Atlantic Canadian Co-ops Meet Globalization, Plan Merger

Thirty years ago, Atlantic Canadians got their groceries from family grocery stores supplied by family owned wholesalers and the co-operative store. The co-operatives had emerged to protect people from the temptation facing local merchants, especially in smaller communities, to control the local market and to exploit people and communities. The co-operatives had a distinct advantage. They were vertically integrated, owning their wholesale co-operatively.

But globalization has been relentless! Today the family grocers and wholesalers are history. The competition facing the co-operatives is comprised of two multi-national corporations, each of which is vertically integrated more than the co-operatives and horizontally diversified as well. Globalization and corporate concentration have bypassed the co-operatives and created economies of scale for corporations that have put the co-operatives' backs to the wall.

The big corporations want the market place to themselves, and a good measure of their determination is the fact that a basket of groceries that costs $100 in Ontario now costs only $95 in Atlantic Canada. Atlantic Canadians are used to the opposite. Historically, everything usually costs a bit more in Atlantic Canada, and the region's grocery prices have been the highest in the country. Even products made here are often sold elsewhere for less. When groceries get cheaper here, you know something is up. Current pricing suggests a concerted effort to drive the community owned co-ops from the market and divide the spoils.

Life has not been easy for the community-based co-operatives. In the 1980s and '90s co-operatives positioned themselves in the market as discount grocers. Sustained predatory pricing has made that positioning vulnerable. Almost 30 out of 114 consumer co-operatives in the Co-op Atlantic system have been experiencing financial difficulty. Many of these co-operatives owed substantial amounts to Co-op Atlantic -- in effect to all the other co-operatives in the group. Some had no remaining member equity.

The co-operative group's financial institutions began sending signals in the spring that some kind of restructuring was needed. Can the co-operatives stand up to the market muscle of two multi-national corporations with sales in the billions? They think so and are moving to meet the competition head on.

Even though Co-op Atlantic, the wholesale, is owned by the local co-operatives, there is much duplication of effort.  Each co-op has its own lawyer, financial institution, auditor, and set of books, to name just some of the inefficiencies.  Co-ops vary, to some extent, in their level of use of their own wholesaler.  Locals often guard their autonomy in unproductive ways, sometimes after that autonomy is, in reality, long gone.  If they operated in the manner of their competition, as a single efficient entity, they would save millions of dollars.

The search for alternatives began. The challenge was clear. How would the co-operatives improve their economies of scale and not just retain but improve their co-operative nature? From a strictly financial perspective, the clear answer was to merge the co-operatives in difficulty. Co-op Atlantic devised a financial and operating proposal for a multi-store co-operative and convened meetings of local co-operatives to examine it and other options.  While some co-op board members felt they had no choice, others realized that the proposal gave them an alternative that allowed for a co-operative store in their community, in spite of the tough realities facing them. Most cooperators saw the proposal as the best options, and some saw it as an opportunity for renewal.

Each local co-operative held a special local membership meeting to debate and reach a decision on whether to embrace the merger option. The result has been that all 28 co-operatives have voted overwhelmingly in favor of the merger. The new co-operative would be created. But precisely what form would it take?

In Atlantic Canada, co-operators had virtually no experience with multi-store co-operatives.  There was even some tendency to see them as a kind of second-rate model.  If a new multi-store co-operative was to be launched and launched quickly, there was a sharp learning curve to be followed.  What models for multi-store co-operatives existed?  What were the best models for enhancing the co-operative practice the business?  How could profound change happen quickly but nevertheless happen through a process that engaged the local co-operatives and their members?

An ad hoc committee of the Co-op Atlantic board, chaired by veteran board member Sid Pobihushchy, was given the task of seeking a governance structure and process for the proposed new co-operative.  The board members quickly added outside members to broaden their experience base and ensure representation of co-operatives facing the need to merge as well as those not directly involved in the merger.  They also engaged Global Co-operation and Tom Webb to design the consultation process and explore innovative co-operative solutions.

The Committee asked Global Co-operation to draft a discussion document on issues and opportunities and to focus their work.  In a three-day meeting in late July they agreed on a governance proposal document to serve as a basis for discussion among local co-operators and a consultation  process to engage local boards and members in shaping the new co-operative, tentatively called Consumers Community Co-operative.

This draft governance proposal will be discussed at 20 local meetings to be held across the region during the fall. The thoughts, concerns, and suggestions of participants in the neetings will be recorded and reviewed by the Governance Committee.  Local members also have the chance to have input through the kiosks set up in local stores, the Internet using a website and e-mail, and by means of a toll-free number.  Special Zone meetings will also be held to allow those co-operatives not involved in the merger to have input to the process.

The Committee will meet in October to review all the suggestions and comments and revise the Proposed Governance Structurel and Process.  Their recommendations will go to the Interim Board of the new co-op, which will be selected by board members from the merging co-operatives at a meeting in mid-November.  The Interim Board will have one last opportunity at that meeting to hear thoughts, suggestions and concerns about governance before drafting the By-Laws of the new co-operative in preparation for its launch on January 1, 2001.

While its precise form and arrangements for governance have yet to be decided, Consumers Community Co-operative will become the second largest co-operative in Canada on January 1, 2001.  With the potential for more than 20,000 members and sales of more than $170 million, it will operate in four provinces including a store in remote Labrador.  How will membership involvement be meaningful? Will community input be possible? Those are the challenges the governance process must meet.

Co-op Atlantic's Retail/Wholesale System at a Glance

168 Member Co-operatives, including:

•56 Conventional Co-ops -- sell at market prices and provide patronage rebates

• 24 Co-op Basics -- full product range, limited choice within each product area, discount

• 15 Multi-Purpose -- carry both food and agricultural supplies in conventional format

• 8 Co-op PLus -- 5% discount on a significant range of products, including Co-op Brand

• 5 Direct Charge -- members only, products at close to cost, monthly overhead charge

• 5 Food Buying Clubs

• 7 Agricultural Supply

• 16 Agricultural Societies (buying clubs)

• 5 Agricultural Producer Co-operatives

plus 27 Associate Co-operatives:

• Fishry Co-operatives

• Funeral Co-operatives

• Housing Co-operatives

• Worker Co-operatives

• Regional Co-operatives

Wholesale:

Sales are more than $450 million (Can.) annually. Workforce is 600.

Retail:

Stores are located in 5 Provinces.  Sales are approximately $1 billion.  Retail product/services range: groceries, produce and meat all locations, with many offering some of the following in addition:  clothing, appliances, gas and petroleum, agricultural supplies, hardware, animal feed, and funeral services.