November 13, 2007

Empty shelves, empty promises

If ever there were a place that a cooperative could thrive in, Hyde Park is it.

Our community is composed of long-time residents still bitter about Walter Mondale losing in ’84, liberal professors, and a few thousand college students. We’re like Berkeley, except without the good weather or the wealth.

All the ideological sympathies in the world aren’t going to make a business profitable, but when you combine those sympathies with near-monopoly power, you should be golden. Yet somehow, some way, the Hyde Park Co-Op Market has squandered all these advantages.

While the Co-Op is a source of pride for many residents, it really shouldn’t be. The Co-Op’s unique ability to combine myopic planning with poor service and high prices has made it a financial basket case, doomed by its own anti-competitive urges. The Co-Op doesn’t deserve our pity, and it certainly doesn’t deserve a second chance. If residents and shareholders turn down the U of C’s expected buyout, they will only be delaying the inevitable collapse at great cost to our community.

One dimension of the Co-Op’s failure is well known—most residents of Hyde Park have experienced firsthand the high prices, the low quality, and the sub-par service that only adds insult to injury. But many don’t know about the depth of the Co-Op’s financial mismanagement and the motives behind it.

The story of the Co-Op’s decline starts in the late ’90s when a shopping center was developed at 47th Street and Lake Park Avenue. The Co-Op board became concerned that a competitor would come in and take away business, so it did what any altruistic neighborhood institution would do: It took out a 25-year lease from its distributor and opened its own store to maintain its monopoly power in Hyde Park.

This ended up backfiring. Big time.

The 47th Street store didn’t end up luring any customers that weren’t already going to its other stores. Quickly, the costs overwhelmed any revenue it was accruing. By 2004, the 47th Street store was closed and no leasers were to be found. So the Co-Op is now paying $90,000 per month (roughly $16 million in total when the lease is up) just to appease its distributor.

It gets even worse. Reports indicate that people aren’t even buying their groceries at the Co-Op anymore (likely driving elsewhere or using delivery services like Peapod). More than half of the Co-Op membership has completely stopped shopping at the store. Put differently, shareholders in the Co-Op don’t even buy from the store they own. The drop in revenue has put the Co-Op into deep debt, independent of its 47th Street obligations.

Increasingly, the Co-Op is unable to even fully stock the shelves at the 55th Street store. It owes the U of C—which rents the 55th Street store to the Co-Op—$1.2 million in back rent. Shareholders looking to cash out have been turned away for more than a year now. And of course it desperately needs to upgrade the store to stay solvent in the long run.

Now, Hyde Park and the shareholders of the Co-Op have three options. They can accept the U of C’s offer to buy it out, pay off the Co-Op’s debts, and replace it with a functioning grocery store; file for bankruptcy and pray for the best; or hope that a couple million dollars suddenly appear.

Sadly, some Hyde Park residents are seriously considering this third option. In its staff editorial last week, the Hyde Park Herald called for the Co-Op’s estimated 35,000 shareholders to each contribute $100 for a capital campaign.

Even if this happened (and it won’t—remember how many shareholders still bother to shop at the store?) it would only keep the Co-Op running for a few more years at best. The Herald might remember the good ol’ days when the Co-Op “made important use of its role as a neighborhood institution,” but this is an institution that through its malfeasance cannot support itself, let alone the neighborhood.

If shareholders reject the U of C’s offer, millions will likely be wasted with little chance of the Co-Op’s doors even staying open. Honestly, shareholders would be better off writing a check to that friendly Nigerian prince who keeps e-mailing them.

The Herald and many residents want to make this a matter of saving a cooperative that was designed to have “a commitment to community,” as opposed to a national chain that will be “guided by [nothing] but profit.”

But this is missing the point. The Co-Op’s failure has left its shareholders poorer, its workers’ futures insecure, and Hyde Park residents grocery-less. Keeping the Co-Op on life support is only going to make a bad situation worse.

If shareholders are at all committed to the community, they’ll take the U of C’s expected offer and let the Co-Op quietly fade away.

Alec Brandon is a fourth-year in the College majoring in economics. His column appears every other Tuesday.