General Manager’s Report
By Terry Appleby

A Perspective
on the Patronage Refund

First off, let me say that, as a member, I love receiving a patronage refund from my Co-op. I also love receiving a refund on my income tax every year. Roy Raven, the Co-op’s Director of Finance, thanks me for the latter. He says he likes it when people like me give the government interest-free loans every year. He says it saves him money. The patronage refund is not the same as money returned from the government, but it’s close. In both cases, it is the overcharge you or I paid during the year.

Each year, I submit a budget to the Co-op’s Board of Directors for approval. In the budget, I try to account for the costs of all the things I understand the members to want from the Co-op. I also budget for all the things the Board requires me to do. And, I budget for a net profit as well.

Our Co-op is a not-for-profit business, which, as the name suggests, is not incorporated to make profits for shareholders, but to provide goods and services for members. Any surplus left over after paying our obligations at the end of the year is returned to the members as patronage refunds. However, because our business is a low-margin one, management must budget a surplus to provide a cushion in case our estimation of the business’ performance is incorrect and the surplus is needed to cover operating costs. During 1999’s budgeting process and again last fall, we anticipated a surplus large enough for a patronage refund for the following year, which has been the Co-op’s customary way of budgeting. In the 2000 fiscal year, we fell short of our surplus goal and did not have enough net earnings to provide a meaningful refund.

As a small business — despite net sales of more than $40 million a year, the Co-op is a small business in an industry dominated by big businesses — small fluctuations in cost or margins can make a big impact on net earnings. That was the case last year, when increasing costs of fuel (not just for heat but also in the form of surcharges from our vendors), labor, credit card processing fees, and business taxes all combined with the start-up of the commissary kitchen to increase our overhead costs. At the same time, we were not raising prices quickly enough to cover those increased costs. The net effect was a smaller surplus to be distributed to members. The decision by Co-op merchandisers to hold down price increases in a period of inflation for the Co-op’s business was to make our products a better value for consumers.

As I understand it, the bargain struck between the Co-op and its members is contained in the organization’s mission. Through it, we are committed to providing goods and service at fair prices, with outstanding customer service, acting as a responsible corporate citizen and promoting the cooperative principles and spirit. If we can do those things, with or without a patronage refund, being a member of this organization should be worthwhile.

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