On the Road

MOUNT AYR, IOWA--"Running a retail business in a small town is unique," observes Robert "Joe" Murphy, president of Community Grocers Inc. (CGI), which opened a supermarket here last November. "You know all these people. You know their names, you recognize their faces, and you're scrutinized a lot. Almost all the people walking into our store might as well be shareholders, because you know them."

It's not just the town's slender population (1,700) that has endowed Murphy with a heightened sense of accountability. Actually, chances are pretty good that at any given moment there's someone roving CGI's aisles who does own shares. That's because Murphy, convinced the town needed the store, borrowed a financing tactic from Frank Capra: he turned to his neighbors. In the end, 322 of them coughed up a total of $640,460. "This is the only thing we've ever invested in in our lives," gushes seamstress Keleta Dunkeson, who invested with her husband, Bill.

It's not that the Dunkesons harbor fantasies of dethroning the Beardstown Ladies, the investment club from small-town Illinois that converted its homespun wisdom into best-selling books. But Murphy, who owns a building-supply business, did tap into a fiercely felt emotion: the townspeople missed a supermarket that had been closed.

People, he noticed, just couldn't seem to get over their disappointment at having one of the town's two supermarkets shut down a few years back. Things had worsened when the surviving store--owned by Hy-Vee, a $2.8-billion chain--moved to the town's outskirts. Retiree Ralph Johnson gives voice to widespread frustrations when he says that a town center needs a supermarket so "you can walk to all the places you need to visit." His wife, Donella, echoes the commonly felt sentiment that Hy-Vee, once it had the turf to itself, got a tad uppity with its pricing. The Johnsons, needless to say, invested in CGI.

Indeed, few residents seemed to have had trouble finding a reason to invest, even though the town's per capita income is about $16,500. It took just one week for Murphy to find 25 people to agree to invest $10,000 each to buy a vacant building. That group sold shares at $5 apiece, with a minimum purchase of 50. (For details on direct public offerings, see " When Mom and Pop Go Public," December 1996.) "It got to the point where if you were at a ball game or a restaurant or on a golf course, if you weren't an investor, you were the minority," says Kelly Main, a construction estimator.

But with the store open, Murphy is now living on what most entrepreneurs would define as a hostile planet: a place overrun by opinionated shareholders. They may be novices at investing, but they know what makes for a stellar supermarket. They want artichoke hearts. And garbanzo beans. And how come these shopping carts are so deep? Prompted by store manager Jeff Haugland, the founders asked shareholders to share their concerns with board members. And they installed a suggestion box.

So far, Murphy claims, it's all quite manageable. "Keeping a shareholder happy is no more important than keeping the general public happy," he says. Maybe so, but neither will be easy. Driving by the Hy-Vee, Murphy can't help counting the number of stockholder-owned cars parked outside. And the civic-minded folks who put money into CGI are starting to sound a wee bit more like Wall Street than Main Street. "We opened debt-free," notes schoolteacher Jim Uhlenkamp. "I would be surprised if we didn't get dividends."

Rolling in the Aisles
Checking out the shoppers who started Community Grocers Inc.

Average age of founding investors: 46

Percentage of the company they own: 32%

Percentage of total investors who made the minimum $250 investment: 45%

Percentage of stock held by those who invested less than $2,000: 21%

Percentage of stock held by those who invested $2,000 or more, but less than $10,000: 47%

Out of 322 investors, the number who live within 25 miles of the store: more than 250


COMMUNITY GROCERS, Robert "Joe" Murphy, 104 N. Fillmore, Mount Ayr, IA 50854; 515-464-2500