The co-owner of a popular Boston food market discusses his unusual strategy—and has advice for businesses hit by the credit crunch
Sometime in the next month or two, Jamey Lionette expects to begin a major renovation of an expanded storefront to house Lionette's Market, the small specialty food market he and his brother own in Boston's South End neighborhood.
Little in the way of paperwork for the $200,000 financing to cover the renovation has yet been completed, and the credit markets seem only to be getting tighter (BusinessWeek.com, 2/1/08), but Lionette isn't worried. He's calm because the money isn't coming from bankers but rather from 50 of his customers, most of whom live in the same South End community where his market has become something of a landmark over the last six years.
Lionette feels his customer-backers are much more reliable—and enthusiastic—than any bankers could be. In fact, they have been so eager to participate that he has had to stop accepting offers and create a waiting list since he first floated the idea in February of what he calls a Community Supported Market, or CSM. "The reaction was overwhelming," he says.
Money from the Community
"I borrowed $50,000 from a bank a couple of years ago for new equipment," says the 33-year-old Lionette, co-owner of the market. "This is so much better because I gain more business. When I borrow from the bank, maybe I get a couple of bank tellers coming in. But when the money is coming from the community, it's a much cleaner feeling."
The CSM is a takeoff on the well-established Community Supported Agriculture (CSA) financing approach originated in Europe in the 1980s and now used by growing numbers of small U.S. farms. Customers buy shares and pay in advance for a local farm's seasonal produce—usually from $300 to $1,000—and then receive weekly deliveries of whatever produce has ripened that week, along with, in some cases, meat and dairy products. The approach enables farmers to get paid in the late winter and spring for crops that won't be ready until the summer and fall.
"We stole the idea from farmers," admits Lionette. Like CSAs, he says, his market is committed to encouraging consumers to seek out locally produced food. Lionette's Market purchases nearly all the food items it sells directly from about 100 farms in the Northeast. These include a salsa maker who grows his own tomatoes in central Massachusetts, a duck breeder in upper New York state, and about 30 or 40 local cheese producers.
Invest Today, Shop Free Tomorrow
Customers are investing between $2,500 and $10,000 each. Those who invest $2,500 get a 10% discount on store items for two years. For a $10,000 investment, customers are entitled to $125 worth of groceries each week, or a total of $13,000 worth of groceries over the two-year period (a 30% return). A $5,000 investment entitles customers to a little less than half the groceries of a $10,000 investor. Those who don't take all they are entitled to can have the unused food donated to a local food bank.
Lionette thinks he's the first in the country to try an urban version of the CSA, and so far he couldn't be more pleased with how it has gone. He's careful not to take in more financing than he really needs out of concerns about cash flow. "I can't have 95% of my customers coming in and not paying."
The entrepreneur says he has been approached by a few other small businesses in the Boston area looking for tips that have heard of his financing success. Here are the three ingredients he sees as necessary for making the technique work:
1. Be well established in the community. Lionette's Market is actually a family business, having grown out of a restaurant opened by Lionette's parents 12 years ago in the tiny 550 square foot area now occupied by the market. When the restaurant moved to a larger space a few doors down on Tremont Street eight years ago, Jamey launched Lionette's Market in the old site. Its commitment to sustainable agriculture attracted strong support from many consumers increasingly interested in buying local. When his parents decided late last year to retire, he and his brother concluded that because the food market was growing much faster than the restaurant, they would close the 2,500-sq.-ft. restaurant and move the market there.
2. Have a good e-mail list of customers. Lionette has been slowly collecting e-mails addresses on a clipboard at a display counter. The list is up to about 1,000 names, which he has been using to send out news about what foods are in season and new products, along with commentary about sustainable farming and, more recently, the global food shortage. But he admits he had "no idea about the power of e-mail" until he floated his idea about the CSM financing. After 50 people said they wanted in, he began a waiting list.
3. Trust your customers. Lionette feels comfortable enough with the customers who plan to invest that he is trying to keep legalities to a minimum. He has a lawyer drawing up a three- to four-page contract for the investment to cover basic ground rules, he says. For example, he is allowing customers to roll over purchases if they don't make it into the store for a few weeks. But he also realizes the need to set some limits. "We want flexibility, but that doesn't mean you can come in one week and get $5,000 worth of food."
Lionette is pleased with his customers' response to his unusual financing approach and urges his peers to consider it. "If people like what you are doing, you are going to be successful," he says.