Federated Co-operatives Limited’s year-end results have become a broken record of broken records.
Sales of $3.55 billion in 2003 set a new high for the company, which also achieved its 12th consecutive year of record earnings, posting a net income figure just over $282 million.
An analyst familiar with the co-operative said Federated’s financial track record can’t be attributed simply to the sheer size of the company or to the business model it employs.
“In the same period that FCL has been prospering, consumer co-op systems in Germany and Austria have gone just about totally out of business,” said Brett Fairbairn, director of the University of Saskatchewan’s Centre for the Study of Co-operatives.
Read Also
Government, industry seek canola tariff resolution
Governments and industry continue to discuss how best to deal with Chinese tariffs on Canadian agricultural products, particularly canola.
There has also been a serious collapse of the retail co-op sector in France and some rough spots in England, he said.
“There’s actually people in the international research community who think consumer co-ops are a thing of the past and aren’t really viable in today’s economy,” he said.
The carnage extends beyond the retail sector. Two of Western Canada’s three traditional style grain co-operatives have disappeared, while in the United States some of the largest farm co-ops have filed for bankruptcy protection.
Yet in this challenging environment, Federated keeps churning out better results and bigger patronage refunds for its local retailers.
“What that tells me is, it’s not just because they’re big and it’s not just because they’re a co-op,” said Fairbairn, who recently wrote a book on Federated’s 75th anniversary called Living the Dream: Membership and Marketing in the Co-operative Retailing System.
He attributes a lot of the company’s success to the stability of Federated’s management team. Many of the members manoeuvered their way up through the ranks.
“Most of their management group has been there intact as a unit for just about 20 years, which is remarkable,” said Fairbairn.
But the continued success of Federated also has to do with the bond between the wholesaler and its retailers.
“It’s more than just philosophical support for the co-op, it’s really the perception by the members that they need the co-op. That’s the piece that is critical.”
The same can be said for the local retail outlets and their membership base. Fairbairn said individual co-ops have strong relationships with their rural customers.
“(Customers) see it as a locally based organization and they feel more inclined to give it a try or to be loyal to it because of that.”
While competitors in the petroleum business are pulling out of many towns, moving jobs and services to centralized hubs, co-ops have kept a presence in many of those communities and are being rewarded for their loyalty, said Fairbairn.
Petroleum accounts for 40 percent of Federated’s sales and 65 percent of its profits. But the boom in crude oil prices is not what’s driving FCL’s strong results in that sector, said company spokesperson Lynn Hayes.
“We are not self-sufficient in crude oil. We buy our crude oil on a daily basis.”
Federated makes its money on the margin between what it pays for crude and what it charges consumers for gas and diesel at the pump.
Hayes said the number of litres of petroleum products it sells has been steadily increasing, which means it is better able to cover the fixed costs at its Regina refinery.
“Because of that, we have been maximizing profitability from the refinery. But it’s not from crude oil because we don’t own the crude oil,” he said.
With the completion of a $430 million expansion of Federated’s refinery, retailers are assured a steady supply of fuel, positioning that crucial segment of the business for continued success.
Fairbairn said Federated can’t keep up its pace of record profits forever, but he wouldn’t bet on the organization faltering any time soon.
