CASE STUDY: Cooperating Foodstuffs Style – Striking a balance

When the CEO of traditional corporation has an idea about how things should happen down at store level, the directive is sent out with the implicit understanding that it will be followed to the letter. But when the people operating the stores are also the owners of the company, the executive team has to be very good at the art of persuasion, according to Foodstuffs (Auckland) managing director Tony Carter.
“Rather than handing down orders from high up and ordering them to do A, B, C and D, we need to persuade the owner/operators of the stores that it’s the right move to make, by giving them the information they need and showing them what good idea it is. The one question we always need to ask is whether something is in the best interest of the stores, and if it is, it should be simple matter to persuade them of the benefits.”
Fortunately for Foodstuffs, finding the right direction is two-way street as the board is made up of operators who have daily experience within the industry and can see for themselves what is happening on the shop floor. “It creates great informal source of information,” says Carter. “Instead of having everything start with the CEO, we have more of network-type situation. The board aren’t making the big decisions based only on the information that is presented to them, they can see it for themselves.
“Half of the 400 staff we have at Foodstuffs Auckland have daily contact with the stores, so the communication level is high, as result we have better understanding of what is needed and what has to be done. It’s good advantage, as the board can then focus on issues without feeling the need to explain every little detail.”
It’s an arrangement that has worked well for the 100 percent New Zealand-owned and operated business, with the Foodstuffs group enjoying 57 percent share of the local grocery market. The group is made up of three separate cooperatives, with Foodstuffs Auckland covering the North Island from Turangi to Taumarunui, Foodstuffs Wellington covering the southern half of the North Island, and Foodstuffs South Island covering the entire mainland. The principal activities of the three businesses include management of the supply chain for groceries, fresh foods and associated merchandise for members, support services for members, design and development of store formats for franchising to members, development and management of retail properties to support franchising activities and the development, organisation and supply of private-label merchandise.
Over the past five years, all three cooperatives have enjoyed steady growth, with Foodstuffs Auckland’s group sales rising 33 percent to $3.2 billion in the 2007 financial year, while distribution to members rose over the same period from $69 million to $97 million.
The combined performances of the three cooperatives was so impressive that the judges of last year’s Deloitte/Management magazine Company of the Year broke with tradition and named the Foodstuffs group as one of the finalists, while Carter, who has been with Foodstuffs since 1994, was also finalist in the Executive of the Year, with the judges describing him as “humble understated chief who leads by example”.
As well as serving as Foodstuffs Auckland’s managing director, Carter also leads Foodstuffs New Zealand, which carries out representative work for all three cooperatives. He says that his main task there is to act as liaison between the three cooperatives involved.
However, while the three Foodstuffs cooperatives are all independent businesses, Carter says there is still lot of cooperation between them. “We talk to each other weekly and send emails every single day. It’s just matter of working out what needs to be done on national level, before breaking it down to regional levels and then, finally, to the stores themselves.
“In fact, because our board is made up of the store owners, it mainly comes back the other way, with the owners seeing what needs to be done at the store level, and then taking that up to regional basis before deciding what can be done collectively at the national level,” he says.
Carter says some issues can be dealt with entirely at the store level, for example when it comes to employment, that is something that the store owner is in almost complete control of.
“We let each store independently work out the best solution for themselves, and that frees us up at an executive level to focus on other issues. There are matters such as long-standing shortage of workers with specialist skills, such as butchers, and that is an area where we try to help out with training and investment programmes to solve that issue, but generally store owners have the best ideas for getting the staff they need.”
While it may be struggle to find enough butchers and bakers in tight labour market, Carter says Foodstuffs Auckland has little trouble finding the right people to fill any vacancies at the corporate level. “We don’t have to go to the market that often, but when we do, we generally have little trouble attracting top talent. We’ve found that Foodstuffs has good reputation and people want to work for us, mainly because of our culture.
“It’s very collegial place to work and build career. We like to think of ourselves as the Foodstuffs family, and we have some people with some very long-term associations with the cooperative, from members who have been with Foodstuffs for 40 years, to staff who have spent their whole working lives with us. It’s almost like life sentence, in the best possible way.”
The idea of Foodstuffs family dates back to its very beginnings, when Foodstuffs’ founder J Heaton Barker called together members of the Auckland Master Grocers’ Association to discuss plans for the formation of cooperative buying group in 1922. The idea soon spread throughout New Zealand, with smaller regional cooperatives springing up, before they eventually merged and consolidated down into the three now operating. The Four Square brand has been mainstay of Foodstuffs since the beginning, while the New World supermarket group was formed in 1963, and the PAK’nSAVE group later in the 1980s.
While Foodstuffs has evolved and grown steadily over the past 80 years, Carter says the idea behind the cooperative is not all that different from what Barker envisioned in 1922. “We still hold to the same principles of supporting independent retailers and allowing them to be successful in their own businesses. We still need to constantly define what needs to be done at store level and what can be done centrally, but it’s important to us that the centre is only as big as it needs to be, and that we maintain our focus on finding the best way of helping retailers.”
Grocery retailer cooperatives are not unique to New Zealand. One example, Migros in Switzerland, is consumer cooperative owned by its customers rather than its store owners. It is of similar size and has an equal share of its market as Foodstuffs. There are several other grocery cooperatives operating in Europe and the United States, but while Carter says Foodstuffs Auckland is aware of what they are doing and how they are operating, they prefer to follow their own path. “Customer trends are the most useful thing to follow when we look at our international counterparts, because when it comes to retailing, the customer always has to be the first thing you have to consider. We tend to look at that more than how they are structured.”
Carter says Foodstuffs’ vision has always been to feed New Zealanders, but that has not precluded growth in non-food areas. “Like any company we want to grow, and we see our future in growing in areas where we are somewhat under-represented. The important thing is to look at product services and categories that we can work with under our systems. Liquor stores are good example, there has been some obvious success with supplying alcohol through our supermarkets, but now we’re looking at stores outside supermarkets, such as th