Canadian retailer Calgary Co-op is to cease purchasing from procurement and distribution co-op Federated Co-operatives Ltd (FCL), which warns the decision will have a “significant” impact on its business.
Calgary Co-op, which reported $1.3bn in sales in 2018, said in an email to its 400,000 members that will switch suppliers to the Alberta-based distribution arm of supermarket chain Save-On-Foods, a private company.
The move takes effect in April 2020, although the retailer will still obtain gasoline and convenience store products from FCL. Calgary Co-op says the move will “better serve members and ensure long-term sustainability”, and allow it to add exclusive private brands to its range.
The retailer says the decision was approved by its board “after careful review”
Calgary Co-op spokeswoman, Sage Pullen McIntosh, said its food business “operates in an increasingly challenging economic and competitive market.
“Positioning our food business model for unique differentiation will allow us to reflect our members’ needs. We are accountable to them.”
Calgary Co-op will continue to work with an increasing number of local producers and stocking more local produce, she added, and will be hiring staff to deal with the change
But FCL, which is collectively owned by 170 retail co-ops across the prairies of western Canada, said its largest wholesale customer’s decision to take its grocery business elsewhere will have a “significant” impact on its operations in Calgary and cut into its bottom line.
FCL’s executive vice president for customer experience and stakeholder engagement, Vic Huard, said around 200 jobs will be affected in its Calgary, and there would also be impact on jobs at its head office in Saskatoon.
“It puts Calgary Co-op in a situation where they’re sourcing from a direct competitor, which for us, to be honest, raises all sorts of questions about the long term,” Huard said.
But while while Calgary Co-op’s decision is “disappointing”, Mr Huard says the business will recover. “We’ll weather this and come out the other side,” he added.
FCL chief executive Scott Banda added: “It’s sad to see them moving away from the co-op family they’ve helped build.
“Our senior leadership team and board of directors had prepared for this possibility and we’re now evaluating impacts and planning our next steps.”
Academic and co-op specialist Murray Fulton from the University of Saskatchewan told the Calgary Herald the switch to a private supplier is an unusual move for a co-op.
“It’s certainly necessary for co-ops to be constantly adapting, and part of that is being able to sharpen their pencils and be particular about costs,” he added. “But under a co-op model, you’re part of a system and your success is dependent on the success of the entire system. And in this case, Calgary Co-op has decided to go out entirely on their own.”
Prof Fulton noted that Save On has been moving into new markets in western Canada and Calgary would be a lucrative one.
And he warned that Calgary Co-op could eventually face financial pressure to demutualise or even sell its assets to Save-On-Foods.