By Jane Livingston
Atlantic Canada -- the provinces of New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, and Labrador has been hard hit by cuts in government spending and the fallout from free trade deals. Already more dependent on welfare ("transfer payments') from Ottawa than any other region, the Atlantic Provinces are now experiencing rising unemployment, reduced benefits, and an over-exploited natural resource base.
Fortunately, however, this sad story is not the whole picture of what's happening. A parallel tale chronicles the history of the growth of Atlantic Canada's cooperative sector. At the center of that tale stands the giant integrated system known as Co-op Atlantic.
Begun in 1927 as the Maritime Livestock Board, Co-op Atlantic is in the top 300 of Canadian-owned businesses and the fourth largest regionally-owned business in the Atlantic provinces. Since its addition of consumer retail stores in the 1960s, Co-op Atlantic has grown to capture 20% of the retail market in groceries and other consumer goods. In 1994 its 172 member stores did more than $1 billion in sales. Nearly 6,000 are employed by the system, making it one of the region's major employers. Keeping the money, jobs, and decisionmaking power in the community is the cooperative way, and nobody does it bigger than Co-op Atlantic.
More and more U.S. cooperators are asking, "What has kept Co-op Atlantic growing?" "Will Co-op Atlantic continue to succeed in the 21st century?" "What's in all of this for U.S. co-ops?" These questions are being pursued energetically by Ann Hoyt, Director of the UW Center for Cooperatives in Madison, and Andy Ferguson, President of Northeast Cooperatives and of the Cooperative Development Institute in Massachusetts. Ann and Andy planned last year's tour and came together again in October 1994 to lead nineteen U.S. retail food store managers, regional wholesalers and board members on another look at the complex, constantly changing world of Co-op Atlantic.
Co-op Atlantic's Vital Signs
Board of Directors:
1. What's the Secret of Co-op Atlantic's success?
As the 1993 Co-op Atlantic study tour did, the 1994 participants gather at the Chez Francois bed and breakfast in the lovely seacoast resort and fishing town of Shediac, New Brunswick. In the next four days we toured five stores and the Moncton warehouse, and listened to numerous presentations.
What emerged was a picture of an organization that is in constant flux. Member co-ops are growing. New coops are coming into being. Issues are being raised at the annual meeting, zone meetings, management team meetings and board meetings of individual cooperatives. Strategies that once worked are held up to reexamination. New policies are forged; new programs are tested. World events, from trade agreements to wars and weather, put pressure on the planning and decisionmaking web holding Co-op Atlantic together.
In the past, Co-op Atlantic leaders have been able to sniff out troubles and opportunity in time to adapt their operations (and in some cases their structure) in order not only to survive but to grow. As big and complex as the system is, it has managed to change with surprising speed once a need for change has been identified.
The story of consumer co-ops is a good example of this agility. We learned from Johan Spierling, manager of the consumer products division, that in the 1950s and ‘60s Co-op Atlantic was struggling to move away from the dwindling agricultural sector and into the rapidly expanding consumer market. Conventional consumer cooperatives and buying clubs were offering more and more people an alternative to capitalist enterprises. But by 1970 the consumer stores were still pretty low level operations, with shelves poorly stocked, product poorly marketed, dirty floors and messy books.
Canadians seem to have a much better grasp of the concept of equity as ownership than is found in most U.S. co-ops.
Then Eric Dean was appointed general manager by the board. Within a very short time, two important changes took place. The first was the introduction of management training and the management agreement. Member stores who took part in this plan agreed to have a manager selected and trained by Co-op Atlantic but who would be answerable to the local board of directors. There was a good deal of skepticism, but the strategy seems to have paid off. In general, the stores that have utilized the management agreement are the healthiest stores.
The second change was the introduction of the direct charge model. Conventional co-ops constantly face the dilemma of how to avoid over- or under-stocking a store when the price margin is next to the bone. Direct charge offers a chance for a store to control its member-customer base and therefore to anticipate fairly accurately what its inventory should be. It also means that the appropriate size of a store can be more accurately projected up front, basing it on a membership plan and a formula of 10 square feet per member.
Canadians seem to have a much better grasp of the concept of equity as ownership than is found in most U.S. co-ops, so getting people to come up with the additional weekly service charge was not difficult. In fact, direct charge stores quickly generated waiting lists. When the Fredericton co-op added 15,000 square feet to its consumer store a couple of years ago it was in response to the 1500-person waiting list. (It's interesting to note that some Atlantic co-operators are questioning the continued use of direct charge stores. Since these stores do not accumulate an annual surplus, they offer little opportunity to contribute to community investment and the support of new co-op development.)
One of the benefits of building an integrated system like Co-op Atlantic is that people grow up expecting to find cooperative models to meet their needs. In the Atlantic provinces, there are daycare co-ops, co-op health care providers, and funeral co-ops that cut the cost in half and offer the bereaved family an instant committee of neighbors to help with all the arrangements. There are insurance co-ops: the Co-operators is the largest Canadian-owned multi-line insurance company. You can bank at co-op credit unions and caisses populaires, then buy your food, clothing, garden supplies and hardware at the co-op store, where you can also check out the latest videos and drop off your film to be processed at the co-op lab. You can gas up at the co-op's gas bar and go home to co-op housing heated by co-op fuel.
When you can see co-ops succeeding everywhere you turn, perhaps it's easier to "risk" investing in another one. Atlantic Canadians typically put in $600 to $700 in equity when they join a consumer co-op.
The skill, intuition, and talent of the traders who have consistently developed strategies for Co-op Atlantic's success would not have sufficed without the magic of the idealists who continue to challenge themselves and others to go back to the basics, to practice and promulgate co-op principles and values. Their push to expand may stretch Co-op Atlantic beyond the comfort zone, but there can be little doubt that their vision has contributed to the organization's size, strength, and solidly cooperative character. Lorio Roy, Co-op Atlantic's manager of Corporate Affairs, calls the balancing act between the more conservative, pragmatic traders and the idealistic visionaries an act of "creative tension which he claims is more responsible than anything else for the system's robustness.
Co-op Atlantic leaders have periodically shown themselves able to put their cards on the table and negotiate--with each other, their member-owners, and their employees. The ability of all these stakeholders to identify and agree on change has probably saved their collective skin more than once.
The only thing conventional about the Shediac Co-op is its consumer co-op structure. In its appearance, its management, and its performance it has broken new ground for the Co-op Atlantic system. Much of the credit goes to 37-year-old manager Petrer Breau, who took over a faltering co-op in 1985 and, in his first six years, doubled the membership and raised sales from $6 million to $16 million. How? By recognizing that cooperatives can offer things the big chains cannot. "We play to our strengths. We market the co-op difference."
This translates in some unusual ways. For instance, the flavor of Shediac, which has beautiful beaches and is "the lobster capital of the world "is captured by a fishing boat installed at the co-op's parking lot entrance. The boat offers a place where children can climb and play while parents shop.
The fish store (open year-round to accommodate the natives) is sandwiched between a seasonal souvenir shop and the video store. Video rentals nosedived when a big chain moved to town, until Breau put his staff in charge of meeting the challenge. The result was an upbeat, attractive video store and a policy of $99 rentals on any movie over 8 months old. Sales tripled and the co-op saw a sharp rise in new memberships.
"Employees come first on our list," says Breau. "The reason we're successful is because of our staff." Breau may not be taking his share of credit here, but he certainly has grasped the value of staff empowerment. "Giving the staff power to overrule a manager makes bosses feel their power is being jeopardized. But it's not true. I now work only 35 hours a week instead of 75. It's improved my golf game tremendously. Now if there's a fire in the store, the employees won't call the manager. They'll call the fire department."
If you can't compete on price alone, how do you get the edge? Breau prefers increasing sales to current members. "Do your members buy 100 percent of their needs at your store? If you could sell one more item to each person, you'd increase sales 10 percent." This perspective led him to place shopping basked all around the store. He realized that the person who "just came in to buy a loaf of bread" would be more apt to add a few other purchases if they didn't have to be precariously juggled. The baskets are even color-coded so employees can find out which locations attract these unplanned purchases.
"Get closer to your members," advises Breau, and he practices what he preaches. He delivers candy to hospital patients (with a card from the co-op displayed), flowers to couples celebrating an anniversary (nice centerpieces, with co-op card), and deli platters to bereaved families. The co-op also contributes significantly to local charities.
Breau and his staff usually rely on people, on knowing the members and the community. Co-ops must be dedicated to service. "And performance," Breau cautions, "must always be higher than your member's expectations."
2. What lies ahead for Co-op Atlantic?
If we are studying Co-op Atlantic as a potential model or inspiration for U.S. co-ops, we need to be watching what happens in the next few years. External events, such as the free trade agreements and the resulting rapid expansion of Co-op Atlantic's megacorporate competitors--discount clubs, the two big retail chains Loblaws and Sobeys, and Wal-Marts and other foreign invaders--may make it difficult for co-ops to attract members solely on the basis of cheaper groceries and consumer goods.
Co-op Atlantic appears to have pinned much of its hope for continued growth on an initiative known as the Initiative for Renewal. (It was excerpted in last year's report, CG #50, Jan-Feb. 1994.) This plan, set in motion at the 1991 annual general meeting, was designed to raise the level of awareness, within and outside the cooperative community, of the cooperative model as an alternative to a capitalist society. The specific ways in which this outreach was planned to occur were the establishment of community co-op development councils, the implementation of capital formation strategies, and the development of new and new types of cooperatives, including worker co-ops.
The Initiative for Renewal has traveled a somewhat rocky road. It is, after all, a sort of co-op manifesto which minces no words when it comes to calling for an all-out showdown with the capitalist bad guys who are sucking Canada dry. The assumption it is rooted in is that cooperatives cannot succeed if they remain embedded in a dominant competitive, profit-driven society. The alternative to becoming a third world dependent of the global free trade empire, according to the Initiative for Renewal, is to create an interlocking system of cooperatives in which all the people's needs can be met through co-op businesses and all the money stays in the local economy. This is a pretty big leap for some folks who have been mainly trying to figure out how to keep their price margins healthy and improve member services.
Fredericton Direct Charge Co-op
Co-op Atlantic's largest retail, located in the capital city of New Brunswick, is the Fredericton Direct Charge Co-op, a 65,000 sq. ft. store serving about 5,500 members. There also is a cooperative agreement with two other Fredericton co-ops, whose members may shop on designated days only. Members of the Fredericton Co-op tend to be middle income or higher, and are mostly professionals, government workers or university employees. They generally live within 10 miles of the store and spend about $150/week there for groceries, clothing, hardware, and other items.
As at other direct charge stores, only members can shop. In addition to their $800 in share capital, they pay a $2.95 weekly service fee, due whether or not they shop. Members' savings are reflected in the considerably lower prices, rather than in year-end surpluses.
Members are continually monitored through surveys, meetings, suggestion boxes (which generate about 30 suggestions per week) and service-oriented employees. An official greeter meets members as they arrive, often recognizing them. If not, a member may be asked to show a membership card. The service desk is located right inside the front door, so people who are new to the co-op will be encouraged to find out more and to join. Coupons are available to potential members so they can "test shop."
The co-op has a special program for low income people, who pay their share capital and $iimonth, with no charge for joining and a service fee of only 2 percent of their food order only when they shop. The program is run on the honor system. In fact, the co-op will go to a member of the community and offer it to them if they learn of a need.
Employees at Fredericton are given complete benefits, whether full- or part-time. Store manager Sheldon Palk says, "Every employee is a manager in his or her own right."
With this sort of commitment to members, employees, and the community, perhaps it shouldn't be surprising that the Fredericton Co-op was the first to decide to attempt to incorporate Co-op Atlantic's Initiative for Renewal into its operations. A leader in this move was Sid Pobihushchy, a board member and a former Co-op Atlantic director, who is widely acknowledged as the driving force behind the Initiative. The co-op is re-examining all the relationships among member-owners, employees, managers and directors. Among its recommendations is a move from nine to 12 directors. The need to bring in women and young leaders is explicity stated.
Board meetings, says Pobihushchy, "should not be a burial of last year but focus on next year's enterprise plan." The co-op should send delegates to conferences and other events in a systematic way. Employees and general members should attend the annual Co-op Atlantic general meeting, not just official representatives. One of the most controversial recommendations suggests that employees should be elected to the board by their peers. And a full-time staff position is recommended to improve and increase education about, among other things, who the workers are and their value as major stakeholders in the co-op.
Fredericton Direct Charge Co-op is also taking seriously the environmental initiatives stated in the Initiative for Renewal. The environment committee is redrafting a whole new set of policies from the position that the co-op is responsible to assess the adequacy of its operations on the basis of the "highest respect for the environment."
Employees carry cards saying:
- We must be easy to do business with and quick to deliver.
- We must not let our problems keep us from solving those of our members.
- We will provide for an environment which allows for employee involvement, growth, challenge and recognition.
It was apparent early on that if the Initiative for Renewal was going to work, it would have to be given away to the local co-operators. There could be no boilerplates or prescriptions for how to integrate the vision into a particular community. Predictably, responses have varied. Community development councils have been started -- twelve to date. Some of them are making a significant impact in their communities.
Yet the leadership that many hoped would come from co-op councils has been slow to materialize. Lately, thoughts have turned to how specific co-ops in a community might raise an issue that will catalyze council development. One idea is to ask co-op members to allocate some of their annual surplus to community development. Even a small co-op for instance, might have several thousand dollars in surplus. Each member can take home $15 or $20, or they can invest it in the community, perhaps helping to start a new co-op. Getting people to come together to discuss what to do with a pot of money may turn out to be a better way to encourage the community council concept.
But if new co-ops are to sprout up all over the Atlantic landscape, store operating surpluses will not be an adequate means of financial support. And so, sometimes reluctantly, Co-op Atlantic has begun to explore the world of capital formation. Capital formation strategies are in their beginning stages. But just the fact that Co-op Atlantic and its members recognize that without capital they will remain dependent on the Royal Bank of Canada (or worse) is a step toward greater economic self-reliance.
One step toward building investment capital is the Atlantic Co-operatives Development Fund. Incorporated in 1987, the Fund is itself a co-op whose members elect a board. There are three types of investment: voting co-op shares at $25 (no fixed rate of return), $25 preferred shares, (non-voting; pay fixed dividend when declared by board of directors), and debentures in minimum amounts of$100 (fixed rate; available to individuals only). The Board considers recommendations for funding from applications approved by its loan committee, and will initially be concentrating on the development of retail co-ops. As the Fund increases, its support will expand to other types of co-ops.
There is a realization that the caisses populaires-- the credit unions of the Mouvement Acadien Cooperatif, the francophone community's integrated system--have considerably outperformed the anglo credit unions, and may have some valuable lessons to offer. The Mouvement has roots as deep as Co-op Atlantic's. In addition to its 39 co-ops (producer, consumer, worker), there are 86 caisses populaires with $1.2 billion in assets. Ninety percent of the region's francophone population belongs to a caisse populaire: their money is 100% insured, and no c.p. has ever failed. These facts compare extremely favorably to those of the anglo credit unions, which admittedly have much stiffer competition. The Acadians also place a high value on education, paying to send any employee to school for as long as she or he is willing to pursue a degree, up to and including an MBA. There is a special scholarship fund for targeted research projects, and a venture capital fund that will invest in businesses too small or too risky for the big investors to bother with.
At Co-op Atlantic, employee relations is a growing concern, especially after a lockout at one of the co-ops last year. An employment equity policy was developed in cooperation with employees and the management team. Every employee carries a pocket-sized card around that articulates customer focus and employee focus values. It says, "We must be easy to do business with and quick to deliver. We must not let our problems keep us from solving those of our members," and "We will provide for an environment which allows for employee involvement, growth, challenge and recognition." As one store manager put it, his goal is for no employee to ever take that card out and point to a value that is not being observed in his store.
There is also a rapidly growing awareness that the almost total lack of women in leadership and the somewhat elderly makeup of the Board will present more and more problems in coming years. The management team is being implemented that will address the issue of succession in a much more proactive way than has been done in the past. One executive said, "I don't think we can have leaders stay in one position very long. You either become numb or defensive. This is true of management and the Board. We can't have someone stay in place for fifteen years."
A final note of warning was sounded in observations by several tour-goers that "a great leap forward in technology wouldn't hurt" Co-op Atlantic's chances for continued success. Indeed, while store managers often mentioned the goal of scanning inventory "coming in and going out," some of us sensed that the impetus for coordinated and state-of-the-art electronic information systems was coming from Co-op Atlantic (and perhaps not all that enthusiastically from them) rather than from the individual stores. Any system-wide integration will have a much greater chance of taking hold if if it is driven by the demands and the capacities of the individual stores. If Co-op Atlantic does not address this problem, they may find their competition running rings around them.
3. What Does Co-op Atlantic Mean to the U.S.?
Trying to understand all that we were observing was a challenge for many of us. Were we hearing only the good news? Where were the workers in all of this? What is member participation really like in these co-ops? How do the majority of members feel about, for instance, the Initiative for Renewal or the Ecology Program?
We did carry away some wonderful inspiration and some valuable insights that can help us be better cooperators here at home. First and foremost is that whatever mistakes it may have made or be making, Coop Atlantic is succeeding at operating a very big, very complex business that is absolutely dedicated to the principles of cooperation. It's a bottom-up behemoth that disproves any myth that co-ops must stay small and isolated in order to preserve their cooperative nature. In fact, the Co-op Atlantic model suggests to at least some tour-goers that the best hope for U.S. co-ops is to take greater advantage of a central organization to meet common needs.
Second, Co-op Atlantic's commitment to education is an outstanding characteristic which dates to the early Nova Scotia study clubs (there were 953 of them by 1934). Some participants went so far as to suggest that it might be a good idea to revive the Canadian study clubs, which died out around the mid-1950s. (One can't help but notice that this phenomenon passed awayjust as the television phenomenon was creeping into our homes.) Others wondered if study clubs might not be a way of attracting people to co-ops here in the U.S. Would people be willing to study and discuss the economy? The Canadian study clubs were quite formal; agendas were circulated, and each group was expected to assign someone to take notes and report back to the group.
The history of the co-op movement in Atlantic Canada may also explain the extensive knowledge of market forces and government affairs and programs exhibited by so many Co-op Atlantic people we met. Of course, these people people are running a big business, one of the largest in the country, so you would expect them to be pretty knowledgeable. But certainly some of the credit goes to the focus on learning that is a hallmark of Co-op Atlantic.
The management development program is a primary example of that commitment to education. Trainees take part in a program delivered in five four-day sessions spread over a year or more. There's a lot of homework and "hands-on" work in stores. The program stresses a participatory teamwork style of problemsolving and focuses on developing people's communications and human relations skills.
The dedication of so many of the "old-timers" is another obvious attribute of Co-op Atlantic's success. Again, in the history of the movement we learn that those same farmers and fishers who organized study clubs were sometimes harassed and persecuted by the merchant middlemen who understood what a cooperative society would mean for them. Some of these older cooperators may have firsthand experience, or they may have heard stories from family members. When your ancestors have suffered to build something and have entrusted it to you, it is harder to walk away from it no matter how discouraged you may get.
At the same time, there was concern about the gender gap and narrow age range that are so apparent in Co-op Atlantic's leadership. As one participant put it, "The all-male ethic is basically finished. For Co-op Atlantic to be viable they're going to have to be more expansive and inclusive."
Some participants noted that in the U.S. we do a better job of supporting women as leaders. We also are more knowledgeable about the natural foods market, a market many Atlantic Canadians seem to feel is not yet ripe on their turf. Perhaps they need some help in identifying and reaching it, and that may be something that U.S. cooperators could help them do. Other tourgoers noted the potential of the Halifax area for buying clubs, convenience stores and/or natural foods ventures. Halifax is a large market waiting to be tapped, but it seems that Co-op Atlantic has not been willing to risk or has not figured out something quite different, which could be the key to success in this large urban area.
For the study tour participants, perhaps the strongest message was that, as one put it, "For U.S. co-ops there is an absolutely urgent need to organize ourselves, with standards for training, models of how things can be done, management contracts, regional associations and information systems. Otherwise the natural foods industry will kill us. There will be little food co-ops here and there that survive because of the good will of a small group of people, but the co-op movement will be stillborn."
Co-op Atlantic's attempts to bring the Initiative for Renewal to the people and have them figure out what to do with it impressed several participants. Northeast Cooperatives, which recent redrafted its mission statement, has adapted the model and scheduled regional meetings between the wholesaler and several retailers to discuss strategic planning and operations. Now the focus is, "What can you do with your organization to use this as a catalyst to get your own act together?"
It remains to be seen whether U.S. cooperatives will be able to generate -- and flourish in -- a climate of creative tension such as the one that nourishes Co-op Atlantic. Are our traders and our idealists up to it? Can we put aside our individualism (personal as well as in "our' co-op) and focus on the strength of the co-o principles? Do our members and potential members understand the concept of equity as ownership" and will they commit to it? Is there a large enough pool of skilled managers coming along who will be able and eager to market "the co-op difference?"
Co-op Atlantic can be more than an inspiration to our movement. It can provide us with ideas, expertise, and warnings. We can learn from their mistakes and their flaws as well as from their spectacular successes. We are indebted to the U.S. cooperators whose vision led them to suggest we explore the Co-op Atlantic reality. And we are grateful to the people of Co-op Atlantic who shared that reality so generously with us.
Jane Livingston, a member of the study tour to Co-op Atlantic, has been intermittently involved with co-ops since 1975. She lives in central Maine with her 80-year-old mother and her 8 year-old daughter. She is a founding member of Maine's Green Party and of the Maine Coalition for Fair Trade.
[For additional background on Co-op Atlantic, readers are strongly encouraged to refer to last years report, appearing in Cooperative Grocer #50, January-February 1994.]