Are Co-ops the Future of Food?
Overt co-operation could future-proof your favourite food business.
I recently enjoyed “The True Price of Bread,” an Asparagus essay by baker Jessica Carpinone about her struggles trying to run her business in line with her values. As Carpinone outlined the unfair choices, tough decisions, and personal sacrifice a conscientious business-owner must endure, I experienced that “I know! I know!” feeling I’d get at school when my arm shot up to answer a teacher’s question. The idea I wanted to offer Carpinone was this: convert the bakery to a co-operative.
In researching my book on the future of restaurants (The Next Course), I was introduced to several co-op models that have successfully addressed all the product-sourcing, staff-compensation, and community-building goals on Carpinone’s wish list. In fact, a leading example is San Francisco’s Arizmendi Bakery, a group of employee-owned bakery/pizza-shop co-ops.
“This model seems to work well when there’s a relatively even level of skills across the board,” says Paul Cabaj, Manager of Co-operative Development for Co-operatives and Mutuals Canada (CMC), the co-op sector’s equivalent of a national trade association. “The head bakers might earn a bit more, but the interesting thing is the average worker’s wage is $80K/year for a workload comparable to any regular chain restaurant job.”
As anyone who’s worked in the food-service industry knows, that’s more than double its typical salary. As such, the employee-owned co-op model could be a real game-changer in the limited-service, fast-casual restaurant segment (think Nando’s or Noodlebox) where most market growth is expected in coming years.
Even though they’ve been part of our landscape for centuries, co-ops are still generally underrepresented and misunderstood. According CMC’s What is a Co-op? page, a co-operative
is an organization owned by the members who use its services (a consumer co-op or credit union), or by people who work there (a worker co-op), or by those who live there (a housing co-operative).
The other fundamental difference from standard business models is that a co-op board and its members use profits to bring value to themselves and their community stakeholders, rather than simply enrich shareholders. With its prosperity truly shared by everybody with a stake in it, a co-op enterprise can, optimally, react more swiftly and fairly to rapid or unexpected changes in the market, which essentially defines future-proofing.
Co-operative models are hidden under the hoods of many popular brands, from Best Western Hotels and Home Hardware, to Mountain Equipment Co-op (MEC) and its American counterpart REI. But how many of MEC’s card-carrying shoppers truly understand the difference between their co-op membership and the annual fee they pay Costco?
That lack of understanding is about to change, says Cabaj, at least in Canada. “Raising awareness of co-ops — both in the bureaucracy and with the general public — is central to our work [at CMC] right now. We’ve instituted a national Co-op Investment Fund that will create more opportunities for all kinds of new initiatives — including more co-op food businesses — but our major focus in the next two years will be a nationwide public awareness campaign.” Recognizing that the collaborative, sharing, and community-minded values expressed by Millennials and Generation Z seem to align with those of co-ops, Cabaj adds that much of the awareness campaign will be aimed at colleges and universities.
The future-proof value of the co-op may not (yet) be generally evident, but the model is relevant in two particular scenarios. “The negative is rooted in market failure, where things aren’t working and people are pissed off enough that they’ll work together — even with neighbours and colleagues they don’t like — in response to monopolies and unfair business practices,” he says. “For example, there’s been lots of research recently into a co-op solution to [costly] mobile phone services in Canada.”
The positive flip side leaves anger at the door, but aims for similar outcomes. “Co-ops often work best around needs, not wants…such as affordable housing, farmers’ access to markets, or equitable insurance,” says Cabaj. “They do take time, commitment and some sacrifice compared to the entrepreneurial model, and work best where the need is a moral one, not a convenient one. Everyone needs to agree on the benefits of sharing.”
Some of the most fertile ground for next-generation co-ops is online (where those coveted younger demographics live). Enter the “platform co-operative,” exemplified by Victoria-based Stocksy, a stock photography co-op offering fair prices and sustainable careers for contributing artists that Cabaj describes as “one of the best new models in the world.”
“There are also co-op alternatives to Uber and Airbnb in the works, because we know co-ops also work best where markets are being disrupted,” he adds. Other emerging and ripe-for-disruption markets include two that are timely and massive: renewable energy and health care.
The more well-established food market, though, is “ready for a second phase,” according to Cabaj. He expects food co-ops in all their forms — from neighbourhood markets and community-supported agriculture (CSA), to restaurant supply and warehousing — will continue to play a significant role in nurturing sustainable food systems, though not their original groundbreaking one.
“In the past year or two, we’ve watched too many food co-ops — started a decade ago to open new markets for local farmers — close down,” he says. “Those needs have not only been fulfilled, but the rest of the food chain has adapted as well, even if only slightly. Whether it’s some local, organic protein and produce at Walmart or at a mainstream grocery store, in capturing the ‘softer’ part of the local-food market, they’ve undermined the core value of the fully dedicated local-food co-op.”
As a result, Cabaj is recommending some future-proofing upgrades to all co-op start-ups. “To be responsive to their members, most new food co-ops still plan to keep their profit margins low and not keep cash reserves, which makes them susceptible to any upset in the market or shift in competition,” he says. “However, the next generation of local-food co-ops have to be more resilient and responsive, and compete on service, not price. Higher profits and cash reserves will help them ride out competition while they develop new services to retain and attract members.”
This is exactly the type of advice Cabaj and his colleagues recently offered Vancouver’s East End Food Co-op, which sought help to solve a financial crisis. A fixture on Commercial Drive for over 40 years, the organization was facing a $100,000 operating shortfall this year, citing increased competition from the recently expanded Choices Market across the street for its declining revenues. Local co-op Vancity Credit Union (of which both Asparagus and I are members) has provided $50,000 in financial aid, leaving the Food Co-op to raise the balance.
The situation has prompted its fair share of debate in the media and among the tightly knit local food community. Matt Johnstone — a restaurant professional currently working as administrative director of Sole Food Street Farms — is a long-time advocate of co-ops in the food sector. But he can’t muster much sympathy for the East End Food Co-op’s plight. “I hate to dump on an organization like that, but I’m going to. It’s been around over 40 years and, from what I know and have seen, it hasn’t changed much in all that time,” says Johnstone. “For all the great work they do, they’ve made a mistake by not embracing change and growth.”
“Food co-ops need to operate in the mainstream,” says Johnstone, “attracting mainstream consumers by offering many of the same products and services as other grocery stores, but differentiating themselves with their commitment to social and community values shared by every co-op.”
As a keen follower of co-ops’ evolution, Johnstone has, like Cabaj, noted the passing of several food co-ops in recent years. “I think it’s clear now that consumer-owned co-ops could, or perhaps should, have a limited lifespan or shelf life,” he says. “Once they’ve fulfilled the need and growth attracts competition that nibbles away at their market — especially in food which is cut-throat competitive — maybe that’s time to close up, or better yet, convert to a different model.”
BC boasts a large and diverse local/sustainable food community, and has pioneered some novel and successful hybrid models. A viable option for the East End Food Co-op could be to adopt a multi-stakeholder model: an employee-owned co-op could manage the store, and a platform co-op could provide innovative, competitive services to consumer members. They could borrow a page from successful local platform retailer SPUD which, while not a co-op, shares many co-op values as a B Corp — while leveraging technology to attract and retain today’s time-squeezed customers.
“I do feel for the people at the East End Food Co-op in this very stressful time,” says Johnstone. “Their vision has been sustained, but it’s unfortunate that after 40 years of operation they need $100K just to stay afloat.”
This episode hasn’t shaken Johnstone’s belief in the benefits of co-operative business practices, though. “If co-ops are ever to become a force in the local and global economy, they need to compete seamlessly in the marketplace,” he says. “There’s no reason why a food co-op can’t have the look and feel of an Urban Fare, Whole Foods, or other value-added stores. You can see great examples in Seattle (PCC, Central Co-Op) and other places in BC (Kootenay Co-op), doing a great job catering to the modern consumer’s sensibility.”
Which brings us back to Jessica Carpinone and her neighbourhood artisan bakery in Ottawa. She clearly has the modern sensibility part sorted out. It’s safe to assume Carpinone didn’t write her Asparagus essay to solicit business advice, but I hope she’ll consider the co-operative model for Bread by Us. After all, there isn’t any better way (yet) to both promote and truly sustain the ‘us’ part of that formula.