A food co-op is a grocery owned by the people who shop there: members buy a share, elect the board, and get a part of the year's surplus back in proportion to what they bought. Starting one takes years more than a regular store, because the money comes from the community first. The steps: a steering committee and a market study; forming the cooperative under your state's cooperative law, in Wisconsin, the example's state, by five or more adults filing articles, with one member, one vote and no proxies; a member drive, often a few hundred households buying a share of $100 to $300; member loans, grants and a bank loan for the rest; then a site, a general manager, and the retail food license like any grocery. When the store makes money, Wisconsin's law allows up to 5% for an education fund and, unless the bylaws say otherwise, pays the rest to patrons by their patronage, and federal tax law lets a co-op leave patronage dividends out of its taxable income when it pays them on business done with members under rules set in advance. In the example below, a small-town co-op raises $540,000 and works out it needs about 700 active member households. Below are the steps, the rules, the example, and a free capital plan.
The short version
- A food co-op is a grocery owned by its shoppers, one member, one vote.
- Form it under your state's cooperative law; in Wisconsin, five or more adults file articles.
- Member shares, member loans, grants and a bank loan pay to open it.
- Surplus goes back to members by how much they bought: patronage refunds.
- Federal tax law treats qualifying patronage dividends as outside the co-op's taxable income.
- The store needs a retail food license like any grocery.
- Raising the money is half; enough members shopping every week is the other half.
- TaroStack runs the store's stock: receiving, counts, dates and reorders. More below.
The steps
| Step | What happens |
|---|---|
| Steering committee | A handful of people, a market study, a first budget |
| Incorporate | Articles and bylaws under the state's cooperative law; a board |
| Member drive | Households buy a share; the count shows whether the store is possible |
| Raise capital | Member loans, grants and a bank loan for what shares don't cover |
| Site and manager | A lease, a general manager hired before opening |
| Build and license | Build-out, equipment, the retail food license, opening inventory |
| Open, then grow | Member shopping each week decides whether it lasts |
How a small grocery's departments earn is in grocery store profit margins by department, and opening a small grocery generally in how to open a small grocery store.
The rules
| Rule | Where |
|---|---|
| Forming | 5 or more adults, one a Wisconsin resident, sign and file articles (Wis. Stat. 185.043) |
| Membership | Organized on a membership basis, with or without capital stock (185.11) |
| Voting | Each member one vote; no voting by proxy (185.12) |
| Surplus | Up to 5% of net proceeds to an education fund; the rest to patrons by their share of patronage, unless the articles or bylaws provide otherwise (185.45) |
| Patronage dividends | Paid on business done with each patron, under an obligation made beforehand, from net earnings on patron business; not counted in the co-op's taxable income when paid in money or qualified notices (26 U.S.C. 1382, 1388) |
| The store | Retail food license: $90 with a deli, $25,000 to $1,000,000 in food sales, plus a $45 weights and measures fee, unless a city or county licenses as the state's agent (Wis. Stat. 97.30) |
The license in detail is in retail food license. Other states have their own cooperative laws. This is general information, not legal or tax advice.
An example: a small-town Wisconsin co-op
Pecatonica Valley Food Co-op, a made-up food co-op in Darlington, Wisconsin, I use in these examples, plans a 4,000-square-foot store:
| To open | Raised | ||
|---|---|---|---|
| Lease deposit and build-out | $180,000 | 650 members × $200 | $130,000 |
| Coolers, freezers, shelving, registers | $160,000 | Member loans | $120,000 |
| Opening inventory | $90,000 | Grants and donations | $40,000 |
| Manager, legal, marketing before opening | $60,000 | Bank loan | $250,000 |
| Working capital | $50,000 | ||
| Total | $540,000 | Total | $540,000 |
Then the harder number. Fixed costs come to $414,000 a year: wages and benefits $260,000, rent $48,000, utilities $30,000, loan payments $36,000, and $40,000 of insurance, software and the rest. At a 32% gross margin, the store breaks even at $1,293,750 a year, about $24,900 a week. If members bring 70% of sales and an active household spends $25 a week, that's 697 active member households, more than the 650 who bought shares, and not all of them will shop every week. The board's answer: keep the member drive going through opening, with a goal of 900. What spoils in the meantime is in grocery store shrink.
Get the plan
Download the food co-op capital plan. Two sheets: the capital to open against member equity, member loans, grants and the bank loan, with the gap and the members it would take to close it; and break-even, from the yearly fixed costs and gross margin to break-even sales a week and the active members needed at your spend per household. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
Once the doors open, the co-op is a grocery: thousands of items, short-dated produce and dairy, local farmers delivering twice a week, and a margin that disappears into shrink if no one is counting.
How TaroStack does it
TaroStack runs the store's stock: what came in, what's left, what's expiring and what to reorder.
Receiving with dates. Each delivery, from a distributor or a local farmer, is received with its lot and best-by date, and the oldest goes out first.
Shrink by reason. What's thrown out goes off as an adjustment with its reason, spoiled, damaged or expired, reported by reason, item and department.
Reorders in days of cover. The reorder list shows each item in days of cover, with each supplier's lead time and minimum, so the local yogurt is reordered before the shelf empties. TaroStack connects to Square.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| What's about to expire | Walk the cases | Expiry forecast by lot |
| What shrink cost | A guess at year end | Adjustments, by reason |
| What to reorder | The buyer's memory | Reorder list in days of cover |
| A local farmer's deliveries | Invoices | Receiving, by supplier |
Receiving, lots, the expiry forecast and the reorder list are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.