As companies around the world collapse into administration it would seem that the frenzied pursuit of profit in these straitened times can have an unfortunate side effect: bankruptcy. But the global resurgence of co-operatives points to a beguiling alternative: put employees and customers first and the rest will follow. Nervous CEOs should read on.
Not many grocery stores arrange tours of pig farms but Pal System Consumers’ Cooperative Union didn’t gain its following by being just any retailer. Since it was founded in 1977, the Tokyo-based co-op has tried to change how consumers in Japan shop for food and how farmers produce it – without opening a single shop.
With nearly 1.35 million members in nine prefectures across eastern and central Japan, Pal System has shown that a grocery delivery service can be an alternative to the supermarket. The co-op has grown from 15 groups of consumers in the Tokyo metropolitan area into one of the largest of Japan’s 590 co-operatives, with sales of around ¥194bn (€1.6bn) a year. Every week the co-op’s trucks make an estimated 800,000 deliveries to homes, schools and businesses.
Pal System has never posted a financial loss. How does it thrive in a market saturated with speciality grocers and convenience-store chains? “We reveal how products are made and who makes them,” says Pal System spokesman Shinji Ueda.
The co-op charges customers ¥2,000 (€17) to come into the fold. Every two weeks a new catalogue is delivered, crammed with a selection of rice and vegetables grown on organic farms as well as additive-free meats and eco-friendly detergents. It also stocks mass-market items such as towels and cosmetics.
The real boon for Pal’s members is the opportunity to go on field trips. The co-op organises 12 a year to pig farms in Akita prefecture and rice-paddy fields in Niigata prefecture, and has a programme to train teams of inspectors who visit farms and report their findings. “It allows us to hear what consumers want and forces us to explain the methods we use,” says Kazuyuki Kusama, who tends 18 hectares of paddy fields in northern Japan.
A lack of investors frees the co-op to focus on being an advocate for consumers. For example, after the disaster at the Fukushima Daiichi nuclear power plant contaminated farms that sell to Pal System, the co-op took a public stand against nuclear energy.
Why it works
A transparent process serves to reassure and engage ethically aware customers.
Company lore has it that Mountain Equipment Co-op (MEC) was conceived while four Vancouver friends were waiting out a storm in their tent during a 1970 climb of Mount Baker. A year later they founded MEC, a democratically run consumer co-op for which shares could be purchased for CA$5 (€4).
The goal was to make quality outdoor gear available to Canadian climbers at a minimal mark-up. More than 40 years later, MEC is Canada’s leading retailer of outdoor recreational gear, with 16 stores nationally and more than CA$260m (€190m) in revenue in 2011.
Although MEC is governed by co-op principles, CEO David Labistour points out that its success has been determined by how well it has competed as a retailer in the North American market. “Every operational aspect has to be structured as well as, if not better than, our competitors,” he says. “Where the co-op thing comes in is that our customers are our owners, so we have the luxury of focusing our product for them.”
The structure allows for a culture of authenticity. “There are people here like me who wouldn’t normally work in retail but are drawn to MEC by the community aspect,” says sales clerk Jeremiah Peck, a backcountry ski guide in his spare time. “You’re surrounded by athletes; there’s a lot of knowledge under one roof.”
The scale of MEC’s activities means the organisation’s profile has become more complex: last year about 80,000 members voted to elect the board. In return, the co-op offers in-store bike-repair workshops for members and even pays for trail maintenance and invests in the preservation of wild places. “It’s consistent with promoting an active lifestyle while taking a systems approach,” says Labistour.
Why it works
Despite being a huge co-op, MEC manages to stay in touch with its members.
As a result of the 2011 earthquake in Christchurch, the high street in the neighbouring town of Lyttelton was left in ruins. Despite the fact the organic-food outlet Lyttel Piko survived, it was threatened with closure. That’s when Brian Rick, the manager, took action, believing his store vital to the tight-knit community’s morale. “It was one of three Lyttelton shops that survived the earthquake,” he tells monocle. “There was overwhelming support by the 3,000-odd residents to keep it open.”
Rick seized upon this community resolve: by early 2012 a board was formed to create Harbour Co-op, a company wholly owned by the store’s customers. But the plans hit some significant hurdles. While New Zealand has a strong history of co-operatives, a consumer-owned food-retail model was new. “In New Zealand, co-operative-business legislation is based around agricultural industry or workers’ co-operatives, not customer-owned retail entities,” says Rick, now the new venture’s director. “It was uncharted territory.”
Despite the lack of precedent, a constitution was formed to create two types of Harbour Co-op shares: transacting and supporting. Each Lyttelton household was offered a transacting share for NZ$365 (€230), which gave them the right to shop and reap discounts but no financial return. Supporting shares were also up for grabs, designed to provide additional financial support for the co-op and offering a modest return.
Today the shop is alive with families popping in for supplies. “The vision is to empower this community to feed itself,” says Rick. “We do workshops on food preparation and locally sourced alternatives to less-sustainable options. We’re trying to increase resilience in case we’re ever hit by another catastrophe.”
His community is fully on board. “We’re dedicated to supporting local economies so the prospect of a co-op is very exciting,” says Margaret Jeffries, who was the second person to join. “The best thing about the co-op is that we own it – we have direction on what products we get in. It’s a statement about what we want as a community. Lyttelton is about good-quality food and money going back into the area.”
Why it works
Good will helps but success in this case is thanks to a sustainable business model.
In a small valley in the heart of the Basque country the sense of fear pervading much of Spain’s workforce is oddly absent. Instead, the workers populating Mondragón’s offices, factories, and laboratories are marked by their collective sense of resolve, security and even duty.
The impressive growth of the Mondragon Corporation began in 1956 when José María Arizmendiarrieta, a charismatic priest, moved here and began laying the foundations for what now makes up Spain’s seventh largest company. Today, with €14.83bn in annual revenue, 83,569 workers, around 150 co-ops and a presence in 18 other countries, its rise has been inexorable. Yet economic data belies the essence of what this industrial community truly represents.
“The focus here is on collective talent,” says Mikel Uribetxeberria Aldalur, recently re-elected to represent workers at Fagor Ederlan, a car-parts firm and Mondragon co-op member. Uribetxeberria explains that the company charter permits the general chairman to earn only six and a half times more than the lowest-paid worker.
Solidarity is a key element of the Mondragon Corporation’s ethos. This is illustrated by a recent measure taken by Fagor Ederlan to assist neighbouring co-op Fagor Electrodomésticos, which suffered an 11 per cent drop in profits last year. Fagor Ederlan workers volunteered to slash their own retainers (salaries are referred to as retainers because they fluctuate according to profit) by 8 per cent to assist their colleagues.
New technology is embraced at Mondragon: last year over one-fifth of industry-based profits stemmed from products that didn’t exist five years ago. “We’ve been betting on innovation for the last 50 years,” says Jesús M Ruano López, an international project manager for Ikerlan, an applied-research centre.
Workers are not immune to Spain’s woes – profits have been affected – but they remain loyal. When chosen to become a co-op member they pay €13,000, an investment in job security and the longevity of the company. “The aim is to leave a legacy of employment for our children,” says Oskar Goitia, managing director of the automotive division. “Profits are important but it’s how you use these profits that makes the difference.”
Why it works
If members lose their jobs in one factory they can be assigned to another.
Monocle: In layman’s terms, what is a business co-operative?
Charles Gould: A business model that is owned and democratically controlled by its members.
M: What is it about this model that is seeing it gain in popularity?
CG: In many countries there is a real disgust with the excesses of capitalist business models that have gone astray. There is a recognition that enterprises can be more responsive to the needs of individuals.
M: What makes for a successful co-op?
CG: Members that have a shared interest that emotionally connects them. It’s different to shareholders who don’t necessarily have that emotional commitment to a product.
M: Why do co-operative businesses often last longer than other models?
CG: They don’t take extraordinary risks because they are not trying to maximise profits in any way possible. As a result they don’t see downside risk as much.
Since Germany announced it would be shutting down its nuclear power plants, its leaders have set ambitious renewable-energy targets. At the same time the country has cut funding for such projects, so co-ops have picked up the slack.
In the past five years, Germans have formed roughly 300 renewable-energy co-operatives, investing about €800m in the process. Die Energiegesellschafter, for example, has installed a host of solar panels in the west German town of Lünen. It grew out of a student project at the Technical University of Dortmund and now has 124 members who pay €100 per share. It is run by volunteers and each member gets one vote.
Die Energiegesellschafter has four solar panel projects in place. It sells the energy produced to the local network and members receive annual returns of 6.6 per cent on average. Now sights are set on bigger ventures such as wind-energy projects, requiring planning time of two to three years as opposed to the few months needed for solar-panel projects.