Rescue Visions Clash For Elm City Market
by Paul Bass | Sep 2, 2014 7:06 am
Posted to: Business/ Economic Development, Food
A local philanthropist is seeking to help employees buy the troubled Elm City Market—while the market’s board is seeking to raise new money to pay off some debts and continue instead as a member-owned cooperative.
Those two competing visions of the market’s future have emerged as the future of the store—downtown’s only grocer—hangs in the balance.
The 2,200-member cooperative, which opened on the ground floor of the 360 State St. residential tower in November 2011, recently received default notices from both its landlord (in May) and then its bank (on Aug. 5). It owes around $500,000 to the landlord, Multi-Employer Pension Trust (MEPT); and is behind on a $3.6 million federally-guaranteed loan from Webster Bank.
The co-op board met recently and voted unanimously to accept a rescue proposal by a national not-for-profit group, the National Cooperative Grocers Association. The NCGA would lend the market $700,000; combined with another $300,000 the board has raised, that would bring the market current on its debts. The NCGA would then come in and manage the market.
The board’s vote is not binding—because the bank and the landlord are the ones who make the decision about how to proceed on the defaults. From the market’s inception, it has been behind on the original terms of the Webster loan; the loan was restructured early on so that to date the market has paid only on interest, not on principal.
Webster is about to decide whether to OK the co-op’s preferred plan or to seek liquidation of the assets at an auction sale under Article 9 of the Uniform Commercial Code.
“Very shortly we hope to have a resolution. It could be a matter of days and it could be a matter of weeks,” Webster regional President Jeff Klaus told the Independent Monday. “We are trying to arrive at a solution that keeps the market open.”
That does not necessarily mean keeping it open as a member-owned co-op. If the bank does force an auction, a new entity is ready to bid: an employee-owned for-profit cooperative backed by a local philanthropist named Linfield Simon.
Simon runs the not-for-profit charitable RISC Foundation, which has established a subsidiary, called New Haven Investment Fund, LLC, with a mission to help improve New Haven’s economy. Simon told the Independent Monday that his organization has already tried to help the co-op stay in business: It loaned the market $150,000 two years ago, then guaranteed a new $125,000 loan from Webster Bank this June.
That didn’t prove enough. The market still couldn’t pay the landlord or the bank, or the state Department of Economic and Community Development, which also gave the market a loan. Months of consulting and negotiations ensued. Simon said he “indirectly” came up with a plan along with the market’s current managers to have them create a new for-profit entity that would buy the grocery at the Article 9 auction. Simon’s organization would offer the new entity a long-term low-interest loan to both purchase the market’s assets and to start running it. Simon declined to identify the amount of money involved. He said other lenders are also ready to help.
“Our plan was in existence before the co-op’s plan. Our money was there before the co-op’s money theoretically was there,” Simon said.
In a letter to the co-op board, Simon wrote: “The foundation believes that there is a substantial likelihood that the market will have to close its doors while the board of the market is attempting to negotiate a solution to the market’s financial problems that does not involve an Article 9 friendly
foreclosure, and it has attempted to communicate this to the board, and it believes this would be a tragedy.” Click here to read the full letter.
A “friendly foreclosure” under Article 9 would allow the market a fresh start unencumbered by debt. However, an Article 9 sale would not guarantee that the new entity Simon’s foundation supports would become the new owner. Anyone can show up at an auction and offer a higher bid. Simon said he considers the auction “theoretical” in the sense that the assets of the store aren’t worth to other potential bidders much without a lease.
The advantage for Webster in an auction: It would conceivably lose a lot less money on its loan. The U.S. Department of Agriculture guaranteed 80 percent of the $3.6 million loan. Webster would be able to pursue reimbursement under that guarantee should it force an auction.
The NCGA rescue plan would keep the market as a member-owned co-op and bring in the group’s management consultants and extensive purchasing networks, said board member Pedro Soto (pictured on the floor of the company he runs in town, Space-Craft).
That rescue plan “keeps the market as it currently is, which is a member-owned co-op. It is also the most optimistic about the store’s future success. It brings in a management team right away that can assist the current team at the market. They bring in a ton of expertise and know-how,” Soto said Monday.
NCGA helps 142 food co-ops in 38 states “optimize operations, marketing, and sales through collective purchasing power,” according to the board.
Soto said Monday that the idea of wiping out debts under an Article 9 auction would make sense if no other viable alternative existed. With the NCGA alternative on the table, he said, the board felt it should look out for the members who have invested in the store and seek to avoid socking taxpayers by having the bank call on the federal loan guarantee.
The question for the market’s bank and landlord is whether the market, even if it’s run better, can pay the bills with its current level of debt.
“The Board understands that Webster Bank may have strong incentives to favor the Article 9 sale, in particular, and not insignificantly, because it will keep the Market open and to continue to serve New Haven,” the board wrote in an Aug. 23 letter to members detailing the current predicament. (Click here to read the full letter.) “However, we are also hopeful that the bank will remain the good friend of Elm City Market and the New Haven community that it has been since the inception of the co-op, and will consider NCGA’s sound arguments and decide in favor of that plan. We also hope that our landlord will see the benefit of the NCGA plan to its tenants at 360 State Street, many of whom are also member-owners.”
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More aisles of food, less aisles of dietary supplements….
This is not the first failed food co-op or supermarket in or near downtown New Haven.
Supermarket margins are too slim to pay high rents in a prime location. While the current location may be convenient for apartment dwellers on the block, the market belongs in industrial building space at lower rental rates.
It needs professional management which is what the National alliance proposes along with their money bailout.
That said, starting out $1 million in the hole, a better alternative might be to shut down and liquidate and a completely new enterprise be planned in a cheaper location with industry professional management.
This co-op is not the only game downtown for many items it sells. New Haven recently gained Dollar Tree in a Prime nearby space. While not a grocery, it carries many food items and sundries sols at the coop at far cheaper prices. As one location in a huge chain it can provide lower prices, better supply chain and professional management that the co-op cannot.
The current employees, and that includes management have proven that they can not run a successful business. Turning over ownership to these failed operators makes no sense.
They came, they tried, they failed, it’s time to move on before throwing more good money after bad.
behind $500,000 in rent?!?! That begs 2 questions. How long has ECM not been paying its rent and how high is the rent?
High rents throughout the building led to the quadrupling of the tax bill (some of which is passed on in one way or another). Here we are with another example of New Haven taxes crushing another local business. When will it end?
Really do not care.
Either close as a failed experiment, or any scheme which is financed by private interests either profit or non-profit, as long as our tax-money is not involved
These folks, in high =cost living areas are not paupers. If they are not spending enough to keep this store open, let it die
Seems that the current board has little idea how to make a successful operation out of this, otherwise they would have done it.
Time for them to recognize that they are the ones hindering a public good and step out of the way.
They tried, they failed. Hopefully they will learn something from it. But in the meantime, a lot of people in the area use the market and with proper management, a lot more might.
Having been involved with the grocery industry for 30 plus years and having reviewed the last full year data it is the clear that the issue is not the margin or business. The sales per sq foot are quite strong as is margin. The current staff is hitting or exceeding all required numbers for a market. The issue seems to be a disproportionately high rent that when combined with debt service makes the model unsustainable. It WOULD MAKE NO SENSE TO REPLACE THE CURRENT STAFF AS THEY ARE THE ONLY ONES WHO APPEAR TO HAVE DONE THEIR JOBS SUCCESSFULLY. The challenges being faced were created at the plans inception not over the past two years. I am in support of any plan that creates a LONG TERM path to sustainable growth.
I do hope they don’t close, their bulk food wall offers something Stop & Shop, Shop Rite, Big Y and ect don’t. The market gets stereotyped as a place for upper income people(and let’s be honest here, it is, I mean look where it’s below), but I’m a poor person and the lentils, beans, couscous, granola and popcorn up there has helped me eat healthy on the cheap. Also they sell the big bottles of Dr. Bronner’s soap for like $16 and that thing will last you near 4 months(and it can double as a shaving cream!).
I don’t know what they can do though, as ArnieM says, there’s structurally not much wrong with the market, the issue is its located at the bottom of 360 State. The rent is probably extravagant, margins are very tight in the grocery business, and unlike say the Devil’s Gear(which I imagine also has a high rent, but only has to compete with College St cycles really), there are many other places to buy food. Even for the ~organic/natural~ crowd there’s Edge of the Woods just up Whalley to fill that niche market. For starters Elm Market needs to try to broaden its customer base. It stuck with basically an Edge of the Woods image that it’s just for upper class people or yuppie/hippie white people into all food and supplements labeled organic. But Elm Market does actually have stuff to offer to the general grocery shopper. Let’s be clear here, they can never compete in terms of bargains with a lot of things like say Shop Rite or something can, but they do have things to offer to people aside from those living in 360 State.
I imagine the landlord for 360 State is in a really tough position in regards to the market as well. To my knowledge the presence of the market on the ground floor was(and still is) a big selling point for renters in 360 State st. Without the market you’re left with an empty ground floor, a qausi highway of a street on one side(State), and one of the last bastions of lower income retail stores on another side(the other side of Chapel). On top of it, the whole “vibrant city core, new urbanism, ect” thing was a big selling point to 360 State and if Elm Market isn’t making the rent margins, then whatever actually could would probably have to be super high end with a more limited clientele, and kill off a lot of the foot traffic going to the currently vibrant plaza. What would be left outside the trickle going to Devil’s Gear is the foot traffic to the bus stop and lower income stores and the foot traffic to the bar next door, both are not exactly selling points in high end realty.
I hope for the sake of the employees it stays in business; however, I would rather see a Trader Joes move in (and hopefully re-employ all the market workers).
I get in my car each Sunday and leave New Haven for Orange and I am not alone. I see many neighbors. For veggies and vegan options I go to Edge of the Woods.
This market is overpriced and there is no real reason to shop there unless you happen to walk by it on the way to or from work or you live on top or within walking distance.
Bring something downtown that people can’t stop going to (TJs or equivalent).
While I agree that the ‘bulk wall’ is great, most everything else is over-priced. In my circle, we call it ‘Elm City Mark-Up”
Actually walked thru on my way to Ferraro’s today, to make a few ‘price notes’.
Extra Large Eggs - (noncruelty-free) Elm City $3.69/ Ferraro’s $2.39
1/2 Gallon Milk —Elm CIty $1.79/ Ferraro’s $1.49
Avocado’s—Elm CIty $2 (none in stock)/Ferraro’s $1.50
I do not know what kind of discount you get when you join the co-op, but I can’t justify spending the equivalent of month’s worth of groceries on the membership, when I can already get a comparable price and product elsewhere. Plus exercise…..
Bill Saunders Farmers Cow Eggs are actually 0.10 cheaper at ECM compared to Stop and Shop. Also Ferraro’s is great if you don’t mind shopping at a place that assumes you want to steal from them.
They have also done a lousy job of self-marketing. From across the street, Elm City Market doesn’t even look like a grocery store. Most people are only going to think “grocery store” when they see a single-story building with carts outside, a large open parking lot, and the name of a familiar chain on it.
Elm City Market appears to have made almost no effort to compensate for that invisibility, and make clear (a) what they are and (b) that they are not just for the residents of 360 State Street.
While I agree that the ‘bulk wall’ is great, most everything else is over-priced. In my circle, we call it ‘Elm City Mark-Up”
Agreed. Don’t get me wrong I still do most of my shopping elsewhere, but they were great for that wall, as well as bread from local bakeries and a few other things. Their big name products were generally average price, but lacking the sales that other stores often have on them every few weeks, and their produce tends to run higher given their focus on organic. Although I’ve apparently getting my milk at the wrong place since a half gallon of regular milk at S&S goes for like $2.60
Ferraro’s is actually a great small market that has found their niche. They’re a regular grocery market, but lack the sheer volume of choices that bigger supermarkets have, but dang if they still don’t have that reputation for their meat section.
I have never had a bad experience shopping at Ferraro’s.
Stop and Shop is three blocks from my house, and they are a corporate rip-off.
Ferraro;‘s was good if you did not buy more food than you could comfortably carry at one time
May have been improved. but it is in a very dangerous neighborhood
Last time we were there, seveaal, years ago, carts, to avoid their being stolen , were locked in a couple of feet from the exit
You had the choice of paying the kids from the project across the street a couple of bucks for protection and hoping they were fairly honest, or losing your whole purchase while making your first trip to your car,
Good store, good food and prices, especially meat, otherwise, but we have not tried it recently
@ Bill Saunders
Fact check: The $1.79 price at Elm City is for a QUART of milk, no doubt the $1.49 ShopRite price is also for a quart. The half gallon price for milk at Elm City is $2.59, the same as Stop & Shop.
Pat, my bad those prices were for a quart.
Walt, I can comfortably carry two weeks of groceries home from Ferraro’s, and the smell of the cookie factory as you walk through the underpass approach, is heaven.
So basically, ECM vs. Ferraro’s:
You can buy the eggs and the avocado and get the milk ‘for free’.
My understanding is that a part of the initial sale of the land and development deal was a requirement that there be a grocery store on site. None of the preferred chains, Trader Joe’s, Whole Foods, or larger markets, Stop & Shop etc. liked the location. Remember, we didn’t always have an Apple store, and no one expected the occupancy to fill as quickly as it did.. This left the developer in a bind and the solution was to create a co-op, it wasn’t driven by the groundswell of the community, but rather one of the few if not only outs available. Interesting, if that same landlord and developer charge rent that makes it impossible for the business to succeed. Bill, care to do any research downtown on the terms of the initial sale and development agreement?
Bill do you work for Ferraro’s? You make it sound like a food heaven not a store built to survive a zombie apocolypse, that you have to carry your stuff to your car, and has limited variety. Comparing ECM market to a place like S&S you can see the prices are in line. S&S has better sales and ECM forces you to buy higher quality products than you would like to occasionally. ECM has better organic and local options than S&S or Ferraro’s.
I don’t work for Ferraro’s. I just know where my grocery dollars go furthest….
I was just at EM today, I don’t know if their system screwed up or if it has something to do with the defaults, but they were accepting cash only. No, debit, credit or food stamps. Not a good way for a struggling market to attract business.
A business that is in financial trouble that is only accepting cash>>>>>>
Chances are very good that it’s bank accounts have been attached. It is accepting cash only, will not deposit it and will use it to meet payroll (HOPEFULLY) and pay vendors at the door as they are no longer extending credit.
The smell of death is present. The state and federal tax authorities had better start investigating at once. Chances are EM is behind on remitting sales tax payments and withholding and social security as well.
Mm those are some pretty wild accusations. What probably has happen is there was some sort of outage.
Even if their credit/debit card processing system was down, they could get EBT SNAP (formerly known as Food Stamps) authorization by telephoning in for an authorization code. Credit card transactions can still be written up by hand (like in the old days before you swiped you card) and authorization gotten by phone.
The scenario presented smells like death. I was in the retail business in southern Connecticut for 27 years. After that I ran a business conducting going out of business sales for closing stores. IO kwow the signs/smell of death when I see it.
Cash Only is a sure sign the business is on the brink. We already know they are ONE MILLION DOLLARS in the hole. It’s time to shoot them and put them pout of their misery.
Yes that’s blunt, but their business plan was faulty from day one. The rent was way too high. The bank officer who made the loan should be discharged as well.
It’s disappointing, even distressing to read that ECM is failing in its present business model. I hope that the optimistic people who are generously and creatively trying to make it possible for the residents in downtown New Haven to have a food source succeed in their effort.
When I moved to New Haven five years ago Ferraro’s was my only nearby market. Until ECM opened, this served some of my food needs. After ECM opened I had access to a selection that I prefer to eat.
I happen to be an urban person who doesn’t want a car to schlepp for the food I consume, and I don’t want to waste gas to forage for a food “bargain”. There are a growing number of people choosing to live in our urban center (i.e. the prospect of two apartment complexes planned for across State St. from ECM at the Comcast and Torrco locations.)
Hopefully ECM in some configuration will continue to be there to serve our needs. It’s presence is essential to a truly livable downtown New Haven.