Member-Owner Requirements and Benefits

Members and owners

Food co-ops have very diverse membership requirements and benefits.  Nevertheless, over many years a few trends are visible, and “best practices” have emerged among these co-ops. 

For example, many now give more emphasis than they formerly did to the fact that the cooperative is a business enterprise owned by those who choose to join and make full use of the cooperative advantage that is offered.  Consequently, the earlier common term “members” now is less used than “member-owners” or simply “owners.”

Another change, reflected in the language of “owners,” is that most of the established and successful food co-ops have an investment or equity requirement for joining, and this member capital (also called member equity) is recognized as an essential part of building and branding the co-op.  Member “fees,” whether levied once or annually, are being minimized; such fees are taxable income to the co-op and contribute less to the co-op’s financial strength.

Equally important in defining member-owner agreements has been food co-ops’ evolution in lowering, though not eliminating, discounts on purchases by members and various subclasses of members.  Increasingly, more of the savings from store operations are shared after the close of the fiscal year, distributed to each member in proportion to the member’s part of total sales. (See wiki on Patronage Dividends.)

These aspects of member-owner requirements and the marketing of cooperative ownership – basic terms and concepts, equity, discounts and benefits – are discussed further on this page.

The marketing of membership

A useful and in-depth presentation of recommended best practices, “The Ownership Toolbox,” was written in 1999 by Marilyn Scholl and Karen Zimbelman.  It is available as a free download (pdf) at the link provided under Related Documents at the bottom of the present page.

In a Cooperative Grocer article, "Membership is Ownership: The Cooperative Advantage" (linked below under Related Content), Marilyn Scholl reviews fundamentals of making members owners, and includes this warning:

“Careless language can interfere with member-owners understanding the distinct advantages of cooperative ownership. Whatever words you use for owners and owner investment, choose and use your terms carefully and consistently. Communicate the true meaning of ownership with terms such as invest, investment, your share, refundable, and equity. Avoid inaccurate and potentially misleading terms such as cost, fee, pay, lifetime, one-time payment, and total. Member equity is not a fee, and it will likely change over time as the capital needs of the co-op change.”

Canadian author Brett Fairbairn has written a thoughtful discussion of why member relations should be a co-op’s fundamental organizing principle.  Peg Nolan reviewed Fairbairn’s booklet, “Three Strategic Concepts for the Guidance of Cooperative” in an article titled "Making Member Relations the Co-op's Organizing Principle," linked below under Related Content.

Member equity: essential

For concise descriptions of the advantages of member equity, see the article by Marilyn Scholl and one from Ann Marx of Good Foods Co-op, "We Own It -- At Last";  both are linked below under Related Content.

Scholl’s review states: “First and foremost, patronage refunds are directly tied to the health and profitability of the business and to the essential dual role of the consumer-owner. The cooperative’s board decides to allocate earnings to the members only after ensuring that the business has actually made money. And since the business is more likely to show a profit if the members use the business, patronage refunds support a mutually beneficial relationship.”

Good Foods Co-op in Lexington, Ky., after nearly thirty years as a non-profit organization, had a dysfunctional fee/purchase discount structure: “Good Foods member’s equity investment was $10 with a $15 yearly dues payment for which a member received a 5 percent discount on every purchase. That yielded over $200,000 a year in discounts—quite a return on members’ investment! No wonder we could use the discount to ‘sell’ membership. Yet, under this system, the larger the percentage of purchasers that were members, the less income the co-op had. We had grown and prospered with this system, but it was not in the long-term best interest of the co-op.” 

The transition at Good Foods to owner equity and reduced discounts, one that many other food co-ops have made as well, is captured in the 2005 report’s title: “We Own It – At Last!”

A parallel change at Sevananda Co-op in Atlanta, “From Nonprofit to Cooperative,” was described in 1996 by Scott Anderson and Alan Mathewson; their report is linked below under Related Content.

Member benefits: may include discounts

Food co-op membership and marketing staff have learned to emphasize a full range of benefits to co-op ownership:  helping ensure the continuing services of a democratically-owned store, one that provides excellent goods and jobs and gives back to its community, offers classes and social events, provides opportunities for more active involvement through voting and volunteer committees and board of directors positions, and fairly distributes earnings to further benefit all those who use the co-op’s services.

The practice of offering purchase discounts to food co-op members (and/or surcharges for non-members), while not a common practice among earlier generations of grocery co-ops, became deeply embedded in the niche market co-op stores of the 1960s-1970s and later.  However, among food co-ops that survived in an increasingly competitive market, formerly large discounts and simplistic arithmetic have gradually given way to lower discounts and more careful management.  While daily purchase discounts persist in some co-op stores, member discounts now are commonly only offered monthly or quarterly or for special events.

A diverse set views, reflecting the evolution in co-op practices, is found in this 1996 debate over purchase discounts, co-op earnings, and patronage dividends; see "Cooperative Finance: Discounts Promote Discussion," linked below under Related Content.

The topic of discounts for members is further complicated by discounts for subgroups such as working members, seniors, low-income shoppers, as well as by questions such as household vs. individual memberships. 

Senior discounts are being reduced or eliminated in a growing number of co-ops, with a common supporting argument that many seniors have comfortable incomes.  A substitute practice, in some co-ops, is to offer a discount or special offer to those who can demonstrate that they are a recipient of one of specified public assistance programs. 

Member labor (aside from hired staff) is a diminishing co-op practice among established co-ops, but one which still gets a lot of attention. For discussion of discounts for labor on behalf of the co-op, whether “volunteer” or paid staff,” see the wiki page on WORKING MEMBERS (VOLUNTEERS).

Households: membership is non-transferable

Granting co-op membership to entire households can be problematic. Allowing other household residents to shop on a co-op member’s card, or on the contrary allowing only the person named on the card to use it, are examples of solutions to this issue. 

Karen Zimbelman offered these comments in a listserv discussion (Dec. 6, 2009):

“My experience is that most co-ops offer a household membership, limit the number of individuals named on the membership to two, and then try to work out whatever special arrangements might be appropriate for those shared housing situations individually.  It really only becomes a big issue for larger group houses so can mostly be handled on a case-by-case basis. 

“And in terms of transfer of ownership, it is FEDERAL securities laws that make co-op shares non-transferable.  So it applies to all co-ops with equity shares, no matter the state, no matter what your articles of incorporation state.  

“It is non-transferability (along with some of the other features of our member shares) that is what distinguishes co-op shares from stock in other corporations and, therefore, not subject to federal securities registration and regulations.”

 

           

 

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