How To Set Up A Direct-Charge Co-op
(Page 3 of 4)
July/August 1970
By R.S. Staples
RELATED CONTENT
PRICING
Establishing the prices which appear on the merchandise in direct-charge co-operatives is a crucial area of decision which has received a great deal of thought. The principle is that the co-operative sells at cost without markup and this is widely accepted. One of the great strengths in a direct-charge is its ability to say honestly to the members, "this merchandise is being turned over to you at the price which was paid for it." Never should a direct-charge co-operative get into the position where it cannot make that statement without qualification. If members ever have reason to think they are being charged two ways, paying both a weekly fee and a hidden markup, they are likely to lose confidence in the operation.
But what is meant by the phrase "at cost"? The following are suggested as acceptable and perhaps necessary modifications.
a) When the case-lot price divided by the number of units in the case results in a fraction the unit is to be priced at the next higher one cent point. Thus a case of 24 tins, costing $5.40 would result in a price of 23 cents on each tin. (In some instances low-cost items could be grouped in multiples, e.g. 2 for 15 cents).
b) Fresh fruit and vegetables may be sold at a price increased to include truly unavoidable spoilage as a part of cost, but the increase should be no more than a small and stated percentage of the original cost of any item, e.g. 2%.
c) Fresh meat presents a special problem because when a co-operative is cutting its own meat the purchase price will be based on the cost of the carcass. The various cuts of meat would be priced at a level which recovers the original cost but no more.
d) The "at cost" price is usually interpreted to be cost at the co-operative door; that is including any delivery charges. Pricing policies are crucial indeed and in no other area is the distinct outline of the direct-charge approach so clearly demonstrated. For example, there is always a temptation to add a small markup in order to recover some of the operating cost. No doubt faced with the necessity for greater revenue as services broaden out some co-operatives will make this move, but if they do so they will cease to be direct-charge co-operatives under our definition. The reason is clear. The distinctive feature of the direct-charge co-operative is the undertaking which each member makes to pay his portion of operating expenses. If those expenses are to be recovered through adding a percentage to the price of merchandise purchased by the member there would be no basis for this undertaking unless the member were required to buy from the co-operative. Such a requirement would likely be quite unacceptable.
