At a meeting at the Elkins Park SEPTA station on Dec. 19, the Board of Creekside Food Co-op voted to go out of business; the store closed on Dec. 22. Ned Case attended the meeting as a Creekside member. (He advised Weavers Way on financing for its Chestnut Hill and Ambler expansions.) The following account is informed by his 25 years of experience in financing for corporations, including co-ops.
The financial condition of Creekside Co-op was extreme: An oral summary at the board meeting indicated outstanding Creekside debts of $2 million, including trade payables, commercial borrowings and member loans. Except for a $600,000 mortgage lender, creditors are not likely to see a recovery. Creekside households lost roughly $1.4 million in equity and loans. In addition, in reporting on the Creekside closure, the Philadelphia Inquirer noted that Creekside had earlier defaulted on a $3 million bank loan, and that cumulative operating losses of $1.6 million included $600,000 incurred since 2016.
Board members stated they personally had covered recent payroll deficiencies. Donations were requested for a final $38,000 payroll for staff, and the Board literally “passed the hat,” raising $1,700. Creekside is looking for a bankruptcy lawyer to represent the co-op pro bono.
Not discussed at the meeting was why Creekside continued to run at a loss for the last two years, with its board funding losses with borrowing, donations and slower payments to trade creditors’.
Creekside’s closing has consequences for Weavers Way. We depend on the same lenders, vendors, and member population. Specifically,
- The Reinvestment Fund, a $2 million lender to Weavers Way that also supports Kensington Co-op, lent to Creekside and is not likely to be repaid.
- Montgomery County Development Corporation lent to both Creekside and Weavers Way.
- Co-ops share suppliers, including UNFI (the major natural foods distributor) along with local farmers and food producers. Creekside trade creditors will lose $400,000. These trade creditors include local farms and businesses with which Weavers Way also does business.
Creekside’s performance adds to a negative assessment of co-ops’ credit quality just as the retail natural foods business has become more difficult. Sprouts, the “co-op killer,” opened in South Philadelphia last fall. Aldi, repositioned to offer natural foods at low prices, has expanded in Montgomery County, and Whole Foods opened a larger store in Spring House, just up the road from our Ambler store, last year.
According to local newspapers, several East Coast co-ops are in financial difficulty. Locally, Swarthmore Co-op, in a year-end letter, reported a profit of one percent of sales after three years of losses.
Creekside’s board did not make difficult decisions early enough, and the collateral damage from its default affects Weavers Way. In the next two years, Weavers Way will spend over $1 million to replace equipment in Chestnut Hill. We will have to assure lenders that Weavers Way is not Creekside.
It is not a moral failure to go out of business, but how you go out of business has consequences. A $2 million default for a co-op with $4 million in sales is hard to grasp. It is a Board’s obligation to have realistic plans and to take action quickly in adversity. Passing a hat, while done with the best of intentions, is not a sound technique to address a deficit of Creekside’s size.