I am currently interning at South Texas Merchants Association, a member run not for profit Co-operative for Convenience stores in San Antonio and neighboring cities. This co-op is run by member elected directors who work voluntarily to improve the quality of life of the co-op’s members which includes themselves. While working in this convenience store industry, I realized that off late it has become extremely difficult for individual convenience store owners to survive in this highly competitive market. The National Association of Convenience Store study shows that with every 1 new branded gas station/convenience store, 4 individual owned store closes. This was an alarming figure. The single store owners by themselves do not have any say in the convenience store industry as it is run by the giant chain stores like Circle K & QT.
This encouraged me to study other retail industries as well. Is the situation similar even there? I spoke to various retailers in India, Pakistan and US in various industries like footwear, dairy, agriculture, clothing, convenience stores etc. Everyone complained the same thing; it’s getting difficult to survive. Amid intensifying competition, retailers are undergoing pressure to maintain margins and at the same time remain competitive.
Ismaili Muslim owners of convenience stores in San Antonio understood the “power of volume” way back in early 2002 and created the South Texas Merchants Association Co-operative. I spoke to the oldest member of STMA and asked him what motivated their group to start STMA. His story is worth sharing:
He said that back in the day, almost everyone in the Ismaili Muslim Community in San Antonio was an immigrant from different parts of the world especially Africa, India and Pakistan. Most of them were not that educated and hence only place where they could find job was a gas station. Most of the people worked two shifts to be able to survive. Soon, people accumulated enough savings to be able to start their own business. Since the only business they learnt was gas station, almost everyone gradually opened one of their own. After a couple of years, people started to realize that in order to sustain and grow in the business, they had to something beyond just operating one business. Prices of the products were increasing but were sold at much cheaper price in the branded stores. They had to do something to get the business back. That’s when the several owners of small convenience came together and started STMA. The vision of this co-operative was to take advantage of their “numbers” in other words, collaborative advantage (Harvard Business Review, 1994). Now due to their large size, vendors would listen to them and offer them similar, cheap prices to big brands. Unlike the company owned convenience stores that are run by non-owner managers, the co-op is member run and so they could be more aggressive than the big boxes.
STMA is a good model that shows how an alliance helps in achieving volume for small scale businesses which thus helps in sustaining competition from bigger branded stores. I spoke to my retailer friends in India and Pakistan. They shared a similar story of struggle in current times. Most of them were also part of some kind of a retailer’s alliance. Some were in retailer Co-ops as well. But not all associations had a success story to share. For example, I spoke to the President of the Footwear Association in India, he said their alliance association is struggling. He called it a Failure. The members have many internal rifts especially because each one is competing for their own market share. Therefore, they are not willing to share business ideas with each other and are not interested in buying with the same manufacturer even though that would mean lower costs. This situation is completely opposite to that of STMA. On the contrary the Baker’s Association in India is highly successful. Dairy Association in Pakistan is also a success story where the Co-op has a bought their own land and divided it amongst many owner retailers. Why is there a difference? Is it because the business model is different or there is lack in relationship building? I wanted to study if this STMA model i.e. a Retailers Co-operative model can be replicated to ensure a sure-shot way to success in every retail sector.
What is a Retailer’s Co-operative?
Co-operatives have been in existence since Robert Owen proposed "villages of co-operation" as part of his socialist movement in 1815. Owen aimed for small, self-sufficient industrial communities, he proposed the concept of self-help in order to sustain in a highly competitive world. The Co-ops, though their focus is largely on member benefit, they contribute hugely in community development and in turn contribute to poverty reduction by creating jobs. (Cooperatives and the Sustainable Development Goals, ILO).
A Retailer’s Co-operative is a type of member run Co-op that is established by the retailers in order to benefit from economies of scale which means members can now get same advantage as their large-scale competitors. This advantage is derived due to expansion. The members can now benefit from sharing product costs, can acquire materials and products at competitive prices, access valuable information, which was once expensive to access or inaccessible, can fight for relevant causes and be heard, enjoy a pool of innovative ideas and experiences.
Research So Far…
Currently, I am on the verge on completing my case study on STMA. I realized that the Co-op model is highly successful in convenience store industry. Member retailers are able to benefit from better buying power, are able to purchase products at better costs, are able to learn and grow by sharing each other’s best practices, using their alliance to fight for causes that are relevant to the industry and now their voices are being heard. Today STMA has become so powerful, financially and politically in the convenience store industry in San Antonio, that it was able build their own 65000 sq. ft wholesale space from which not only its members are benefitting in terms of competitive priced products but are also generating profit by selling products to non-member convenience stores. STMA Wholesale is a for-profit business whose owners are members of the STMA Co-operative. STMA Wholesale recently create its own private label bottled water by the name Rising Star and is in the process of creating Rising Star coffee too. These products will be exclusively available in STMA stores.
However, it is not a completely sweet story. The biggest challenge is survival. Since the co-op is member run, the biggest threat to the co-op is the member themselves. Building Relationships amongst the members and maintaining it is an everyday struggle. Each member’s focus to enter into this partnership is different. Aligning everyone’s focus to one common goal is often a challenge in a lot of co-operatives (Strategic Alliances and Cooperatives Aiding in Rural Development in North America). Even though the by-laws of the Co-op have been clearly set, it is important for every member to understand the concepts behind each rule in the bylaw and strictly follow them. Some members in the Co-op have chain stores while some are single store owners. Therefore, needs of each member is different. Another issue of the association is the leadership. The term of the leadership is three years. Every Board that is elected has a different vision of the association. For some, the focus is on community development and some entirely focus on profitability. Leadership styles of each Board is also different. This lack of consistency is also detrimental to the growth of the association. But if these threats are carefully taken care of, collaborative working is the answer to a lot of issues for independent store owners.
Next Steps.
My goal is to complete the case study on South Texas Merchants Association Co-operative after which I want to study Alliances in other retail industries as well. I will also do a survey of members in all of these co-operatives to determine unique characteristics of each of the Alliances and if these characteristics has anything to do with the co-operative’s success or failure. In the end I would hope to establish certain determinants of success in alliances across industries.
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