “establishing curbside pickup, hiring employees to work curbside, increased payroll due to discretionary bonuses (and) personal protective equipment and retrofits to our stores to keep employees as safe as possible.”

Co-op members — a small minority of them anyway — last month elected four new board members: Jennifer Byrne of Lyme, Conicia Jackson of Bethel, Ryan Madden of Hartford and Orin Pacht of Thetford.

They filled seats vacated by Jessica Saturley-Hall — who served as board president the past year — Ed Howes and Rosemary Fifield. Fifield rejoined the board as a write-in candidate after several candidates withdrew at the last minute.

A total of 778 votes were cast, with all four receiving between 600 and 700 votes each. There are now about 32,000 members, up from 28,000 members in 2019 — which means “voter turnout” was 2.4%.

“It wasn’t the largest turnout in Co-op history,” the Co-op acknowledged in announcing the results. The Co-op nonetheless described the vote as “enough to give our organization a strong and valid election.”

Contact John Lippman at jlippman@vnews.com.




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