What are food co-ops?

A food co-op is an enterprise that is voluntarily-owned and jointly-owned by shoppers. The mission of food co-ops often include 1) closing the gap on fresh food access, 2) providing affordable and healthy food, 3) creating jobs and 4) opening up opportunities for farmers to sell produce locally. Given the democratic model of ownership among members, food co-ops, unlike regular retail grocers, are often socially-driven and not simply focused on turning profits.

Neighborhoods that have, in recent years, established food cooperatives have done so as a result of large grocery store closures. Often, grocery stores close because sales are low and not driving profit. In previous blog posts, we’ve discussed the typical site requirements for regional and national chain grocery stores, which include high sales expectations (around $6.2 million annually) and high average daily traffic (upwards of 20,000 vehicles daily). In lower income neighborhoods, these numbers can be extremely difficult to come by (especially in urban areas where car ownership is lower) resulting in closure of anchor grocery destinations.

While food cooperatives may appear to be successful grassroots efforts that meet the needs of local communities, more often than not co-ops have to struggle before being successful, or may fail altogether.

Lessons Learnt

Financing

Typically, cooperatives are financed through a mix of member-owner equity, loans, and grants. However, loans are hard to come by for such projects. Commercial lenders are still not willing to take the risk in offering loans to cooperatives, especially in communities of color. So, the next best thing is to rely on grants from philanthropic organizations and charitable funders – particularly those seeking impact investments. In Flint MI, for example, the planned North Flint Food Co-op has been heavily supported by several charitable funds including the Ruth Mott Foundation who provided over $230,000 in the early site stabilization phases, the Charles Stewart Mott Foundation, and finally the Michigan Good Food Fund – that is also supporting the Detroit Food Commons co-op in Detroit –(consisting of Capital Impact Partners, Fair Food Network, Michigan State’s Center for Regional Food Systems and the Kellogg Foundation).

Competition from large grocery stores in the region

Even if your neighborhood is a food desert and residents don’t have access to fresh food within a mile, chances are they are already making the effort to travel farther distances to get to a national grocer that is able to meet all their shopping needs. These grocers likely offer lower prices that will be hard to beat in a cooperative model with small product orders.

Some ways that co-ops can cut inventory costs, in order to slash prices for consumers, is through building strong and transparent relationships with local farmers and producers (hanging out at farmers markets can go a long way), making special arrangements with wholesalers, or pooling with other local delis/ restaurants who similarly only need to stock their storefronts with small orders of fresh produce.

Changing Consumer Habits

Likewise, if the competitor grocer is located a little farther away from your district or neighborhood, and shoppers have grown accustomed to traveling for their goods, it may be difficult to change their habits.

Take the time to conduct extensive community outreach and engage with local shoppers and potential members of the co-op from the get-go. After all, the local residents will make up the core customer base and will need to be fully supportive of the project. To garner sustained interest, co-ops have often advertised at local houses of worship, community health centers, and other heavily-trafficked locations in the neighborhood to do outreach. It also doesn’t hurt to have well-liked local leaders back the effort to open a co-op.

Reducing Food Waste

Like traditional grocery stores, there is often food waste at cooperatives. If we borrow the rapidly growing trends among larger grocery stores to reduce this waste, co-ops should also be donating scrap produce to food rescue organizations, or back to farms (to feed their animals with), or turning scraps into dishes for hot food bars – just like Whole Foods.

Given that many co-ops like the soon-to-be-built Detroit Food Commons will feature community kitchen facilities on-site, turning scraps into dishes for hot food bars may be a very viable solution to food waste.

Sustaining the Site

In the long term, like many other commercial endeavors, co-ops need to ensure that the revenue stream is diverse enough to ensure sustainability of the business. In order to monetize the property or building that houses a new co-op, we need to think about complementary tenants that can generate additional income/rent to subsidize the operations of the co-op.

Let’s think about potential itineraries for a shopper heading to a co-op.

Itinerary A: I’m heading to the grocery store as part of my weekly run for convenience goods for a family of four.
  • Complementary on-site tenants in this scenario might include general merchandise stores, pet stores, pharmacy, health clinic etc.
Itinerary B: I just finished working out at the gym and I’m heading to the grocery store with my healthy meal plan and wellness mindset
  • Complementary on-site tenants in this scenario might include juice bar/ organic café, fitness gym, wellness services (salon, spa)

In Dayton OH, for example, the Gem City Market co-op has created a diverse program for the site, which will include a cooking demonstration area, a community room, a health clinic, and a café serving freshly-made pastries.

In some cases, partnering with an affordable housing/ mixed-income housing developer might be appropriate, especially since having residents above the store or across the street in a mixed-use development scenario can create constant foot traffic and built-in demand for the co-op. The Detroit Food Commons, for example, is partnering with non-profit developer, Develop Detroit who will be building 65 residential units in conjunction with the cooperative project.

Displacement/ Gentrification

Finally, there always seems to be the fear of gentrification, or displacement, once a co-op has opened. Co-ops, unfortunately, have a bad rep in some regions of attracting yuppies shopping for organic and local produce. The truth is, like any retailer, to make enough revenue, a co-op will need to be able to cater to shoppers of multiple income brackets with various levels of disposable income. More customers means more money that can be poured back into the products and services provided.

However, this doesn’t necessarily mean that the co-op needs to throw away its social mission of being able to close the gap on fresh food access for lower income, minority groups; creating local jobs and circulating wealth within the community. More successful co-ops balance the social mission and the fundamental business requirements (i.e. revenue) by partnering with local organizations that hold community events and programs in the co-op space, and by building in strict member rules that necessitate member co-operation which then builds an intangible connection between members.