Mondragon Retail Strategy: Eroski Partnership Path

During the past two years Grupo Eroski has grown to become the second largest food retailer in Spain, following the French retailing giant Carrefour. Eroski is the distribution division of the Mondragon Cooperative Corporation, the largest worker owner cooperative in the world. (For more on Eroski see Cooperative Grocer, Nov.-Dec. 2001).

Eroski began as a restructuring of a small chain of cooperatives in the quiet valleys of the Pyrenees in the Basque country during the 1950s. Now Eroski and its partner cooperative, CONSUM, and their range of retail store formats are a Spanish retail giant.

Eroski's sales for the year ending 2001 were $4.5 billion dollars. Eroski owns and franchises more than 1,400 supermarkets and 55 hypermarkets throughout Spain and France. The company also runs a growing travel agency unit with 146 outlets (42 more than last year). Eroski operates 33 gas stations and is adding them to all its hypermarket locations. Eroski employs over 28,000 workers, of whom almost 12,000 have graduated into ownership status. Growth from 1996 to 2000 was over 100% in sales, staff, profits, and sales floor.

Within Eroski, power is shared between the employees and the consumers.

Eroski's market partnerships

Eroski's spectacular growth comes from its strategic goal to be the Spanish-owned retailer to compete effectively with the European giants moving into Spain. Over the past decade Eroski sought out other regionally owned retailers. Eroski's pitch was that unless the Spanish-owned regional retailers united under one banner, no Spanish retailer would stay in business. Eroski's fresh retail energy and unique cooperative structure was backed by the capital of the Mondragon Cooperative Corporation. These strengths convinced the regional retailers to create a national partnership with Eroski.

The Eroski and CONSUM chains are now present all over Spain and strongly regional in their marketing and product selection. This regional base gives them an important advantage over their non-Spanish European counterparts. These regional partnerships have revolutionized Eroski's national capacity, wholesaling and distribution systems, purchasing power, and advertising and TV promotions.

In September this year, Eroski achieved an even larger partnership with InterMarche. InterMarche is a French based chain of locally owned stores which operate cooperatively and are the second largest retail chain in France after Carrefour. InterMarche has only a limited market penetration in Spain, so the partnership has minimal impacts on its existing business. The partnership between Eroski ($4.5 billion) and InterMarche ($37 billion) intends to gain benefits from its role as the second largest food retailing group in Europe. All the major European retailers are gearing up to take on Wal-Mart, which is now active in Britain. Outside Spain, Eroski also has active relations with Co-op Italia, a consumer owned cooperative, which is the largest retailer in Italy with about 15% of the total Italian retail trade.

Cooperative wins Tour De France:
Viva Eroski, Numero Uno!

On July 28, the Tour de France ended in Paris at the Arc de Triomphe. While most news fixates on the individual winner (Lance Armstrong wins his fourth Tour), many Europeans root for the team from their country. No one gets to ride in the Tour de France unless accepted into a team. This year 21 teams participated (France 6, Italy 5, Spain 4, Belgium 2, and 1 each from Denmark, Germany, Netherlands and USA). There were 189 riders in the race.

A team sponsored by the Basque cooperatives won the Tour de France team title. The Eroski supermarket chain, the retail division of the Mondragon Cooperative Corporation, co-sponsors the bicycle team with ONCE, the Spanish national organization of and for the blind.

After 246 hours of cycling like mad over 2000 miles for 20 days across the face of France, the ONCE/Eroski team crossed the finish line ahead of everyone else. The ONCE/Eroski team from Spain won the team award 22 minutes and 49 seconds ahead of the US Postal Team. Millions of Europeans are transfixed to the telly during most of July; work production drops throughout the continent, especially in the Basque Country.

Winning the individual title does mean that overall you are the best cyclist in the Tour, and Lance Armstrong (USA) proved once again that he is a cycling legend. Coming in second was Joseba Beloki the lead rider of the ONCE/Eroski team. Beloki is a Basque, born in the province of Gipuzkoa, near Mondragon.

However, winning the team title is the result of the 9-member team tactically working as a group in the Peloton, the long line of cyclists drafting each other to increase their speed. Each day the team agrees on its strategy for using the Peloton to get over the finish line in a time ahead of the other teams. ONCE/Eroski Team members were three of the top ten individual winners (#2, 5 & 6), the most of any team.

Two other teams representing cooperatives were in the Tour de France: Rabobank (a Netherlands federation of agriculturally owned cooperative banks) came in #6, and Credit Agricole (the same type of bank for France) came in #17. There is a Credit Agricole cooperative bank in every town the Tour visits in France.

Viva ONCE/Eroski!

Eroski's capital partnerships

In addition to using the conventional capital markets, Eroski uses its unique cooperative structure and strong balance sheet and the backing of the Mondragon Cooperative Corporation to obtain capital from different sources such as the public and the employees. During the summer of 2002, Eroski made available a new non-voting financial product, Eroski Subordinate Financial Investment. The investment was made available through Eroski's website and the Spanish stock market. Eroski exceeded the $120 million demand on the part of investors to subscribe to the Eroski Investment. As a result of the deluge of subscribers drawn in by attractive earnings (7% return) and the Eroski guarantee, all investors will be limited to only one-third of what they wanted to invest.

The capital will be used to support the investment and employment creation plan set out in Eroski's 2001-2004 strategic plan. In that plan, Eroski Group announced the opening of 42 supermarkets over the first four months of 2002, with investments of over 46 million euros and the creation of more than 300 new jobs. Moreover, Eroski Group recently announced its plans to open nine Eroski and Maxi hypermarkets over the course of 2002. Plans also include over one hundred new CONSUM supermarkets and a strategic plan for developing the current network of 84 perfumeries throughout Spain.

In 2001, the participation of the worker-owners of the Eroski Group in the profits has enabled 40 million euros to be shared out among the 11,908 worker-members. The workers will earmark this profit sharing figure to finance the investments being carried out this year, which could total 420 million euros. Over the last five years, 1997-2001, the Eroski Group has invested close to 1,660 million euros and created 15,000 new jobs.

The Eroski Group is a young company, with most of its workforce between 26 and 30 years of age; 75% of the workers are younger than 35. Training is the means for professional advancement and, currently, several thousand workers are taking an Initiation Course in Business Management. Much of the training is through Mondragon University, one of only two universities in the Basque. Mondragon University was created by the Mondragon Cooperative Corporation.

Eroski's structural partnership

Within the Eroski structure power is shared between the employees and the consumers. There are now 487,000 consumer members, who also invest $75 dollars a year for their membership and discount. The consumer members of the two consumer co-operatives (Eroski and Consum) also participate in the official process for the annual general meetings. The consumer-members are represented on the governing boards, with the same number of representatives as the employees. More than 20,000 consumer-members have participated in the 16 regional annual meetings held throughout Spain.

The annual general meetings of the two co-operatives (Eroski and Consum) in 2001 earmarked approximately 7 million dollars from the profits to promote the activities of the Eroski Group Foundation. These center on consumer information, the Consumer magazine (circulation 350,000), the environment, and solidarity.

Eroski's environmental partnerships

Excerpts from a statement provided by Eroski about work it is doing in partnership with government entities and other commercial partners on environmental issues:

From its very creation the Eroski Group has taken care and respect for the environment on its boards and has carried out numerous related activities over the course of its existence. The most significant of these are detailed below:

1989-93: We withdrew all aerosols containing CFC from all our sales outlets and became the first Distribution Company to take this measure.

We committed ourselves to informing consumers and raising their awareness of environmental matters by organizing traveling displays -- ECOCONSUM -- giving birth to the concept of the Ecoconsumer as someone who introduces the environmental variable as part of day-to-day affairs.

We changed the paper used to print the Consumer magazine to a recycled paper made entirely from already used paper pulp.

Our traditional shopping bags were replaced by photodegradable ones, and reusable bags were made available to consumers.

We started providing a battery collection service at Eroski sales outlets, signing agreements with various public institutions to guarantee their proper treatment.

An Environmental agreement was signed with Vizcaya Provincial Council to build five clean points at which the selective collection of waste materials such as packaging, motor oils, batteries, cardboard, glass and so on is arranged in conjunction with a bioclimatic dwelling.

An agreement was signed with the Pamplona regional authority to build a clean point to collect special waste materials such as paints, pharmaceutical products, fluorescent tubes, X-ray sheets, etc., one of the first clean points of this nature.

2000: The opening of Urbil Eroski Hypermarket in Guipúzcoa, which is equipped with photovoltaic panels to self-supply the center's energy requirements.

The environmental variable was included in the approval process for suppliers of Eroski's CONSUMER brand name products.

Grupo Eroski has entered onto a number of paths that are different from other European cooperatives. Their Basque origins, Spanish role, and hybrid governance of workers and consumers are part of the explanation. Partnering has been their path for growing the cooperative. However, with all this growth dependent on external partnerships, is it possible that the cooperative structure of Eroski will diminish or perhaps disappear? On the other hand, will the external partnerships and regional affiliations preserve and nourish a dynamic community-oriented and cooperatively owned retailer? Eroski is an experiment worth wat