By Ryan Harvard
The saga of the UCSD co-ops has been a long and controversial tale. The four co-ops – Groundworks Books, the Ché Café, the Food Co-op and the General Store Co-op – appear to have been struggling financially for some time.
Most recently, the General Store Co-op submitted financial paperwork to AS that showed a $7,000 loss last fiscal year. At first glance that sounds alarming – so I arranged an interview with Josh Kenchel, member of The General Store Cooperative, to learn more.
California Review: First of all, what went wrong? What happened? Do you plan to make any changes to the Co-op to stay in business?
Josh Kenchel: “Let me preface this discussion by stating that we are a non-profit business. Our goal is to take in only enough income from sales to cover our operating costs (this includes not only payroll costs and rent, but also necessary purchases of new supplies and upgrades to our existing infrastructure). We keep our prices as low as we possibly can while still meeting these expenses.
This means that we would rather post a small loss for a fiscal year (the “loss” was actually money that was transferred to students through savings on our prices) than a large gain (which would represent money that could have been given to students). Granted, we would rather break even or post a small gain than lose money, but fluctuations around an even balance year to year are to be expected.
To answer your question directly, nothing went wrong! Last year went exactly as expected for us. Let me explain.
As our balance sheet for the fiscal year 2011 states, our debt to the university actually increased by $11,531.52. Our assets increased by $4,243.08 over the same period, producing the $7,000 decline in our balance that you referenced.
To be sure, a $7,000 loss is not negligible. But given that our total revenues for the year were $261,098.37, this represents less than 3% of our business, a loss that we are easily able to sustain and recover from.
Our university debt increased for one reason: we haven’t been paying our rent. The story behind this is long, but I will explain briefly in order to be thorough.
Our rent was set in the early 1990s, when the General Store (and the rest of the Student Center) was much more prosperous. Since then, our rent has only been adjusted upward for inflation. In 2007, Price Center East opened, siphoning business and foot traffic away from the Student Center. At the same time, construction began on the Student Center, blocking most of the access to the Student Center and the co-ops. Our sales free-fell, while our rent remained at its 1990s level. In 2009, the General Store stopped paying rent.
Our business has improved since then, but it has not, nor do we expect it to, return to its pre-2007 levels. The university has shifted focus and foot traffic away from the Student Center. Our facilities are aging and many of the spaces in the Student Center are vacant; there are few plans to fill them. Our location is no longer as good for business as it was, but our rent has not been lowered to reflect the diminished value of the property.
We are currently in talks with University Centers to amend our Master Space Agreement, including adjusting our rent. Ideas that we are discussing include paying a fixed percentage of our income as rent (so that our rent would increase/decrease to reflect our business). Also, our rent adjustment may be applied retroactively to the debt that we have accrued with the university, which is currently about $50,000.
This is the main reason why we have not been paying our debt recently: we don’t know for sure what it will be yet. Once we know exactly how much we owe, we can begin paying our debt down.
It is likely that the $12,000 debt that we accrued last fiscal year will be retroactively reduced, possibly by as much as several thousand dollars. I can’t suggest any exact figures, but once the reduction is applied, we will be even less in the red for the fiscal year 2011.
So the answer to the third part of this question is that we are working to adjust our rent so that it will be affordable and we can continue doing business in the Student Center. We are not going to change our business model or our philosophy at all. Besides improving our marketing and taking similar steps to increase our sales, we will not be making any changes to the co-op.”
CR: There is a fundamental problem with college co-ops that normal co-ops don’t have – that all employees age out in four years. Do employees tend to just pass the buck to the next generation? Does the G-store have paid central management? Do you think hiring someone to run the G-store at the top-level would help keep it afloat?
JK: “The General Store, like the rest of the co-ops, is a registered undergraduate student organization as well as an independent business. Because we do not exclusively hire freshman and because members sometimes leave before graduating, our turnover rate is actually lower than four years. We recognize that the constant influx of fresh minds and new ideas can be very beneficial. However, as you acknowledged, the loss of experienced members can cause problems from a business standpoint.
We do our best to mitigate this problem. With few exceptions, we hire only first- and second-year students. We keep records of our knowledge so that younger members can access it, institutionalizing our memory. We take care to hire and keep only people who truly care about the co-op and what it stands for.
By “passing the buck”, I assume you mean older members creating problems (like accruing large amounts of debt), then graduating and leaving the younger members to clean them up. Because all of our members care deeply about the co-op, its financial health, and its mission, I can assure you that this is not a problem. Members of The General Store Cooperative do not play around with the store’s finances, knowing that they can simply “pass the buck” on to the next generation if they make a mess. Rather, every one of us wants to see the co-op succeed indefinitely and actively tries to prevent and overcome financial challenges. The members who left us in our present situation did not do it willingly.
To answer your point about central management, we exist as a nonhierarchical worker cooperative. This means that all members of the co-op have equal power in business decisions. We do not have any plans to change this structure. Having any kind of “central management” would completely contradict the co-op’s values, so that idea is not up for discussion.”
CR: I noticed you’ve been asking for rent reductions and have been bailed out by the university before. How can you justify your claims that you save students money when you ask us to bail you out of enormous debt every few years? There’s even a referendum coming up to raise tuition to bail out the Ché Café, but charging every student up front to provide the opportunity to buy goods at slightly lower prices seems to defeat the point of a co-op, right? Would the G-store be in support of a student tuition increase to help pay your bills?
JK: “The way you have phrased this question suggests that you believe that our university debt vastly outweighs whatever financial benefit we bring to students (“enormous debt” vs. “slightly lower prices”). However, the reverse is true.
As I stated, we accrued nearly $12,000 in debt to the university last year. If you want to, think of this as students fronting us $12,000 in order to stay open. In the same year, we saved students about $1,300 on blue books and $3,000 on Scantrons. Our book rental program alone saved students more than $30,000. These are just a few of the more essential school supplies that we offer for less than anywhere else. And we offer a ton of non-essential items, like snacks and drinks, for the lowest prices on campus as well. I don’t have exact numbers for how much we saved students on every last item that we sell. But together, Scantrons and blue books represent only .6% of our sales. You can see that the total benefit we returned to the students last year, in the form of cost savings, was of considerable value. Certainly, it is far greater than the $12,000 students lent us so that we could stay open.
The article that you referenced reported two instances in which students gave us money. University Centers paid $5,167 in 2010 to have financial documents prepared by a CPA in order to continue with our MSA negotiations. This was split among the four co-ops, so the General Store received a value of $1,291.75. In 2009, AS council absorbed $30,000 of co-op debt, about $10,000 of which was from the General Store. This was a total of $11,291.75 in “bailouts” in two years.
Therefore, even assuming that students had to bail us out twice a year AND pay our rent (a total cost of about $23,000), we returned more money to them in the form of cost savings with Scantrons, blue books, and book rentals alone (a total benefit of $34,000).
This is how we justify accepting bailouts from the students and accruing debt with University Centers. By allowing us to continue operating in our space in the Student Center, students save themselves far more money than they lent us. We are a worthwhile investment.
The General Store is not a political entity; we do not campaign one way or another in elections. Resolutions pertaining to our existence, though, can be an exception to that rule. We operate the Campus Cooperative Union along with the other three co-ops in order to represent our collective interests to the university and the student body.
It should be noted that the proposed fee increase would go to University Centers, not the Che Café. Although the Che Café was listed as one of the lowest priorities of the collective student body in the recent University Centers survey, there has been no official word that the result of the proposed referendum would decide the fate of the Che Café. To my knowledge, the Co-op Union has not discussed supporting the fee increase referendum, and the Che Café has not publicly supported it.
The General Store Cooperative has not discussed any hypothetical fee increases to support the co-ops, and it is not my understanding that any such referendum is even on the horizon. So we don’t have an answer to the last part of this question.”
CR: The Price Center Bookstore and Sunshine Market seem to be making a killing. What do you think the G-store could do to be more competitive with the places in PC? What about paying a few workers to keep the place open later while central management remains volunteer?
JK: “Before answering the first parts of this question, I need to make one thing clear: the General Store pays its members for their work. For a long time, members have been paid hourly while they are on shift. Previous to this school year, any additional work (such as accounting, placing orders, doing taxes, and any other work that was not during business hours) was done on a volunteer basis. However, last quarter we voted to pay ourselves hourly for that time, too. Now every hour of work that a member does for the General Store is paid.
I do not know specifics about the revenues of the Bookstore and Sunshine Market. However, those establishments enjoy a much more profitable location, the center of campus, than we do. As I stated in answering your question #1, starting in the 90s, the university shifted its focus and traffic flow away from the Student Center. Price Centers West and East and the Student Services Center have replaced or duplicated nearly all of the goods and services offered by the Student Center. As a convenience store, Sunshine Market sits in a far more convenient location. The Bookstore holds a monopoly on information when it comes to books: they know ahead of time every textbook required for every class. Because of this advantage, students will preferentially choose the Bookstore for textbooks, which means they will preferentially buy their other supplies from the Bookstore for convenience’s sake.
How do we convince students to walk farther than they normally would, out of their way, to a center where fewer of their needs are met in one place, to buy the same goods and services? This is the challenge we face when competing with Price Center. The first step in our model is to sell things that students can’t get anywhere on campus. Thus we have goods like cigarettes, records, video games, and handmade jewelry. Then we sell the same goods that students can get elsewhere, but for cheaper than anywhere on campus. We have these two parts down pretty well.
The part where we run into trouble is marketing. Again, the Bookstore and Sunshine Market have an advantage here. They need to market less because everybody knows them simply from walking by them almost every day. We do all of our marketing ourselves, including graphic design, printing, distribution, and advertising. This is something that we’re working on and I think it holds the key to us competing successfully with Price Center. We need to improve our image on campus. If every student knew just how much he or she could save by coming to us, and that we sold records and DVDs for cheap, then more students would be willing to make that walk over to the Student Center.
Staying open later is one idea that has been bounced around at our meetings. It is possible that doing so would bring in more revenue. However, I don’t see extended hours as our saving grace. Currently, our latest hour is 5-6pm. In that hour, we have very little foot traffic and receive just enough business to cover our costs. The fact is that most of the campus shuts down after 5 and only a reduced number of classes are still going on after then. So while it might still be profitable to operate a busy location like Price Center at that hour, it is unlikely that our store would take in much more revenue from being open later.
However, you raise the idea of hiring more members. While operating longer hours might not be incredibly lucrative, hiring more members would benefit the co-op by keeping more hands around to take care of tasks like marketing. This would not drastically increase our payroll, since the number of shift hours would not increase, but the co-op would benefit from increased non-business hour work. This is a premise that we have been acting on, hiring many more members in the last few rounds of hiring, increasing our total membership.”
CR: If you paid your employees, do you think the quality of their work would increase?
JK: “I partially answered this question in the last response: we do pay our workers. Full members receive $9 per hour and probationary members (who have been working for less than a quarter) receive $8 per hour. This is not a king’s ransom, but we treat it as a necessary operating cost. We have respect for ourselves and we know that our time is valuable; we deserve to be paid for it.
The General Store does believe that paying its members increases not only the quality, but also the quantity of their work. Volunteer workers cannot be obligated to work specific or regular hours. Paying ourselves allows us to obligate us to show up on time for work and work our assigned shifts. This allows us to consistently operate for regular business hours. Other cooperatives that do not pay their members have a harder time staying open consistently and regularly because their volunteer members are not obligated to work all of their hours.”
CR: What do you think is the fundamental role of the G-store at UCSD, and how does it contribute to student life?
JK: “Our mission statement is to lower the cost of living on for students. That is the main component of our role on campus; however, it is not the sole component.
We offer students a unique experience: the chance to run a business. Our members earn hands-on skills that they could not get anywhere else on campus, even as a Management Science major.
We, along with the other co-ops, also serve as alternatives to the mainstream elements of campus life. We offer an alternative business model to the centralized hierarchy that characterizes most businesses and the university itself. The General Store offers goods (hookahs, records) and services (video game rentals) that are not available elsewhere on campus.
We are a community space that is open to the public. Anyone can come in and hang out, play piano or guitar, check out Super Nintendo games, or study in the store. Our doors are fair game for anyone who wants to post on them.
These are among the reasons why the General Store, as well as the other co-ops, is integrated with the UCSD community as part registered student organization and part independent business. We are an integral part of UCSD’s past and its present campus culture, and we bring intangible benefits to students, which don’t show up in any budgets or financial statements.”
The General Store Cooperative is located to the West of Porter’s Pub in the old student center, and is open Monday-Thursday 9AM-6PM, Friday 9AM-4:30PM, and Saturday 11AM-4PM.