Talk about commitment to a mission.
People’s Community Market is an Oakland, Cal-based social enterprise that has been trying to launch a full-service neighborhood grocery store in the area for a really long time—12 years, if you count the work of its sister nonprofit People’s Grocery.
I just mentioned the company and CEO and co-founder Brahm Ahmadi in a post about Direct Public Offerings (DPOs), a way to sell securities directly to a large number of unaccredited investors.
It started in 2002 with the aim of doing something about the so-called food desert Ahmadi and others encountered in the low-income area of West Oakland. Big supermarkets tend to avoid development in densely populated and low-income urban areas, in part because of high costs and employee turnover. The objective: Start a grocery store selling fresh produce, high-quality meat, and other food not available in the neighborhood. Plus the market would provide everything from health screenings to a play area and venue for events.
The co-founders, sensibly, saw this was a big undertaking. “We pretty quickly realized we hadn’t a clue how to do that,” says Ahmadi. He, for example, had no experience in retail or food.
So they would have to start small and do research while they decided how accomplish their goal. To that end, in 2002, they created People’s Grocery, a nonprofit with which they could get their feet wet. It ran a series of projects, like a mobile market, that addressed the need on a smaller scale and helped them to get first-hand experience and build support.
Ahmadi eventually left the nonprofit and, in 2010, with a lot of knowledge and relationships he didn’t have before, he co-founded People’s Community Market as a for-profit to build and run a full-service grocery store with products geared to the needs of the community. That would mean targeting low-income customers who didn’t have cars and, thus, tended to buy less than other customers but make more repeat visits. What's more, like other independent grocers, the Market would have a competitive advantage by targeting fresh food. “We won't get into direct competition with the big chains that focus on packaged goods,” he says.
As for funding, Ahmadi had figured they could raise money from social impact investors. But after many efforts in the second half of 2011 and the first half of 2012, he discovered his venture couldn’t provide the rate of return and margins investors wanted. There was the possibility of getting a bigger return from an eventual merger. But, says, Ahmadi, “We were committed to local ownership.”
That’s when they started talking to Cutting Edge Capital about doing a DPO. It would provide a way to raise money from patient capital that would allow them to maintain ownership. Plus, thanks to all the connections and relationships formed through the nonprofit, they had a solid following interested in investing. “We’ve been able over time to build a support network of pretty die-hard believers,” says Ahmadi. At the same time, they got to talking to a new public-private partnership loan fund, which offered to pay for part of the capital requirement if People’s Community Market could raise the rest.
It was a lot of work, but the DPO raised $1.2 million from 397 households in about a year. “There was a big upside in being able to raise funds from a very aligned and enthusiastic investor base,” says Ahmadi. Trouble was, by that time, the real estate market had changed dramatically and commercial rates were going through the roof. Originally the plan was to lease a property of at least 10,000 square feet. But, as real estate prices increased, landlords decided they wanted to sell at a premium.
As a result, they realized they needed more financing—and more time before they could finally launch the store. Recently they started working with a community development corporation to raise more money for a real estate acquisition and, probably, try to apply for New Markets Tax Credits.
Ahmadi remains optimistic. “Raising that $1.2 million has helped us be taken seriously by a lot of potential developers,” he says. “It was a big accomplishment.”
