Purchasing Co-ops

Purchasing cooperatives have historically played a vital role in meeting numerous needs for goods and services, especially in underserved areas. These organizations are also instrumental in helping members maintain resilience during social or economic uncertainty.

What Is a Purchasing Co-Op?

In a purchasing cooperative, groups of businesses in the same industry form a collective unit to buy supplies and services. Individual retailers own the purchasing co-op — not outside investors — so they make decisions based on the co-op’s interests. Member organizations share purchasing contracts to acquire the goods and services needed to run their independent businesses.

Individual stores that are members of a co-op buy merchandise in bulk at the lowest possible price. Cooperative purchasing helps members reduce costs and offer competitive prices compared to retail chains. Members also enjoy a voice in the co-op’s operation. As owners, they receive a vote they can use to influence product selections, quality and the group’s leadership.

The Importance of Purchasing Co-Ops

As part of a purchasing co-op, independent businesses thrive in a world of big box stores. They serve their local communities by offering quality products at the best prices, as well as expert advice. By joining forces in a purchasing co-op, organizations achieve lower prices, greater efficiencies and increased market power.

A Brief History of Purchasing Cooperatives

The earliest example of group purchasing was Benjamin Franklin’s mutual insurance company, The Philadelphia Contributionship for the Insuring of Houses from Loss by Fire. Franklin and his friends formed the group as democratically run by its members, who shared equally in any gains or losses.

The next revolution in cooperative business models occurred almost a decade later in England. A group of artisans and vendors in Rochdale established a consumer-based cooperative and principles for how to operate. These formed the foundation of modern cooperative business values.

The idea soon expanded worldwide. Purchasing cooperatives gained even more popularity around the turn of the 20th century and throughout the Great Depression. In his New Deal legislation, President Roosevelt focused on co-ops as thriftier solutions, and they flourished as a result.

Today, purchasing cooperatives provide essential cost control in various industries, including:

Agriculture
Educational institutions
Government agencies
Health and dental care
Nonprofits

How Does a Purchasing Co-Op Work?

Purchasing co-ops are voluntary, member-based and member-owned organizations. Interested entities can join by depositing equity in the group’s collective resources for their ownership share. After joining, members have instant access to the co-op’s benefits and the right to vote on its operations.

While these organizations are typically groups from related industries, cooperatives differ from group purchasing organizations (GPOs). Both leverage combined demand to secure more affordable pricing, but their purposes and methods are distinct.

In a GPO, members’ needs are individual and often spread across various suppliers, even in a single industry. The GPO helps by negotiating and contracting prices with multiple vendors as a facilitator — members still order directly from the contracted supplier. The GPO’s members have no say in how to run the business since much of the group’s revenue stems from vendor-paid fees at order execution.

Conversely, purchasing cooperative members receive exclusive discounts as a direct result of the ownership equity they contribute. Members share in all profits and losses, making the ability to vote a key benefit. These co-ops also tend to be more vertically focused based on the group’s unique needs.

How Purchasing Co-Ops Empower Employees

Purchasing co-ops are all about empowerment at every level. They empower employees with ongoing learning and training programs, more financial headroom for skills investments, and reduced low-value administrative work. Employees can reap a lot of benefits from purchasing co-ops, including:

Enhanced education and training: Skill building is a core cooperative principle that emphasizes training all members to contribute effectively to the business.
Improved room for member contributions: In a purchasing co-op, individual retailers own the business, and they have voting power on operations, quality standards and other matters. That gives members the power to empower employees through policies that invest in staff development.
Reduced administrative burden: Purchasing co-ops give members the power to streamline procurement, resulting in lower administrative overhead for employees. It frees more time to focus on high-value work and reduces admin-related stress.
Improve benefits using pooled buying power: Co-ops can leverage their collective purchasing power to invest in employee benefit plans and other services that improve employee retention, morale and well-being.

The Benefits of Purchasing Cooperatives

Purchasing cooperatives provide several benefits for all parties involved. Suppliers receive a single master agreement, which helps expand their market access. It also helps lower sales costs and offer competitive terms. Cooperatives build stable relationships with suppliers under standardized, ethical frameworks, improving the local economy and building more capacity for steady prices.

Member businesses of purchasing cooperatives also reap benefits like reduced administrative overhead, which can help cut costs and increase savings. They also enjoy increased access to a wide variety of goods from reliable suppliers. Member businesses can do more with less by using their negotiating power to gain a competitive edge.

Purchasing cooperatives combine the knowledge and experience of all members to implement efficient processes that meet industry standards. They streamline procurement, enabling them to reduce the need for running separate bids.

Purchasing co-ops also benefit consumers and the public sector. They can offer competitive pricing and give customers a personalized experience with local goods. Their compliant processes and local transparency boost confidence in the business and give customers peace of mind. The community also benefits from cooperatives’ community reinvestments and support for local jobs and services.

Purchasing Cooperative Success Stories

Purchasing cooperatives offer multiple employee ownership advantages, so it’s not surprising that there are many success stories. Here are some of the most inspirational purchasing coop stories:

National Co+op Grocers (NCG): This co-op secured its first national purchasing contract with United Natural Foods (UNFI) and scaled across the network, earning its reputation as a “game changer.”
Ace Hardware: With a total revenue of $12.5 billion, this purchasing cooperative empowered thousands of independent hardware retailers to compete with big-name national chains.
CCA Global Partners: This co-op is one of the largest privately held purchasing cooperatives with over 3,000 locations. It leverages its group purchasing power to deliver competitive pricing and quality services to independent retailers.

Build a More Inclusive Economy With NCBA CLUSA

For more than 100 years, NCBA CLUSA has provided education and advocacy to help cross-sector cooperatives thrive. Our team works to educate policymakers and the general public about cooperative priorities.

Since 1953, NCBA CLUSA has worked internationally to help communities improve their resources, knowledge and agency. Learn more about how we build resilient communities through cooperative enterprise. Have questions about our programs? Contact us online.

Become a member of NCBA CLUSA today.

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