Warehouses Test Cooperation Among Co-ops

While I will throw in my two cents on the debate as to why the food cooperative movement is achieving far less than its potential, let me be clear that my primary purpose in writing this is to identify a solution to the problems and to describe how that solution is working for one part of the food co-op movement.

I can agree with Mr. Grott (in the previous issue of CG) on several of his points, but with his primary conclusions I must differ. Certainly, the food co-op movement has been aided tremendously by its association with various issues of social change; many food co-ops have survived and even prospered despite weak management/capital/board/etc., because of these associations. Many have failed when either the association or the issue was no longer strong enough to mask operational shortcomings. I would also agree that food co-ops exist only when they are fulfilling some need; but no business, co-op or not, can succeed unless it fulfills some need.

Where I differ is the notion that the issues with which the food co-op movement has been associated, issues that have been very Important to many cooperators, are the essential issues of the co-op and that failure to succeed on these is failure of the food co-op movement. Is the cooperative movement a lost cause for failure to change the world? The principles of the cooperative movement are few but meaningful, and heretical as it may sound, they are not about world hunger, democratic management, organic agriculture, volunteerism, et al.

I am in agreement with Ms. Singerman and Mr. Gutknecht that the root cause of the failure of so many food co-ops is failure to embrace sound business practices -- the very ones identified by Mr. Grott. The grocery business is a very difficult one in which to compete, characterized by low margins demanding high volumes and dominated by large chains. Success requires considerable skills and experience -- attributes that few of us possessed when we embarked upon our careers in this field. For a while, we were unaware of how difficult this business really is: first, the grocery industry was slow to catch on to the attractiveness of the healthful foods market, and second, we had the support of those who attached the other issues to those of the co-ops. We were able to prosper in spite of our shortcomings due to these other factors. But time changes all, and it sure has changed the environment for food co-ops.

It has taken a long time for many of us to learn that we need a lot more tools with which to work than we first thought or currently have. But I assert that the co-op movement is viable and that its major needs for maintaining that viability are pretty much the same as for any other business -- fulfilling a need, sound management, and adequate capital.

It has taken a long lime for many of us to learn that we need a lot more tools with which to work than we first thought or currently have.

What is more important than merely identifying the inadequacies and the causes for the current problems of the food cooperative movement is developing remedies for them. The Central States Cooperatives Management Program (CSCMP) is one that is working for the wholesale arm of the movement and a model for what needs to be done on the retail level. The CSCMP is a new effort (last year it won the Consumer Cooperative Management Association award for most innovative program) that is proving to be one of the most successful approaches to our problems. Under this program, most of the cooperative, natural foods-oriented warehouses have banded together to improve the skill level of managernent and staff, improve operations, upgrade services, and utilize the economies of scale from our combined volumes.

While such a program has been a dream of many for some years, the current program was born from informal meetings held at the 1985 CCMA gathering. By the end of the year the program was underway with five participating warehouses and the hiring of Tucson Cooperative Warehouse manager Vince Ciccarelli as CEO. The initial need was to turn around the directions of most of the participating wholesales, most of which were losing money, sales volume, or both. The priorities of the program at that stage were primarily to upgrade the operations and services of the warehouses by Improving the skill level of staff and management. In most cases, attention was focused on improving sales via better pricing and offering more products, improving sales margin by better buying and better buying systems and formulas, and improving security. The results have been very positive: all of the warehouses have shown improved profitability (some with record profits), all have generated considerably better gross margins, and most are showing improved sales volume. As a measure of the success of the program, the number of participating warehouses has grown from the original five to now include nine co-op wholesales.

Each of the participating warehouses maintains its independence; each has its own board of directors and local management, but many programs that directly benefit the members of each warehouse are now common to most of the participant warehouses. The approach of the CSCMP towards strengthening the wholesales has always been twopronged: to improve the skills and services at the wholesale level and to strengthen the member primary co-ops (retails and pre-orders). Central States Cooperatives has a tremendous resource in a highly skilled CEO with a lengthy track record of business success. Specific programs include volume discounts that effectively lower prices to higher-volume purchasers (e.g., retails) and the flyer/circular program that provides the retails with an effective, low-cost method for improving sales volume and attracting new customers. In the near future we hope to offer retail training programs geared specifically for the member retails and a capitalization program for members of participating wholesales.

The CAPO (Computer Assisted Pre-Orders) prograrn has been successfully developed and implemented and is now available for use by other co-op warehouses. We are working together on programs that utilize our combined buying power -- joint purchasing, product development, and combined trucking.

We have done much on-site training as well as conducting seminars on warehousing, purchasing, and management. We are working on programs to reduce our expenses related to equipment purchases, insurance, financial audits, legal fees, and the like. We have broken away from the absolute autonomy that has long stymied us from achieving our considerable potential. In short, we are already doing on the wholesale level many of the things suggested by Ms. Singerman and Mr. Gutknecht, and it is working.

Can this approach work on other levels such as that of the retails? Of course! Is it easy or simple to admit that current operations and management (including the Board and maybe even... myself) are less than ideal; to commit to substantial fees to fund the program; and to sacrifice some amount of authority to some other organization or person in the belief that these actions will improve our operations, management, and movement? No way! It took the wholesales years and more than one attempt to get to where we are currently, and even now not all of the wholesales are participating. We have several advantages that have made it easier for us: we are small in number, we have been meeting together for up to 15 years, and many of us have been involved for most of those years, giving us a broader perspective.

Should it be done on the retail level? Absolutely! How many co-op retails have died in the last five years; in the past year? How many of the surviving ones would withstand the entry into their neighborhood of a well-run natural foods retail? Most of the retail operations with which I am familiar could benefit greatly from improvements in merchandising, purchasing, layout, site selection, preparation of financial statements, budgeting, advertising, and more. Why must our retails do these things poorly while trying to find the time to figure out how to do them well, when there exist in the world people who already know how to do these things better and who are willing to impart their expertise to us?

The solution is to strengthen our cooperative retails by utilizing the combined resources to secure the skills and talent necessary to improve our managements, operations, boards, finances, etc. It will not be without risk or sacrifice; it will cost money, some pride, and some autonomy. Store managers and boards should work with their co-op warehouses to form a retail organization that can provide the skills and resources necessary for developing truly sustainable operations. It will have to be funded, and the coops will have to commit themselves to the programs. It is very much a test of the principle of co-ops cooperating among themselves, but it is clear that it can work. It is working for the wholesales, and it has long been the way of life for most grocery retails. If we really are a movement, I see no other alternative.

See other articles from this issue: #010 April - May - 1987