I’ve been looking over our financial data from 2009, and I thought I’d share some findings.

In particular, I’ve been looking at some metrics for how efficiently we turn money into inventory and back into money. If you look at the amount of money we made (our SALES) and divide by the amount of money we spent on inventory and related expenses (COGS, or Cost Of Goods Sold), you get our SALES/COGS ratio, which was 1.21 for 2009. This is also called a “markup” of 21%. That means for every $1.00 we spent on inventory, we sold that inventory for $1.21.

To look at it a different way, for every $1.00 we earn in sales, we get keep $0.17, which is known as a 17% “margin”. Markup and margin are related, but different, and it’s easy to get them confused. For item we sell for $1.00, for instance, a markup of 100% means we paid $0.50 for it. A 100% margin on the same item would mean that we got it for free. Confused yet? Great. I’ll stick with markup, or SALES/COGS, for the rest of this post.

As I said, for 2009 our SALES/COGS was 1.21. Our target has been 1.5, so this is a little lower than we were aiming for. However, it fluctuated month to month — in July, for instance, it was 0.98, meaning we actually spent more on inventory than we sold. This is because we grew our inventory selection massively over the summer, and we didn’t see the jump in sales until later in the autumn, when our SALES/COGS went up to 1.35.

Our monthly expenses — everything that is not an inventory expense — hover around $10,000. This includes payroll, rent, utilities, insurance, repairs, and taxes. To break even, we need to cover this — and hopefully make some extra to cover slow months like December, finance growth, and pay back our loans.

At a SALES/COGS ratio of 1.21, we need to sell about $58,000 per month, or $1,960 per day, to break even. This is much higher than we are doing right now — for instance, in May 2010 we averaged just over $1,500 per day, and June has been lower. If SALES/COGS was 1.3 instead of 1.21, we would only have to average $1,444 per day, and we would be officially in the black.

We’re not sure what our SALES/COGS is for 2010 yet. We are still crunching the numbers on the first 6 months. But it looks like it’s going to be higher than 1.21 — maybe 1.3 or 1.35. Here is a chart showing how much we would have to sell every day for each value of SALES/COGS.

As you can see, if our sales numbers stay flat over the summer then we need to be in the 1.3 range to break even, and 1.4 would mean we’re solidly in the black.

There are lots of ways for us to try to nudge our SALES/COGS up. The most obvious way is to raise prices, but we’d like to avoid doing that as much as possible (and our customers would like us to avoid that, too)! Other methods include finding better sources for our products, seeking out special promotional deals with manufacturers, and reducing “shrinkage” due to spoilage. Especially with produce and fresh bread, there is a very fine line between buying to little and running out, and buying too much and facing spoilage. Tweaking our ordering could help raise our markup to a healthier level without raising prices.

We here at Open Produce are slowly getting back in the saddle when it comes to being transparent, which all too often gets put on the back burner when more pressing concerns arise. Maybe we should have named our store “Warm Produce” instead of “Open Produce”. If you happened to stop by the store early last week, for example, you will have noticed that it was about 90 degrees in the shop. Not good for our customers, our produce, or our poor clerks! The culprit was an air conditioner that failed twice in two weeks (first with a bad compressor, then again because it had sucked up an entire tree’s worth of cottonwood).

The heat was also bad for our equipment — high temperatures and bad luck meant we had a freezer technician out three separate times over the last month. One time, we acted quickly enough that our frozen inventory was fine. Once, we frantically packed our frozen goods into crates and drove them over to Hyde Park Produce, where they friendly folks there lent us some freezer space for a few days while we waited for a compressor part. And a third time, a failure at 11pm on a Friday night, everything thawed and became unsellable. A huge cost for the store, sure, but it means I’ve been enjoying organic pork sausages every night for two weeks. Unfortunately the lost inventory rang in at a little bit under our $1000 deductible for our inventory-lost-due-to-equipment-failure insurance.

But our freezer and air conditioner woes are under control for now (a cool 68 in the shop tonight), and I’ve been playing around with some data with the help of a University of Chicago student who is our data analysis intern.

Head on over to our new data page for a look at how our sales have been doing, from opening day up to the present (the graph updates every night with the latest data). Notice the perilous Decembers, the small dips for U of C spring breaks (look at 3/17 - 3/27 of this year, for example), and how our battered hopes in March ‘09 fell away with the May ‘09 warm weather.

We’ll be adding things to that page as we prepare them, including more detailed sales data, inventory insights, and financial statements. Explanatory blog posts will keep you in the loop.

Today, we have a guest post by Erica Dreisbach, who visited our store last May from Social Venture Network in California.

Here it is:

Walking into Open Produce is like giving yourself a present. From the great
lighting, to the friendly staff, to the shelves stacked high with ethnic and
organic stock, the experience is pure pleasure. You can find all sorts of
amazing treasures here for your home-cooked Mexican feast, fresh salad, or
sugary study break.

But Open Produce is also about giving the community and the Earth a
present. And the present is delicious.

I came to this Hyde Park gem the week after organizing and attending Social
Venture Network’s Annual Member Gathering (http://www.svn.org/),
where we convened more than 200 socially- and environmentally-minded business
leaders. These innovators value both profit and mission, ensuring that
they’ll be in business for a long time to do work for the public benefit. It
also means that most profiteers think they’re crazy (for aligning business
decisions with the common good), and most do-gooders think they’re crazy
(for trying to make money).

“You two would have fit right in at the conference I was just at!” I told
Steven.

I was delighted to spot a number of brands on the shelf whose leaders I’ve
met through work, like Annie’s Mac & Cheese, Stonyfield Farm, and Seventh
Generation. But not only does Open Produce stock nationally-known organic
and sustainable brands led by cool people, they also support small local
companies that sell ethnic food not available anywhere else in the area,
including products from all over the world. They invest in the local
community, whether it’s when Steven and Andrew are chatting with the truck
drivers, or on the phone with Nancy from Nancy’s Organic Yogurt, or
gossiping with their regulars or the guys at the dollar store one door down.
And their low prices mean they can bring affordable, whole, fresh food to
their neighbors.

“This is it, this is the real deal,” I thought. This is about a commitment
to building local, sustainable communities. This is about people and
companies working together to build a new kind of capitalism, one that puts
energy back into the planet, and brings whole and delicious things to our
lives and our dinner plates.

So give yourself a present, Hyde Park, and stop by Open Produce today!

Erica Dreisbach was, at the time of her visit, an art and techmancer for Social Venture Network, a national network of nearly 500 socially responsible business leaders who are working for a just and sustainable economy. Read more at www.socialventurenetwork.wordpress.com.

When an old friend asks how you’re doing, they’re probably not looking for chest x-rays or the latest on your gall bladder. So when customers ask how the business is doing, we often just say “pretty good” and leave it at that.

But since a lot of folks have been probing for more details lately, I thought I would give an honest and thorough answer, as best as I am able anyway.

The short answer is that small businesses are unbelievably complicated, but from the information I have, I think the business is doing ok. Our growth slowed through the first half of December, which looked about like October, and I’m guessing the second half of December will look a bit worse than September. We’re hoping that growth will pick up again after the holidays.

Here are some charts showing daily gross sales relative to our current financial goal since August, and also all the data I have about how many conventional bananas we’ve sold per day over the last year. (You can click the pictures for bigger versions.)

To explain these charts, unfortunately, I will need to bore you with another long post which is after this link.

Read the rest of this entry »

Open Produce has been really rigorous about keeping good point-of-sale data over the past 4 months, so looking back we can now tease out some interesting patterns in buying habits.

Certain things that “go together” frequently get bought on the same ticket. If you look back over tickets and count up how many times each pair of items is bought together, you can get a sense of how related any two items we sell are. Mathematically you can look at this as a weighted graph. For example, here is a picture of one such graph (circles correspond to items, and the closer two circles are, the more frequently those items are bought together.)

(Click image for larger size; other formats: [svg] [graphviz])

Corn tortillas are a daily staple for many Mexicans and Latin Americans. We sell the best fresh corn tortillas in Chicago, El Milagro brand, for a good price in packs of 12. They’re good, so many people buy a single pack now and again, even if they’re not staple eaters. However, we also have a discount for people who buy 3 packs at a time, and many staple eaters purchase as many as 9 or 12 packs per day.

This graph shows some interesting patterns. Both 1-pack and 3-pack buyers also frequently buy produce that makes sense with tortillas, such as tomatoes, avocados, jalapeños, and limes—guacamole fixings—and 3-pack buyers occasionally go for bargain produce. However, 3-pack buyers also frequently buy well-known Mexican products such as the medio litro size of Mexican coke and de la Rosa peanut candy, while 1-pack buyers do so less. Also, 1-pack buyers buy slightly more canned beans than 3-pack buyers. In particular 1-pack buyers purchase canned refried beans while 3-pack buyers rarely do. Finally note that 1-pack buyers sometimes purchase prepared foods such as mtr meals and clif bars, while 3-pack buyers generally don’t.

My reading of this is that staple tortilla eaters mostly buy fresh produce and a couple Mexican products, while non-staple eaters buy slightly more prepared food, less produce, and fewer Mexican products. If you’re a Mexican immigrant who eats refried beans every day, maybe you feel weirder about seeing them in a can and make them better, for cheaper, at home; if you’re a grad student on taco night, maybe you grab the can. Or maybe we just don’t carry the right kind of refried beans—La Preferida makes about a dozen kinds, and we carry only one size of the vegetarian kind. Staple tortilla eaters almost certainly have more specific bean preferences!

What’s clear is that there are two distinct categories of customers here who interact with one item we sell in very different ways. Tortillas are a crucial crossover point for staple eaters and exotic eaters to try new things. How can we get 1-pack buyers to buy avocados as frequently as 3-pack buyers? It’s a shocking thought, but do 1-pack buyers perhaps not know how awesome avocados are? And what other products do 3-pack buyers want—better beans, or something else like the de la Rosa candy?

Hello again! Hope you had a nice Thanksgiving and are enjoying your weekend. Things were a little slow at Open Produce on Black Friday, as you might expect, but people seem to be hungry again today. We have lots of new stuff in the store, including Odwalla juice and Vegemite; drop in and see us sometime!

Here’s another long post about the business. Today I thought I would write a bit about inventory, a subject which is so fascinating to me that I could rant about it for pages. Instead I will put a little link here, so you only have to read this if football and leftovers aren’t enough to put you to sleep.

Read the rest of this entry »

Reports of our death have been greatly exaggerated. We apologize for neglecting our blog and you, dear readers, for so long. In consolation, here is a long entry.

In upcoming posts, I’d like to talk through some numbers and logistics, which are what I (Jered) know best. But right now I want to relate some personal experience of “Open” Produce and address what the “open” part means to me. First the news.

The store has come a long way since March. Foremost, it’s stayed open. But it’s also grown up a lot. Through spring and early summer, we expanded our hours, increased our dry goods selection and continued to refine our eclectic merchandise mix. Through the summer into fall, we tore out the stage at the front and moved the till there, added and re-planned a lot of shelves, completely changed the layout to open up the center of the store, and built our own point-of-sale system with a barcode scanner so we can gather accurate sales data. Recently, a local carpenter rebuilt our stock room shelving to accommodate our expanding inventory. We’ve gotten much better at ordering, and have begun to connect with other local businesses, small distributors and farms. We’re also working on case ordering and gift basket programs which we’re hoping will take off.

Now back to my story.
Read the rest of this entry »

Open Produce has joined the Web 3.0 revolution, by broadcasting a Twitter feed! Expect mention of new products, eye-popping sales, and random store anecdotes. If you use Twitter yourself, you can just follow @openproduce. If you don’t use Twitter, you can visit the feed directly or just check the right-hand side of our blog page, where you can see recent posts. Feel free to message us (@openproduce) with requests, suggestions, and questions.

I read this article in the New York times a few weeks ago, entitled “How Green Is My Orange?”:

http://www.nytimes.com/2009/01/22/business/22pepsi.htm

It outlines some of the difficulties associated with trying to determine the carbon footprint (or, in fact, any other environmental footprint) of consumer products. One problem is that a lot of that data is hidden or not easily accessible (how many pounds did the truck haul, how many gallons of gas did it use, how many miles out of its way did it go to deliver to your store, etc.). Another problem is to know where to stop: Do we count fuel used by farmers to power their tractors? How about the fuel used to operate tanker trucks to deliver the fuel to the farmers? What about the fuel used to fly an oil company executive to the Middle East to secure a contract for more oil, which was then used to make the gasoline? In what could be described as the reverse corollary to the Butterfly Effect, an unimaginable tree of events transpired to bring any product to any particular storefront. Even the environmental cost of preparing such a report should theoretically be considered in the report itself.

The market is supposed to collapse all of this complexity and history into a single number: the price. But the problem is that, with conflicting moral views and priorities, some consumers inevitably won’t agree with the way in which the complexities were collapsed (e.g. Should pollution be taxed? Should the government subsidize oil drilling?), and will demand more information about the history of their product. But exactly how much information the bulk of consumers want — and are willing to pay for — has not exactly been settled. I fear that catch-all, broad labels such as “organic” and “local” will suffer the same fate as price — just as suppliers often sacrifice the environment or human welfare to drive down price, they could just as easily (and often do) sacrifice the environment or human welfare to satisfy requirements for labeling their products “local” or “organic”. At the same time, metrics complex enough to provide the information necessary to make informed decisions remain elusive. It’s a difficult problem, and one I don’t think is going to be solved quickly or easily.

Every crisis is an opportunity, and we took the crisis of our truck breaking down (with an estimated $1,400 repair bill) as an opportunity to try to get as much delivered as possible. The hardest part, we thought, would be finding affordable and good-quality produce. However, that problem solved itself when we worked out a wholesale agreement with Hyde Park Produce up on 53rd street. We would run into Larry or his father, Yo-Yo, at the produce market in the morning anyway, and now for a small mark-up they are delivering boxes of produce (and smaller amounts of loose greens, which were not able to carry before) to us four times a week.

After two weeks, this seems to be working out well. We’ve been able to maintain our breadth of inventory (even expanded it), and we are committed to using the money saved from truck expenses to cover the small mark-up (about $1/box) rather than raising prices. Plus now we have an eye with 20-years experience in the retail produce business picking our produce, which will probably result in higher quality.

We plan on going to the market at least once a month in a rented vehicle, to maintain our relationships with the wholesalers and keep our ear to the ground regarding the produce world.

On the shelf: fractal broccoli (Romanesco) — check out the Wikipedia page. Also pomegranates, pears (ya, green d’anjou, red d’anjou) for $1/lb., blood oranges $2/lb., organic braeburn apples and jonagold apples (plus conventional honeycrisp, cripps pink, and granny smith apples), Looza juices, tubs of nuts and dried fruit.