How To Set Up A Direct-Charge Co-op

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REPRODUCED FROM A BOOKLET PUBLISHED BY
UNITED COOPERATIVES OF CANADA
35 Oak St., Weston, Ontario, Canada

In case you haven't noticed, there's a small revolution taking place in food distribution. All over this continent, groups of folks are setting up co-operatives, bypassing the local supermarket and dealing direct with wholesalers, farmers and food processing plants.

Why? Well, Gordon Inkeles, who helped set up the original San Francisco coop, once gave this comparison: When Safeway was selling oranges for 15¢ each, the co-op was offering the same oranges for 3 to 5 cents a throw.

The average U.S. co-op, so far, has been rather free-form (a few are described in this issue) but, in Canada, some really business-like co-operatives have been organized. This article gives all the specifics:

After two years of study, the first direct-charge co-operative in Canada, Co-operative Supplies Depot of Ottawa Limited, was incorporated in June of 1968. Growth was rapid and - by January, 1969 (when the report was written from which the following information is taken) - CSD had 970 members and was on the verge of setting up a second depot. At that time the success of CSD in Ottawa had already inspired the establishment of 13 other such Canadian co-ops. We do not have any recent figures but we understand that the direct-charge co-operative idea has continued to mushroom at an increasing pace in Canada.

I-WHAT

In briefest terms a direct-charge (d-c) co-operative is an organization established by a group of people to purchase groceries from wholesalers or other sources at the lowest possible cost.

A direct-charge co-operative is not a business in any ordinary sense of the term. It does not buy at one price and obtain its income by selling at a higher price. A direct-charge co-operative provides a service, a purchasing service, and the members pay the cost of that service by dividing it among themselves. (Incidentally, no direct-charge co-operative should be required to pay business tax because of its operating methods.)

In most respects, a direct-charge co-operative is not different from a conventional co-operative. It follows democratic principles by limiting each member to one vote. It eliminates profiteering by paying no dividend on the share capital contributed by the member.

When a direct-charge co-operative incorporates it does so under the usual legislation in its province thus becoming subject to the rules and regulations which govern all co-operatives. Under the legislation the co-operative establishes its by-laws, arranges its financing and holds its annual meetings of members. The annual meeting elects the board of directors. The board engages a manager and guides the organization throughout the year.

But the direct-charge co-operative has added two principles which are very basic to its function. The first concerns its policy on pricing and is often stated thus: There are no hidden charges. This means (a) there is no markup on merchandise; the price for an article is established when the co-operative makes the purchase and it turns over to the member the merchandise at that price; and (b) pricing does not include provision for accumulation of capital. This is in contrast to private-profit business and many conventional co-operatives which accumulate capital from the gross margin.

The second basic principle which distinguishes a direct-charge co-operative concerns operating revenue. In a direct-charge co-operative expenses are collected directly from the member; that is, each member undertakes to pay his portion of operating expenses as long as he is a member. There is no relationship between the operating charge he pays and the amount of merchandise he buys. Indeed he pays his operating charge even in weeks he buys nothing on the grounds that the expense has continued.

There are other important points. Value to the members is the prime consideration in the selection of merchandise and not profitability from a merchandising standpoint. Since a member must pay his portion of operating costs he is involved in all decisions which affect those costs as far as possible. Voluntary work is encouraged on a well-organized basis to provide members with opportunities to learn more about the co-operative and to reduce costs.

In a direct-charge co-operative members also undertake to make investment in share capital at a stated rate in order that the co-operative may have a fund to equip the depot and acquire inventory. Steady accumulation of capital will free the co-operative in time from the necessity for borrowing money and provide funds for expansion.

In summary then if you find an organization established under co-operative legislation to procure merchandise for its members, each member having undertaken to pay his portion of operating expenses as a direct charge rather than in the form of a markup you will have come upon a direct-charge co-operative, for this is its distinguishing feature.