Tensions in co-operative movement turn nasty

An expert says the dispute may be the result of a lack of understanding at the Calgary Co-op over how the system works

Tensions within co-operatives are as old as co-operatives themselves.

However, not too many get to the point that Federated Co-operatives Ltd. and Calgary Co-op have reached, in which both parties are pursuing lawsuits and claiming millions of dollars in damages.

Murray Fulton, director of the Johnson Shoyama Graduate School of Public Policy at the University of Saskatchewan, said this dispute is about autonomy.

“There are these tensions and sometimes they spill out into the street. That’s not pleasant, but it doesn’t mean that these conversations aren’t, in the end, a very important part of the dynamic of co-ops,” said Fulton.

He said Calgary Co-op wanted to pursue its own brands, wider product selection and local markets, but not necessarily support FCL as its wholesaler or be a co-op in the same way it had been when it decided to stop using Federated as its grocery wholesaler last year.

“It appears that Calgary Co-op wants to have its cake and eat it too. They want Federated to be there for them on some things (fuel) and yet they don’t want to support the wholesaler on other things (groceries),” he said.

The company may be rolling “the retailing dice on its future” with change in wholesalers, Fulton wrote in an opinion piece for the Calgary Herald in August, calling it “a bold and risky decision given the history and structure of food retailing and potential behaviour of industry players.”

Fulton said Calgary Co-op’s cancellation of grocery sales from FCL suggested a lack of confidence in the co-operative model. It was surprising given the financial success the co-operative retailing system has had over several decades, and might be due to a lack of understanding by the Calgary Co-op board and management of the co-op model.

The breakdown in the relationship came to light last August when Calgary Co-op announced it had served notice to FCL that it was changing to a new food distribution partner to supply its food stores starting in April 2020.

It instead chose the Alberta-based distribution arm of Save-On-Foods, but continued to buy fuel from FCL.

Calgary Co-op is one of FCL’s largest retail members and received for the year ended Oct. 31 $47.7 million in patronage payouts and $39.6 million was for fuel purchases.

In November, FCL announced it would close its huge Calgary Food Distribution Centre and eliminate more than 200 jobs across the company.

On Feb. 10, Calgary Co-op filed a statement of claim against FCL citing a new loyalty program FCL had introduced since the breakup.

The program requires participants buy at least 90 percent of their products for resale from FCL to receive annual patronage payments.

The claim stated the new program will “prejudicially target” Calgary Co-op and asked the court to order FCL to continue to pay its fuel-related patronage, as well as damages.

It claimed FCL’s loyalty program was a “retaliatory response” for the loss of its largest grocery contract.

On March 23 FCL filed a statement of defence claiming the Calgary Co-op has equal rights and obligations as other retail co-operatives across Western Canada, which had enrolled in the loyalty program.

These claims have not been tested in court.

FCL, which is collectively owned by more than 168 independent retail co-operatives across Western Canada, including Calgary Co-op, said it acts for the benefit of the entire co-operative and that single members cannot tell FCL management what it can or cannot offer to its membership.

FCL also filed a counterclaim seeking damages from Calgary Co-op, citing breach of confidentiality and proprietary information by negotiating with FCL’s direct competitors.

It said Calgary Co-op’s inadequate notice caught it off guard and expects to lose more than $385 million in annual revenue and more than $20 million in net income.

The move has also forced the shutdown of its Calgary Distribution Centre, which an FCL spokesperson confirmed began closing procedures April 13 and will lead to more than 200 layoffs.

The counterclaim said it will incur managerial severance charges of more than $4 million and unionized employee severance charges in excess of $2 million.

“Calgary Co-op’s decision to move its food supply to a competitor was a sad moment in our 91-year history,” said FCL chief executive officer Scott Banda during his annual address to members in March.

“The good news is many conversations were started in this federation arising from this disappointing event and I would suggest that these conversations are some of the richest and deepest conversations that we have ever had. Conversations about what is the purpose of this co-operative FCL? How do all of these responsibilities we all have collectively fit together and who plays what role? And most importantly, does this co-op matter?”

In a statement emailed to The Western Producer, Calgary Co-op said: “Calgary Co-op will continue its oppression claim to ensure that FCL treats Calgary Co-op fairly and equitably, in the interests of Calgary Co-op’s members and the Calgary community it serves.”

Fulton said local co-ops are independent with self-governing boards. However, they recognize they need economies of scale and that they can’t survive by themselves in the current economic marketplace.

“They need the power of the group,” he said.

“These tensions are always present and these groups are always sort of jockeying to see how far they can push the system one way or the other.”

However, while economies of scale are key for small independent retailers to co-operate, Fulton said there is another part of the story.

“It wasn’t just that the retails needed economies of scale, which they could have obtained by dealing with a large wholesaler. The issue is whether, by being large, the wholesaler then treats the businesses that it’s dealing with on a fair basis and doesn’t price gouge, thereby diminishing their profitability.”

“A co-operatively owned wholesaler provides the retailers with an entity that both has the size required to provide economies of scale and is responsive to the retails, one in which any excess profits, if they are earned, are funnelled back to the owner-retails,” he said.

“This really is why the retail co-ops formed a wholesaler in the first place. And now that you see Calgary Co-op step outside of the system, I think you have to ask the question whether it will face the same issues its predecessors faced 75 years ago. Time will tell.”

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