The document discusses the operations and strategies of iCOOP Korea, a consumer cooperative group in South Korea. It describes how iCOOP Korea was established in 1997 by the consolidation of six smaller local consumer cooperatives. iCOOP Korea now includes 75 member cooperatives and oversees the sales, purchase, and logistics operations for reliable food and organic products. The cooperative aims to provide stable markets and income for farmers while giving members access to eco-friendly agricultural goods.

1. OrganicCSEOUL2012
Sep. 27. 2012
Eun-Mee Jeong
)
KREI(Korea Rural Economic Institute)

2. Introduction
Characteristics of Consumer Co-ops in KOREA
iCOOP KOREA’s Sales Business and Strategy
iCOOP KOREA’s Purchase Business and Strategy
Conclusion

3. 1. Introduction
>> Activities of Consumer Co-ops(=CC) in KOREA
□ Consumer co-ops were started from the organic farm products direct-deal movement .
among farmers and consumers in the late 1980s.
ㆍ Today, consumer co-ops cover about 20% of the EFA market.
□ Two Activities of Consumer Co-ops
ㆍEconomic activity to provide reliable food to their members
- groceries accounts for more than 90% of their business
ㆍOrganizational activity to promote the consumption of reliable food
□ The consumer co-ops have built a self-sufficient economic system and vertically
integrated production, distribution, and consumption through an efficient
distribution system as well as co-operation between farmers and consumers .
ㆍEnvironment-conscious consumers supported sustainable production and consumption,
producer's economic efficiency and consumer's reliability.
3

4. 1. Introduction
>> for reference: Distribution Channel of EFA Products in KOREA
M_S
Production Wholesale retail sale consumption
(approximate)
①Producer Producer Large Retail Outlet Consumer
5~8%
(Organization)
Prod Mail Order Sale Consumer
ucer
(A)
Distributors Retailer Shop Consumer
② Agricultural Producer Agri-
Cooperative Agri-Coops Shop 8~12%
cooperative Consumer
(ex: HANARO Market)
Union Member
Producer of Co-ops
Consumer Co-ops
Co-
Co-ops Shop Member 15∼20%
∼
(B)
Co-ops Member
Distributors Large Retail Outlet Consumer
Producer
Distributor Direct management 50~60%
(C) Shop of the Distributior
Specialty Retailer Shop Consumer
4

5. 1. Introduction
>> Overcome the Limitation of the Small Local Co-ops
□ Until the mid 1990s, small local co-ops were in charge of all aspects of distribution of
EFA products, from collection of the products to the delivery of the products.
The distribution structure of small local co-ops was based on a high-cost, inefficient
system, and as a result product prices were high and remained in a vicious cycle.
□ A movement arose in the mid-1990s … the business union
Local co-ops began to form business union along with ones have similar policies.
The business unions then combined only the economic activities of the local co-ops.
□ This study is to introduce the business operations of iCOOP Consumers’ Co-operative
Group(= iCOOP KOREA).
5

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□ In the 1980s, consumer co-ops in urban areas, began to appear.
2. Characteristics of Consumer Co-ops in KOREA
for reference

7. 2. Characteristics of Consumer Co-ops in KOREA
>> Consumer Co-ops’ Differentiating System in Market ①
□ Systematization of mutual-trust in EFA trade
a. consumers and farmers participate in
setting standards for reviewing and
selecting the products to be handled
b. CC gain the trust of members by opening
up the products information and the
essence of managing and inspecting the
products is to open up the results to the
public.
c. iCOOP KOREA, has a unique certification
system, which is a product-tracking system
7

8. 2. Characteristics of Consumer Co-ops in KOREA
>> Consumer Co-ops’ Differentiating System in Market ②
□ National Wide Logistics System
a. iCOOP combined the operations of
local CC that were carried out
separately, such as order placement,
purchase and supply of products,
financing, accounting, and producer
management.
b. Local CC were able to cut their
workload drastically, and primary co-
ops in iCOOP KOREA were able to
specialize in the distribution of
agricultural products and achieve
economy of scale.
8

9. 3. iCOOP KOREA’s Sales Business and Strategy
>> Organization Chart of iCOOP KOREA
□ iCOOP was established by 6 small local CC in 1997.
a. iCOOP is a consumer association that integrated the six small local CC’ business of
distributing EFA products.
b. By joining iCOOP, small local consumer co-ops entrust the business operations to
iCOOP and were able to focus on their respective organizational activities only.
Farmer iCOOP Member
Order/ Supply
Order/ Business
Farmer Supply Association
(Business Order/ Supply Member
Farmer Operations)
Stores Sale
Farmer local co-op
iCOOP Stores
Member
Association Edu/ PR
local co-op Stores
(Supporting
Edu/
Organization)
PR Member
local co-op
9

10. 3. iCOOP KOREA’s Sales Business and Strategy
>> Organization Chart of iCOOP KOREA
□ The other associative union
a. iCOOP Association assists organizational activities of small local CC and provides
assistance in the fields of education and planning to reinforce the activity of members.
b. Mutual Aid Society for Enhancing Korean Agruculture that provides mutual aid
between farmers and co-op members.
iCOOP Subsidiaries
Farmers Order/ Business Association
Supply (business operations) Invest iCOOP CS
-ment COOP Store
Production iCOOP Food System
Stabilization Exchanges Order/ Supply Investment iCOOP Bakery
Fund Supply
iCOOP School Lunch
Member Stores Eco-Friendly Cluster
Local co-op
(consumer) Investment/ iCOOP Certification Center
Membership Fee iCOOP Cooperative Institute
1.1% of 0.5% of monthly
selling price Education Investment
membership fee
/ Exchanges
Mutual Aid Society iCOOP Association
(mutual aid business) Finance (supporting organization)
Support for
Education/ Exchanges 10

11. 3. iCOOP KOREA’s Sales Business and Strategy
>> Trends of iCOOP KOREA’s Sales
□ The growth rate of the co-ops’ business was high especially after the year 2000
a. During the recent 10-year, co-op individual members and sales volume have increased
annually by 46% and 49% on average respectively
b. iCOOP’s Number of Local CC : 6 CCs (1998) 75 CCs (2011)
c. iCOOP’s Number of Store : 6 stores (2006) 110 stores (2011)
Number of Members and Turnover Number of Local Co-ops and Stores
300 members sales volume 3500 120 members
(thousand) (100mil, won)
110
3002
affiliated local co-ops
monthly fee-
3000 Stores 96
member
250
members
100
2633
total sales 2500
200 volume 80 73 75
2062 70 75
62 62 65
156 2000
58 66
150 60
1302
119 1500 46 38
110
100 85 40 35
79 1000
755 26 25
56
494 15
50 34 20
22
500
7 6
165 17 6
15 53
8
- 0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 11

12. 3. iCOOP KOREA’s Sales Business and Strategy
>> Sales Strategy of iCOOP KOREA
□ Monthly Membership Fee Scheme
a. Members purchase EFA products and share the operation cost of local co-ops
b. iCOOP provides the distribution service by taking only the logistics cost.
Membership due = (operation cost/ number of members) – Refund
* Refund: distribution cost saved through the use of Internet and CMS
* Revenue of local coop: distribution margin rate → fixed monthly due
Local Order Order Local
Co-op
Member Member Co-op
Supply Membership
Supply
i
due
C
Local Local
Order Order
O
Co-op Member Member Co-op
Supply O Supply Membership
P due
Local Order Order Local
Co-op Co-op
Member Member
Supply Supply Membership
due
* Distribution margin: 20~ 25% * Distribution cost: 7~ 8%
* Revenue of local coop: distribution margin * Revenue of local coop: fixed monthly membership due
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13. 3. iCOOP KOREA’s Sales Business and Strategy
□ This scheme began simultaneously with the construction of a national wide logistics
system which was entrusted by local co-ops to iCOOP.
a. iCOOP directly handles distribution from farmers to local co-op members so that the
local co-ops are not involved in logistics business.
b. iCOOP earns revenue from the distribution fee
c. Local co-ops earn income from the monthly membership fee
□ The membership dues is spent for the management of local co-ops and the operation of
iCOOP for its national activities.
These activities promote the production and consumption of EFA products.
□ Under the monthly membership fee scheme, local CC have an incentive to increase
their members
Because the amount of fees decreases as the members increase.
13

14. 3. iCOOP KOREA’s Sales Business and Strategy
□ The Goal of Activities
a. iCOOP takes full charge of logistics (in pursuit of distribution efficiency)
b. Local Co-ops focus on increasing members (to promote the consumption of EFA products)
Business Activities Organization Activities
(iCOOP) (local Co-ops)
Membership Due Vitalization of
System Management stabilization Management Committee
of local co-ops through
stable revenue system
Concentration of Specialization of
Business Operation Organization
Expansion of National Support for establishment of
Distribution System new local coops
(1,000 activsts in 75 member co-ops)
(15 distribution centers)
Establishment of Subsidiaries Operation of sale stores in local co-ops
(specializing in eco-friendly agricultural
(iCOOP CS, S& D, etc.) products)
Pursuit of Consumer Movement for
Distribution Efficiency Eco-Friendly Agricultural
Products
Promotion of environment-friendly agriculture, protection and support of domestic agriculture
14

15. 4. iCOOP KOREA’s Purchase Business and Strategy
>> iCOOP’s Basic Understanding of Agriculture
□ iCOOP considers today's agricultural problem as farmers’ poverty rather than decline
in agriculture.
iCOOP’s business scope expands to domestic agricultural products
even though its primary concern is EFA products
□ iCOOP is intended to secure stable markets and increase farmers' income
a. iCOOP subsidiaries(invested by the co-op and farmers) are intended to create added
values for farmers by the processing of agricultural products.
b. Farmers supply raw ingredients to the processing companies and the companies
return the added value to farmers.
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16. 4. iCOOP KOREA’s Purchase Business and Strategy
>> Purchase Strategy of iCOOP KOREA Production Contract
□ Production Contract
a. The production contracts ensure stable production of farmers and make them not only
worry about the sales but concentrate on production
b. iCOOP receives a prepayment from members and pays it to the producers as a
farming capital to obtain their promise to deliver the contracted products
□ In the recent 5 years, iCOOP’s sales increased by 40% on average annually and,
as a result, the EFA products were in short supply
a. iCOOP had to seek a transformation of its relationship with farmers
b. from an intermediary status linking farmers with consumers to a partnership status
with farmers
16

17. 4. iCOOP KOREA’s Purchase Business and Strategy
□ proxy sales system
a. iCOOP does not buy the required volume but accepts total volume of farmers’
products. It is means that iCOOP takes full responsibility of selling the farmers’
entire products as their agent and partner.
b. The reason iCOOP introduced the ‘proxy sales’ is that iCOOP directly involved in
food processing by leading the development of processed foods and by providing
raw ingredients for processing.
Proxy
Order Order Order Order
iCOOP
Producer
Co-ops Member Producer Member
Business
Association
Association
Supply Supply Supply Proxy
Supply
• Role of Co-ops Association: distribution • Role of iCOOP: purchase and sale agent
(intermediary for purchase and sale) (in charge of production and consumption)
• Association income: distribution margin • Association income: distribution fee
17

18. 4. iCOOP KOREA’s Purchase Business and Strategy
□ flexible pricing system
It consists of basis price, target price and price stabilization fund
a. Basis price is the cost of cash to put into production
…is fixed regardless of uncertainty of production and consumption
b. Target price is the standard price for iCOOP KOREA's sales in progress.
… is set at about 10~15% lower than consumer price
c. This target price becomes the standard for saving and spending of the price
stabilization fund.
□ The advantage of iCOOP's pricing method
a. It ensures a basis price even when there is a big risk in production
b. When products are sold at below the target price, the farmer can minimize the loss as
iCOOP compensates the loss to a certain level with the price stabilization fund
c. iCOOP has a flexibility in finding customers and suppliers of raw ingredients for
processing
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19. 5. Conclusion
>> iCOOP’s business implies…
□ What is agriculture's competitiveness ?
a. … is production of commodities satisfying consumers’ needs, rather than expansion of
markets for agricultural products.
b. iCOOP focuses on consumers’ needs for reliable food and farmers’ stable production.
□ The relationship between agricultural production and consumption is…
a. Exchanges are made between safe EFA products and reciprocal payment for
sustainable production and life for all.
b. Consumers care for sustainable agricultural production and farmers’ livelihood, and
farmers try best to supply safe EFA products to protect the life of consumers.
c. This is the principle of coexistence between farmers and consumers, and it is
especially the basic condition to ensure the continuity of the human race and
community.
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