One Close Observer’s Viewpoint
Why is North Coast Co-op Failing?
And not just North Coast. Consumer grocery co-ops nationwide have been gradually losing market share for
decades. As retails owned by their customers and operated for the benefit of customers rather than outside
investors, why aren’t they booming? Shoppers warm to the idea when they hear about a co-op; they join; they
try it out. But they don’t return to the store they own in big numbers. Instead they shop at other standard
grocers, other natural food stores or low price options. Why do these other stores have any customers when the
shoppers have their own store right down the street? Co-ops could be most folk’s first choice but instead
survive on specialty shoppers, a narrow lifestyle group and some diehard co-op idealists. Let’s face it –
consumer co-ops are a great idea that should dominate in the marketplace but instead they are a marginalized
afterthought for most shoppers. Why?
Just about anyone who has been around American consumer co-ops very long will tell you that the weak link,
from a competitive standpoint, is usually the board of directors. Co-ops’ one member – one vote governance
system elects leadership strong on values but weak on business analysis and strategic planning. The Rochdale
Pioneers (they invented the co-op) started it off with the original Co-op Principles which included both
economic and social parameters for a co-op. The Co-op Principles rewrite of 1995 includes more social value
points and less emphasis on co-ops’ potentially disruptive economic force – not surprising since the rewrite
process included input from many countries whose leaders are threatened by independent institutions. The
consumer co-op genesis as an alternative economic institution with a heart has in practice becomes a hub of
political values appealing to the membership, funded by the business. The chance to transform how we
consume has been abandoned because the efforts to do it now start from ideas and ideals rather than the data
points of actual shopper behavior. Consumer co-ops are no longer capable of creating a broad based,
competitive business; they aim only for alternative, niche choices. We shouldn’t be surprised. Politics is about
aligning interests and power, not about creating efficient delivery systems. And we all know that democracy is
the worst possible governance system (except for every other alternative).
At North Coast this process of value-based politicization was carried about as far as it could go by the recently
departed board and management leadership. The co-op was defined in practice and in the latest strategic plan as
the enabler of a specific, clearly articulated value set and the associated lifestyle. If you share those values then
well and good. Otherwise you may shop at the co-op but the stores are not really designed for you and you
shouldn’t expect that to change. Whatever qualities of that value set, it makes our co-op exclusive rather than
inclusive Institutions based on static values rather than fluid economics tend to create established interests which competition for favored places and our co-op is no exception. Local growers are an easy example. It seems that after almost 50 years of supporting local growers because it will obviously make the world a better and more efficient place, they still are not fully competitive with produce shipped in from far away. Is it time to check the assumptions against the evidence? No, that would challenge our value and identity as a local grow supporter. Instead we create a protected class, with special benefits and services.
These protected classes are commonly known as stakeholders.
The idea of a community of stakeholders sounds
great on its face. After all, it takes a village; we have no humanity all alone. The stakeholder strategy is also a
public, visible way to organize the interest groups around the values so everyone is checking on each other. The
stakeholder idea was codified at North Coast about 12 years ago in the strategic plan so we have had time to see
how it works out.
What has happened is that the stakeholders with the most immediate, direct, focused interest in the co-op’s cash
flow have gained the upper hand over the business. Member and shopper interest is diffused. ‘Community’
interest is diffused. Local grower interest is focused but limited. Employee interest is focused, intense and
organized. The employees as a group have largely taken control of the monetary benefits of the co-op as well as
marketing and operations.
Dollars – Labor costs at our co-op are high. Total labor as a percentage of revenue hovers in the 27%-28%
range; the very top of the sustainable labor cost range. Very little is left to benefit the member-owners who
invested the foundation dollars for the co-op and shop in the stores.
Marketing – High labor costs mean our stores must constantly strive to sell higher margin, specialized
products in order to meet payroll and benefit targets. If the stores were run for the benefit of the shopper-
owners we would want lower margins which result in lower prices. (Margin is the difference between the
cost of goods and the retail price). So when the co-op tilts the inventory to highest quality, name brand
health foods or organic only or GMO-free only they are, in practice, limiting shopper appeal in order to
focus on high margin products which can support the high total labor costs.
Operations – Paying our employees good wages and benefits is not at all a bad thing in itself. If the
interests of the shopper-owners and the employees could be aligned, the resulting efficiency gains would
justify very good remuneration. But instead our workforce is represented by a union. The union’s interest is
served by encouraging employees to see their interests as always opposed to the employer, who in our case
is ultimately the member-shopper. Basically, the union teaches the employees to resent the customer. Is it
any wonder so few consumers show up to their own store?
So what can be done? I do not know of a better governance system than democracy. Nor do I have a system fix or the weak spot in consumer co-ops’ competitive potential- the value first boards. Consumer co-ops must 1always be many things to many people. That’s democracy – it’s a big mess. But we can decide for our own co-op what we want to emphasize. That is the function of our Mission Statement and Strategic Plan.
Right now those documents say we are a grab bag of every woke catch-phrase to see ink in the last 10 years.
“These values represent justice of the future,” is what we hear. Maybe so, but they aren’t bringing in customers.
We can take the attitude that the crisis is over now. Things are finally back to normal. Current management is
competent at least and may be better. The current board has a healthy sense of its limits. The COVID pandemic
handed us some financial flexibility through a volume uptick (although less than most stores) and government
stimulus. We can drift along with our values worn up front until the next self-righteous board, or the one after
that finally tosses North Coast into a hole it cannot dig out of.
Back in the 70s a group of Arcata Co-op employees were traveling by station wagon to a weekend meeting
with some real, urban co-op radicals. We felt the need to arm ourselves with a slogan and came up with:
‘Volume Guides Class Analysis.’ We loved it, the radicals not so much. It summed up an attitude that generated
market share growth then, and it could now. Values are good but a co-op can only bring them to useful life
through the behaviors of individual shoppers.
We could rewrite the Mission Statement and Strategic Plan to define North Coast as an economic institution
meant to serve the needs of its membership as shoppers first. The measure of that effort would be volume –
member-shoppers served. Social values we want to inhabit can be expressed through the stores and the
shopping experience. Let’s put Safeway out of business. Let’s get Winco’s checkout lines. Great service to its
members as shoppers is how the co-op can really change the world.
[Admins note: this piece was thoughtfully prepared by a diligent guy who has attended Finance and Board meetings for decades. Thanks for your thoughts. ]