Purchasing Co-Ops Give Contractors an Edge in Tough Times

Kelby Frederick runs Flooring America, a family-owned flooring business in Denton, TX.

In 1994, Frederick joined a purchasing cooperative to address the challenges big-box retailers posed for his company’s survival. “Home centers were taking advantage of our fragmented industry and coming after our customers,” says Frederick. “Yet, we were too small to get manufacturer rebates like our larger competitors.”

Flooring America became a member of CCA Global Partners, a retail purchasing co-op that has members engaged in the flooring, mortgage banking and lighting industries. By linking independent companies together to achieve greater buying scale, CCA gave Frederick a proven means to effectively compete against corporate retailers and achieve better bargaining power with manufacturers.

Frederick quickly learned that CCA offered a lot, including back office support, marketing services and training programs that Flooring America would not have been able to afford on its own. “CCA provides us with a monthly advertising campaign and integrated marketing tools,” says Frederick. “Now, we have access to prepackaged newspaper, TV and radio ads and direct mail packages, and CCA negotiates special pricing for advertising campaigns. I just fill in the blanks, and save a ton of money marketing my business.”

Independent businesses across America are embracing purchasing co-ops to level the competitive playing field. By banding together, even small, locally owned businesses can achieve a buying scale to match large corporate competitors, while lowering operating costs. Purchasing co-ops are central to the American economic landscape and include household names like the Associated Press, which is owned by thousands of newspapers, radio and television stations, and Ace Hardware, a dealer-owned wholesale co-op comprised of nearly 15,000 independent American retailers.

“The co-op is the ultimate choice to bring [buying] scale to local ownership while honoring their differences and valuing their independence,” says Howard Brodsky, chairman and co-CEO of CCA Global Partners. “If you give a smart entrepreneur the best tools, he can outplay the big guys. He needs to buy better, brand better, have the best training, best hiring and best marketing.”

CCA has not only endured, but has exploded. Starting with thirteen members, the cooperative has grown to 650 owners who operate 3,600 independent stores around the world. The company reported sales exceeding $10 billion last year and has never experienced an unprofitable quarter in its twenty-four years of existence. Sales have jumped 325 percent in the past eight years.

Reading about the success of co-ops like CCA inspired Dan Bleier, who needed to find a way for his family-owned business, Able Distributors, to effectively compete with “the big boys like Home Depot.” He reversed the negative trend by becoming a founding member of Blue Hawk Cooperative in 2005, a Phoenix, AZ-based co-op with more than 200 members-mostly family-owned companies-that own more than 900 distribution locations in fifty states.

Blue Hawk was formed in May 2005 to maximize the strength of independent Heating, Ventilation, Air Conditioning and Refrigeration (HVACR) distributors throughout the United States. Blue Hawk members distribute a wide range of HVACR-related products to the residential and commercial construction trades.

Blue Hawk offers its members centralized, cost-saving buying, plus warehousing, marketing, merchandising and financial reporting, as well as an extensive selection of online training courses. Lance Rantala, the co-op’s chief executive officer, explained how carefully selected partnerships with manufacturers and contractors help build a healthy and profitable business environment for all participants. “Our plan is to have each Blue Hawk member-owner grow their combined market share by 10 percent,” says Rantala.

Blue Hawk members like the control they enjoy as owners. “The biggest advantage of operating as a co-op is transparency. We see everything that transpires, from complete vendor programs to detailed operating costs,” says Blue Hawk member Greg Bush, president of Bush Supply in Phoenix. “All decisions are made in the best interests of the co-operative-which is in the best interest of the members-which is in the best interest of my company.”

Many purchasing co-op offer peer-to-peer networking at annual conferences and provide online networking tools that help members connect and share ideas. Pennsylvania-based Charter Partners pioneered “Co-op Entrepreneurship,” which combines cost-saving benefits with opportunities for members to advance their business skills through structured networking and best practice sharing.

Charter Partners offers mutual insurance and shared purchasing services, including a popular fuel purchasing program. “Our diesel fuel program cuts fuel costs dramatically for our members,” explains Pattie Cowley, Charter’s vice-president and treasurer. “Even during the summer of 2008, when fuel prices were sky high, we saved our motor coach operators anywhere from $0.16 to $0.21 per gallon.”

Though they can’t deliver miracles, purchasing co-operatives provide relief to beleaguered small businesses through strength in numbers. “In troubled times, you don’t want to be alone,” says Cowley. “Purchasing co-ops help members connect and collaborate and save money while keeping pace with much larger competitors.”

Businesses of all sizes face some tough challenges today, and these problems are likely to get worse. As a result, purchasing cooperatives are gaining relevance.

The National Cooperative Business Association conducts an annual conference exclusively for purchasing co-ops. Although each industry has many options for attending meetings, this annual conference is popular because it is the only one that deals with their unique business structure. The association also maintains a listserv so that members can communicate throughout the year.

“If you take a look at the cooperatives when they’ve really excelled, and when people have been drawn to cooperatives, it’s when there’s economic or social upheaval,” says Paul Hazen, president and CEO of the National Cooperative Business Association.

CCA’s Brodsky believes these independent business owners are learning one of the most important realities of co-op life: There is strength in numbers. “In troubled times, you don’t want to be alone. That’s the worst,” he says. “Join a co-op because it gives you all the support and tools to compete.”

 

Construction Business Owner, September 2009