Disappearing Distributors

This edition's stories on the demise of two cooperative distributors, Mountain Warehouse and WholeFood Express, prompt some further reflections on the state of food cooperative retails and their cooperative distributors.

The retail food industry continues to be highly "segmented" -- with different retail formats serving different types of shoppers. In addition, the niche most retail food cooperatives find themselves in, specialty stores with a natural foods grocery line, is a sector that continues to show healthy growth while the rest of the food industry appears sluggish.

These trends are supportive of the large number of thriving independent natural foods retail co-ops. Such stores have been operating for years -- a remarkable number of them have just had or are about to have their twentieth anniversary.

They have grown over that time: grown in physical size and staff, in sales, in professionalism and services. And for the cooperative distributors, much of the same could be said.

In the case of failed cooperative businesses, many of the usual suspects could be cited: lack of capital, weak management, poor location, ineffective marketing. So far, competition has usually been secondary, in my opinion, as a factor weakening these businesses, even though it is often relied on as an easy substitute for critical self-examination. This is particularly true for the retails.

Competitive pressures are much stronger at the distributor level however, and so is the need to achieve economies of scale. Over two decades, the co-op distributors have been disappearing one by one; their numbers are now about half what they once were. Of those remaining, some are thriving while a few are just "maintaining."

Our market niche is less and less a protected one. Along with this process, our businesses are increasingly pressured to expand products and services.

For most distributors, this pressure is particularly acute. The products are becoming more widely marketed and consumed. The growth of distributor buying power -- the economies of scale that lead to lower costs, better services -- drives out smaller distributors, perhaps including the co-op distributor. Yet the member-owners of these co-op distributors, especially the retails, often do not hesitate to "cherry pick" and buy some of the distributor's line from another source.

Economies of scale are true at the retail level also but in different degree. There are more ways and more places -- more good locations and loyal shoppers -- with which to withstand competition from larger stores. But another distributor can come right to your store's door.

In both kinds of co-ops, our market share is usually small. If we want to survive in an increasingly competitive market, we will need to work together more.

See other articles from this issue: #037 November - December - 1991