Northeast Cooperatives: "Together we will create a stronger cooperative system."

Northeast Cooperatives' strategic goals are based on meeting our members' and customers' needs, now and in the future. We start with a series of forecasts of how the marketplace is developing. We think through technological issues, who our competitors will be, changing consumption and economic patterns, as well as a host of other factors. We then extrapolate how these issues will play out at retail as well as distribution and manufacturing levels in both the near future and long term. Then we decide what niches we want to occupy, niches with reasonable capital requirements for competing effectively.

Our strategic plan goes out ten years and is reviewed and extended each year. A company-wide rolling budget is in place, forecasting four years at a high level and one year in detail. A detailed rolling one-year operational/budgetary plan is developed by department.

This article will focus on what our plans are at Northeast Cooperatives (NEC) but will not delve into the details or assumptions above. If you have read the articles written by NEC staff in Cooperative Grocer and/or attended the extensive presentation on "the state of the industry" given at the CCMA conference by Mary Carol Skinner and Mark Novak, you have some of the background needed.

NEC's primary goal is to increase its market share in order to remain relevant for our members. Distribution is ultimately a game of maximizing economy of scale. The largest distributors have a profitable business structure that offers the most services and core competencies in the industry. They have the greatest wherewithal to be the most aggressive in price and promotions, though they do not always do so. Additionally, market share is relatively easy and inexpensive to acquire in a young industry (natural foods) vs. a mature one (supermarket). Whether in procurement, territory covered, number of truck runs, size of orders, promotions, or collection of payment: size does matter in distribution.

A distributor is most efficient when servicing chains of stores. That translates into aggregation of sales and fiscal activity interfacing with a single headquarters for promotions, pricing, information exchange, payment, new item placement, etc. Chains strive to be extremely efficient, which means they minimize the number of suppliers and devote the maximum possible purchases to their primary suppliers in each category. That translates into a larger and more efficient order drop size at the stores. Distribution costs are lowered, hence the customers' costs are lowered. Combine this with the fact that many of these same dynamics work at retail. Large format chain stores should have a lower operating cost structure than single stores when both are engaged in the same range and depth of services and activities.

One of the practical applications of the above would be for NEC's co-op retail owners to work together as a chain. Our intentions are to partner with the members of CGANE (Cooperative Grocers Association -- Northeast), the Mid-Atlantic Cooperative Alliance, and other cooperative retails in our service territories in pursuing forms of collective buying. We will pass on to them the savings that result from such actions.

Together, we will create a stronger co-op system. All of us have to become more efficient and effective in order to compete and satisfy our members and customers. This is the fundamental reason we support and encourage integration and consolidation of both operational and fiscal activities at the retail and wholesale level for cooperatives. As discussed in Dave Gutknecht and Walden Swan-son's article in the July-August issue of Cooperative Grocer under "Balance Sheets: Ours and theirs," co-ops lack "an effective mechanism for cooperation among cooperatives in the form of leveraging our balance sheets." NEC hopes to work with our co-ops in executing a market share capture strategy.

Unfortunately, co-op distributors and retails have historically made similar mistakes, eroding their own market share in the larger industry by largely focusing on their current membership or local community. In Canada, Co-op Atlantic did the same as a system until they woke up to the fact that the average age of their consumers was 57. Their retailing and distribution system was in danger of becoming irrelevant to their current members because it had gradually lost too much market share in the Atlantic Provinces. Co-op Atlantic stores didn't open, expand or remodel stores at the rate of their competition. They became marginalized in the larger territory while doing relatively well in their increasingly smaller core communities. Their situation illustrates different pressures but results similar to what is happening to an alarming number U.S. co-op retails and distributors. (For more on Co-op Atlantic, see the next edition of CG.)

We will continue to support the regional Cooperative Grocers Associations and the NCGA as the potential framework for integrating and unifying the work of co-ops. The more that co-op retails work in unison, the more effective they will eventually be for their consumer members. A national promotions program, for example, will build a portion of the infrastructure needed to successfully execute a national controlled label program.

Last year NEC grew 55% (fiscal year ending June 30, 2000) when including the merger with FORC. The industry grew 13%. This year we expect to grow about 20%. We are now the 4th largest natural foods distributor in the U.S. when measured in annual sales. Our major competitors are national companies of significantly greater size. NEC is now servicing parts of 22 states, while our major national competitor services 48 states and is about 9 times our size (they used to be 13 times our size).

This year we will focus on digesting that rapid growth and becoming an even more effective distributor. We will be focusing on increasing in-stock levels, decreasing error rates, increasing operational efficiencies and organizational profitability. Our retails have said they want a stable, dependable distributor that is aggressive in price and promotions. That is the reason why NEC has been engaging in the extensive infrastructure-building program we embarked on beginning 5 years ago.

In January, we started operating out of our new facility in Brattleboro, and we broke ground in August on a further expansion of that building. Also in August, we went live with an upgrade in hardware that cost $450,000 and increased transaction speeds from 2 to 10 times current rates, depending on the type of transaction or report.

A very significant change will occur this September with an improvement that decreases order lead time for produce buyers and customers. Many retails will see their produce order deadlines pushed back from 1 to 4 hours, so that those ordering at 10:00 a.m. may be able to order as late as 2:00 p.m.

Another of NEC's initiatives will also result in increasing efficiencies for our retails. We will enhance our truck routes extensively in September, adding additional deliveries for many retails. We have a huge expansion of our fleet and truck routes scheduled in areas where we are currently running over capacity. Many retails that only had 2 deliveries per week will be able to go to 3 times per week, decreasing the back stock they need to hold and increasing in-stocks, cash flow and smooth store operations.

As the consumers increase their consumption of perishable natural foods, fresh product delivered daily is a huge competitive advantage at retail and is by default necessary at distribution. NEC is striving to be, and in most cases is, the perishable supplier of choice in the territories we service. Where volume warrants, many of our most savvy customers have requested 5 times per week delivery if they are not already receiving this service. All of this should help increase our members' business while decreasing their overall operating costs.

Northeast will continue to make investments in facilities, staff, infrastructure and service, because we must anticipate the support our retailers need to grow their business effectively and profitably while increasing their member/consumer satisfaction. We must do all of the above in concert with retailers in an efficient and effective manner.

We will continue and expand our activities with the strategic alliance we formed with Blooming Prairie and Nature's Best. Many of the new or enhanced services we will offer in the future may be conceived, developed and executed within this strategic alliance. Though we have already gained much by an open sharing of information, significant benefits would come from an integration of selected systems.

Our approach is not unlike that the airlines have taken in their shared reservation and ticketing system. The computer system to support an extensive and flexible system linking airlines, travel agents, and all the collateral agencies, was too big an endeavor for one organization to support. The same could be said for the supermarket industry and how it shares sales, profitability and market share information between competing retailers and manufacturers nationally. The potential benefits of our strategic alliance with Blooming Prairie and Nature's Best are equally as large for NEC and therefore our members.

The integration of NEC and FORC will continue and should be completed by the summer of 2001. We had to put much of this process on hold as we moved into our new facility and to manage our rapid growth this past year.

Northeast will continue to refine and expand the Manager on Contract program. This is one of the more effective retail support programs, as evidenced by the enhanced performance of the retails on the program and the testimony of both directors and consumer members. (See CG #84, September-October 1999.)

We will continue to expand the number of items and categories of product offered in our private labels, Nature's Basics and Select Harvest. Vermont spring water in several sizes is the latest addition to the Nature's Basics line.

The extensive education and training opportunities surrounding retail operations in our quarterly managers meetings have proven to be important to our members, and we will work to make them even better. CoCoFiSt, as well as category management, continue to be a main focus of these meetings. We at NEC believe that CoCoFiSt is the most valuable and powerful education, training and integration process that the cooperative retails and distributors have created to date. It will be the foundation that supports operational excellence, integration and ultimately consumer satisfaction at retail. CoCoFiSt, if expanded and implemented properly, could be the key to the co-op retails competing successfully and prosperously.

We will also continue to support:

• information sharing systems such as CGIN -- though we would like to see CoCoFiSt, NCGA, and CGIN continue their efforts to work more closely together to coordinate efforts and maximize utilization of scarce resources.
• Ann Hoyt and CCMA, a unique and highly valuable forum for education and system coordination -- an extremely significant competitive advantage for cooperatives if nurtured and used wisely.
• Dave Gutknecht and Cooperative Grocer, another unique, highly effective forum and communication vehicle.

Finally, in concert with cooperative retails across the country, we will continue to work closely with the excellent leaders and staff at the National Cooperative Bank, and the National Cooperative Business Association to effect all of the above programs. These organizations have been quiet visionaries that have led and bankrolled much of the activities mentioned above. They deserve our thanks and continued loyalty.

Because of our combined actions in the last 4-5 years, the cooperative system faces unprecedented opportunity. The retails have gone through a shift in perspective that could lead to a national cooperative system at both retail and distribution. The infrastructure is beginning to be put into place. But we will all have to sacrifice varying amounts of control on the small issues (ultimately, who cares what salsa is on deal, so long as it meets agreed upon product standards?) to gain effective control on the large issues: national deals and a cost of goods sold and operating efficiency that allow co-ops to compete effectively and profitably. We must do this quickly, becoming more nimble and responsive. Our competitors have done so. Now, well-capitalized, very large and seasoned competitors continue to join the fray.

If we work together, work hard, and work fast, in a collaborative spirit -- one that always thinks first about building an efficient, effective national system, that benefits our members -- we will each succeed individually.