Sales and Labor in 20 Retail Food Co-ops
Having members of a retail food cooperative contribute labor toward the operation of their store is one of those practices that is wholly unnecessary or even undesirable in the eyes of some people, while to others it is a cornerstone of their co-op's operations. Why is this?
From the existence of these strongly held but opposing attitudes, even before examining various aspects of the member labor issue, we can surmise that (1) the advocates and critics may both have their blind side, and (2) what works well for one co-op may not work well for another, or even for the same co-op at a different stage of development -- hence the need to re-examine old practices.
This section presents a discussion of working member issues. In it, First Alternative Food Co-op in Corvallis, Oregon, presents a somewhat unusual example of "how it works for us." But the writers also note a trend, at First Alternative and other co-ops, to more reliance on regular paid staff.
Accompanying their article is a chart based on information on 20 co-ops across the country, gathered by First Alternative in the course of debating their own working member practices. The chart doesn't specify individual co-op discount policies (apples to apples comparisons are actually difficult); nor does it include what percent of total sales are discounted to working members (some of the co-ops did not know this figure). It does provide some useful comparative information about general patterns in treatment of labor and labor expenses in these co-ops.
Rounded out by the following summary of benefits and problems of working member practices, these pages should provide co-ops with a useful source of ideas, and some key questions, about member labor.
Member Participation and Member Labor
Member participation in the broad sense is fundamental to all cooperatives: members capitalize their co-op and exercise control of its direction through meetings and elected representatives. But most co-ops -- speaking now of all types, including farm, credit, and housing, as well as consumer goods and services employ little if any amount of member labor. Exceptions to this would be worker-owned co-ops, small housing co-ops -- and, often, food co-ops.
For most of the present generation of food co-ops-- particularly in their formative years but also at present -- participation by members in running the store has been very common. Co-ops with member labor systems often encourage such work, and grant recognition to the individual member's contribution, through compensation, usually in the form of a discount on purchases.*
*Referring to such programs as "volunteer labor," as is commonly done, is somewhat misleading, because of two quite different connotations: the labor is voluntary, i.e., by choice, but it is compensated. This article will use the terms "member labor" or "working members." Opportunities for truly volunteer (uncompensated) labor are readily available at most co-ops.
The various co-op working member practices have had more than one key purpose or intended advantage:
- Such work encourages feelings of purpose and solidarity. Member labor provides a way for individuals to help build and maintain a democratically controlled business promoting social ends.
- Secondly, the social atmosphere of the stores is improved by the increased presence of member workers. Certainly this is true for working members and their acquaintances, and probably true for other shoppers too. (I say "probably" having in mind some of the disadvantages listed below.)
- Finally, member labor programs can help keep down total labor costs and overall margin -- and prices. Obviously, this can be an important advantage, especially as part of what's called a market entry strategy: In getting a business on its feet and soundly established in its market, the owners often can compensate for inefficiencies of scale in a (small) business through voluntary or under-compensated labor in some areas of operation.
What are the key problems with member labor systems?
- Additional staff work is always required to maintain a member labor system, even when there is no paid position for such coordinating functions: orienting, training, scheduling, and supervising are all necessary. The absence of adequate training and supervision is likely to increase dissatisfaction and turnover among working members. In the survey of 20 co-ops, almost all of whom have significant member labor programs, fewer than half have a paid position for coordinating the member labor (not shown on the chart).
- The typically high turnover among working members results in less than satisfactory, or at least inconsistent, quality of work. Sustained experience and responsibility are the best teachers, and produce the most effective workers. One co-op commented, "We need to be more responsive to shoppers (the majority), than to volunteers (the minority) for survival."
- Without close monitoring -- and many co-ops haven't done this -- the cost of a working member discount can easily eat up a potential profit margin. In such cases, from the point of view of non-working members, who are the great majority in almost all co-ops, one might ask: "Must the labor that 5% or 20% of the members provide be compensated to the extent that the co-op must forego lower costs for all members?" (Such lower costs could be passed on either through prices or patronage rebate.) Another example of how non-working members might be said to be unfairly treated is when the year-end figures show a loss for the co-op; the working members would already have been compensated.
First Alternative has an interesting way of dealing with this issue: "We have a variable volume discount percentage based on store performance, partially as an attempt to instill responsibility."
- By diverting part of total affordable labor expenses to working members, such programs may actually depress wages for paid staff. And everyone knows that low wages are a common problem in food co-ops, one which leads to other serious problems. The cost of the member labor system may be more than that required to hire regular staff to cover the same functions.
- Finally, a co-op giving discounts to working members risks incurring IRS requirements that taxes be withheld from such compensation, interpreted as "wages." To make matters worse, co-ops also could be fined for not paying such taxes in the past. This actually happened to Gordon Park Co-op in Milwaukee several years ago, an event which contributed to some co-ops deciding to lower or discontinue their discount for working members. However, the Gordon Park discount was unusually high -- as much as 40% -- and in the time since their case I have heard of no other ones involving this issue.
A further important factor -- and this again underscores the particular value of cost-saving member labor as a market entry strategy -- is that the problems of member labor system often increase as the co-op grows in size. Reflecting this, almost all of the stores surveyed, which have annual sales from $.4 million to $2 million, noted a trend shifting more functions to paid staff.
Many of the comments made by the co-ops surveyed exemplify the points listed above: reasons for changing their member work practices include "frustration ""inefficiency," "poor performance," "too complex," and "lack of commitment by members." Decreasing interest and participation in working member activities was noted as a general pattern in itself.
Many of the co-ops surveyed stress the importance of training and supervision in improving and maintaining member labor systems. Shifting some tasks to paid staff responsibility is very common, and is described by most of the co-ops as an improvement.
Each co-op needs to make its own assessment of the costs and benefits of a member labor system. In addition, the issues raised here point to some fundamental questions: what is the purpose of our co-op? Who is it serving? What are its goals? How, and how well, does our member labor system address these goals?
Time ≠ Money![NOT SHOWN:]
This interesting graph, and a well-considered look at the economics of member labor systems, appeared several years ago in a paper written by Prof. Ron Cotterill, then at Michigan State University: "The Influence of Consumer Participation on Economies of Size in Retail Food Cooperative: A Test of Schumacher's Hypothesis" (a version appeared in the February 1983 American Journal of Agricultural Economics).
The chart is based on financial information provided by 22 Midwestern food cooperatives in 1978. Line P2 shows the percent of member participation where the co-op has written instructions and a training program for the working members. Line P3 shows the percent of member participation where the co-op does not have such aids. While both types of co-ops clearly show a marked decline in participation as sales increase, the positive effects of instructions and training also are evident. The curved lines indicate the number of participating members.
Cotterill's paper concludes:
"If the lowest possible [cost] curve [with a member labor system]...was above the average cost curve without participation..., then the volunteer program would be discontinued. In many cases, however, average costs including participatory inputs will be lower than costs without them. This will be especially true for cooperatives that are experiencing low sales volume during their early years.
"The evidence indicates economies of size are not completely offset by adopting small scale production units, and alternative technologies based upon regressive factors of production. Nonetheless volunteer inputs do lower the level and slope of the cost curve. Therefore they lower barriers to entry allowing cooperatives to enter and grow in markets that otherwise would be inaccessible. This prognosis seems to conform most closely with the rapid growth in the number of small cooperative grocery stores during recent years. It also suggests that these stores will expand sales volume to reduce costs further, and that they may ultimately grow to a size where volunteer inputs are no longer economical."
% of Sales
|Hope Neighborhood Co-op|
Forest Grove, OR
|St. Anthony Park (2 stores)|
St. Paul, MN
|Ashland Community Food Store|
|Olympia Food Coop|
|Boston Food Co-op|
St. Paul, MN
|Cambridge Food Co-op|
|Ecology Food Coop|
|Sacramento Natural Foods|
|Williamson Street Grocery Co-op|
|Leon County Food Co-op|
|Davis Food Co-op|
1) Sales figures are not adjusted for inflation. Decline: -5% or more. Stable: -4% to +4%. Slight growth: + 5% to +14%. Strong growth: +15% or more.
2) Based on 52 weeks/year.
3) Not show is the percent of working member hours actually filled each week, which varied from less than half to 90%. An asterisk (*) before the column for Working Member Hours/Week Available indicates those stores which have a requirement of member work.
*Asterisk indicates co-ops that require member labor.
[The following letter originally appeared in CG #2, December-January 1985-6]
More on Working Members
Your very good article on working members omits probable legal complications. Gordon Park's problem with IRS about withholding taxes is not the only one that's surfaced, but other co-ops can expect to be faced with the same problem.
There's a long standing legal doctrine, originating probably with live-in domestic employees, to the effect that room and board furnished in lieu of cash is still compensation. Legally, it is to be reported as wages paid (and as income received, by the employee) at a reasonable valuation. Thus, it is subject to withholding tax requirements just like any other compensation paid employees.
It goes further than that. Social security taxes apply also, both employee and employer payments -- and the employer is responsible for collecting and remitting both. Outpost Natural Foods, in Milwaukee, ran into that one a year or so ago. Workman's Compensation is affected, for the wages paid in the form of discounts from regular prices are part of the wage base used to compute premiums. In Syracuse, N.Y., a co-op that required three hours a month from all members (but also sold at regular prices to others) was at first assessed as if these members worked full time! Fortunately, that excessive basis was corrected, but the co-op still had to pay more in premium than it had assumed previously.
I don't know of other cases, but there probably are some, for our communication on these problems is not too good; perhaps Cooperative Grocer will help a little on that. As local co-ops grow and become more conspicuous, they can expect to be contacted regarding minimum wages, OSHA and other wage and hour regulations.
Falls Church, Virginia
Art Danforth, a Member of the New York Bar and former Secretary-Treasurer of The Cooperative League of the USA (now NCBA), is well known as a prolific writer on consumer cooperative topics.