Member-based business model keeps co-ops strong
As member-based, democratic organizations anchored in the communities they serve, co-ops are driven by factors beyond bottom-line financial results. istockphoto.com
By any measure, the global co-operative movement is big. A report released in 2014 by the International Co-operative Alliance (ICA) revealed that, in 2012, the world’s 300 largest co-operatives had a combined turnover of 2.2-trillion U.S. dollars – a growth of 11.6 per cent over the previous three years.
According to the ICA, co-ops employ approximately 250 million people worldwide, including almost 12 per cent of the working population in G20 countries, and are significant factors in many national economies. In Canada, for example, four out of every 10 people are members of at least one co-operative. In Quebec, approximately 70 per cent of the population are co-op members, while in Saskatchewan the figure is 56 per cent.
None of this comes as a surprise to Denyse Guy, executive director at Co-operatives and Mutuals Canada.
“The co-op business model is resilient in times of economic volatility, and most co-ops tend to keep growing and creating jobs even when the rest of the economy is contracting and workers are being let go.”
“The co-op business model is resilient in times of economic volatility, and most co-ops tend to keep growing and creating jobs even when the rest of the economy is contracting and workers are being let go,” she says.
Ms. Guy attributes this performance to the structure of co-ops. They are member-based, democratic organizations anchored in the communities they serve and not driven by bottom-line performance.
“Co-ops are organized and structured based on members’ needs and less on short-term profit maximization, so it’s a much more sustainable model,” she adds. “Of course, they are not immune to what’s happening in the rest of the economy and they operate in a competitive marketplace, but they have a different focus in terms of mission and structure, and that’s what creates a sense of stability.”
Vic Huard is executive vice-president, Strategy at Saskatoon-based Federated Co-operatives Limited (FCL), Canada’s largest non-financial co-operative owned by approximately 200 individual retail co-ops across Western Canada; FCL also operates an oil refinery.
“The western Canadian economy has obviously been impacted by what’s happening globally,” he says. “For example, the drop in the price of crude. While crude pricing is only one part of the profitability of our Regina refinery, the volatility does create challenges.”
The downturn in the Alberta and Saskatchewan economies has impacted retail sales quite dramatically. Volumes are down, but the businesses are still very well positioned, he adds.
“Our balance sheets are solid and our managers remain optimistic about the future. Things are a little tougher, but we are still profitable,” says Mr. Huard. “Co-ops are in this for the long haul. We’re not whipsawed by the tyranny of the quarter. That has a huge positive upside for us.”
He points out that co-ops also play a key role in stabilizing communities during times of economic uncertainty because they reinvest in the communities through cash and equity distributions to members.
“That should never be underestimated,” says Mr. Huard. “FCL has reinvested over $4.5-billion in the western Canadian economy in equity and cash repayments to retail co-ops in the last 10 years. That’s a huge injection of money back into the economy, and that money stays local; there’s no capital flight.”
George Karaphillis, director of the MBA in Community Economic Development program at Cape Breton University in Nova Scotia, was part of a team that researched the economic impact of co-operatives in Canada during 2009 and 2010. The findings showed that co-ops had a significantly higher rate of job growth and nearly triple the value-add growth rate of the broader Canadian economy during the study period.
“I believe the superior performance of the co-op sector comes from the engagement that co-operatives have with their customers and the communities they operate in,” he says. “Co-ops understand and respond to their customer wants and needs quicker, are closely connected with their communities and capitalize on new opportunities, all of which helps them grow their business steadily.”
Mr. Karaphillis points out that the growth of Canada’s financial co-operatives, credit unions, caisse populaires and co-op insurancehas been the most robust, even through the great recession. The credit unions and caisse populaires grew their assets by more than 40 per cent in the 2005-2010 period and their revenue by 50 per cent.
“The resilience of co-operatives is well documented,” he adds. “A Quebec study has found that co-ops out-survive conventional businesses by about 24 percentage points over a 10-year period. In Quebec, 44 per cent of co-operatives survive after their first 10 years, compared to 20 per cent of conventional businesses. Co-operatives are clearly a more steadfast business model.”
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