University of Wisconsin–Madison

Grocery Retail and Purchasing Cooperatives

Overview


Retail, consumer-owned grocery cooperatives are most visible in natural foods segment of the sector, which has developed, grown, and matured during the last 50 years. Retail grocery cooperatives can also be found in the conventional foods sector, especially in smaller communities that have sought to reestablish this type of anchor business when long-standing retail grocery stores have closed.

Purchasing cooperatives provide group purchasing power, warehouse and freight services, and other marketing and related services to support their retail cooperative member in both the conventional and natural foods sectors.

Grocery cooperatives operate in a low-margin, price-competitive sector that must respond to evolving consumer expectations, changing retail channels, including online ordering, and patterns of food preparation and consumption.

History


Consumer-owned food stores have emerged, grown, and declined in waves since the 1850s. During the mid-l960 and early 1970s, there was a nationwide resurgence of cooperative food stores. By the 1990s, however, the changing social and political climate, coupled with the challenges of managing a business in a low margin industry, resulted in a substantial decline in the number of cooperatives. This same period also saw the consolidation and growth for the strong cooperatives which had developed stronger board governance and professional management approaches.

By the mid-2000s, food cooperatives once again experienced growth-driven, intense consumer interest in alternatives to a market system that might not serve their needs. In the decade from 2005 to 2015, the natural products industry experienced substantial growth, from over $56 billion to $131 billion.

Retail food cooperatives have introduced numerous consumer-oriented innovations, and have fought to retain retailing practices that provide the consumer competitive value and service. Since the 1930’s, cooperatives have pioneered nutritional labeling, open dating, unit pricing, bulk sales, informative advertising, consumer education, and innovative institutional structures. They have also consistently been in the forefront of consumer protection through selective merchandising and boycotts, political lobbying, and ongoing consumer education.

Consumers’ interest and participation in retail food cooperatives tends to increase in periods of social, political, and economic turmoil. Although their secondary needs may vary considerably, cooperative members consistently want their cooperatives to provide price, quality, and selection advantages. Growth periods also occur when large numbers of consumers experience economic difficulties and develop an interest in ownership and control of their retail food sources when they become concerned for food safety and when they experience a strong desire for an ethical society (Hoyt, 1982).

Industry Niche


The retail grocery industry is highly competitive. The large market share gained by non-traditional outlets, which includes warehouse clubs and super centers, has continued to increase competitive pressure on the traditional grocery retailer, already squeezed by the loss of the food consumers’ dollar to the food-away-from-home-market.

Grocery cooperatives have had a significant impact on the grocery industry through their pioneering introduction of natural and organic foods, which began with the “new wave” of food cooperatives in the early 1970s. Cooperatives dominated this market until the 1990s, when several independently owned natural foods markets began large-scale expansion.

In 1990, the total organic food and beverage market amounted to $1B in sales, served primarily through cooperatives and other independent retailers. By 2015, that market had grown to an estimated $131 billion. Conventional retailers have continued to increase their market share within the natural foods market at the expense of natural food retailers, including grocery cooperatives. New cooperative development and sales growth by existing cooperatives in this market has slowed.

Organizational Structure


Many retail food cooperatives that operate retail stores are single-store operations, but some successful stores have expanded to operate two or more locations.

Many natural food cooperatives have expanded to include deli departments with prepared food offerings, well-developed health and wellness departments, and community classes. They are characterized by their strong support for natural and organic foods, local food systems and the seven cooperative principles. Although many current store-based food cooperatives originally encouraged members to work voluntarily in the store in return for a “member discount,” most stores now hire professional management and operate the store with paid staff.

Grocery cooperatives, like other retail businesses, are incorporated under state statutes. Some cooperatives were originally incorporated as nonprofits, but have re-incorporated in those states that have cooperative statutes that accommodate the needs of consumer cooperatives. Primarily consumer owned and governed, several cooperatives are worker owned, or share ownership with the consumer membership base.

Most cooperatives require a relatively small investment in an initial membership share. Some also require an additional financial contribution, which may be in the form of additional membership shares or in an annual membership fee. Investment in membership shares is considered a contribution to equity, while membership fees, if not refundable, are treated as income.

Consumer cooperatives are not required to pay income taxes on member-based income if they return that income to members either as cash or as allocated patronage. However, they are required to pay income taxes on non-member income and unallocated member income.

Food cooperative members vote on a one-member/one-vote basis and elect a board of directors from among the membership.