The Co-op Food Stores

added 05/01/08

Cooperative Merchandising

by Ken Davis

Merchandising, within the context of a grocery store, is simply the subtle art and science of selling food. The same day that this writer sat down with a pastry from the Co-op Cafe and put pen to paper about cooperative merchandising, a front-page story ran in the Sunday New York Times proclaiming the grim reality of food costs.

Everywhere around the globe, the Times reported, food prices are rising. American agriculture exports are expected to increase 23 percent this year alone, to set a record at $101 billion. The Food Marketing Institute—an organization that conducts research, education, and public-affairs programs for food retailers and wholesalers—reports equally troubling trends:

• Prior to 2007, food prices increased an average of two-and-a-half percent per year over a 15-year period.
• In 2007, retail food prices increased four percent, the largest increase in 17 years, and researchers forecast an additional three to four percent increase in 2008.
• Eggs, dairy, and poultry prices showed the largest increases in 2007, a trend that is expected to continue as corn is diverted to ethanol production.
• Near-record U.S. exports of many agricultural products have added price pressure to retail markets.
• Skyrocketing energy increases have devastated food transportation costs.
• Wheat prices have hit record highs in the U.S., primarily due to drought conditions in Australia that has led to tight global supplies.

In short, we are a global society, and food trends affect every industry, particularly food retailers and restaurants. Rising food demands in India will affect a restaurant in Indiana. Four dollar-per-gallon gasoline in California will affect produce prices at a food co-op in New England. Due to these global trends, Co-op Merchandising and Operations Director Tony White says he has seen dairy costs increase by 25 percent and watched the price of flour rise from $10 to $25 per bag.

But though the effects are widespread, how businesses respond is a different matter. It is in that context, White says, that the cooperative difference becomes apparent.

“The difference is that we want people to know about this,” he said. “We’re not hiding it and cutting corners to protect profits.”

Rising prices in any industry is certainly nothing new. From increases in ink prices to shortages in paper production, the cost of printing the very publication you are reading now goes up every few years. To some degree, increases are a part of doing business, any business.

But within the cooperative structure, transparency is expected in the business model. A cooperative is a business owned by the very people who depend upon its services, and thus the cooperative has a responsibility to inform its members and customers about everything that affects the business, both good and bad.

“It’s not uncommon for me personally to call one of our customers in response to a suggestion form they filled out and talk for a half an hour about why the price of milk has gone up,” White says. “Try getting that from a chain store. Here it’s part of my job, and part of what makes us a cooperative.”

Cooperatives come by the attitude honestly. The early cooperators, who started the first successful food cooperative in Rochdale, England, in 1844, were a group of working-class tradespeople who organized in part to protect themselves from unethical practices and routine deception in the food industry of the day. In his book, Weavers of Dreams, cooperative author David Thompson says that in Rochdale ground beans, plaster of Paris, and ground bones were routinely used to thin flour that was sold to working-class families, and iron filings added weight to tea leaves sold by the pound.

In response, the fledgling Rochdale co-op not only organized to sell food, but to do so ethically. Today cooperative merchandisers continue that tradition.

Take a walk down the cereal aisle, for example. If you shop the cereal section of a big-chain grocery store, there is one thing you will notice they all have in common: high-sugared cereals are located down low on shelves near the floor. Why? Because that’s where children will see them and subsequently try to talk an adult into buying them. At the Co-op, those cereals are located on the top shelves, allowing the adult to make the decisions.

Look at a Co-op advertisement. From time to time customers will find products on sale in our stores that don’t appear on the Co-op website or in Co-op advertising, and invariably they wonder why. In the grocery business, many products that are on sale have a limited availability and move out the door quickly. The industry standard is to advertise these items anyway, at great deals, even though customers may come to the store and find the items are not available. It’s a merchandising practice that is misleading at best, the bait-and-switch at worst, and the kind of tactic that is done routinely to offset potential loss in business that may come from inflated food prices.

“The way we feel we should handle any situation is to educate our customers—and particularly our members—about the realities of the business we’re in,” White says. “And most importantly, we want them to know that we’re not changing our values and the way we do business in order to offset the challenges we face.”

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