Economic and Legal factors impacting Chico Natural Foods Co-op

Economic and Legal factors impacting Chico Natural Foods Co-op

Economic factors

Economic factors are the different variables in the economy that can affect the operations of a firm. The level of competition in the food industry is stiff, and customers demand high-quality products. For instance, there are established firms such as McDonald’s and KFC, which also enjoy substantial economies of scale. Chico natural foods co-op faces the challenge of competing with these firms to maintain and attract new customers. Stiff competition reduces the profits made since the number of customers is low. Besides, a firm must keep its prices down to attract more customers. Nevertheless, this competition can be an opportunity for Chico to expand its sales. Since the store is the only one operating in downtown, it can open for more hours, and offer a wide range of organic foods. This can attract most of the customers working on the downtown side hence avoiding the competition from other firms. However, high competition poses a threat to the store’s profits if the customers shift their loyalty to other firms.

Chico also faces the challenge of a shortage of organic food items in the market. Since the store is committed to offering fresh and organic food to its customers, it has to procure goods directly from the farmers. Therefore, Chico store is exposed to challenges of the perishability of products and shortage of groceries (CNFC, 2019). For instance, when there is drought, the production of farmers is low, which raises the prices of organic food materials. This acts as a threat to the store’s operations due to an increase in the cost of production. A shortage of organic food materials can lead to customer dissatisfaction, which can affect the store’s reputation in California. Additionally, most of the organic food from the farms is perishable, which can lead to losses in the store. Nevertheless, the store can tap the opportunity of farming its own products. It can also implement an effective ordering system such as just in time to avoid losses from perishable products.

Legal and Regulatory Requirements

These are the state and federal laws that impact the operations of a business. The state of California has a minimum wage law requiring employers with more than 26 employees to pay them $13 per hour from Jan 2020 (State of California, 2020). This law is meant to protect employees from exploitation by some firms. Since the number of employees in the Chico store range from 25 to 30, the firm has to pay them $13 per hour. This regulation can increase the cost of production hence lowering the store’s profits. Besides, the dividends paid to the owners can decrease, leading to dissatisfaction from the members. However, the store can tap the opportunity of enrolling the employees in an ownership program in the store. This can enable the firm to pay the employees with shares instead of actual cash.

The by-laws and regulations of cooperatives also tie Chico Natural foods in its operations. The law requires that a cooperative must have a board of directors to oversee its operations (Swanson, & Joyal, 2017). The members elect them hence acts as their trustees by checking the conduct of employees and monitoring the firm’s financial status. Cooperatives are also required to pay taxes on their earnings. However, a cooperative can avoid double taxation by paying patronage dividends to the members. Since dividends are tax-deductible, the members will not be subjected to further taxation. Chico can also utilize the advantage of having a board of directors to streamline its operations (CNFC, 2019). Members should elect competent directors who are committed to their vision. Visionary directors will hire qualified employees and help them to achieve the firm’s targets. However, Chico faces a threat of more state and federal by-laws, which can ower the autonomy of cooperatives. For instance, a law requiring a cooperative to pay more taxes can negatively impact Chico.