How can small, local businesses compete with major corporate retailers and tech giants?
The people behind Direct Co-ops think they have the answer: banding together and working cooperatively.
The Toronto-based company is so positive the co-op model is the way forward that it’s taking on both Amazon and Uber with online marketplaces, group buying platforms, a worker-owned ride-hailing service and a delivery app.
“Every time a Walmart opens, hundreds of long-standing local businesses die,” says CEO A.J. Attia. “On their own, mom-and-pops don’t stand much of a chance in competition with the Amazons of the world, but there’s real mass power if everyone works together.”
Can co-ops stave off big box encroachment?
Direct Co-ops has 25,000 members with chapters throughout Canada and the United States, the UK, Italy and Peru. There are multiple individual co-ops and unions using it, representing millions of people worldwide.
Toronto is where it formed and where it is headquartered, but it has a relatively low profile here. That’s something it hopes to change quickly.
The organization has roots in a community pushback against a proposed Walmart on the outskirts of Kensington Market in 2013. Residents, business owners and the BIA were concerned a nearby big box store would kill the area’s independent retail culture (a culture that is once again in danger during the pandemic).
Attia and his team (which now includes former MuchMusic VJ Steve Anthony) surveyed thousands of independent business owners about their challenges and how they could make their voices heard. They turned those into a campaign that helped get thousands of petitions against the proposed development, and it was eventually staved off.
Direct Co-ops (then 416Direct) was founded mostly as a buying group. Business owners could band together to group purchase items like coffee, light bulbs and cleaning supplies at a wholesale rate up to 50 per cent cheaper.
Around 10 Kensington Market businesses are now using Direct Co-ops’ platform and many businesses recently used it to group buy PPE like masks and gloves at a significantly reduced price.
By banding together, they can offer more competitive prices compared with their much larger big box and big tech counterparts.
From group buying to independent marketplace
Group buying is still a major part of Direct Co-ops, and it forms the basis of the company’s new Direct B2B app. There, businesses can group purchase and nominate and vote on what to buy, as well as other collective pursuits. But it’s one part of a much bigger vision.
Direct Co-ops is about to make a big push in Toronto, reaching out widely across the city to independent businesses and BIAs. The Kensington BIA is on board, as is the BIA for York-Eglinton. Membership is free for small and medium-sized businesses.
“Helping small business joint purchase is really only half of the problem,” Attia says. “The next thing is giving them the same convenience to retail like the big players do.”
In addition to the Direct B2B app, January 1 of this year also saw the official launch of the Direct Local app, which looks outwards at customers. It’s an online marketplace in the vein of Amazon, but populated specifically with local businesses, all of which can list up to 5,000 products and offer free curbside pickup. They also offer a large (up to 85 per cent) discount to members for UPS shipping.
You can download it now and find a ton of local businesses selling all sort so of food and goods, some at big discounts.
A worker owned ride-hailing and delivery service
The next step is delivery and ride-hailing, and they have an app for that, too.
Local Driver Co-op is a new cooperative launching as a driver-owned alternative to Uber. Drivers will own 90 per cent of the business and get 90 per cent of revenue, a much more secure model than the gig economy of Uber and Lyft. It will also let them undercut them on the price of rides.
Right now, they’re trying to get 5,000 riders signed up to do a full launch in Toronto.
Attia says the model allows them to offer delivery for up to 30 per cent cheaper. Local Driver Co-op will also do the delivery for yet another service under their umbrella, Direct Local Eats.
That’s Direct Co-ops’ take on services like Uber Eats and SkipTheDishes, whose large commission fees are eating into restaurants’ ever-thinner margins during the pandemic. “Last-mile delivery” costs for restaurants, grocery stores and other food businesses will be capped at five per cent rather than 15-30 per cent.
With Ontario facing yet another set of restrictions – allowing curbside pickup and takeout while instructing people to only leave their house for “essential” purchases – January and February are going to be very tough months for local businesses. Attia hopes they use the quiet times to try out Direct Local.
Can the co-op model help small businesses survive?
The co-op movement is not new.
Co-ops date back to at least the 1800s in Europe, forming to help farm workers and other producers fight back against the encroaching industrial revolution.
Brendan Denovan, the former communications manager at Co-operatives and Mutuals Canada (he now works at the University of Ottawa), says the model has been picking up steam in the last few years in North America.
They’re big in Quebec and British Columbia, he says, highlighting the Gay Lea Foods Co-op and Modo, an innovator of car-sharing. Here in Ontario, though, co-ops have been slower to gain steam.
Part of that, he says, is the “Toronto-centricity” of the province, and business owners’ access to capital in the city.
“It’s a business model that works within the traditional capitalist system,” he says. “Unlike global socialism, it’s not about ‘let’s bury capitalism’ but ‘why isn’t capitalism working for those at the bottom’?”
In other words, it’s still about self-interest. It’s just a collective, grassroots sort of self-interest that thrives in the absense of big corporate players.
He argues that’s why the best-known co-op here, MEC (Mountain Equipment Co-op) failed. Though technically a co-op where everyone who shopped there had a democratic voice in its operation, in reality only 25,000 of its five million members participated, it scaled too aggressively and it became “like every other retailer.”
The pandemic, though, has exacerbated pre-existing economic issues and changed consumer perception.
“We’ve become extremely reliant on delivery and the logistics that make it convenient. That’s to stay,” Denovan says. “For certain things we need, we’re going to jump online. But there’s room in that space for competition. Everyone is becoming aware of how aggressive and market-dominating Amazon is, and monopolies are not in anyone’s self-interest. A single market is not good for anyone.”
People are becoming more protective of their local businesses, and businesses are searching for ways to survive. Direct Local is a way of creating a new supply chain and trying to create and find gaps in the market.
The co-op model is not going to fix the major problems created by the pandemic. Local businesses are still struggling to survive and compete with the Amazons and Ubers of the world.
What is most needed, says Cassandra Alves, operations manager of the Kensington Market BIA, is government intervention: significant regulations of the ever-powerful tech companies, more supports like rent and wage subsidies, safe-reopening funds and social supports like paid sick leave.
“It’s a good model [and] I think this may be one of the tools that can support the market, but I don’t believe one single thing can make a huge impact,” she writes in an email. “I think policy changes are the biggest things that need to change as those are the core of many of our issues.”
But while they wait for more protections, small businesses are searching for ways to survive. And Direct Co-ops is one of the most ambitious services stepping up to help find a model that can work.
“This pandemic has sparked massive inequality for small businesses,” Attia says. “We’re hoping this can give them a fighting chance.”
