Berkeley: Lessons for Co-op Leaders

Editor's note: I published several thousand words of my own on the decline of the Berkeley Co-op and related lessons, three years ago in Cooperative Grocer #18 & 19 (1988). That piece provides useful background and analysis for the material published here. I still see a key lesson (only mentioned in passing in the excerpts below) in the need for more integrated wholesale-retail cooperative planning. (D.G.)

It will be no surprise to co-op observers that an analysis of the failure of the Consumers Cooperative of Berkeley is written by no fewer than eighteen separate individuals. Excerpted below is a new book, titled What Happened to the Berkeley Co-op? A Collection of Opinions, funded by the Japanese Consumers' Co-operative Union and published in the U.S. by the Center for Cooperatives at the University of California, Davis. It contains thirteen chapters written by eighteen co-op leaders and local activists.

By way of background the roots of the Consumers Cooperative of Berkeley (CCB -- also known as the Berkeley Co-op) can be traced to the mid-1930s, when Bay Area residents began buying clubs that grew into stores. CCB's operations were never limited just to groceries, though, including at times service stations (one of the first to offer unleaded gas in the late 1930s), hardware store, pharmacies, a wilderness supply outlet, bottle shops, a garden nursery, and one of the first natural foods stores using a supermarket format. CCB was for many years the largest member of the regional distributor, Associates Cooperatives. At its peak, CCB ran twelve supermarket stores, its sales volume reached $83.6 million, and membership included over 102,000 residents. One CCB store even had the distinction of having the highest sales per square foot of any grocery store west of the Mississippi River.

But it was consumer ownership that earned the Berkeley Co-op its fame -- an ownership structure that lead the co-op to become a local and national pioneer in consumer advocacy and service. CCB introduced "kiddie korrals" for in-store child care, pioneered the use of express lanes, and was one of the first supermarkets to employ a full time home economist to advise shoppers about food and nutrition. In the 1960s, CCB was active nationally in advocating strict standards for food labeling and consumer protection. And, the co-op was an early leader in recycling -- from giving a half-cent rebate for egg cartons in its first store to establishment of on-site recycling centers.

But innovations and accomplishments aside, the coop closed its last store in 1988. So great was its notoriety that obituaries for CCB appeared in the New York Times and Los Angeles Times. Granted, as with all co-ops, no one factor created their success and no one reason resulted in their demise. However, much can be gained from a review of the perspectives presented, especially for active consumer co-op leadership.

from Chapter 1

Could the Failure of California's Uncommon Markets
Have Been Avoided?

By Bob Neptune

Bob Neptune was the first Consumer Co-op of Berkeley employee, hired in 1937; general manager until 1943; and general manager of Associated Co-ops from 1943 to 1982, including several periods as joint CCB-AC general manager.

(Alienation by co-op members certainly contributed to a loss of sales. Four reasons for this alienation can be found:)

a) One cause of the alienation was the dropping of CO-OP label products when the wholesaler was changed. The members had accepted CO-OP label well, and a sudden substitution was just not acceptable. Later, the CO-OP brand was partially reinstated. But the loss of full member confidence and patronage continued.

b) I believe a major reason for the alienation of many members was the decision of the Board of Directors of CCB to withdraw items of controversial nature from the shelves of the stores, because of the union stance of the supplier because of ecological reasons, or because of philosophical differences. Later, this position was modified to post the shelves with a notice that the product was controversial (with the pro and con arguments posted on a bulletin board), but not to withdraw the product from shelves. But the initial acts of withdrawing products and forcing customers who might want them to go to another store had a very negative response and caused the loss of members, and more important, the loss of patronage.

c) Another of the negative aspects of member activity that I feel affected the sales in the store was the political in-fighting at CCB between two slates of candidates for the board of directors. One slate put political considerations ahead of economic concerns. Sometimes there were 5-4 splits in the board voting, and the predominant view might well change each year, depending on the winners in the annual election. By the time of the closing of the last stores, control rested firmly with the group that put political positions ahead of economic....

d) Another aspect of the problems outlined above was the alternate system, in which the three candidates for the CCB Board of Directors who were defeated, but who were next highest in votes to the winners, became alternate directors. They attended board meetings like regular directors. They participated in the discussions and even voted in the absence of regular directors. The initial purpose of this provision in the bylaws was to provide a training opportunity for learning and orientation for potential directors. But the practical effect of the system was to insure that two contending slates of candidates, with opposing philosophies, would both be represented atboard meetings. Debates were lengthened, and controversy was ensured.

from Chapter VI:

Failure from Neglect of Co-op Principles

by Bob Schildgen

Bob Schildgen is a former co-editor of CCB's Co-op News and a former CCB director.

In its broadest sense, open membership means a cultivation of open-mindedness and avoidance of the kind of doctrinal conflicts that can tear an organization apart. It was precisely this type of open-mindedness which disappeared from CCB in the 1960s. Debate over issues such as consumer boycotts, for example, grew extremely strident, and two factions developed. Indulging in increasingly bitter disputes, both factions lost sight of the overriding value of the cooperative by getting into standoffs on their own particular agendas, instead of practicing cooperative democracy....

(The co-op also suffered)... in the area of labor costs.... The primary reason for these rising costs was that in the union contract there was a rather large spread between the wages of apprentices and journeymen. Under such a contract, a company that is not adding new units, or is in fact closing units [as CCB was for twenty years], soon finds itselfwith a larger proportion of higher paid journeymen than an expanding operation. This meant that CCB was caught in a situation of escalating labor costs because each time it closed a location, the employees lower in seniority were laid off, leaving only higher paid staff. By late 1985, the gap between CCB and the industry average had widened to more than five percent of sales, meaning that CCB had to pay approximately $2 millon a year more than a competitor with a similar contract would have paid in wages....

In negotiations, CCB did not ask for concessions from the unions which even approached this figure. Most members of the board felt (wrongly, in my opinion) that it was inappropriate for CCB, which had a long record of support for union causes, to ask workers for a concession. Traditionally, the organization had always accepted the same general contract as the major capitalist supermarkets in the area. There was a strong attachment to the union cause, and an almost reflexive reluctance to engage in any serious conflict with the union....

This failure to fight for a wage package that would put the cooperative on a par with its competitors was the ultimate betrayal of the cooperative principle of economy, because it basically subordinated the members' economic interest to the interest of another group. Instead of tackling the labor cost problem early on, the leadership covered operating losses by selling property and leaseholds. Between 1978 and 1986, three sites worth over $6 million were sold. The cooperative was in effect transferring the assets of the members to its staff, by selling off assets to pay wages. There can be no clearer abdication of the principle of economy for the members than this. Even in the worst case scenario, a decision to declare bankruptcy because of a lengthy strike would have at least preserved some of the substantial equity which the members had built up in the cooperative over its 50-year history. Again, faulty education comes into play. There had been little effort over the years to give cooperative education to CCB staff, and the majority of employees remained as alienated from CCB as they would have been from any other employer. Many employees were not even members, knew nothing of co-ops, and related to CCB as they would have to any other supermarket employer. Had the employees known more, both ofCCB's purpose and its problems, they might have been both more productive and more willing to help develop a solution to the wage problem.

from Chapter IX:

Governance Factors as a Key Element
in the Decline of CCB

By Terry Baird

Terry Baird is manager for Associated Cooperatives and is a past board and committee member at Associated as well as at CCB.

What was done to attract and develop member leaders? What was the board of directors asking the manager to manage?

During the half century of CCB's existence as a grocery retailer, the industry became increasingly competitive and sophisticated. In large measure CCB's business operations followed these trends, in addition to growing in size. Unfortunately, the same maguitude of resource allocation devoted to improving plant, equipment, inventory, and staff was not devoted to the critical element of member leadership.

Maintaining a high quality labor force is a product of recruiting the right people and providing appropriate tools and training, as well as a supportive environment. A cooperative's board of directors is part of its work force and has the same needs. In theory, candidates for election to the CCB Board of Directors were recruited by an official nominating committee. In practice, a system of two political parties developed within CCB during the last two decades. Recruitment became a function of these parties. Ostensibly a party's recruitment efforts would focus on individuals competent to direct the organization towards success within the philosophical goals of the party. These were roughly differentiated as business concerns (right wing) versus social concerns (left wing). In practice, as in politics everywhere, these concerns were often subordinated to electability, availability, loyalty, or appearance. Obviously what was needed on the board was a combination of right and left capable of balancing the conflicting needs of the institution and its varied membership.

Recruitment aside, once individuals found themselves on the board, a committee, or a [store] center council, there was no routine or on-going training program....

If the conventional wisdom was to not spend CCB funds on training leadership, the idea of paying elected leaders for their service was even more unpopular. And nowhere was this idea rejected more strongly than among the elected leaders themselves. Undoubtedly, much of the motivation behind this sentiment was an idealistic interest in community service. But one has to wonder whether if by remaining a volunteer a decision maker somehow escaped a degree of responsibility for the final outcome of decisions, leaving that burden to paid staff. A strange and often observed behavior of CCB elected leaders in times of economic hardship was to spend a disproportionate amount of time discussing how to reduce the already insignificant amount of money spent on themselves. This was a terrible waste of time and only made decision making more difficult.

from Chapter II:

The Decline and Fall of the Berkeley Co-op

by Paul Rauber

Paul Rauber is a former editor of CCB's Co-op News.

As early as 1963, CCB members were engaged in a fierce debate about consumer boycotts. The question was whether to actually remove controversial products from the shelves, or simply to post informational notices alerting shoppers to the nature of the controversy. In 1968, grapes coming from non-union farms were removed from the shelves and did not return until the union lost its last contract in California in 1986. For years, many CCB members proudly boasted that their children had never tasted a grape.

In time, a rather ponderous but indisputably democratic method for dealing with controversial products was instituted, involving a lot of committees and warnings and leading finally to a vote of the membership on whether the item should be withdrawn. The only time this procedure was actually completely followed through was in 1985, when the membership voted to boycott non-union Coors beer. When it came to Chilean and South African goods, a vote of the board was sufficient to keep them from sullying the shelves....

It is hard to gauge the cost to the organization of the political squabbling. Whenever a controversial stand was taken, like boycotting Coors beer or Chilean grapes, a number of members would swear never to shop at CCB again. This would seem like suicide for a store dependent on the greatest possible volume -- except that such stands also seemed to increase the solidarity of other shoppers. Once the door was opened to politics and social issues, it was very difficult to pick and choose which ones to deal with. The dangers of avoiding controversial stands proved to be as great as taking them. ...

What was it then that killed the co-op? Too rapid expansion into areas without a firm member base, increasing reliance on non-members; an attempt to emulate aspects of the major chains beyond the organization's ability to do so; political strife at the board level, which kept management of the stores in turmoil; changing demographics of the core area of Berkeley; inability to control labor costs as a percent of sales; a spectacular failure of the Rochdale principle of cooperation between cooperatives; and plain bad luck.

The history of CCB vindicates the importance of democratic decision making: the most costly errors came as a result of major decisions made in secret, or those made by only a narrow majority. It also shows the importance of education: there is no school in America where managers can study how to run a cooperative. The result was that many CCB managers, and most of the employees, had only the vaguest notion of how working at a co-op was different from working at a Safeway. The opposite extreme was reached by the board, which in its zeal to adjudicate social issues sometimes seemed to forget its primary goal was to run a grocery store.

from Chapter IV:

Anatomy of a Noble Experiment

By George Yasukochi

George Yasukochi is retired after 41 years of employment in co-ops, including serving as CCB's controller from 1956 to 1982.

... A prominent characteristic that began to evidence itself in the 1960s among CCB's active leadership was the intensity of an almost self-righteous zeal, a numbing inability to suffer opposing viewpoints without extreme anguish and bitterness. How that squared with a belief in cooperation was somewhat of an enigma. Do we chalk it up to immaturity or just self aggrandizement? Or was it simply a reflection of the times dominated by the ominous shadow of the distressing American misadventure in Vietnam? Perhaps it was inescapable in Berkeley, where the so-called "Free Speech Movement" and sitdown strikes at the University of California had achieved worldwide notoriety. In any case, an insidious adversarial cloud soon pervaded the entire co-op.

... The principal casualty of divisive membership and leadership was sound business practices. "A co-op that is not run first and foremost as a business won't be around long enough to start any kind of revolution," Phil Kreitner declared at the 1977 "Wind Through the Pines" symposium of the budding "new wave" co-ops, held in Austin, Texas. Co-opers uncomfortable with that emphasis preferred the other side ofthe coin. Like Dr. Toyohiko Kagawa, they were convinced that a cooperative dedicated solely to business would lose the larger vision concerned with peace, justice, and general moral -- and for some, religious -- principles. If the business was not run first and foremost as a co-op, they wanted no part of it. There appeared to be no acceptable middle ground at CCB.

Among the consequences of political turmoil was the inability to attract and retain top management talent, resulting in a rapid succession of top personnel changes with the inevitable waste of time, energy, and progress towards CCB's stated goals. We were continually reinventing the wheel. The general manager faced the herculean task of balancing the demands of a lay board with business realities and trying to change directions each time the political balance shifted. A posturing board member once chastised management publicly for the latter's "temerity" in encroaching upon board powers with policy change recommendations.

This anecdotal laundry list of shortcomings, errors, and mishaps, at times sounding like a loose cannon, does not readily lead to a summation of what went wrong at CCB. Like the famous Russian wooden doll, there are layers upon layers. A simplistic answer might be that cooperation fell through the cracks and denuded CCB's ability to cope resourcefully with its problems. Yet even with a united cooperative, it would have required exceptional efforts and ingenuity, and perhaps fortuitous circumstances, to have succeeded.

Too many of those involved began to follow their own private agendas. Fatigue set in. In a way, we had the ironic triumph of human failings -- egotism and greed, both material and psychic, in which all segments of CCB shared. The shopping members wanted the best merchandise at the lowest prices without a quid pro quo. Activists insisted on foisting their ideology in toto on everyone else, regardless of economic consequences. Board members and committee chairs in their pursuit of prestige and power lost sight of priorities that would assure CCB's survival. Management didn't control margins and costs, nor did they take certain difficult but necessary actions; a few may have been more interested in feathering their own nests. Employees demanded top wages and benefits, regardless of efforts or results.

In a perfect world, co-ops will prosper forever. In our real world, they struggle for existence. Although CCB is now in the past, those of us who were deeply involved have the satisfaction of some memorable accomplishments achieved by working together with a large number of noble individuals devoted to the cause of democracy, justice, and peace. We can view our co-op's existence as part of an ecosystem in which flowers bloom then wither, giving off seeds that will germinate and start a new cycle of growth.

See other articles from this issue: #038 January - February - 1992