Alvarado Street Bakery is the largest cooperative bakery in the US with 116 members, at present, who both run and own the for-profit business. The bakery specialises in organic, sprouted bread producing about 50,000 loaves daily with annual sales in the region of $33 million.
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Problems and Purpose
The key goals of Alvarado Street Bakery include the following:
1. To run their business in a “human way”, “based on values of self-help, self-responsibility, democracy, equity and solidarity”.
2. Growth, as the membership expanded so did the difficulty organising and getting each member to participate.
3. Attracting talent
5. Maintaining market share, as new competitors emerged over time.
The bakery aims to uphold these values through the democratic participatory innovation that is worker owned for-profit businesses, while providing high quality organic baked goods to its customers worldwide.
Background History and Context
Originally a part of the non-profit ‘Red Clover Worker’s Brigade’ that emerged in 1977 as part of the cooperative wave that swept the Bay Area of California in the 70s, Alvarado Street Bakery was started by 5 workers who pooled their resources and acquired the bakery side of the organisation in 1980, later incorporating in 1981.
Since inception Alvarado has been under the leadership of Bruce Gustin, inception-1992, Joseph Tuck, 1992-2015, and Bryan Long, 2015-present. During this period, the organisation expanded its customer base beyond California, now serving all 50 states in addition to, international markets, such as, Mexico, Japan, Singapore, Kuwait, Puerto Rico, the British Virgin Islands and the Bahamas. Today, Alvarado produces about 50,000 loaves of bread daily, pulling in $33 million in annual sales and employs 116 worker-owners.
On the other hand, while the cooperative movement has a long history, the modern cooperative was only established in 1844 by the Rochdale Pioneers, here the radical basis of future cooperatives was created as workers realised that by pooling their resources and efforts, they could establish a business in which they would each have a stake, sharing the profits and democratically governing the business. From here the movement rapidly spread across the globe, diversifying to serve almost every need.
Organizing, Supporting, and Funding Entities
The cooperative began under the Red Clover Worker’s Brigade organisation, however in 1980, 5 former workers pooled their own resources and spent $5000 to buy the bakery, in order to manage it as a separate business, forming the Semper Virens Bakery Food Cooperative, eventually being named Alvarado Street Bakery.
The organisation initially struggled to generate enough operating capital, however the worker-owners agreed to lower wages in the early years in exchange for sweat equity, essentially generating equity as they worked. This allowed the business to grow faster due to lower operating costs until it could become self-sustaining. The second major source of financing in the early years was members themselves putting up their own funds in order to cover the operating capital.
Moreover, the bakery initially financed their debt through the Bank of America, eventually after building up their credit record obtaining a loan from a Washington D.C based cooperative bank.
At present, the business has been dept free for over a decade.
Participant Recruitment and Selection
New employees undergo a nine-month vetting process by their peers as they undergo training. After working there for a probationary period, workers can be elected to the membership, by paying the $1,500 membership fee to buy voting stock. In addition, members must take three required classes on cooperatives and finances and pass a test given after the presentations.
Methods and Tools Used
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What Went On: Process, Interaction, and Participation
A cooperative business model is employed, where worker-owners invest in and own the business together, while prohibiting non-workers holding voting shares. Decisions are made democratically, with each person having one vote and using it to actively participate in the organisation by voting on salient issues. Profits and losses are allocated to worker-owners according to hours worked or gross pay, with skill and seniority also determining wage rates although, these are set in conjunction with voted on internal policy.
Every cooperative is unique, enter the Alvarado model. Due to growth in membership meetings began becoming cumbersome and as such, 25 years ago a new governance structure was introduced. This structure resembled a corporate hierarchy with elements of representative democracy, each worker-owner again being entitled one vote, regardless of their position in the hierarchy.
The cooperative was split into ‘areas’, which resemble committees on a particular part of the business, each one being supervised by an area coordinator. Area coordinators together make up an advisory council that reports to the general coordinator/ CEO. This CEO is responsible for hiring coordinators and new employees, and they report to a nine-member board, with the seats rotating every three years. The board itself has the power to hire/fire the CEO and is comprised of fellow worker-owners. There are also unspecified mechanisms in place that ensure demographics are equally represented, and anyone can run for a seat.
Worker-owners vote on issues such as, wages, business plan and budget, giving them input over major business decisions, while leaving the day-to-day business management to the elected coordinators, freeing them to do their jobs. Also, under Joseph Tuck’s leadership Alvarado also began hiring experts to fill specialist positions, such as, in marketing. These specialists assist in making the day-to-day decisions. Although, it should also be noted that the daily decision making also relies on the input of affected workers.
Influence, Outcomes, and Effects
The Alvarado street bakery project has seen the following effects:
· Grew into a $33 million business with an international clientele
· Adopted a hierarchical structure to ensure the business remained representative and democratic while increasing efficiency
· Worker-owners now paid twice the industry standard
· Cooperative debt-free for more than a decade
· Higher standards of living- excellent pension and health plan
· Practically no turnover at Alvarado – all of it is spent, according to membership’s wishes
· Scarce and competitive job openings, as worker-owners stay on for longer due to benefits, eg. Pension plan and healthcare
· Decreased cost of insurance- company safety campaign allows it to budget for zero accidents, as every individual receives safety training and financial incentives were voted into place, rewarding people for staying healthy and careful, eg. Unused sick days accrue in paychecks
· Environmentally conscious- largest solar-powered bakery in the US, on top of a catalytic oxidiser which reduces emissions by 99%. Also, sustainability policy requires all purchasing decisions to prioritize greener suppliers + reduced waste by 3,600 cubic yards each year
· Assists local producers+ economy- wheat sourced from family farm consortium in Utah and other ingredients sourced locally when possible
· Market position held onto- remains the most common sprouted loaf on store shelves, despite growing competition
· Increasing pressure in recent years, as larger brands enter the market and make it increasingly difficult for a relatively small company like Alvarado to compete
Analysis and Lessons Learned
Alvarado Street Bakery has undoubtedly shown the viability of cooperatives, highlighted through its success, however in its success also lurk concerns about its future.
Alvarado’s success first and foremost, is highlighted through its tremendous growth and its weathering of multiple economic downturns and growing competition since 1980. This has been attributed to its hierarchical structure, as the cooperative saw salaries grow to double that of the industry standard. Although, the cooperatives values also need to be credited here as the worker-owners shared the profits and ensured that each member was paid their fair share, at a ratio of 5(executive) to 1(worker), compared to the average business where it ranges from 300-500 to one.
Overhauling the salary structure also fostered success; previously each worker would be paid the same, this made it hard to attract the talent and specialists that the cooperative needed to thrive. Hiring of specialists in fields, such as marketing and by moving the day to day decision-making to specialists, the business was made more efficient benefitting from the specialists’ experience, while also allowing the workers to do their jobs, without taking away their democratic significance as major business decisions remained in the hands of the worker-owners. Furthermore, the fact that management positions were on a rotation meant that worker-owners if they so desired, could participate more and have an even greater say.
The key hurdle to cooperative success, is financing, as the traditional cooperative model requires no outside investors in order to keep decision-making in house. This was tackled through ‘sweat equity’, as the worker-owners accepted lower wages initially in exchange for their work generating equity, hence investing and tying them to the future of the bakery, encouraging them to work harder as their personal success was linked to that of the cooperative. Another solution employed, was the members putting up the funds themselves, however not every cooperative can afford to do this as context matters. Realistically, not every worker can afford to put up the funds, also you need individuals that are willing to act altruistically (Cameron et al., 2002) and sacrifice short term gains for long term success. Although, this altruistic mentality can indeed be fostered as cooperatives, such as Alvarado, employ measures, such as, income caps and surplus sharing to dispel the motivation to amass individual wealth, this collectivist attitude ensures that the cooperative can focus on long-term aims and not compromise organisational values or the environment in the name of profit (Gradin, 2015).
Although, it should be noted that the Alvarado model is far from the final evolution, as it still faces challenges, such as, rising competition from larger brands and small independent bakeries entering the niche market, which have forced some especially difficult layoffs, due to the communal nature of the workforce. These external threats to Alvarado’s survival, highlight that the cooperative still has far to go, as it must adapt to an ever-changing market, although they have already taken steps to adapt, this shift being ultimately marked by the replacing of their CEO of two decades in 2015. While this willingness to adapt is generally positive, it does raise some concerns about the future of the cooperative, as the cooperative must modernise while holding onto their “human way” of doing business, which could prove increasingly difficult as the original staff members retire, and a new crop of worker-owners is brought in.
Ultimately, Alvarado Street Bakery shows that successful cooperatives are viable, and that it is possible to run a for-profit business democratically, while maintaining a competitive edge in the market, and without having to compromise their values, instead running the business in a “human way”, therefore combatting the cooperative's central problem.
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