University of Wisconsin Center for Cooperatives

Can Food Co-ops Work in Low-Income Communities?

On November 9th, 1996, the University of Wisconsin Center for Cooperatives sponsored a workshop at the Michael Fields Agricultural Institute's sixth annual "Urban-Rural Conference" in East Troy, WI. The workshop asked the question: Can food cooperatives work in low-income communities? A distinguished panel of four was inspired by an active audience that included Wisconsin farmers, urban residents from Milwaukee, Chicago, Minneapolis, and Cleveland, along with UW graduate students hailing from as far away as Taiwan and Korea.

Three main themes emerged from the presentations. First, economic challenges inherent in the retail grocery industry may be even more difficult in a low-income community. Organizers must start with realistic projections based on feasibility studies and business plans that promise a sound bottom-line. Second, while community residents must demonstrate a significant commitment to the project themselves, partnerships with successful cooperatives and other community organizations were strongly encouraged. Finally, from the start and throughout the life of the new cooperative, member-owner education is critical to sustaining success.

The first panelist, Mike Salinas of Hunger Task Force of Milwaukee, opened with a discussion of the root causes of hunger. While poverty may be an ultimate cause, Salinas explained four "food security issues" in low-income urban areas that compound the challenges of poverty: food access, affordability, choice, and quality.

Half-way into a five year study, Salinas has found that most of Milwaukee's low-income neighborhoods are not within walking distance of supermarkets. This means that the many residents who do not own transportation must either shoulder the cost and inconvenience of public transportation to suburban supermarkets, or else they must accept the high prices and limited selection of what is often poor quality foods found in the so-called "mom and pop" corner stores.

At this point in their study, Hunger Task Force is evaluating strategies to address these food security issues. Should their efforts be spent strengthening the existing corner stores? Should they instead try to lure larger private supermarkets into these low-income communities? Or else should they encourage the formation of consumer-owned food cooperatives?

The next three panelists discussed the opportunities and challenges inherent in the latter strategy. Marilyn Scholl, who recently completed nine years of dedicated service at UWCC, has been involved extensively with food cooperatives for many years. In fact, in the late seventies Scholl was a manager at Gordon Park Food Cooperative, which served a low-income community of Milwaukee for thirteen years before closing its doors in 1987.

Gordon Park was started in 1974, when community residents came up with the money to buy a store from two brothers who had had trouble selling it to private investors. Besides providing capital investment, co-op members also provided "control", or leadership that guided the management of the store to ensure it met their needs. In the end, Scholl explained, a privately-owned store moved into the neighborhood that was able to beat the co-op's prices, and Gordon Park was closed. So was the cooperative a failure? "We bridged the gap," Scholl explained, "we provided food to a community when private investors would not."

She went on to discuss some of the challenges that make it difficult to sustain a food cooperative in a low-income community. First, higher costs, lower sales volume, and lower margin potential make it all the more difficult to survive in an industry that allows only 1-3% profit margins. Even cooperatives need some profits (also called "net surplus" or "savings") to pay off debts and re-invest in equipment and personnel. This is typically achieved with a mix of low and high margin merchandise. If a co-op's customers cannot afford the higher margin products, the store may struggle.

Beyond the challenge of serving low-income customers, food cooperatives face the same troubles that all independent grocers are facing in an industry that is increasingly dominated by national chains and discount superstores. Furthermore, given that 80% of all new businesses fail in the U.S., the odds of success are not great for food cooperatives in low-income communities.

To increase the odds of success, Scholl advised that co-op organizers make sure their enthusiasm is grounded in economic reality. Feasibility studies should be done to show that there will be enough sales volume with sufficient margin and low enough costs to ensure a good bottom-line. Donated funds must be matched with sufficient investment of time and capital by community residents themselves, or else an indifferent membership will result. Furthermore, a bottom-up organization of active and loyal members can only be achieved through adequate cooperative education-- which is an added cost that cuts into already slim margins.

The next panelist was Marie Greenfield of Outpost Food Cooperative of Milwaukee. While located on the edge of a low-income community, Outpost caters mainly to middle- and upper-income consumers. The average customer earns between $30-50,000 per year, while approximately 15% earn under $20,000. As marketing and education director of this natural foods grocery, Greenfield is familiar with both the economic challenges and the education needs inherent in consumer-owned stores. Greenfield repeated Scholl's point that regardless of the income level of its customers, all cooperatives must invest in member education.

Furthermore, an expanded education program can provide co-op customers with diet and nutritional information that is in short supply in many low-income communities. Greenfield also pointed out that a cooperative can be a way for inner-city residents to gain some control over an important aspect of their lives. As member-owners, they can demand foods and services that other stores in the area may not provide-- although, again, the store must meet its own bottom-line in meeting its members' needs.

Greenfield's last point was that people looking to form a new cooperative-- especially in a poorer community-- must look to partner with other organizations, businesses, and agencies in the area. This theme was taken up by the fourth and final speaker, Dick Fisk, manager of the Hyde Park Cooperative Society, which is located in a mixed income community of Chicago.

The Hyde Park store preceded the big wave of natural foods cooperatives of the 1970s. Started in 1932 as a buying club, last year the cooperative did $25 million in sales. It currently employs 200 part-time and full-time employees. Fisk explained that "it looks like any other major supermarket," although having 18,000 customer-owners does set it apart. Customers pay $10 for an initial share to become a member, and they are encouraged to purchase at least thirty shares over time to attain "full-member status".

Having secured a solid foothold in its community, the Hyde Park store has been focused on expansion in recent years. They have just completed a $3.8 million remodeling project in their main store, and in June they bought out a local independent grocery and now employ its former owner as community relations director. And perhaps their most ambitious project is still underway. Working together with area churches, community groups, and the City of Chicago, Hyde Park plans to open a new 40,000 sq. ft. store within the next year. This third store will anchor a new shopping center that will replace a dilapidated commercial strip and abandoned land off of Lake Shore Drive.

Fisk explained that both the Hyde Park store and the residents of the neighboring communities will benefit from the new cooperative groceries. Hyde Park can spread its administrative costs over a larger volume of sales, and thereby gain some of the economies of scale that chain store competitors have enjoyed for many years. The communities gain access to large supermarkets that can immediately meet their needs. By providing much of the capital investment, Hyde Park essentially gave these communities a "twenty-five year head start." However, Fisk was cognizant of the point Scholl made earlier: the community must be made aware of the benefits and responsibilities of cooperative ownership. Once again, cooperative member education will be critical to developing member commitment and loyalty to their new stores.

For more information, or for contacts to workshop panelists, contact Greg Lawless at the UW Center for Cooperatives.

Greg Lawless
UW Center for Cooperatives
December 11, 1996

 Return to UWCC Homepage