Can We Help Build Inner City Co-ops?

As a staff and a member of consumer co-ops for nearly twenty years, and as a community development lender for the past three, I have observed a need and desire in the consumer co-op community to expand and grow. A good deal of interest has been directed toward inner and low income neighborhoods, where we are challenged to diversify the co-op community in an economically viable manner that is sensitive to the greater community's needs. (I should acknowledge that low income communities are not only in the cities; co-ops in rural areas face diversity issues as well.)

Our cooperatives address issues of critical interest to low income communities: co-ops exist to serve needs not met by the capitalist market, needs the low income community experiences daily. Expanding into low income communities, if done well, gives our cooperatives increased market share and growth while introducing business based on principles of democratic ownership. The difficulty lies in how to successfully expand, given many previous failures. In what follows, I will try to illustrate experiences of both failed and successful cooperatives.

Problems in urban areas

Those of us identified in some way as "developers" or sources of information and funds are called frequently by individuals and organizations interested in starting a retail food co-op in their neighborhood. On the positive side, these people have a general idea of why a cooperative structure would meet their goals for control and quality. On the down side, they frequently have no clue as to the difficulty of starting and managing a successful grocery store, whether in a natural foods or conventional food niche.

There are two key factors determining the availability of quality food in low income communities:

• the cost of running stores in the city is driven up by lower volume, higher insurance, property and other operating costs;
• quality food tends to be more expensive than it is in the suburbs.

This is not a new issue. Art Danforth, a long-time cooperator and educator, wrote about this topic in 1980, citing "Twelve Challenges" to starting consumer co-ops in the inner city. His conclusions and warnings have been largely unheeded, and successful examples are few in number.

The overriding problem in operating any store in the city is economic: it's expensive, given real estate and access costs. At the same time, lower volume (in part due to typically lower square footage) leads to high product costs.

Another key problem in starting up co-op groceries is the lack of knowledge. In new ventures, the energy is often coming from community development groups who most likely have not been involved in business enterprise. They look at this as a community organizing campaign, but stop short of hiring experienced staff and utilizing standard businesss evaluation tools such as feasibility and marketing studies.

Partnering with existing cooperatives could not only provide business experience and industry knowledge, but also could help keep prices low through combined purchasing. Currently, however, the co-op consultants network does not address the needs of groups ready to begin a retail from scratch, nor do co-op development groups such as the National Cooperative Business Association.

Co-op history is full ofsome successes and many disappointments, and this is also true in the vein of urban co-ops. Among the many closed co-ops are the Berkeley Co-op, Common Market in Denver, Dixon in New Haven, and Metropolitan Co-op in Cleveland. Each has an individual story, but a common theme is a lack of popular base in the neighborhood and a battle for economic viability.

Successful examples

Among present day food co-ops, Cass Corridor has been in business since 1972 in Detroit near Wayne State University. With annual sales of approximately $1 million, this co-op has over 2000 active members of diverse economic backgrounds. Nearly 90 percent of their members are city residents, and a majority are African American. Through an aggressive outreach program, the co-op provides education on health issues and has been experiencing membership growth of 25 percent in the last two years. [Cass Corridor will be featured in an upcoming edition of CG.]

In San Diego, Neighbors United started in 1992 as a buying club in responses to an extremely dangerous neighborhood situation, where drug dealers had everyone scared, and merchants sold more alcohol than food. In 1994, with funds and support from the city of San Diego and San Diego State, a storefront was opened, introducing an employee ownership component. The co-op has served as a hub of community building, what has had a significant positive impact on the neighborhood.

For over 60 years, Hyde Park Cooperative has been a fixture in Southside Chicago. In the past year, the co-op has expanded through the purchase of one store and is planning a third store, all in what are considered mixed or low income neighborhoods. In 1996, the main location generated nearly $25 million in sales and had net savings of close to $700,000, producing an earnings rebate to all members of 1.37 percent and a stock dividend of 4 percent. With this strong performance, volume purchasing and experienced management, Hyde Park demonstrates a strong potential for cooperative expansion.

These three stores are examples of successful inner city co-ops. The histories, time periods and amount of external support vary greatly. But the stories underscore the possibility of more co-ops expanding in urban neighborhoods.

Art Danforth outlined twelve challenges that urban co-ops face in starting. Though his list is nearly twenty years old, a recent co-op panel identified many of the same problems. The challenges include the need for:

1. A solid community organization: though they might not have technical experience, local groups know their constituents, know local priorities, and know who are the power brokers who can help with potential impediments to start-ups;
2. Getting appropriate feasibility studies completed: professionally done studies should consider the potential for not simply a grocery store (natural vs. conventional product) but also the potential interest in a cooperatively owned store;
3. Identifying technical assistance: the community group must acknowledge its own limitations to starting and running a business and find appropriate help;
4. Member recruitment, education and equity: the unique qualities and challenges of the cooperative structure must be acknowledged and planned for at the outset;
5. Strong management: again, a critical acknowledgment by the founding group that they do not have the expertise to run a successful food cooperative; and lastly,
6. Support from related cooperatives.

Principles and practice

Starting any food store today takes an enormous amount ofresources. The light of experience as well as the cooperative principle of concern for community reveal our current challenges and the need for support from existing co-ops. Mississippi Market in St. Paul and North Farm in Madison are considering this type of expansion; independent groups in Buffalo and Boston and Minneapolis have been working for over a year in the predevelopment phases. The chances are great that development based in existing cooperatives will be more successful than those that stand alone.

By partnering with, or at the very least getting operational assistance from, existing cooperatives, whether other natural food retailers and wholesalers or cooperatives from different sectors (credit unions, agricultural, etc.), the burdens of start-up are lessened. An existing co-op might benefit from additional volume purchases, additional staff options, and even relief of sales pressure on the parent store. Marketing the cooperative advantage successfully to low income communities can help our existing stores individually, as well as strengthening our larger cooperative movement. Remember that our co-op warehouses were founded by coalitions of independent coops wanting to take advantage of volume purchases; in turn, the growth of buying clubs and retail co-ops would not occur without the cooperation and dedication to development by these warehouses.

Other than the above list of basic development needs, I have no blueprint for success. My concern, coming from the community development sector, lies in the opportunity to help meet one very crucial need in many inner city neighborhoods: access to quality, affordable food. Existing co-ops, if successful and feeling the pressure of that success in pinched space, may be considering expansion or a second site.

As Neighbors United, Hyde Park and other groups have found, there are large pots of money to be tapped if your co-op wants to expand into certain designated urban areas. Money from private foundations, city and state governments and community development groups can ease the burden of start-up or expansion costs for cooperatives. If your co-op wants to expand into low income areas that are designated Enterprise Zones, there are state and federal funds available; foundations such as Ford and LISC (Local Initiative Support Corporation) have put money into a number of grocery stores located in low income, urban communities (Hyde Park, for example). With community development now turning to business development and job creation, there are many loan funds and religious organizations interested in funding businesses that are committed to the community. By definition, cooperatives have an advantage here. With a clear vision and defined business plan, new sources of funds can allow co-ops to expand at a lower cost than might be assumed.

Partnering with community development corporations can provide the cooperative movement with a new avenue in which to grow, while strengthening our own current market share. Community development corporations are among the development partners mentioned in Cooperation Works! How people are using cooperative action to rebuild communities and revitalize the economy (David Thompson and E.G. Nadeau, 1996). Each has similar goals: community development groups are moving from housing to business development to produce jobs for their communities. They are looking for some amount o local control or influence in these businesses, a desire to keep the businesses in their neighborhoods through growth and expansion. Food coops can offer their extensive experience in the industry, their professionalism and their commitment to the community. They benefit from the partnership by gaining market share and new customers, while marketing the co-op advantage: local ownership and control, profits returned to the community, and participation in the larger community.

Co-op retailers know that it isn't easy to be successful these days, even after having a track record of ten years or more. Start-ups are facing extremely long odds. Looking at new areas for expansion can address our newest co-op principle while also helping us to grow. The expansion must come from our current, successful stores, who are in the strongest position for success and for servicing new sectors of the cooperative community.