NORFOLK, Neb. -- Affiliated Foods Midwest here said it is seeking to secure the future of the independent grocery sector by offering members a slice of ownership in Partner Investor Equity -- a new program it is promoting to help community-based businesses survive.
According to Virgil L. Froelich, chief executive officer of the member-owned cooperative, PIE is designed to provide market protection for its members, as well as to provide franchise-building opportunities for them by forging new investment alliances, building new stores and buying existing stores.
Under the PIE program, Affiliated will seek to put together limited liability partnerships to buy existing supermarkets, or to buy existing businesses, and convert them to supermarkets, he explained. Affiliated will not be a partner in any of the properties but will simply promote the formation of partnerships, he said.
"We want to promote local communities and find ways to keep customers from going out of town to shop," Froelich told SN. "With businesses getting so big, we want to find ways for stores that serve local communities to survive.
"The U.S. was built on grassroots businesses, but we're seeing those roots getting pretty bare. We want to allow those roots to grow again."
Affiliated has approximately 600 members operating 800 stores in a 10-state area encompassing Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. Sales for the year ending June 30 will be approximately $800 million, Froelich said.
Although its largest customer operates 16 stores and a handful of members operate five locations, most have one, two or three stores, Froelich said.
Besides offering opportunities for members to invest in stores, PIE also offers individuals the chance to start their own businesses, he pointed out. "It's not unusual for us to get a call from a guy who works for a chain and wants to be in business for himself. But how does he do that with only limited equity, most of which is invested in his home?
"PIE provides an opportunity for that individual to start with a piece of a business, then to pick up additional pieces over the years and possibly to accumulate enough pieces to own the whole pie over five to 10 years by buying out other investors, who can then use that money to invest in other projects."
Froelich said he's about to begin meeting with community leaders across Affiliated's distribution area in search of potential businesses "and to get them excited about working together to serve the needs of local customers better."
Affiliated introduced the PIE concept to its members earlier this month and got a very positive response, he said, "particularly from operators who have one store but not enough money for a second, [and] who see the benefits of investing in additional locations as part of a limited partnership."
Froelich said Affiliated has hired four former supermarket executives to serve as PIE's general partners. The company is seeking a general manager for the program, he added.
He said he's not sure when the first partnerships will be formed, although he said two locations are being considered for the first PIE partnership.
Affiliated has not yet determined the financial parameters for investors, Froelich said, "but we think there will be a minimum investment of $25,000, though we hope the minimum will be set at $50,000."
One investor in each location would have to be the store manager, he added.
Each limited liability company would also likely require some institutional investment, Froelich noted.
Froelich said he sees PIE as a way for Affiliated to maintain its existing store base rather than watch locations being sold to competitors. It's also a way to keep local communities strong, he added.
PIE will not look only for grocery stores, Froelich said. It would also be interested in other local businesses such as a pharmacy or hardware store for conversion to a supermarket, he said.