Buying Groups and Co-ops: The More the Merrier (and Cheaper)
A group of San Diegans, tired of paying high grocery prices to area food sellers, gathered around a picnic table at Ocean Beach one day in 1971, and decided they were going to pool their money to buy food in bulk. They organized a worker’s collective and called themselves the People’s Co-op.
Before long, People’s Co-op moved off the beach into a small house; outgrowing that space, it took over the lease on an old pool hall. In 1985, People’s Co-op made it official: It organized as a food cooperative and called itself the Ocean Beach People’s Organic Food Market.
Today, Ocean Beach has its own 13,000-square-foot market, employs 103 people and records about $10 million in annual sales.
Cooperatives and buying groups have been around for years and share one thing in common: They provide members the leverage to negotiate lower prices for goods and services.
Here’s another example.
Back in the early ’80s, while attending an office suppliers meeting, talk of the advantages of belonging to a buying group caught Chris Bihary’s attention. A partner in the independently owned Queen Anne Office Supply in Seattle, Bihary says high freight costs at the time were killing him.
He learned that if Queen Anne became part of a buying group, it would contact vendors and negotiate prices on their collective behalf. He was in. “It allows us independents to compete,” he says. “We get better prices, better shipping and rebates for the store. It puts us on the playing field with the biggies.”
What are Buying Groups?
Buying groups offer many advantages; just consider the purchasing power when you buy in bulk, says Harry B. Ray, a Chattanooga, Tenn.-based attorney who specializes in advising them. He’s seen it happen for groups with just a few members.
In one instance, four people from different parts of the country came together to negotiate big deals. The group grew exponentially to 20 and now 60 members and so did its buying power.
“It went from millions of dollars in purchasing power to billions today,” he says.
Buying groups also come together for marketing and advertising purposes, and often share important market- and business-operation information.
From sporting goods to air-conditioning equipment to coffins, if you’re looking to join a buying group there’s a good chance the right one exists. Look to trade associations and the manufacturers themselves to find one, Ray says.
The estimated cost to initiate a group, including legal, accounting and state filing fees, runs between $10,000 and $20,000. Options include single ownership with the owner providing services. Other groups are member-owned with an elected board of directors and officers, like any other company, Ray says.
Queen Anne Office Supply belongs to TriMega Purchasing Association of Des Plaines, Ill. Bihary buys items such as packaging supplies, paper pads, tape, paperclips and file folders through the group.
“Being in the buying group is the one big reason we’re still in business,” he says.
Cooperatives – What’s the Difference?
It’s not just liberals and granola-eaters who belong to cooperatives.
By definition, a cooperative is a special form of business owned and managed by the people who provide or use its goods and services. U.S. co-ops include large enterprises, Fortune 500 companies, small storefronts and everything in between.
More than 40 U.S. cooperatives each report annual revenue of more than $1 billion, including such businesses as Land O’Lakes, Inc., and ACE Hardware. The top 100 co-ops have a combined $117 billion in revenues, according to the National Cooperative Business Association.
For those who belong, it’s all about products and savings. Members pay $15 a year to join the Ocean Beach market, and get a 10 percent discount on all purchases. Nonmembers pay a 10 percent surcharge.
Ocean Beach is a full-scale vegetarian grocery. Some co-ops require members to work as volunteers in the store, but given the time it takes to train new people, Ocean Beach decided against it. The co-op has an elected board of directors which oversees the general manager, who in turn supervises the staff. It holds an annual meeting, annual picnic and works hard to be active in the community with onsite art shows, seminars and festivals. Profits are returned to the business, says marketing director Amber Forest McHale.
If you’re interested in forming a co-op, the National Cooperative Business Association in Washington, D.C., is the place to start.