By Karen Zimbelman

At the time this remark was made, many of us had very little understanding of what was meant by a "co-op system." What's the big deal? We have lots of co-ops that are doing well and growing. For businesses owned and controlled by their local communities, what difference would a co-op system make? Besides, it's the members who make the co-op successful, right?

To those of us who were fortunate enough to participate in the five-day visit to co-ops in the Atlantic provinces of Canada last October, the promise and potential of a co-op system became vividly clear. In a few days we could only glimpse what these Canadian cooperators mean by a "system," but we were all inspired and impressed. We learned what a huge difference a system that supports and helps develop co-ops can make to its individual members and to the public. We saw evidence of the tremendous power these co-ops have in their markets and the many benefits they bring to their communities. Perhaps most importantly, we were reminded of the value and potential of consumer ownership when it is the driving force for meeting mutual and basic needs.

The tour and participants

The Co-op Atlantic study tour was coordinated by Andy Ferguson of Northeast Cooperative Development Services and a board member of Northeast Cooperatives. The tour was co-sponsored by Cooperative Grocer, the National Cooperative Business Association and the University of Wisconsin Center for Cooperatives, and by our hosts at Co-op Atlantic, whose contributions of time, materials, logistics and presentations were invaluable. The eighteen U.S. participants were a mix of managers, employees and board members from cooperative wholesales, retails, and service organizations.

The tour consisted of a non-stop series of 2-4 hour presentations interspersed with short tours. During the week we toured three retail co-ops (including one co-op's auto repair facility), one of Co-op Atlantic's food distribution centers, and a child care co-op. We heard presentations from Co-op Atlantic employees as well as co-op managers and leadership about Co-op Atlantic, retail development, grocery merchandising, training programs, and future directions, as well as the status of co-ops and co-op development efforts throughout the Atlantic provinces.

Atlantic Canada

The Atlantic provinces of Canada are made up of four provinces: New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland/Labrador. PEI, Newfoundland and part of Nova Scotia are islands, and although Labrador is attached to mainland Canada, its remote eastern location results in its access via Newfoundland. In addition, the Magdalen Islands, though part of the province of Quebec, are part of Co-op Atlantic's service area. Transportation barriers are formidable, with winter limiting ferry service to many areas. This region was the site of early English and French settlements, and 30 percent of the population are "francophone" -- those who speak French as a first language. Historically, natural and human resources have flowed west to Quebec and Ontario. The population base is low, and forests and fisheries have been severely depleted.

Co-op Atlantic's cooperative roots

Earlier this century, Canada's Maritime provinces were home to the Antigonish cooperative movement led by J. J. Tompkins and Moses M. Coady at St. Francis Xavier University in Nova Scotia. These pioneers saw cooperatives as a way to bring economic self-sufficiency to the people of this region -- to help them become "masters of their own destiny." As a result of these efforts, producer, consumer, and credit cooperatives enjoy an unusual level of popularity throughout Atlantic Canada.

Co-op Atlantic is a supplier with a diverse product mix -- from consumer goods to agricultural inputs. This mix is a natural extension of the organization's history. In the 1920s, livestock producers in the region found themselves at the mercy of drovers who would pit one farmer against another to buy at the lowest possible prices. To combat this situation, producers formed their own livestock shipping clubs, which banded together to form the Maritime Livestock Board in 1927. As the livestock board's successes grew, farmers began to consider how cooperation could do more for them. Cooperative buying of feed grains was the next step, and in the 193 Os the group began to pool buying of other farm needs and, eventually, basic consumer goods such as tea, coffee, molasses, and flour.

In 1944 the group was re-incorporated as the Maritime Cooperative Services Ltd. and expanded its services to co-ops in Nova Scotia, New Brunswick and Prince Edward Island. During the 1960s it began serving co-ops in Newfoundland. In 1978, reflecting its growing role in providing goods and services to local coops of all kinds in the four Atlantic provinces, its name was changed to Co-op Atlantic.

Co-op Atlantic today

To this day, Co-op Atlantic is unique in its resolve to meet the needs of producers and consumers within a single cooperative system. The theory is simple: the Atlantic region is simply too small, economically and geographically, to support a number of independent cooperatives. Co-op Atlantic's scope of operations continues to be diverse, including several subsidiaries. They also work with allied cooperative systems and service organizations in credit, finance, and other fields. For this article, we'll focus on Co-op Atlantic's operations providing goods and services to retail co-ops.

Co-op Atlantic supplies its members with groceries, produce, hardware, dry goods, petroleum, building supplies, feed and farm supplies. In addition, they also provide a procurement service for members for meat and frozen foods, enabling their retail co-ops to enjoy the benefits of the system-wide purchasing volume without Co-op Atlantic handling these products. Three Co-op Atlantic distribution centers supply members with food and grocery items, which account for about 85 percent of total sales, while one distribution center serves all members with hardware and clothing.

Co-op Atlantic's 1993 sales were $440 million, up 5.3 percent from 1992. Its assets total $90 million, and projected 1993 profit, to be returned to members through patronage refunds, will be about $6 million. Co-op Atlantic itself employs more than 850 people. It is one of the largest regionally-owned businesses in Atlantic Canada, and controls nearly 20 percent of market share in groceries.

Co-op Atlantic's 161 members are similarly diverse. Although they are primarily retail grocery and consumer goods co-ops, members also include agricultural and producer co-ops, several co-op associations and housing co-ops, and five buying clubs. In 1992, Co-op Atlantic's members had combined sales of over $975 million and employed over 5,000 people throughout the region. Finally, Co-op Atlantic's members are owned by more than 168,000 families representing over half a million people.

Retail formats: conventional and direct charge

Co-op Atlantic's retail members operate using two basic models -- one familiar to U.S. co-ops and one virtually unknown. The conventional co-op is one with an open and unlimited membership, providing goods and services to members andy, non-members alike. To join a conventional co-op, members make a small initial equity investment, usually about $20, with additional investments added to the members' accounts through annual patronage refunds.

Conventional co-ops provide competitive prices (Coop Atlantic helps them with pricing surveys to ensure that they do) and then distribute their surplus (profit) at the end of the year to each member proportionate to the member's purchases. Each member receives the patronage refund as an allocation to his/her equity account until it reaches the co-op's share requirement -- typically $400-$600. When members' share accounts have reached the required investment level, members may receive their patronage refunds in cash or leave them at the coop as loans, in which case they are paid interest. Co-op Atlantic has 59 members structured as conventional coops.

The structure of a direct charge co-op is different in almost every respect. The theory of a direct charge co-op is that it allocates all of its fixed costs (overhead, administration, supplies, facilities, etc.) equally to all members, regardless of purchases, in a weekly fee -- hence the name "direct charge." Goods are then priced with only a small mark-up to cover variable expenses, resulting in very low prices to members. In other words, the co-op's members pay a fee each week to cover basic costs and then purchase products from the co-op at tremendous savings.

But the operating practices of a direct charge co-op also make it distinct from conventional co-ops. To begin with, direct charge co-ops are open only to members. As with conventional co-ops, members join a direct charge co-op by making a small initial share purchase. However, direct charge members must also pledge to purchase additional co-op shares at the rate of $1-2 per week until their shares total the required level. Most direct charge co-ops have higher share requirements than their conventional counterparts -- usually $600-800. In addition, members sign a form with their membership application stating that they will pay the weekly service fee (the direct charge), usually $2.50-3.50 per week, as established by the membership.

Because of the savings they offer their members, well run direct charge co-ops can become very popular in their market areas. In fact, most direct charge co-ops limit their membership -- too many members can make it difficult to keep sufficient items in stock and can result in unacceptably long lines at the checkstand. Typically, direct charge co-ops limit their membership to one for each ten square feet of store space and have a long waiting list of interested potential members. Additionally, direct charge co-ops don't advertise -- after all, the stores aren't open to non-members; who would they be advertising to? Nor are the stores open every day. But members have every incentive to purchase as much as they can from the co-op -- since the more they purchase, the more their weekly service fee is diffused.

Co-op image and co-op ownership

In other ways, the operations of Co-op Atlantic's direct charge and conventional co-op members are strikingly similar. Most use a common logo, designed by Co-op Atlantic, that is recognized throughout the region. They make use of display and signage materials provided by Co-op Atlantic that create a clean and consistent image. The co-op logo appears on products that they all prominently feature: "CO-OP" and "HARMONIE" labels.

The stores all use common signage at their entrances to list the co-op principles, describe their membership systems, provide newsletter and sales information, and display names and/or photos of the co-op's board members. A further similarity is that these co-ops all have far higher share requirements than most U.S. co-ops, although the collection period is typically longer.

Regardless of which membership system is used, these co-ops aren't shy about being consumer-owned; they're proud of their co-op structure and take every opportunity to make it more understandable to their customers or members. Co-op Atlantic has developed materials and performance standards that help all of its retails, regardless of type, attractively and prominently promote their co-op and governance systems. After all, promoting cooperative ownership is a common need among its members, and it's far more costly for each coop to have to develop its own materials. We're starting to glimpse some of the advantages of a co-op "system."

Basic services -- and more

Of course, a major focus of Co-op Atlantic's operations is efficiently and responsively providing its retail members with goods: groceries, produce, hardware, clothing, photofinishing, motor fuels and oils, heating fuel, and general merchandise. To complement its products, Co-op Atlantic supports its members with a wide variety of services to assist their daily operations, ranging from the ordinary to the unusual -- including merchandising, accounting, printing, advertising, information systems, member relations, training and management support.

Because Co-op Atlantic considers itself a partner in the development of co-ops throughout the region, its services are developed accordingly. Most grocery distributors provide merchandising, printing, advertising, and other services to their retail accounts. Co-op Atlantic, however, goes further by emphasizing member relations, training and management support.

The focus of Co-op Atlantic's member relations support is to help its member co-ops in five key activities: planning and administration, membership analysis, recruitment, communications, and events. Indeed, members are the backbone of the entire system. If co-ops can't figure out how to recruit, keep track of, communicate with, and effectively encourage participation by their members, the whole system is weaker. (See page 16.)

Training resources and commitment

Co-op Atlantic's training and management support services are substantial and are highly integrated. They provide all members with an extensive series of on-thejob retail training manuals. These materials begin with a standardized orientation program that introduces employees to co-ops, the Co-op Atlantic system, regional co-ops, and their own local co-op.

Materials then cover specific job functions and technical skills based on effective standardized operating procedures developed by an advisory group of retail managers. Co-op Atlantic also provides uniform job descriptions for each retail position, which can be adapted by any co-op and which include a training plan for each job.

A separate training program is maintained to develop employees from within the co-op system to become retail co-op managers. Called the "retail management development program" (RMDP), this program requires a commitment by each trainee to relocate for two to three years. Training typically lasts about 18 months and includes both in-class work as well as a great deal of in-store, self-directed study and work. RMDP trainees are assigned to specific stores from among Co-op Atlantic's members for their training periods, and evaluations of trainees' progress are conducted every two months.

Upon successful completion of the program, graduates are assigned to manage small stores, usually those in the $2-4 million range. Since Co-op Atlantic pays 60 percent of the salary and benefits costs of trainees as well as all of the training costs, each RMDP graduate represents an investment by Co-op Atlantic of approximately $40,000. However, well managed retail co-ops are the result of this investment, and Co-op Atlantic is very pleased with this program and its results.

Management contracts

A unique aspect of the Co-op Atlantic system is its management contracts with retail co-ops. While Co-op Atlantic is strongly committed to local ownership of co-op stores, it recognizes the vital importance of well-qualified management at the store level. Rather than leaving each co-op to its own devices to attract and develop talented managers, Co-op Atlantic has developed a program that helps provide qualified, accountable managers to retail coops -- a system that helps build strong coops and a strong co-op system.

Under this plan, Co-op Atlantic enters into a contract to provide a general manager and supervisory support for a retail member. These "management agreements" help coops attract talented managers and provide career opportunities for those employed within coops. Management agreements also establish a close working relationship between Co-op Atlantic and its members. To be sure, this service is one that requires both parties to bring a fair amount of trust and good will to the arrangement. But most importantly, through its retail management development program and management contracts, Co-op Atlantic can help its members with continuity through management turnover.

Here's how it works: retail co-ops, by decision of the local board of directors, contract for Co-op Atlantic to manage the co-op and its operations. Co-op Atlantic then designates a potential manager candidate. The co-op's board still has the chance to accept or reject this candidate. Once a mutually acceptable candidate is located, the manager takes the job. The manager is a Co-op Atlantic employee, paid by Co-op Atlantic, although the retail co-op reimburses Co-op Atlantic for the manager's compensation. The retail co-op also pays a fee based on sales volume.

The co-op manager reports jointly to Co-op Atlantic and to the retail co-op's board of directors. Both retain full, joint authority to take any action related to the manager, but with Co-op Atlantic's training and support services, any problems that arise are addressed early. The manager is responsible for making regular and special reports to the co-op board as needed and is accountable to that board for meeting the needs of the co-op's members. At the same time, the manager is responsible to Co-op Atlantic for meeting agreed-upon operating standards and receives support from Co-op Atlantic as problems or needs arise.

Management contracts are renewable annually. Coop Atlantic has found this service to be especially effective with smaller stores that have a hard time attracting, compensating and retaining qualified management. Currently, Co-op Atlantic has 65 member retails on management contract, and a majority of its sales are through these stores.

Co-op development services

Co-op Atlantic's commitment to consumer ownership extends beyond current co-ops and their operations. Co-op Atlantic provides extensive resources to groups interested in forming new co-ops, and their track record in co-op development is most impressive. However, the primary driver in their development work is always community interest and initiative.

Once an interested group approaches them about starting a co-op, Co-op Atlantic begins a series of studies to determine the community and market potential for supporting a viable cooperative. After determining that the project is feasible, they secure an option for a site and begin working with a local steering committee. The steering committee is typically made up of 20-30 people whose job it will be to recruit enough members and secure enough initial financial commitment from the community to get the project going.

Co-op Atlantic provides a lot of support and assistance to these local steering committees, but its overall philosophy is, "We're here to help you; the interest and momentum for a co-op has to come from its community, not from Co-op Atlantic." They provide the steering committee with training materials and sessions on recruitment techniques. They help cover some of the out-of-pocket costs, make presentations, and are available for as much advice and counsel as the group needs. However, based on the square footage of the proposed co-op store, the steering committee must recruit 80 percent of the required membership base (one member per ten square feet) before construction begins.

When a new co-op group successfully recruits enough members, Co-op Atlantic and its subsidiaries move into action. They purchase the land, design and build the store, help arrange financing, and prepare the store for opening day. After the opening, Co-op Atlantic sells the new store to the co-op's membership.

Although Co-op Atlantic estimates that they invest about $50,000-80,000 in a new co-op development effort before construction even begins, they do walk away from projects when the steering committee is unsuccessful in meeting its recruitment requirements. Ultimately, Co-op Atlantic knows that the success of new co-op development rests with the local steering committee and genuine interest in the local community.

For several years, Co-op Atlantic's new co-op development work has been exclusively with direct charge co-ops. In these projects, the commitment for weekly fee and share payments from at least 80 percent of the needed members greatly reduces Co-op Atlantic's risk. Co-op Atlantic has helped launch ten new and successful direct charge co-ops in the last ten years.

Lessons from the co-op Atlantic system

Co-op Atlantic and its network of consumer-owned cooperatives are a model of economic interdependence and provide interesting lessons for U.S. co-ops. Perhaps the most important one is the potential for cooperatives when they enjoy the benefits of combined resources, when local ownership means focusing on members' needs without the limitations of independent operations.

An equally important lesson is that co-ops can be dominant players in their markets without having to sacrifice complete local ownership and control. Indeed, Co-op Atlantic's unwavering commitment to its members and to consumer ownership is the foundation of all that it is. To Co-op Atlantic, local ownership and control is an asset; operating independently and without outside support is a liability. The Co-op Atlantic system is designed to provide its members the benefits of a chain, without supplanting consumer and community ownership.

At the end of our tour, our group spent some time listing key factors contributing to Co-op Atlantic's success. Two elements incorporate many of the specific factors identified by our group:

1. The advantages of a cooperative system: standardized operating procedures and practices; use of a common logo and image throughout the region; the availability of career opportunities for employees; management contracts for retail co-ops; a strong commitment to training and development of training materials with practical application; a sense of teamwork through the entire system; a commitment to developing an adequate capital base for retail coops. The system stays focused on helping primary co-ops meet their members' needs.

2. Commitment to cooperative vision and values: maintaining a steadfast focus on consumer ownership and the cooperative principles of equity, equality and mutual self-help; willingness to name, articulate and use the values of cooperatives prominently in operations; encouraging revolutionary and creative thinking to continually challenge co-ops to look forward and not become complacent; focus on meeting basic human needs; practical applications of the co-op principles. The entire system stays focused on helping co-ops make a difference to their members and their local communities.

Applications for U.S. co-ops

Many ideas can be applied to the development of strong consumer cooperatives in the U.S., and further discussion will be needed to identify specific strategies. Our group identified three major focus areas for efforts to apply these lessons to our co-ops:

1. Integration and standardization: We will strengthen our co-ops by creating standard operating procedures and a unified image, exploring joint procurement and co-op label possibilities, by more collaboration among co-ops of all types and an increased sense of working as members of a common team to build cooperatives.

2. Capitalization and development: New and existing co-ops will be strengthened if we develop models for member equity programs, cultivate resources that can help co-ops meet their financing needs, and create models for successful co-op development.

3. Cooperative vision and commitment: We need to clearly articulate our common vision and values, to have excellent materials for member and staff education about co-ops, and to structure systems that respect and are responsive to all co-op stakeholders. We need to support efforts for looking ahead and challenging co-ops to new heights.

It's hard not to be excited by the sights and accomplishments of the cooperative system in Atlantic Canada. Whatever your particular vision for co-ops, it is inspiring to see co-ops meeting their potential, serving as a catalyst to bring people together as "masters of their own destiny."

What is most clear is the tremendous potential of a system focused on helping consumers meet their mutual needs and build strong community-oriented organizations. Think of how much your own cooperative could accomplish if it were part of a system like Co-op Atlantic's -- if each co-op didn't have to create membership brochures, newsletters, training and procedure manuals, promotional materials from scratch. Let's not stop with the inspiration!

Karen Zimbelman is a trainer and consultant providing specialized services to co-ops throughout North America.

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