Defining Your Market -- With a Response

Many co-op leaders resist attempts to define a "co-op market." A survey that describes food co-op shoppers as young, well educated, nutrition conscious, and ecology oriented, would be rejected as elitist and antigrowth, deemed as implying that the co-op is unlikely to expand outside this market. Such an attitude would be considered unusual in any industry. Whether one is attempting to promote AIDS education, seat belt usage, miniature golf, or Hondas, one accepts the concept of market segmentation, in that some consumers are more likely than others to be interested in a product or service.

All the research that has been done on consumer cooperation in the U.S. shows significant market segmentation. New wave food co-ops attract primarily young, unmarried people, food buying clubs appeal to families with young children in the household, and supermarket co-ops tend to select an older, ethnically diverse clientele. Housing co-ops are stratified into student co-ops, those specifically for senior citizens, limited equity co-ops for low and moderate income housing, and in a few large urban centers there are housing co-ops for the wealthy. Funeral co-ops attract mostly well educated, middle class people age 60 or older. Parent-run preschools and babysitting coops attract two-parent, middle income households.

Other examples could be given, but the present list is sufficient to make the point. By defining a market niche, a co-op can better serve its members' needs. Statements that the co-op should serve "everyone" are unrealistic and self-defeating when they lead to policies that neglect the interests of the present membership. Expansion can attract a similar clientele which allows business as usual, or different kinds of people with different interests. The latter approach runs the risk of alienating previously loyal members. There are no economies of scale if a co-op loses existing members in an unsuccessful attempt to attract new ones.

I like to use the example of the Cafe R, the best coffee shop in town. It is very successful and attracts primarily a bohemian crowd. It has not attempted to appeal to everyone. If it did, it would look like Denny's and serve the same kind of coffee. When the existing premises became too small, the management wisely did not attempt to fund a larger facility. Instead they opened up a second coffee shop in a downtown location, which attracted a somewhat different clientele -- more business oriented and straight. It is still not a coffee shop for "everyone," those anonymous folks who are probably happier at Denny's or Stuckey's, where they can find cheaper coffee, faster service, and a larger menu. Cafe R has remained in a market niche that it knows how to fill effectively and profitably. It is not the biggest coffee shop in town and may not even be the most profitable, but it is successful by every economic and social measure.

Cafe R demonstrates a principle for the co-op movement. A co-op need not be the biggest operation in town in order to survive economically and serve its membership. The parent-run preschool that requires volunteer work won't meet the needs of single parents without time for volunteer work or money for the buyout option. The funeral co-op which promotes low-cost no-frills funerals has little appeal to cultural groups which emphasize large, elaborate funerals. Food buying clubs are not going to be very popular with people in small households who don't want a month's worth of canned peaches or cat food at a time.

These are realistic characterizations of co-op markets; they are not elitist, defeatist, or exclusionary. If co-ops are to succeed both as social and economic enterprises, the must accept the reality that a particular organizational format may not serve everyone. Households where both parents work outside the home will be more interested in cooperative day care than in a parent participation preschool. The corollary is that there are limits to attracting dual career couples. If the co-op were to reduce its emphasis on parent participation, it would be changing its basic rationale.

New wave co-ops arose originally as an alternative to high priced private natural food stores. To require them to become large general supermarkets as an ideological test of democracy is to risk destroying their reason for being. It is misleading to imply that bigger is the same, and grossly incorrect to imply that bigger is always better. An important finding from research on organization size is that bigger is different, better in some respects but worse in others. Any co-op contemplating change should carefully consider the implications. What is good for the staff in the short run may not be good for the members. On the other hand, what is good for the members is always good for the co-op.

Let many flowers bloom. A place exists for tiny delicate lilies of the valley and for large, showy dahlias. A co-op should serve its membership first. If it does that successfully, expansion will come naturally and organically, probably less through larger sized units than through replication in other locations. There is a place for supermarket co-ops that appeal to a heterogeneous shopper clientele, and a different market niche for the co-op with volunteer labor and limited product selection. The supermarket co-op should not emulate the small co-op in selling a limited range of products, and the small co-op need not try to expand beyond a healthy foods market. A single co-op should not try to be everything for everyone. Let many different cooperatives bloom.

Yesterday's Market or Today's?

By Dave Gutknecht

Robert Sommer, in the above letter, states that his comments are in response to my article on "Development Directions: Turning Points and Lessons," in the previous issue of Cooperative Grocer; but also adds that nothing in what he writes denies the validity of my recommendations for horizontal and vertical linkages between co-ops.

However, alongside his prudent points about the importance of a co-op store knowing its market and building on its existing strengths, there are not only incorrect characterizations of my other recommendations, but questionable statements, as well, about viable positions for retail co-ops.

I did not imply that bigger is the same. But is the same what is wanted? Most co-ops which are blossoming have decided at some point that they want to serve the members better, with improved goods and services, and this usually leads to more efficient systems and to growth. Growth plans often lead, as they should when the co-op's mission is unclear or inadequate, to re-examination of fundamental directions and policies. Much of what makes necessary the precautions about alienating loyal co-op members is in the tendency for many members to be self satisfied and narrow in the evolving definition of the co-op, to be resistant to change, to be exclusive rather than inclusive. Yet, to question who the co-op is for is not to say that it should be for "everyone." It is true that a single co-op should not try to be everything for everybody, but many small co-ops offer relatively little to relatively few. What is "good for the members" may in fact contribute to erosion of the co-op's market position and deny membership to a potentially much larger constituency. Many small co-ops maintain food policies that are very restrictive, or policies that open the store to non-working members but make it non-competitive or unfairly restrictive for them. Indeed, it is such stores which have not themselves defined their co-op market very well. They may be oriented toward a segment that provides a declining percentage of total members and of total sales.

A self-reinforcing attitude of "business as usual" unfortunately often is elitist and anti-growth. I agree that expansion should be based on serving the members; that was a central point of my article on co-op development directions. But the point here is to define the members' needs, as well as the potential member market, broadly --to meet more needs of more members. A survey showing that most of a co-op's shoppers are young, well educated, nutrition conscious, and environmentally oriented would be important information, but to have a mission statement saying that the purpose of the co-op is to serve this segment of the population would be quite a different matter. The risk of alienating certain members can be countered by education based on an inclusive approach; education showing how member labor can be managed so that all members benefit from it; and education showing that the co-op can be a means not for promoting narrow food doctrines but for realizing increased control by consumers over distribution of goods and services they need.

Nor did I imply that all these stores should aim to be full size supermarkets. Fortunately, there are alternatives between being a co-op supermarket, which in many cases is not feasible, and being a small co-op that relies on member labor and a limited product selection, which in many cases is not viable. As for the method of growth, in the short run it is almost certainly incorrect to say that member-based expansion will occur "probably less through larger sized units than through replication in other locations." On the contrary, most co-ops will decide that the practical approach is first to utilize their present location to its capacity, through improved operating policies as well as through expansion by remodels and additions to the facility. A store must mature and fulfill the potential of its present market and site before it is ready for replication and the complicated and capital intensive process of establishing a new store in a different location and possibly different market. Obstacles to such growth through additional stores are not only in the required capital and management resources, and in the characteristics of the larger market. Obstacles also stem from a fragmented system of independent stores, which discourages standardized methods and greater cooperation among cooperatives while encouraging parochial attitudes within the individual co-op.

"Let many flowers blossom." Sommer seems to be saying both that co-ops should aim to serve primarily one highly segmented market, and that many varieties of co-ops can blossom within their segment. I don't agree with either of these. Given the proper resources, co-ops can improve their services to members as well as expand membership beyond the narrow demographic segment he describes. But there are only a small handful of retail varieties which are feasible models for replication of such success and sustainable growth.

"Let many schools of thought contend": the rest of that once revolutionary slogan. The next stage of social evolution -- and there always is one! -- is to determine through practice and criticism which varieties flourish, which ones die, and why -- then to plant a mix of the hardier ones.

See other articles from this issue: #019 October - November - 1988