Co-op is the distributor of choice
Ontario Natural Food Co-op (ONFC) has just celebrated its 30th year. We’re proud to have come so far, yet there is so much more to be accomplished. In fact, there are times when I feel fortunate that we are still around at all. It wasn’t long ago that I read in this publication about “Disappearing Distributors.” In 1982, 36 natural food co-op distributors were in existence in North America. Today, only three remain: ONFC, Co-op D’Alentour in Quebec, and Tucson Cooperative Warehouse.
The growth of the natural and organic food sector has resulted in the inevitable consolidation of the “industry,” as many people call it. Thirty years ago, co-ops were at the heart of the alternative food movement as organic production was starting to take hold. It’s not surprising that regionally based co-op distribution eventually started to give way to more “efficient” national and mainstream supply chains. After all, these large players had the advantage of greater scale and had mastered the art of driving costs out of the supply chain.
Still, one is left to wonder whether survival of co-op distribution might have been possible had we taken a more collective strategic approach—but that’s easy to say in hindsight. It’s great to see the co-op retail sector doing well in the U.S. Canada has not had the same success in natural food co-op retailing. ONFC has only a few successful co-op store members. In fact, most of our members are now independent proprietors focused on selling natural health products.
Presently we service over 300 buying clubs, 10 retail co-ops, and over 200 natural food store members. Collectively, this represents about 55 percent of sales; non-member sales are approximately 45 percent of our business. We plan to convert some of the nonmembers to members in order to stay within Canada’s “50 percent rule,” which states that co-ops must do at least 50 percent of business with members. We do not do business with major national chain stores, with the exception of Whole Foods. When Whole Foods came to Canada in 2002, they opened their first store in Toronto and chose ONFC to be their primary grocery distributor. Since then, a second store has opened in 2005, with a couple more stores expected to open soon in the greater Toronto area.
ONFC is the supplier of choice to the natural foods channel in Eastern Canada, with the exception of Quebec. Ninety percent of our sales are in Ontario, with the remaining 10 percent in Quebec and the Maritime provinces. Quebec is serviced by a number of bilingual distributors, including Co-op D’Alentour, with whom we are establishing the beginnings of an alliance. We think it’s best that the two remaining co-op distributors in Canada work together to establish synergies that will strengthen their regional presence. There are great opportunities in being a strong regional distributor, especially in light of the emerging local food economy.
Canada’s natural food industry is evolving in a fashion similar to the U.S. It should be noted that almost 80 percent of the natural food products sold in Canada are of U.S. origin. Some time ago, United Natural Foods, Inc. (UNFI) formed a national distribution network in the U.S. through mergers and acquisitions, absorbing many co-op distributors in the process. In Canada, SunOpta, Inc. has been on a similar path in the past few years, acquiring distributors across Canada while investing strategically to become vertically integrated. This appears to be an excellent strategy as the natural and organic category achieves a growing share of the mass market.
In 2003, ONFC was adversely affected by a downturn in the economy. The SARS health scare had hit the Toronto area, further eroding sales at the same time that price wars in our market region were erupting. For the first time in our history, sales declined for the year, leading to layoffs and the first financial loss we had experienced in seven years. The organization was feeling vulnerable and was being courted by larger, well-moneyed players with national distribution aspirations. The membership did not want to sell, so the board asked management for a strategic plan to turn around the fortunes of the co-op and set a course to thrive in the future. So far the strategy has worked; financial turnaround was achieved, with 2005 and 2006 representing two of our best years ever.
It helped to have strong economic conditions, but the most important element of our recent success was a clear strategy with a focused marketing plan placing key financial targets at the forefront. With competitors positioning for success in the mass market, it was clear that ONFC would best change course.
We had started servicing the major chain store market but did not find that sector to be very rewarding. We defined our market space as that occupied by those who were aligned with our values. We saw opportunity in a ‘values chain’ where trust-based partnerships are formed through the movement of food from field to table. Reading The Cultural Creatives, by P. Ray and R. Anderson (Harmony Books, 2000) helped to convince me that a core base of society wants things to change and is willing to focus personal investment on those things that can make a difference.
As organic is pulled into the mainstream industrial food system, opportunities exist to further redefine an alternative food system. ONFC’s strategy is to be on the leading edge of change, just ahead of the masses where price, scale and efficiencies rule over quality. That doesn’t mean that we can afford to be irresponsible with costs, we have to remain competitive within our market space. But our mandate must be to foster a quality food system, not one based primarily on quantity and price.
Last year we launched our own line of tomatoes in a brand we named “Ontario Natural Food Co-op,” with the graphic emphasis on Ontario Natural. The tomatoes are organically grown and canned in southern Ontario, where we pick them up. We will not distribute this brand outside of the province and have used this product to educate consumers about reduced food miles (kilometers doesn’t have the same ring). By all accounts the brand has been quite successful (aided by the General Mills decision to pull Muir Glen out of Canada for financial reasons).
Our board has now given us the green light to venture into other food categories with this label. The opportunity is enormous. We see this trend developing in the U.S. as well, especially with the ‘100 mile aisle’ concept.
As globalization fuels the emergence of cheap organics with worldwide supply chains jumping into this fast-growing category, there’s a role for co-ops to uphold eco-logic. It’s important to support the growth of organic agriculture, which stands to reduce the toxic effects of conventional farming. With society now faced with pressing issues like global climate change and peak oil, new solutions are needed.
ONFC will continue to take a leading role in supporting organic and healthy food products. We also want to create more awareness on issues like fair trade, extending that concept to our own domestic farmers. Our members want to take a leading role in these matters, adding value to their customers’ experience and to their communities. Our best customer is the ‘food citizen’ who understands where his or her food comes from, values authenticity, and is willing to pay fair value for it.
We’re proud winners of the 2006 Distinguished Co-operator Spirit award, presented at the Ontario Co-operative Association’s annual gala. We play a leading role in the natural and organic food sector in Canada by sponsoring organic events and educating our members and the public about food choices and their connection to health and sustainability. Ontario Natural Food Co-op is also part of a vital co-op community in Canada that is gaining momentum, as society looks for global answers that can often be found in our own backyard.
Randy Whitteker is general manager at Ontario Natural Food Co-op ([email protected]).