The Arcata Co-op. | Photo by Stephanie McGeary.

The North Coast Co-op is unlike other local grocery stores in a number of ways. For one thing, a big portion of the customers are members; they’re invested financially, holders of shares in a cooperative endeavor that’s run like a democracy, complete with elections every fall. And like most democracies it can be messy and acrimonious.

Even more distinctive is how much people are invested emotionally. Board meetings — at least recently — have been filled with enough passion, drama and spiteful allegations to rival Arcata’s recent McKinley statue debates.

As we reported back in October, the North Coast Co-op is struggling with serious financial woes, which General Manager Melanie Bettenhausen attributes to an array of factors, including declines in the local economy (fueled by falling weed prices), increased labor and health care costs, and stiff competition from other grocers.

Behind the scenes, though, disgruntled stakeholders say the blame lies elsewhere. Members, current and ex-employees and even some on the Co-op’s seven-person board of directors point the finger at mismanagement — from Bettenhausen as well as a former financial controller who has since been fired. Some suggest there’s been corruption and possibly embezzlement.

Six employees have been laid off recently. At least two others have been fired. A long-planned remodel to the Eureka store has been scrapped. And with cuts to employee hours, morale at the Eureka and Arcata locations is low. And yet the passion, the sense of ownership, hasn’t waned.

Robert Eckart, a private investigator and one of the first members of the North Coast Co-op (member number: 117 [correction: while Eckart said he’s been using that member number since 1973, turns out it was purchased by Marilee and Tom Coriell]), is among the most vocal critics of Bettenhausen and the current board of directors. He’s launched a website, SaveOurCoop.org, in hopes of fomenting rebellion.

At a recent board meeting an Arcata store baker fretted, “The Co-op is going toward the direction of the store I just left, Safeway. … In many ways the Co-op is so much better than that,” she said. “For whatever reason everyone’s getting fired right now; it scares the shit out of me. … It’s pretty scary right now to see the decisions being made.”

Another employee, a woman named Kristen, stood up and said, “We’re in a financial crisis, but also a crisis of leadership. If nothing is done to change course, the future of the Co-op is at risk.”

A recent peer review audit from National Co+op Grocers identified problems with the North Coast Co-op’s accounting methods, irregularities that prevented the auditors from comparing the organization’s finances to other co-ops’ and muddied fiscal transparency among employees. The North Coast Co-op’s own finance committee recently said they don’t have confidence in the organization’s financial statements. [Note: After this story was published, Co-op Board President Colin Fiske contacted the Outpost to say that while the finance committee did make this observation, it has since stated that the reports have improved and now accurately reflect the condition of the Co-op.]

Bettenhausen tells the Outpost that things are actually looking up. The recent media attention inspired some extra community support. More people have purchased B shares and C shares — a higher, “sustaining” level of investment than the standard $25 A shares — and over the Thanksgiving holiday the Arcata and Eureka stores saw sales above last year’s receipts — the first time that’s happened in months, Bettenhausen said.

But the Co-op’s not out of the woods yet. In addition to the financial and managerial challenges, one of the recently fired employees, former Arcata store manager Vincent Graves-Blandford, has filed two legal challenges against the organization: a complaint with the state Labor Commissioner’s Office alleging retaliation and wrongful termination, and a second complaint with the California Department of Fair Employment and Housing alleging gender-based workplace discrimination.

In an interview with the Outpost, Graves-Blandford said he still loves the Co-op. As for his legal challenges, he’s not looking for revenge; he just wants things to go back to the way they were.

“I want my name cleared, I want my job back, and I want to do everything I can to create the workplace that was there in the past,” he said.

Graves-Blandford said that for more than a year before he was fired he’d been butting heads with Bettenhausen over the financial reporting practices of the former controller (the one who has also since been fired). “For a five-quarter period there were major, glaring errors in all the [financial] reports,” Graves-Blandford said.

Sometimes the errors were minor — say, a negative sign where a positive sign should be — but other times figures were off by as much as $5,000 or $10,000, he said. And when he asked the controller for Cost of Goods Sold (COGS) reports — something that used to be provided to store managers as a matter of course — she refused, he said.

Graves-Blandford grew increasingly frustrated. Without access to the detailed financial reports he couldn’t analyze the Arcata store’s margins, couldn’t compare current sales numbers with prior years’, couldn’t really do his job, he said.

“When I would request reports, I was denied,” he said. And his constant requests were straining his relationship with Bettenhausen, who defended the former controller. “The way I was treated by the [general] manager changed, not for the positive,” he said.

There were other irregularities, too. The daily over/short reports were being reconciled in a way he found suspicious. Plus, two Co-op customers had come forward — one around Thanksgiving 2017 and another this past April — with concerns about the controller. They said she was being investigated for embezzlement by a previous employer. (The Outpost is not using the former controller’s name because none of these allegations have been proven.)

Graves-Blandford also alleges that during the budgeting process for the current fiscal year, which took place in March, Bettenhausen forced him to manipulate numbers, to plug in elevated sales predictions, figures he didn’t think were achievable, in an effort, he believes, to push through the now-abandoned Eureka renovation plans.

“Those [figures] were just fantasy,” he said, “just numbers to help us get a loan.” He eventually went over Bettenhausen’s head, taking his concerns directly to the Board of Directors. “I told them, ‘I’ve been asked to do things with the budget that I think are unethical and wrong,’” he said. And he now suspects — though he doesn’t have proof — that there may have been, well, “financial malfeasance” going on at the North Coast Co-op. (His current attorney advised him against the word “embezzlement.”) The mistakes and irregularities, the lack of transparency, “from a lay perspective it leads you to one of two conclusions,” Graves-Blandford said. “It was either severe incompetence or purposeful, malicious activity for the benefit of the person doing it.” He leans toward the latter explanation.

Bettenhausen and Board President Colin Fiske declined to comment on Graves-Blandford’s allegations and the reasons for his termination, citing his pending litigation. He was fired on July 26.

[Fiske told the Outpost after this story’s publication, “[T]he Board, in consultation with an attorney, reviewed and investigated all of the claims and allegations [Graves-Blandford] brought to us, and did not find any support for any of them.”]

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The internal strife didn’t end with the firing of Graves-Blandford and the former controller. In fact, there’s a schism within the Board of Directors, with a minority of three feeling overlooked and overpowered by the majority, which has largely stood behind Bettenhausen.

“The board is not really functioning as a board anymore,” said board member Mary Ella Anderson. She places most of the blame for the Co-op’s recent misfortunes at the feet of Bettenhausen, and she accused the board majority of effectively rubber-stamping Bettenhausen’s agenda.

“When she took over, that Co-op had more than a million dollars to the good [in reserves]; now we are facing bankruptcy,” she said. “Every plan she has come up with has failed. That whole Eureka remodel was a disaster. … The workers are all walking on eggshells. They’re afraid of getting fired.”

Like Graves-Blandford, Anderson is concerned by the murkiness of the Co-op’s recent finances. “For an entire year we were given financial reports that were not accurate,” she said. “We still don’t know what our fiscal picture was during that period. That’s very disturbing to me.”

Anderson feels that Bettenhausen lacks the experience necessary to be general manager, and she believes Bettenhausen and Fiske, the board chair, have a personal friendship outside of the Co-op that has compromised the board’s oversight function.

“I think it was improper when Collin did [Bettenhausen’s] performance review to not acknowledge their personal relationship; you can’t be objective about a friend,” Anderson said. [Fiske later responded: “I did not conduct Melanie’s annual performance review alone. This is a function of the entire Board, and the entire Board conducted the evaluation, and hired a third party to help facilitate.”]

Graves-Blandford also leveled this allegation, saying Fiske and Bettenhausen worked together on Steve Madrone’s campaign for Humboldt County supervisor and often socialize outside work.

Bettenhausen called that accusation “wholly untruthful.”

“We don’t have a personal relationship,” she said.

Fiske also denied this charge. He said he’s been hearing that rumor for a while now but has no idea where it’s coming from. “We have a professional working relationship, and none outside the Co-op,” he said.

Robert Donovan is another board member who has found himself in the voting minority with Anderson. He agrees with some of Bettenausen’s explanations for the Co-op’s financial decline — notably the community’s changing demographics, with less weed money translating to less disposable income, though he believes management was too slow to respond to these changes.

Donovan also laments the money lost in the aborted Eureka remodel efforts, saying management was too slow to cut its losses there, too. The underlying problem, in his estimation, is management’s relative inexperience. In a recent interview, Donovan relayed an anecdote about Sam Walton, the late founder of Walmart, who argued that wisdom and experience can only be gained from failures and bad decisions.

“A lot of decisions are now being made by people who don’t yet have enough experience,” Donovan said. “They’re slowly learning through [making] bad decisions.”

A self-described “foodie” who speaks reverently about the energy of “raw, living, organic foods,” Donovan is something of a connoisseur when it comes to natural food grocery stores. He and his wife have traveled quite a bit, and he has a mental inventory of some of the best markets — Rainbow Grocery in San Francisco, Mariposa Market in Willits.

But when he and his wife checked out the produce sections at the Arcata Co-op and Eureka Natural Foods years ago, he said, “It was the best we’ve seen across the country.”

He has now been on the Co-op board for two years, and while he sees his role as “trying to bring unanimity and cohesiveness,” he certainly has criticisms of the way the organization is managed. He believes it’s too beholden to its distributor, United Natural Foods, Incorporated (UNFI), which, in turn, is too dependent on products that are “not living, not raw. It comes in boxes and cans,” he said.

But he kept returning to the matter of experience, and he said he doesn’t like the fact that cutbacks are primarily falling on the stores’ staff rather than executives. It has damaged morale, which has a negative effect on customer service and maybe even on the raw, living produce.

While he is grateful to see the current management learning from bad decisions, he thinks the Co-op needs to change the way it recruits and hires its general manager. “An operation pulling in tens of millions of dollars [per year] normally would be run by someone with decades of experience in executive management,” he said.

Bettenhausen had worked at the Co-op for nine years before landing the GM job. She was the marketing and membership director immediately prior getting the top gig in August of 2016. Asked if that was enough to prepare her for the position she said, “I don’t know that anybody could be prepared for what the general manager job is when you take into account working with the board, working with the membership, and the cooperative business model. It’s a really big job.”

Still, she feels she was more prepared than anyone who may have come from a non-co-op environment. She knew the institution.

Regarding the former controller, Bettenhausen said that when she heard the rumors of embezzlement she investigated the matter, with help from the Co-op’s auditor and legal counsel, and found no evidence to support the charges.

Fiske said the problems with the Co-op’s financial reporting actually predate the previous controller, who, he said, “fixed quite a few issues and contributed to quite a few others.”

He and Bettenhausen both acknowledge that there wasn’t enough clarity in the financial reporting, and they’ve taken steps to improve things. The Co-op is now sending out all-staff emails summarizing meetings, and he said employees have reported that they feel better informed. “It’s really important for the facts to get out there, for people to feel empowered so they can make informed suggestions,” Fiske said.

“As far as board oversight,” he continued, “I think this board has done a good job providing that, investigating where that needs to be done, and working to hold [Bettenhausen] accountable. I would definitely object to the idea that she’s acting as another board member. We certainly don’t rubber stamp her ideas.”

Like Bettenhausen, Fiske believes the reasons for the Co-op’s financial woes are numerous and complex, involving cannabis legalization, increased competition, and other factors.

Indeed, the Co-op isn’t the only natural food grocer in Humboldt County to feel the pinch. Rick Littlefield, owner of Eureka Natural Foods, said the local economy has definitely softened up some.

“The last year and a half, two years, certainly as the cannabis industry has come above ground there’s been an impact,” he said. “It’s no secret that a number of sectors of the local economy has suffered. We’ve seen some of that.” The Co-op and ENF have been friendly competitors for years, Littlefield added, and he wishes them well.

“Over the years the Co-op has struggled at times,” he said. “They’ve always pulled out of it. This time I’m sure they will, too.”

Aaron Gottschalk, general manager of Wildberries in Arcata, said the economic downturn started hitting his store about two years ago, though it seems to be leveling out now. There’s less cash circulating than there used to be, and the average amount of groceries per basket has declined more than the number of customers.

“The kind of cash where people are not worried about what they’re spending it on has disappeared,” Gottschalk said. “We’re seeing that throughout the whole county.”

Other challenges facing natural food stores are national in scope, he said. Conventional, corporate grocers such as Walmart, Safeway, and Target have incorporated organic produce and health foods. “It’s really a national situation,” Gottschalk said. “We’re not as relevant anymore, so we have to reinvent ourselves.”

He said he believes the plan to expand the Eureka Co-op’s deli and hot bar was a good one; Wildberries has expanded it’s own hot bar and is focusing more on easy-to-prepare foods in response to customer demand. “We put forth quite an investment, too, to make that happen,” he said.

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There was a wave of concern among the Co-op faithful recently when word got out that the board may try to obtain a new, larger line of credit using the Arcata store as collateral. The Eureka store is in a rented building, but not Arcata. Predictably, there was a lot of resistance to this proposal, and the board has backed away from it, for now.

The Co-op currently has a $149,000 line of credit, with the inventory as collateral, and Fiske said they’re working with the lender in hopes of increasing the limit to get through the holiday season.

Pursuing a new loan with the Arcata store as collateral has been a topic of discussion for the past month or two. “In order to pursue such a loan, it would be a longer process, and it wouldn’t help us through the immediate cash crunch,” Fiske said.

So is that idea off the table? “I wouldn’t say there’s no chance of that happening,” Fiske responded. “It [the Arcata property] is our biggest asset, and if we needed to we could, but we have no immediate plans.”

At a recent board meeting, Fiske appeared weary as members leveled accusations of corruption, mismanagement and more. He had that same weary tone in his voice when he talked to the Outpost, though regarding the recent uproar he said, “I think it’s fine. I’m a strong believer in the value of dissent, but one challenge we’ve been facing mirrors what society is facing in bigger sense: the question of facts.”

He cited a maxim that’s gotten a lot of mileage in our current age of hyper-partisan, post-truth discourse: “Everyone is entitled to his own opinions but not his own facts.” The claims of fraud, embezzlement and inappropriate personal relationships? “There’s no basis for those things,” he insists. “But I think people are understandably anxious. A lot of people look for a simple human cause. This set of larger factors … it’s not a satisfying story.”

Bettenhausen said the recent upheaval has precedent in the organization’s history. “This is very cyclic for the Co-op,” she said. “I tell people it’s the nature of the beast.”

The North Coast Co-op is a member-owned, democratically organized institution, and as such everything from the financial reports to the internal organizational drama is subject to scrutiny from both members and the larger public. The financial situation is still precarious. There’s talk of a recall campaign targeting Fiske. Graves-Blandford’s litigation is in its early stages. The future of the Co-op is still very much in the air.

“By the nature of our business, it creates this situation,” Bettenhausen said. “That’s not a bad thing. It doesn’t feel good all the time. … But it is part of what makes the Co-op the Co-op.”