Saturday, February 19, 2011

Geoff's Weavernomics Lesson #5 - How To Make A Profit, And Pay A Dividend, The Co-operative Way

The latest copy of WSM's employee Market Messenger gaily announces that Weaver Street Market is most unlikely to be paying a patronage dividend to owners in 2011.


The WSM corporate office said they needed a 15% ($3.75 million) increase in co-op sales in the Financial Year 2010-2011, in order to find some $1.75 million to start repaying the outstanding long-term debt of $8 million (created by the failed expansion project); to fund the $1 million in annual bank interest charges on that debt; and to pay a dividend to owners (the first in 4 years; cost = $300,000). The remainder of the extra $3.75 million was to cover the cost of goods incurred by the extra sales.

The WSM corporate office also said that we needed to increase sales by at least 10%, just to make a profit. WSM has averaged an increase in sales of only 9% through the first two Quarters, putting all sorts of things in jeopardy, not least a profit and a dividend. Isn't it now time (finally) to admit out financial gameplan is a failure, and to begin a conversation among the workers and owners of our co-op to find a new direction, one that does not continue to make crippling demands of us workers, while offering us only the most paltry incentives?


Let's go through the narrative offered by WSM's corporate office in the Market Messenger, using their numbering system:

1) After the first two Quarters of the 2010-2011 Financial Year, we are making a profit of only 1% of sales. We need to make 3%.

What does that actually mean? Well, 3% = roughly $3.75 million. Bloody hell. Why do we need to raise $3.75 million more now than last year?

I asked that same question at the Southern Village Unit Meeting last September. Didn't get an answer.

I asked the question because I continued to be concerned (and remain concerned) that WSM is heading in completely the wrong direction, trying to pay off a huge debt ($8 million, resulting from what can now only be described as a failed expansion project), and trying to pay off that debt by making we workers work harder and harder and harder, essentially for less.

Since I didn't get an answer, I met with the General Manager for a one hour meeting. The bottom line was, and remains, this: We need to raise about $300,000 more this Financial Year than last year in order to pay a dividend to owners.

So, what about the remaining $3.45 million? Well, cutting through all the crap, the people to whom we owe the $8 million are getting antsy after three years of waiting. They want their money back. So, the corporate office (without consulting owners or workers - and we are, by the way, a consumer-worker-co-op) decided to repay the debt as a priority out of operating profit over the next five years.

Which is to say by finding an extra $2.75 million(ish) a year for the next five years. Just under $1 million to pay the interest due each year, and the remainder to pay off the $8 million in capital debt. None of this going to local banks mind you. And we complain about Wal-de-Mart exporting profits out of the community. So, that's where the bulk of this extra $3.75 million is going. To pay off the exorbitant and unnecessary debt.

Now, I say the corporate office has to find that extra $2.75 million each year for the next five years. No they don't. The ordinary workers do. By working harder. 15% harder. For paltry pay raises, and now, yet again, likely no dividend.

And let me just make that clear. Don't be thinking this extra 15% applies only to this Financial Year. We have to continue making the same effort for the next four years, as well.

Just to keep things tidy, for those of you paying attention. The remainder of the $3.75 million in 15% extra sales (i.e. after the $2.75 million to pay off the long-term debt off the workers' sweat, and the $300,000 for the dividend), that is essentially to cover the extra cost of goods that flows from the extra sales.

Still with me?

Good. Actually, bad. Because the point is that, notwithstanding the sweat of our brow, we are not making that 3% profit. We are only making 1%. Why? Well ...

2) Our sales growth after two Quarters is only 9%, not 15%. Hate to say it. But I told you so. 15% was never a realistic target in this economic climate. But, here's the kicker. Ruffin made it quite clear to me. We NEED to make 15% sales increase to make a profit and pay the dividend.

If we make only a 10% increase, no dividend and no profit. And folks, most likely another paltry pay raise (if any) in 2011 - after all the sweat of our brow.

Corporate office point (2) also states that sales continue to improve. No they don't. Check your break-room noticeboard for the total co-op sales increase for the week ending February 12. We made a 7% sales increase. We're heading in the wrong direction.

(3) Once again, the corporate office engage in that little sideways shuffle niggle of trying to put the blame on us workers.

Apparently, we are not doing enough to keep up the margin of profit. I don't know about you, but there's only so many times I can recycle meatloaf to my customers on the SV Hot Bar before I shrink it, or it gets up and walks away.

No mention is made of the fact that the generals who were supposed to be quarterbacking the Magical Mystery Shopper Imaginarium 2011 15% Sales Increase spent the last Quarter either engaging in corporate musical chairs, opening their own restaurant, or sunning it in southern France, while purportedly buying wine for WSM.

We are told that we will now be able to make that 15% sales increase over the last two Quarters only if we workers work EVEN harder. And, through diligent price control.



Does that mean by increasing those prices?



I thought one of the primary thrusts of the All-Singing, All-Dancing Sales Campaign On The Back Of Workers 2011 was to reduce prices?

I thought that's why we were spending huge wallops of cash in our marketing department to produce all those annoying special signs we have to put up each week?

I thought that's why we now have not one, but two sales leaflets at any given time. All of which are full of pretty pictures that someone in the marketing department spends their time taking all around the countryside of Orange County?

I'd like to be paid to play musical chairs. I'd like to be paid to go the south of France. I'd like to be paid to spend my days taking pretty pictures. I'd like ... Geoff, remember we promised not to rant ... sorry ... won't happen again.

Anyway, I thought the reason we had created a huge cottage industry in our marketing department (by the way, the costs of the corporate office have increased 500% in five years, just so you know), the reason was to CUT prices.

Now, we want to be more 'diligent' about them?

Is anyone at the 'top' of our co-op actually awake?

On duty?

Paying attention?

While we workers work our butt off?

[Break for GUITAR SOLO]

(4) Blah, blah, blah. Unknown if we will pay patronage dividend this year. But. Hang on. Good news. The last two Quarters are always more profitable ...

... er, has any Unit actually been making its weekly budgeted sales increase this third Quarter (January - March) on a regular basis?

And here's the thing. Don't be falling for that flummery about, well, this next season is always better, the wine show this, the start of school year that.

It ain't about season over season. It's about year over year. We need to make a 15% sales increase over this time last year. Not a sales increase this week over last week.

Now I may just be getting old. But if memory serves me right (and, bar natural senility, it should do after working here for 6 years), isn't the Fourth Quarter (April-June) one of the worst times of the year (summer holidays)?

In any event, as it's working out, the math is both simple and terrifying. If we made only a 9% sales increase in the first two Quarters. And we ain't doing too well so far in the third Quarter. Doesn't it stand to reason that we're going to have to do a heck of a lot better than 15% in the fourth Quarter? Which ... er ... we may just have determined may not be a naturally good Quarter?

Right. Enough of the dissection. What to do. Is there a better way to be doing business? Is there a better way out of our mess? Is there a co-operative way?


Here's my suggested co-operative gameplan:


A) We need to review the finances of the co-op top to bottom. We need to review the sustainability of our debt. We need to find better ways to erase that debt.

I suggested this very approach at the Annual Meeting of WSM back in 2008.

There are ways to refinance that debt. I've been plastering suggestions all over this blog and my Facebook Page, taking my lead from ideas that are being discussed at the national co-operative level.

There are ways to restructure WSM, so that we retain the benefits of the new store in Hillsborough and the better aspects of the Food House, plus saving jobs, while at the same time ensuring that we are not funding those benefits out of workers' pay packets and their dividend payments.

B) We can start having real conversations in our co-op.

We were promised Department Meetings at the Unit Meetings last year. Anyone had one yet? And Department Meetings where we actually get to discuss and decide how to improve our Units (rather than having those improvements imposed from above - or from the south of France).

Up until 2008, we used to have an Annual Co-op Employee Meeting, where all 200 or so employees of the co-op got together in one place and heard reports and shared notes. Why can't we have one of those again?

And one where there are less reports, and more questioning of the higher-ups; more discussion about the direction in which our co-op is heading? Or, is that what the higher-ups are trying to avoid?

Why is this so difficult to grasp? We are a co-operative. That means to co-operate. Both ways. In all directions. And that means conversation. All the time. Otherwise, we wouldn't be called Weaver Street Market Co-operative. We'd be called Weaver Street Mubarak's Egypt.

C) We can start having real Elections of real Worker-Owner Directors to WSM's Board of Directors.

Frankly, the democratic structure of our co-op is a clever fix. It is a structure that is designed to allow the higher-ups to raise capital, without consultation with the owners, and then to repay that debt in ways that do not require consultation with or the permission of those having to do the repaying - us workers.

If workers are to be allowed contribution to policy-making in our co-op which is reflective of their input and status (and it was Ruffin who declared to the local media last year that workers half-own our co-op), then we need better representation on the WSM Board of Directors.

I do not regard a corporate office staffer from the Finance Department and a Department Manager from the Hillsborough store (meaning no disrespect to them as individuals) as being properly representative of the ordinary worker in WSM. Am I alone in this viewpoint?

Most serious corporations have rules that stipulate that corporate office staff may not stand for the Board, since the Board's primary responsibility is to monitor the activities of the corporate office. How can you seriously have a situation where a worker finds himself wanting to complain to and about the activities of his Worker-Owner Director, when that same Director may have power over his job and his annual review, directly or indirectly? I mean. Come on.

First thing, we need to reduce the cost of worker-ownership from $500 to something more manageable. Frankly, I don't think workers should have to pay to vote at all. But certainly, we need to remove the primary obstacle preventing more workers from getting a vote in the annual Election of a Worker-Owner Director to the WSM Board of Directors, namely the outrageous cost.

Secondly, we need to institute a rule that says that corporate office staffers and management do not stand in Worker-Director elections. Management get their input to policy-making in management meetings and retreats. The corporate office are represented on the Board by their 'Department Manager,' the General Manager, Ruffin Slater.

Thirdly, we need to allow candidates properly to meet their electorate. Enough of these ridiculous break-room election tables. No-one goes. They want their break. They're working. Or, they're at home.

Let candidates take questions at the newly re-instituted Annual Co-op Employee Meeting.

Finally. Guys. You need to become worker-owners. Enough of the whining. I'm doing my part. Do yours. Become a worker-owner. And then vote.

There are enough workers in our co-op (220) and enough worker-owners even now (100) to overcome the inbuilt management bloc vote (35) that keeps electing Worker-Owner Directors who do not represent all the workers. But for some reason, about 50 of the existing worker-owners never vote. So, we need more worker-owners. Now.

D) We need to improve communication within the co-op. I have suggested the formation of a Workers' Committee, which should then be allowed to run the Market Messenger. Why not?

E) When the time comes for us to be asked what we want to do about a patronage dividend (when finally we get around to paying one!), my view is that, since we workers own half the co-op, the worker-owners should receive half the pot set aside for the dividend. Period.

Many have asked me why I continue to bother? Why should they bother? The answer is simple. I didn't join WSM for the paycheck. I joined because we are a co-op. We are supposed to be a better way of doing business. Just because the corporate office and our Board of Directors have sold out does not mean that I will. Someone much cleverer than me once said, if something's important, you fight for it. Nothing important comes easy.

You want the easy life, become a parking meter supervisor. We lift produce. We wash dirty dishes. We lug bags of flour. We enter data endlessly. We man the cash registers on 8-hour shifts. We didn't go to college to do this. We didn't dream of doing this when we were kids, when others wanted to be firemen and princesses. We do this so that we can be a part of this co-op.

And this co-op is you and me. It's the people. It's our consumers. It's our owners. And it's us workers. It's not the corporate office. We should be deciding where our co-op goes, and what it does. We consumers. We workers. We co-op owners. Not some small band of elitists in the corporate office, who have decided we are not a democracy, but rather that we are their personal private country club.

As long as the owners, the consumers and the workers in this co-op are denied a proper voice, I'll keep mine as loud as I can make it. You should too ...

[P.S. The Weaver Street Market Employee Policy Handbook, Section 1.A, Board of Directors Policy Regarding Treatment of Staff, states that WSM "may not ... discriminate against any staff member for expressing ethical dissent." Section 5.1 details a Dispute Resolution Process that allows staff to file a complaint contending "that management is not following co-op policy." It works. I know. I used it to complain that the decision to increase sales by 15% did not follow the proper procedures for consulting workers in our co-op. I didn't change the 15% sales decision. But I did get to have tea with Ruffin for an hour. And he had to listen to me.]