Canadian Co-op Systems Thrive

If any of us are to believe many of the grocery industry's best analysts these days, we should be abandoning all hope for small, regional grocery companies and counting instead on the success of the really big grocery distributors -- companies like Loblaw and Sobeys in Canada, Ahold and Delhaize in Europe, and Kroger and Safeway in the U.S.

This past year has seen several industry analysts being widely quoted in their assessments that bigger is clearly better. Stock market analysts have enthusiastically endorsed purchasing shares of the largest grocery distribution companies (even though some are not performing that well), while retail analysts have raved about the multiplicity of products and services available at chain stores of 80,000 sq. ft. and above in size. You could almost be led to believe that ‘one-store-shopping' at massive stores with massive parking lots was the ultimate answer to every household's daily needs; and that large grocery chains are the only ones where you can get a decent return on your invested dollar.

Four Major Canadian Food Co-operatives Compared

Co-operative 2000 sales Increase over
1999 sales Member capital
allotted in 2000 Capital expansion
projects in 2000 New stores
opened in 2000 Federated Co-operatives Ltd.
(Saskatchewan) $3.04 billion 20% $152 million $50.4 million 3 Calgary Cooperative Association, Ltd.
(Alberta) $631 million 6.2% $19 million $12.5 million 1 Arctic Co-operatives, Ltd.
(Manitoba, NW Terr., Nunavut) $73.5 million 7% $2.2 million $9.8 million 0 Co-op Atlantic
(Maritime Provinces) $478 million 8% $4.5 million $9 million 0

Frankly, these analysts are wrong. Bigger is not always better. In fact, as our population ages and changes, it seems highly likely that many larger supermarkets and super stores will face declining patronage in the coming 10 years, to the point where some of them will have to close. Shopping at super stores will be replaced by increasing patronage at smaller neighborhood grocery stores where older customers feel more comfortable, where the owner/manager knows them personally, and where they know they can find what they need.

The reason for this is rather simple. Large chain-operated super stores, with their massive parking lots, appeal primarily to a younger group of consumers. They have cars, and therefore they can travel the extra kilometers to reach the store of their choice. They may be starting families and therefore are budget conscious, believing that bigger stores offer better prices, which is sometimes true. And because they are younger they don't mind walking the many aisles of a football stadium-sized store. But Canada's (and North America's) population is aging rapidly. Today nearly 29 per cent of our population is 50 years of age or older. And that group is growing by 20 per cent per year. When people get older, and when they retire, they lose interest in travelling great distances to do their grocery shopping, and they do not like shopping in massive stores. They prefer a comfortable neighborhood store they can walk to, where they know they will get the quality they want, and where they know the store manager will pay attention to their particular needs.

One has to wonder about analysts who refuse to take notice of truly excellent retailers. Equally, one wonders if any of these analysts are even aware of the continuing successes being scored locally and regionally in Canada by the various membership supported co-operative grocery store companies. Federation Co-operatives Ltd. of Saskatoon last year reported sales of over $3 billion, an increase of 20% over the previous year. Food alone accounted for $1.3 billion of that. Calgary Co-operative Association Ltd., which holds the second largest share of the grocery market in that city, had 2000 sales of $631 million, up 6.2% from 1999.

Arctic Co-operatives Ltd. of Winnipeg, which represents 36 co-operative stores in the Northwest Territories, Nunavut, and northern Manitoba, reported 2000 sales of $73.5 million, which represents a 7% increase over the previous year. Co-op Atlantic, based in Moncton, N.B., representing the co-op stores throughout Atlantic Canada and Eastern Quebec, had sales last year of $478 million, up 8% from 1999.

These are all excellent results, more than worthy of an analyst's attention. However, they tell only part of the story. Because co-operatives are member-owned by people living in the communities co-ops serve, and because co-operatives have as one of their operating principles that they should return as much as possible to their communities, they have an impact far beyond their sales results.

During the last year Co-op Atlantic allotted some $4.5 million to members' share capital; Arctic Co-operatives allotted $2.2 million; Calgary Co-operative paid $19 million of which $12 million was in cash and $7 million was in shares; Federated Co-operatives allocated $152 million. This is real money that can be used now or later by the ordinary member-shareholders of the co-operatives. In addition, co-operatives, like those mentioned here, are major contributors to the charities and other non-profit associations in their communities. Calgary Co-op gives more than a million dollars in food and funds to food banks each year and supports dozens of other projects and organizations. Federated Co-operatives gave grants and donations totalling $605,000 and contributes funds and resources to co-operative youth training seminars in the four western provinces. Co-op Atlantic funds housing co-ops, senior citizen housing, and is building a $6 million health facility. Arctic Co-operatives invests in training and development in native Canadian communities and in the Inns North Hotel project.

All the co-operatives mentioned in this article have been reinvesting heavily in their stores and related facilities. Calgary Co-op currently has contracts totalling $12.5 million for capital expansion projects. During the year 2000 Calgary Co-op opened its 18th store, renovated two others with plans for a third, and also began planning for a new store to open in the fall of this year. Arctic Co-operatives spent some $9.8 million in 2000 upgrading stores and infrastructures, including six retail outlets, a convenience store, a hotel purchase and renovations to two other hotels and a retail outlet. Federated Co-operatives reported expenditures of $50.4 million on fixed asset additions during the year 2000, and included 18 new convenience stores, 38 renovations to existing food stores and three totally new stores.

Co-op Atlantic reported expenditures of $9 million during 2000 on capital assets. This included more than 30 projects, which included 28 retail stores.

Co-op Atlantic reported expenditures of $9 million during 2000 on capital assets. This included more than 30 projects, which included 28 retail stores. It was also the year that Co-op Atlantic's new Co-op Basics format was extended to 26 stores, differentiating them from other store formats in the Atlantic Provinces. Co-op Basics is now the leading discount food retailer in the region and will be expanded to other markets in 2001.

The year just passed was also the year in which Co-op Atlantic undertook to sell grocery products on a wholesale basis to unaffiliated independents in Atlantic Canada. This new role for Co-op Atlantic has so far proved successful and has expanded the reach of the company's products. Co-op Atlantic also purchased during the year a Cape Breton wholesaler, W.A. MacLeod & Son, which provided the avenue for Co-op Atlantic to open its first cash and carry outlet on Cape Breton island.

And there is one more thing that makes a good grocery retailer in this writer's mind, that has little to do with either total size of a company or its massive stores. It is the retailer's commitment to supporting local products and selling goods made by local food processors. One of the greatest concerns expressed by producers, and small and medium sized manufacturers, in the past five years has been their increasing difficulty in dealing with Canada's large chain retailers. This difficulty comes in two forms: 1) tremendous pressure on prices, which means if you don't go low enough you don't have a chance to be listed by the big guys, and 2) the bigger the big retailers get, the more they feel they can charge for listing fees, which are sometimes well beyond the capability of small and medium size companies to pay.

In contrast, Canadian co-operatives have always tried to help their communities by supporting local producers and processors. Go into any co-operative store in Canada and you will find carrots grown by the farmer down the road, drinks and yogurts made by local dairies, and products with brands you seldom see in the big chain stores. And it's not because the products aren't terrific; they are. It's because the national procurement systems of the big chains seldom allow the flexibility to deal with local and regional producers.

Without shelf space for their products, one must question where small and medium companies are going to be in three to five years. Will they be forced to fold, or will they have to sell out to large multinational manufacturers? At least some of them will survive because their local co-operative is willing to support them.