PCC posts loss, cuts dividend as costs soar and downtown Seattle store lags

In yet another sign of the pandemic’s lingering grip, PCC Community Markets posted its first loss since the ’90s, with much of the red ink flowing from the co-op’s struggling new store in still-flagging downtown Seattle.

On Tuesday, the Seattle-based grocery co-op said it lost $250,000 in 2022, and wouldn’t be paying a members’ dividend for the year, as soaring costs offset rising sales and growing membership at its 16 locations.

By comparison, PCC reported pre-tax income of $305,000 for 2021, $2.2 million for 2020 and $2.8 million for 2019. The dividend program was launched in 2020.

It could have been worse: PCC’s 2022 loss would have been $6.9 million were it not for the sale of the former location of its Kirkland store, which moved in 2022, according to a letter sent Tuesday to the co-op’s 110,000 members.

In an interview Wednesday, CEO Krishnan Srinivasan attributed 2022’s dismal results in part to pandemic-related factors that have hit other Seattle-area grocery operators.

While overall sales jumped 6%, to $422 million, overall costs rose 9% in part because of roughly $5 million in government-mandated hazard pay in Seattle, Edmonds and Burien.

PCC, which is known for higher-end meats, deli items and produce, was also hit as consumers adapted to inflation by doing more of their shopping at other, cheaper stores, Srinivasan said.

“What we started seeing was people taking their food dollar to more than one [grocery],” he said. “Maybe there’s this perception that they can get a cheaper but still organic chicken breast at Fred Meyer than at PCC.”

But Srinivasan conceded that roughly a third of PCC’s 2022 loss reflected the poor performance of the downtown location in Rainier Tower at Fourth Avenue and Union Street.

Despite high hopes by PCC, city leaders and downtown residents that the store could help kick-start downtown’s lagging recovery, the location has generated only around two-thirds of projected sales since it opened in January 2022, Srinivasan said.

Even though PCC delayed the opening by a year to bypass the worst of the pandemic, the store suffered heavily as many of the office workers that were key to its business model stayed home with remote or hybrid work.

Although the downtown PCC does a brisk lunchtime deli business Tuesday to Thursday, it sees less of the more lucrative after-work business with “the same office worker picking up maybe a steak, a bottle of wine and some asparagus for dinner on the way home,” Srinivasan said.

The downtown location also sees far less weekend traffic and Christmas and Thanksgiving shoppers than do PCC’s other grocery stores, he said.

PCC is hardly alone here. For months, worker presence in downtown offices has been around 45% of what it was in 2019, according to data posted by the Downtown Seattle Association. The much-anticipated return-to-office trend has “been slower than we and they hoped and expected it to be,” said the association’s CEO, Jon Scholes.

The store’s downtown location also has extra expenses from additional security, Srinivasan said.

PCC is laboring to shift downtown shopping patterns back in its favor. Daytime customers have received coupons that can be redeemed after 5 p.m. on weekdays or all day on weekends, for example.

The co-op is also hopeful that Amazon’s decision to bring its workers back to the office at least three days a week, which started in early May, could spark a larger return of the workers PCC and other retailers desperately need.

The first week of Amazon’s return, “we had more people downtown … than at any week since the start of the pandemic, so we’re moving in the right direction,” Scholes said.

Still, if the streets near Amazon’s office towers in South Lake Union are busy again, there’s yet to be a similar surge around PCC’s location in the new Rainier Tower — which, awkwardly for PCC, Amazon itself had planned to lease before changing its mind in early 2019.

As Srinivasan wryly notes, when PCC signed the lease for the downtown location, back in 2018, “the original investment thesis also had Amazon occupying the rest of that building, which they’re not.”

While PCC waits for office workers, some customers worry that the co-op won’t tolerate losses downtown for long.

“I’m wondering, personally, how they’re staying in business,” said Jean Henderson, 84, a downtown resident who was among the hundreds of shoppers who celebrated PCC’s opening last year.

Henderson is still a regular at the downtown PCC, but says the store often seems dead except at midday “and the only things people are buying are the lunch items.”

That’s a concern of some downtown PCC workers who are acutely aware of the store’s underperformance.

For any grocery store, “if it’s a loser location, or they don’t do enough business, they’re going to pull out,” worries a veteran PCC staffer now at the downtown location and who asked not to be identified because they were not authorized to speak to the press.

Srinivasan insists PCC has no plans to leave. “We’re not going to cut and run at the first sign of trouble,” he says. To the contrary, the co-op expects better performance overall in coming years, in part because exceptional costs such as hazard pay are gone.

At the downtown store in particular, PCC is working to both boost sales while trimming costs — by, for example, “staffing the store as it needs to be, but not overdoing it,” Srinivasan says.

Still, he acknowledges the challenges. Customer shopping patterns remain altered. Inflation has moderated, but the co-op faces new contract talks with its roughly 1,600 unionized staff members, who are reportedly pushing for a wage increase to partly offset the lost $4 hazard pay.

Negotiations start June 1 “and one of the top priorities will be higher wages,” said Tom Geiger, a spokesperson for United Food & Commercial Workers, which represents union PCC staff and was a major advocate for hazard pay.

Most important for the downtown location, the future of the office remains up in the air.

“Ultimately, having workers feel like there’s a reason to come back and collaborate and work downtown creates the best energy for any kind of retailer,” Srinivasan says. “And that would include us.”