Why Co-ops Die: An Exchange

Why Co-ops Die: An Historical Analysis

By Robert Grott

As the current generation of "new wave" consumer co-ops winds up its second decade, it is clearly in serious trouble. Large numbers of co-ops have gone out of business in recent years, and virtually no new ones have been started. There are, of course, notable successes, but the concept of a co-op movement -- directed towards economic and social change -- has, undeniably, withered. This is due not only to a decline in numbers, but to a failure of vision. Not only have co-ops not achieved their original goals, but they no longer seriously espouse them, nor have they articulated new goals to replace them.

Many reasons have been given for the decline of individual co-ops, including deficiencies in management, marketing, capitalization, member involvement, education, etc. However the pervasiveness of certain problems and weaknesses throughout the sector suggests that these problems are not necessarily the fault of the individual stores. Those working in co-ops today need to be aware of those factors which are beyond their control and are independent of their particular circumstances or individual efforts.

The American co-op movement, now in decline, has just experienced the same cycle, the same "wave" pattern as have other co-op movements at other times and in other countries. A review of this history suggests that the reason for the problems now faced by co-ops goes beyond potential structural flaws in the consumer co-op model (though arguments can be made for their existence) and lies in the most basic of factors: the very definition of co-ops and their special relationship to their environment.

Co-ops are unique in that they have a dual mission -- part economic and part social. Economically, they provide a way for a community to capitalize its own business and to provide for needs that would otherwise go unmet. They can then return the economic benefits of that business back to the community. In other situations, they can protect people from abuses such as monopoly overcharges. Socially, co-ops actualize the ideal of human co-operation. They operate democratically, and they suggest a new type of relationship between businesses and consumers. They can provide people with a new measure of control over their lives, and they offer a context for community organizing.

Historically, however, co-ops have generally appeared during particular periods. They have always arisen as a response to a concurrent set of needs: a need for goods or fair prices combined with a desire for a new social order. The interweaving of these two needs, material and ideological, is the common feature of the environments which spawn co-ops.

Because co-ops are defined by their special relationship with the consumer, their continued success is dependent on the quality of that relationship. The co-op has a complex and sometimes unwieldy democratic structure in order to allow for community ownership and control. In retum, the co-op requires the committed patronage of its members. Co-ops encounter problems when this special relationship breaks down. This is precisely what has happened with the natural foods co-ops. Environmental changes (economic and social) have altered the original needs of the members. When the "new wave" co-ops began as whole foods stores in the Sixties and Seventies, they had a virtual monopoly on what came to be called "natural foods." In fact, they were started, in large part, because there was no other source for these products. What came next has been well-documented. As acceptance and demand increased for natural foods, so did the competition.

Competition had a number of effects on co-ops. With other stores selling the same products, consumers no longer depended on the co-ops, and a loyal market was no longer guaranteed. Having substandard capital bases, questionable internal structures, and an inherently conservative market approach, co-ops quickly became followers rather than leaders in their industry. Price competition and increasing expenses meant that co-ops could no longer afford to support their social agendas -- both internal and external. As competition intensified, co-ops lost the freedom to choose their own style and direction. The real decisions were no longer made by the management, the board, or the membership. The market dictated the decisions.

Meanwhile, the co-ops' democratic structures were not working well. They were idealistic structures and thus required participants, both workers and members, who were committed to the vision and were willing to contribute the extra energy demanded by the novel systems. But along with competition came societal changes and a reduced level of idealism and visionary yearnings. As social commitment declined, more and more patrons began reverting to the norm and relating to the co-op on primarily economic terms -- the weakest of all competitive positions for the co-op. At the same time, the co-op workforce was getting older and started to have more conventional expectations of the workplace.

Thus, co-ops were caught in a spiral of environmental changes. With reduced economic need and societal motivation, member commitment and motivation diminished, and the democratic structures became less functional. The co-ops now had to respond to the same market forces as their competitors yet without their former "special advantage" of member allegience, and while burdened with definite structural liabilities. They then had no choice but to become increasingly like the competition in operations and strategies. Finally, as ordinary stores, many found themselves lacking a clear identity or a meaningful sense of purpose.

In summary, the consumer co-op structure is a useful one which can offer many things to individuals and a community. However, it seems that, for the structure to be appropriate, certain environmental conditions must be present. These include a real need for a product or service and the presence of an active desire for social/economic change. History has repeatedly shown that when those conditions change, the movement that they endangered begins to diminish.

Co-ops are left today with an agenda of how to survive as independent institutions. Of course, general trends do not determine the fate of individual stores. Many will do well especially the larger ones which are well-run, have enough of a capital base, and a large enough market area. Others have managed to create their own vision and set of goals that, while not grounded in cooperative theory, successfully tie them into a community of support. But while many co-ops will be able to compete on their own, they no longer are in the midst of a dynamic movement. They no longer expect to have a significant impact on the economy and society in general. Pursuing a market need is not the same as being created by one.

It is not easy to present an analysis with such a seemingly negative conclusion. Nonetheless, co-op managers and boards need to be aware of the dynamic forces around them. To survive, and indeed prosper, they need to acknowledge reality and to work creatively with the changing environment, rather than fight stubbornly and blindly against it.

Perhaps, though, in the final analysis, it may not be altogether bad that most consumer co-ops are so personal and so responsive to their members that they, by their very nature, are transitory projects. Tied to the climate of their birth, they may not be designed to live beyond the needs and the visions of the generation that conceives them.

Why Some Co-ops Died and What to Do About the Others

By Jesse Singerman

Robert Grott's article, "Why Co-ops Die," is an interesting treatment of a topic as old as co-ops: what makes them fail? In some respects he is certainly right. There can be no doubt that the food co-op sector of the United States cooperative movement has been diminished in the last four years. Many stores and some warehouses have gone out of business, people have left for jobs outside the movement and the general sense of vitality is less.

However I do not think this is due to the reasons Grott suggests: that food cooperators forgot their goals, and that there needs to be a particular set of environmental circumstances present for co-ops to succeed. Rather, I believe the decline in U.S. food cooperatives in the early 1980s was due to a much more complex set of circumstances. They include our own unique history, the society we exist (or existed) in, and a set of problems that have so often plagued cooperatives that you'd think we'd have learned to handle them by now. I also believe strongly that co-ops are not necessarily fated to be transitory projects as Grott sees them.

The New Wave food co-ops came out of the fragmentation of what was loosely called the New Left in the early 1970s. The New Left was a narrowly based social movement; its primary issue was the Vietnam War. That movement broke up for many reasons, not the least of which was its immature understanding of social change.

The New Left suffered from an inability to place its actions into a broader social context. The sense of momentum and urgency generated by the war itself was tremendous. Eventually the movement as a whole became unable to discern what was really politically possible and what was a pipe dream. We wanted political transformation far beyond our abilities. We hoped revolution would follow from chanting other people's revolutionary slogans. When it didn't, many people were disappointed. Some still feel disappointed, as though, unfairly, a promise was broken.

We carried some of these unrealistic tendencies with us into our next ventures, including co-ops. We also brought a tremendous ambivalence about leadership, stemming directly from the New Left experience, which is still with us today. Hence the diatribes against "hierarchy" and sentiments such as "A co-op is not a co-op when hierarchy rules" (The Progressive, May 1986). It is hard to address a statement of such profound misunderstanding.

Did our "vision fail" as Grott suggests, or were our goals unrealistic and not tailored to the organizations we created? Some people are still confusing power over substantive social issues with control over the product line at their local co-op. Keeping chocolate out of your co-op may be gratifying; it may even be important. But it will never in and of itself alter the patterns of inequity in our society.

The "substandard capital bases, questionable internal structures, and inherently conservative market approach" that Grott attributes to food co-ops would be enough to bring most businesses to their knees in this day and age. Why go on to look for a failure of vision or a lessening of social commitment on the part of co-op members? Most of the failed co-ops I am familiar with have closed for one or more of the reasons he cites above, and these are the classic reasons that co-ops have failed generally. In addition, most of the people I know from these co-ops are still active, although much better focused.

As a movement we failed to learn from the experience of past cooperators. We went into business with two strikes against us: our unrealistic expectations of what belonging to a co-op would bring, and our choice of the food industry, characterized by intense competition, economics of scale and a tremendous capacity for adaptation. Does the fact that you can buy healthier food in some supermarkets mean we have failed? Obviously not; it is a measure of our success and also a measure of the nature of capitalism.

In all the discussion about failed vision, unachieved goals and reduced social motivation, the amazing thing to me is how the most basic and most important element of cooperatives is completely passed over -- member ownership. A cooperative is a cooperative not because it has a collective management structure, not because it carries a certain product line, and not even because of any particular social agenda it may have. A cooperative is a cooperative because it is owned by the people who use it. At this stage in advanced capitalism, the fact that cooperatives provide a viable method for the decentralization of capital and profit is extraordinary and worth protecting. The very fact that our cooperatives are capable of putting business ownership into the hands of thousands of people is a tremendously important social goal.

Many food co-ops are facing problems, no doubt about it. Many have gone out of business. Those that are left face some critical decisions. The most important decision that must be made right now is to protect the investment of our owner/members. I would include here the thousands of hours people have invested as well as, I hope, the thousands of dollars. Stay in business, and if that means sacrificing cumbersome decision making, do it. There will always be a dynamic tension between size, efficiency and democratic control. Cooperatives have no choice but to deal with this tension.

Next, I believe it is important to protect and support viable national organizations and communication networks. Here I would include Cooperative Grocer and the Consumer Goods arm of the National Cooperative Business Association, among others. We should actively forge links with other sectors of the cooperative movement, including farm co-ops. Food cooperatives may be in trouble, but credit unions, rural electric co-ops and housing cooperatives seem quite healthy. Most food cooperators are abysmally ignorant of other sectors of the cooperative movement, not to mention developments in international cooperation.

We should align ourselves with groups that promote consumer activism. We should encourage our own active consumers through education in our stores and newsletters about the products we sell.

We have entered a time during which economic power is shifting, perhaps permanently, away from the U.S. At the same time we are saddled with the legacies of the Reagan era, including a huge budget deficit, growing trade imbalance, high unemployment and the cumulative effects of years of misallocation of capital to the military. The need for cooperation and a sense of community will become increasingly important in the future as we struggle as a society with these enormous problems. That is not to say cooperatives will necessarily flourish. However, the fact that we exist may play a role in keeping the U.S. from turning in more repressive directions.

Finally, we should spend time articulating our goals for our organizations. Last May at the Consumer Cooperative Managers Association, a group of people representing over 20 co-ops from across the country put together a mission statment for a fictional co-op. Hearing it, I felt proud that a movement of people committed to social equality and a more just political economy indeed still exists in food coops across the country. We adapted it for Blooming Prairie, and it was adopted by our membership in November.

"The Good Old Days"

By Dave Gutknecht

Robert Grott refers only in passing to the key reasons "why co-ops die": inadequate capital, mismanagement, unsound organizational structures, conservative marketing. He goes on to claim that even more basic factors "beyond their control and independent of their particular circumstances" determine the fate of food co-ops: first, whether there exists a srong unmet need for certain goods and services, and, at the same time, strong support for an active movement for social and economic change. I question both his emphasis and his statements about these environmental circumstances.

The business problems of food cooperatives in the areas of money, management, marketing and members are not incidental -- rather, they are crucial -- to the question of survival for these organizations. Furthermore, these business weaknesses are nearly inseparable from the social movement and vision whose passing Grott is describing. The current generation could have built its cooperative enterprises on a foundation of shared investment by member owners, skilled operational management to protect this investment, and a service orientation. Instead, many food cooperatives thought that the strength of their social agenda -- their desires for quality food and community -- would allow them to substitute sweat equity for capital equity, widespread member participation for business acumen, and a readymade market (a static or passive approach) for a dynamic marketing strategy.

There's another key way in which these weak business tactics have been inseparable from the particular social/political vision which gave rise to the "new wave" food co-ops: By practicing these tactics in a context of autonomous, isolated local development, a potentially strong, planned regional and national cooperative movement in the food sector was fragmented, lost. The results were and are a continuing liability for our movement: widely scattered independent retail and preorder cooperatives, weakaly linked to a common wholesale and with an endless variety of methods and systems for bookkeeping, advertising, membership, merchandising, management, etc.

It's well known that in the food industry, the "independent" stores have suffered a long decline in sales positions. Independents that have survived have done so in great part by forming secondary level cooperatives and voluntary associations, which provide their member businesses with vital assistance and standard services. The more recent history in the natural foods sector may be recapitulating this pattern.

A movement less eager to substitute enthusiasm for expertise might look more closely at other models of cooperative development, such as in housing or credit unions, which also are founded on local ownership and service but which take advantage of pooled resources, including expertise, through standard procedures and systems. As Jesse Singerman notes in her response, cooperative development in several other sectors in much healthier. The present food co-op network is weakened by, among other things, its own autonomous development and lack of common systems.

To state what seems obvious but still bears repeating: Sound business practices are an essential part of an active, effective movement for social change. In any case, there always have been successful exceptions to the stereotyped assumptions about food co-ops. From the earliest of the current "wave" of development, and of course from the previous generation of cooperators, there have been healthy co-ops with a conventional grocery product line, ones with a general manager rather than a collective, ones with significant member capital but little member labor. It's primarily a vision of one kind of food co-op movement whose passing is being discussed.

Grott propounds environmental conditions necessary for the success of co-ops: "real" needs for certain goods and services, and support for an active movement for social and political change. Concerning the first of these, it's true that the spread of food quality concerns to supermarkets and other private stores provides an alternate source for meeting some of the needs upon which natural foods co-ops were founded. But there is no reason to believe that capitalist enterprises ever will fully provide, in all market areas, value and prices that cannot be significantly improved upon -- not to mention other advantages cooperative ownership can provide. Find and define your market niche, and your business will have a large part of its reason for existence.

The need for social and economic change is as great as ever: stay tuned for upcoming crises and disasters. I believe that support for an active movement for change continues to exist. But the ANSWERS are different than what we used to think. We need a less single-minded, more adaptive approach if we are to maintain democratic businesses which manifest our desires for social improvement and security.

More on Why Co-ops Die

By Pat Rogers

When community shrinks, members decrease; sales shrink; markups increase, membership shrinks; sales fall; etc.

I think Jesse Singerman and Dave Gutknecht missed the point of Robert Grott's analysis in the Feb.-Mar. '87 edition of Cooperative Grocer. He is pointing out yet another important sign of being a success -- you must have or make a stable and growing community of member/owners or you must be flexible enough to rise and fall with the social and economic contractions of the day. Grott is telling us that it is necessary to have a big enough community to support your goals.

As Dave Gutknecht said, without a "planned regional and national cooperative movement in the food sector" the isolated retail stores and buying clubs will have difficulty staying in business as long as the community continues to expand and contract.

Grott's historical analysis is the missing link, the missing reason, that the local retail food co-op is having problems. Seeing the written analysis I realized that to stay in business under shrinking market conditions is a miracle in itself. Shrinking community means changing vision, so part of the turnaround for any co-op means settling the question of how to maintain a community and a matching vision.

In the Southeast, co-ops, especially retail stores, tend to be isolated oases with no real regional link to pooled resources. Although these stores have moved toward professionalizing and democratizing the management and workforce as well as improving their equity position, their stability is still in question because the community and membership continues to expand and contract with the ups and downs of the economy. Mr. Grott's analysis helps clarify this bigger problem. They are like any human without an adequate support system -- eventually they wither and die.

If the co-op food movement is going to prosper and become the model for our economy, we need some regional and national organization and leadership to say, "this is the plan and here is how we get there."

I think that Cooperative Grocer is a good journal of the new wave retail food movement. I would like to see the movement use it and the national and regional warehouse system to get ourselves organized for survival instead of bickering about why co-ops die.

See other articles from this issue: #009 February - March - 1987