Friday, November 16, 2007

Keystone Co-Op #6: The Co-Operative Spirit in Action

posted by chicago pop

Rogue Faction Disrupts Co-Op Community Meeting

This Sunday's community meeting of the Co-Op membership to decide the fate of the institution promises to be great spectator sport, and we hope they'll be selling popcorn. We're expecting a model display of cooperative sentiment, as die-hards and dead-enders make their last stand against a Board and a frustrated majority of the membership dedicated to guiding the Co-Op gently to the junkyard.

If we're lucky, we may even see some blood on the floor as a few lone Board members attempt to seize control of the insolvent colossus and are beaten down by enraged grocery shoppers who are tired of the ceaseless propagandizing.

We'll begin this installment of Keystone Co-Op by giving credit where credit is due, and quoting directly from the recent to-the-point Maroon editorial collectively authored by that paper's editorial board (the only one in Chicago, we'll point out, that we usually agree with):

It has become increasingly clear that the Co-Op has no sustainable operating plan, and this time it has dug itself a hole too deep to climb out of. The University and the community must learn from the Co-Op debacle and invite outside competition into Hyde Park. Be it Trader Joe’s, Dominick’s, or some other chain store, this neighborhood deserves an affordable, financially stable supermarket. (November 13, 2007)
It should also be noted that today's sepia-tinted story on the front page of the Tribune's "Metro" section captured two of its most supportive quotes from individuals over 90 years old. If there ever was a neighborhood minority, this age cohort is one of them.

"I love this store, it's a neighborhood institution," said Campbell, 92. "I admire its goals."

Leon Despres, former 5th Ward alderman, was there at the start. One cold day in December 1932, a young man was on his doorstep selling memberships in a food cooperative.
With all the isolationist talk about how much will be lost if profit-oriented chain grocers are "allowed" into the Special Economic Protection Zone known as Hyde Park (special mention here should be given to one Diane Schirf, who loves the Co-Op, hates chains except when they are in Ann Arbor, and doesn't like being called "stupid"), a few things should be pointed out.

A towering irony in this drama is the fact that one of the principle protagonists in the Co-Op's decline into insolvency is a cooperative that is acting like a rent-seeking monopolist. Certified Grocers, the Co-Op's landlord at 47th Street, is itself a cooperative which acts as a distributor to smaller and independent grocery stores. Certified's mission statement declares the wholesaler to be "a conscientious corporate citizen and ethical partner with our suppliers, customers, and employees."

As everyone concedes, Certified's position vis-a-vis the probable debt workout, or "Sorry Charlie" Option B outlined in Keystone Co-Op #5, remains a mystery. What is known and verifiable is that, unlike the Co-Op's landlord the University of Chicago, Certified has displayed very little of the "cooperative spirit" in its unwillingness to cut the Co-Op slack in its rent obligations over the last several years, and in its caginess regarding its participation in any debt buyout.

Certified has made money off an empty store for years now, and hasn't budged on the stranglehold lease at the 47th Street location, despite being approached several times since 2004. The U of C, during the same period, has lost money.

From Certified's perspective -- derived purely from the Rochdale Principles of 1844, no doubt -- it's not such a bad deal letting the rent checks come in from a drowning operation on the South Side, without lifting a finger to help solve the problem. Why should they? They have a sweetheart deal on the lease at 47th Street, and have every incentive to get the University -- the other non-profit in the equation -- to shoulder the problem so Certified can keep the rent checks coming until 2023.

If that's the spirit of cooperatives, then I'll take profit-seeking. At least the customer gets something out of it.

As the Herald sees it, and reminds us fairly often (Editorial of November 14, 2007), "We cannot assume a for-profit business will provide the sort of community support we have enjoyed with the Co-Op."

What kind of support might that be? Certified certainly doesn't seem to care about the Hyde Park community. So why would a Dominick's, or any other grocer, be worse?

Competent management and reliable operations are the most basic services that a business can provide a community. You can be altruistic with what's left over after you've paid your bills and don't owe anybody else -- including your shareholders -- money. But if you don't take care of those essentials, you can't do anything for anybody.

The propagandists at the Herald see it a different way -- that "support for the community" means support for managerial ineptitude and bad strategic decisions, and a tolerance for chronic and worsening indebtedness, declining quality, and poor service. That, and the delivery of some other magical combination of altruistic services besides what customers want, which is a competitively priced, well-stocked, and reliably run grocery store.

I can take or leave the full-time home economist or the sad variety of potato salads at the current deli counter. What I'd much rather have is a supermarket that doesn't lose the deli cook it hired from Whole Foods after a few months due to inadequate kitchen facilities.

Real community support should theoretically include allowing the membership to access the financials in a timely manner. Instead, complete and audited financials for fiscal 2007 were still not available as of November 10. Nor has any public explanation been given of how a legitimate vote can and will be taken based on out-of-date and corrupted membership data.

Support for the community should also include making Hyde Park a desirable place to live for newcomers to the community, including working people with families, not just the folks who were around when the Co-Op was founded during the Great Depression or have the time to run a major commercial institution.

The economy itself has changed in the intervening 8 decades, as well as the organizational structure of businesses and non-profit institutions alike. In the retail foods sector, the changes have been especially dramatic, weighing heavily against smaller-scale operations. This strikes directly at the core of the cooperative's initial competitive advantage, which was to buy and sell in bulk at a discount. While it may be possible for that model to function adequately in other sectors, in retail foods where volume is the name of the game, it's an uphill battle where even a small mistake can lead to disaster.

The surest way for Hyde Park to get over the malaise it has endured for nearly half a century is to become the hub of a rejuvenated South Side, a place where new people want to live and new business wants to locate. Not because it is sticking to institutions invented to solve the problems of the Great Depression or Urban Renewal over half a century ago, but because it is making the neighborhood the place where the best there is to offer from everywhere else wants to be.


Peter Rossi said...

Is Moe playing the role of Hank Webber or the president of the board?

I love this post!

deep throat said...

Certified sure hasn't been very cooperative on the 47th Street lease. Is it really a cooperative? Or, just a profit-minded grabber in a cooperative's clothing?

And how come no one at the Herald or anywhere else has offered up a critical view of Certified as a key player in this drama when it's very clear the 47th Street lease is sucking the blood from the Co-Op's only profitable store?

I'm not suggesting that the Co-Op was a victim in the whole debaucle -- to the contrary, the board at the time made some horrifically stupid decisions -- but, I am surprised that Certified has not been more flexible with the Co-Op in the name of cooperative principles.

ScottM said...

I'm thinking that Treasure Island (as a Certified member) is (or has been) able to come to some agreement with the University. Its not really in Certified's interest in chasing the Co-Op through bankruptcy since there is so little blood left to squeeze from its corpse. They do the "smart" thing and take their share as a supplier and probably eat the rental $ of 47th in the short-term. As the actual direct renter may have a lot more influence in getting the landlord of 47th to work out the rental obligations.

Love the post (& the blog.)

deep throat said...

I'm glad you pointed out that the supermarket business has changed a great deal since the Great Depression. It might seem obvious to most folks, but I'm guessing that this was news to the Co-Op member (at the annual meeting in October) who expressed a misperception that the co-op's bulk buying power should translate into lower prices.

In 1959, the Co-Op was the largest grocery store in Chicago. In 2007, the many Jewel stores in Chicago are actually part of Supervalu, which is approximately 2500 supermarkets strong. The 98 Dominick's stores in Illinois are only a small portion of the 1800 stores owned by its parent company Safeway. While the Co-Op was plugging along, the supermarket industry consolidated around it over the last 45 years. Stores numbering in the thousands is today's definition of "bulk buying power" and economies of scale. For any members who still believe that buying power is a fundamental reason for the Co-Op to remain in existence, you need to exit your time warp.

Otto said...

Certified Grocers, the Co-Op's landlord at 47th Street, is itself a cooperative which acts as a distributor to other cooperatives.

Other cooperatives such as whom? (I'm just not finding any on their membership roster.)

Elizabeth Fama said...

Your last paragraph of the post got me all misty-eyed, Chicago Pop. I started to think this may be a turning point for the neighborhood in more ways than one. If the Co-Op is replaced by a good grocery store, and if customers (heaven forbid) prefer the new store, and if the store succeeds financially, the whole experience will make it that much more palatable to our "change-averse" community to accept other reasonable changes as well.

By the way, the Tribune article you linked to had 37 online comments, resoundingly in favor of the University's proposal. Let's hope they're either voting members, or people who can figure out how to become voting members before the close of voting on Dec. 7th.

Famac said...

Maybe I'm just to young to know this, but does the Co-Op offer any other services besides selling groceries?

chicago pop said...

Otto caught an inaccuracy that I'll correct right now (both here and in the post): Certified is the supplier to primarily smaller, independent grocers, including the 55th St. Cooperative (ours), not primarily or exclusively to other cooperatives.

These stores, though, are all members of the larger retail cooperative that is Certified Grocers.

Elizabeth, I didn't even think to go to the comment section on the Trib article. That's great!

Richard Gill said...

Comments to the Tribune's article are now up to 43, and they are overwhelmingly critical of the Co-op and its practices, and in favor of replacing it. I especially like the comment that says the Co-op is sort of like a Treasure Island, only imagine it with overly high prices, bad service and limited product selection.

Otto said...

These stores, though, are all members of the larger retail cooperative that is Certified Grocers.

By the by, does anyone understand the current practical relationship between Certified and the previous Fresh Brands stores? Piggly Wiggly, for example, does not appear to be a Certified member. I'm assuming that they're still owned by Certifresh Holdings (85% Paul Butera?), but does Certified supply its affiliate?

Piggly Wiggly has its own house brand, but I haven't figured out whether this is simply relabeled Countrys Delight/Certified Red.

Oh, and why on earth would Brandfon go from being an executive VP of Certified in 2006 (overseeing the acquired chains) to GM of the Co-Op in 2007?

Ptah said...

If it is of any interest, WBEZ is reporting (well more of a soundbite perhaps) on today's meeting of Co-Op membership. They report 24,000 members.

I believe we can see two positives about WBEZ's report. First, it appears they have attempted to respect a range of opinions. Second, they report there are only 3 options (to Deep Throat's four):
"The Co-Op can declare bankruptcy; it can take on new, but risky, debt financing; or it can accept a bailout offer and close shop"

Chicago Public Radio synopsis.

Otto said...

I believe we can see two positives about WBEZ's report.

Don't overlook the big one--at least the Co-op can be voted out of existence. The Malatia reign of terror appears to be unfettered.