Hopefully COOP doesn't actually sell off their land, but instead leverages it in to some developments, and still retains ownership of the properties. I agree, if they were to outright sell the land it wouldn't be good for their grocery business long term.
Their land is booked at $96.5 mm, with buildings and parking lots at another $144.5 mm.
If the grocery business can't sustain market rents, I think Co-Op needs to reevaluate its market position. If it is to provide a cross subsidy to lower grocery prices, they should reposition as a low cost option. If it is a cross subsidy to address access gaps in some communities, it likely shouldn't close stores based on retail metrics alone.
A concern I'd echo with the outside critique is through acquisitions, Co-Op is carrying a lot of 'intangible assets' and 'good will' on its books, that is, the value of brands and business relationships its acquisitions brought with them, and the amount they paid over the book value of the business, presumably because they saw future value in the business. .
| Acquisition | Intangible Asset | Goodwill |
| Willow Park | $20.1 mm | $17.6 mm |
| Core Health | $101.5 mm | $193.6 mm |
| FreshPath | $2.2 mm | $3.7 mm |
They've started to write down some of the assets - $3.7 mm of goodwill from FreshPath was impaired.
The intangibles, $102.6 mm of the value is from customer relationships, most of that from pharmacy customers with Core Health.
It is funny really, to resist a reorganization push from private equity, they've been conducting leveraged buyouts of businesses to try to shore itself up.
Over the medium term, I hope that they leverage their acquisitions more. Larger liquor stores should be rebranded into Willow Park, and the Willow Park loyalty program should be merged into membership rewards (allowing in year dividends perhaps). In store pharmacies should be rebranded into one of the brands Core Health owns, and a loyalty program expanded into the non Co-Op pharmacies. Organics, wellness and nutrition should undergo a similar shift, and organic, wellness and nutrition under Community Natural should become stores within stores for renewed full line Co-Op locations.
I'd also evaluate whether they can be competitive in the value segment, and rebrand smaller stores in lower income communities to that, perhaps with a value flanker brand positioned below Cal & Gary. If successful, that may provide an opportunity to expand in communities they don't serve today.
If the growth potential for home health care isn't there, same with cannabis, the business lines likely require significant expertise, the businesses should be sold.
