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February 2025
An Innovative Food Cooperative Venture Provides a Roadmap for Success for Rural Grocers in North Dakota.
Incorporated on April 19, 2021, the Rural Access Distribution Co-op (RAD) is a shared services cooperative providing residents of Walsh County with improved access to healthy food and other important items. RAD, a food distribution network that unites three small-town grocers; delivers products to a community without local food access; and is improving affordability, variety, and convenience for the people who live there. The following article by Dr. Hodur provides some insight into this unique endeavor.
Dr. Nancy Hodur is the director of the Center for Social Research at North Dakota State University and has over 25 years of professional experience in applied research, public policy, and outreach education.
The Rural Access Distribution Cooperative (RAD) is a first of its kind, innovative effort aimed at mitigating challenges faced by rural grocers in northeastern North Dakota. The cornerstone of the effort is collaboration and cooperation among the participating member businesses. By collaborating, the Cooperative member stores are able to take advantage of collective purchasing and access a full range of grocery and other products from a major regional wholesaler. The RAD Cooperative, incorporated in April 2021, has achieved most, if not all of its objectives. Stakeholders all report the effort as a success that has helped make their stores more viable and thus able to continue to serve their communities, improve access to healthy foods, and improve selection, quality, and variety of offerings. Store owners also report they have been able to pass along cost savings to customers making them more competitive, and at the same time achieve increased sales volumes and profitability.
The model appears to be sustainable; however, initial capital infusions were necessary to become established. Without external funding, startup costs are prohibitive for small rural grocers. While there were challenges associated with the effort, the RAD Cooperative has demonstrated the feasibility of a cooperative effort and represents a potential model that can be replicated to address challenges facing rural grocers, not only in North Dakota but elsewhere in the country.
THE COOPERATIVE
Incorporated on April 19, 2021, the RAD Cooperative is a collaborative effort between five entities: three grocers (a larger store in Park River and two smaller stores in Hoople and Edinburg) and representatives from two communities without a grocery store, Fordville and Adams. One of the cornerstones of the project is collective purchasing utilizing a hub-and-spoke model, where the larger store acts as the hub and makes the final distribution of goods to the spokes, i.e., the smaller grocery stores and the business in the community without a grocery store. Cooperative members worked with the hub store’s wholesaler to set up a system by which the smaller stores could order directly from the wholesaler, with their orders then delivered to the hub store. The hub store cross-docks (sorts and prepares for delivery) the spoke locations’ orders, which are then delivered to the spoke locations by the Cooperative.
In addition to collective purchasing and implementation of last-mile delivery from the hub store by the Cooperative, there were technology upgrades. A point-of-sales system and automated ordering technology for the spoke stores were installed which allowed for improved systems for ordering from the wholesaler, running various reports, and streamlining billing for in-store charge accounts. Technology upgrades also included the development of an online shopping platform for the hub store and a locker delivery system at two locations, providing access to groceries in a community without a store and afterhours pickup at the hub store location.
BACKGROUND
According to the USDA-ERS, about half of North Dakota’s population lives in rural areas. Further, 86 percent of North Dakota towns have populations of less than 1,000 people (U.S. Census Bureau, 2024). Often at the heart of small, rural communities is a grocery store. Small-town grocery stores serve as anchor businesses for rural communities, providing access to healthy food, supporting local economies, and serving as a place to meet, shop, and make social connections. Despite the importance of grocery stores to rural communities, rural grocery stores in North Dakota are struggling. A shrinking customer base, challenges and costs associated with a wholesale supply chain that is gauged toward large purchase volumes, and consumer preferences for a wide variety of products has strained rural grocers’ ability to stay in business. Since 2015, 40 of the 137 rural grocery stores in North Dakota communities with a population of 2,100 or less have gone out of business. Of the 87 stores remaining, 16 are community owned or a non-profit organization (Capouch, 2024).
The problem of struggling grocery stores in rural areas is not unique to North Dakota. Research reveals that a host of rural states are experiencing similar issues with rural grocery stores. Declining populations, competition from big box retailers in urban areas, and minimum purchase requirements present substantial challenges. The most affordable distributors require products be purchased in case lots, which for many small rural groceries is too large a quantity to sell in a timely manner. Small grocery stores simply do not purchase a large enough volume of product for most distributors to serve and deliver products. While multiple approaches to support rural grocers have emerged including low interest financing, creating non-profit entities, and local government support, none of these approaches address challenges associated with supply and distribution systems.
The origins of the RAD Cooperative began in 2014 long before the formation of the RAD Cooperative. The rural development director for the North Dakota Association of Rural Electric Cooperatives (NDAREC) noticed a spike in grant inquiries from rural grocers seeking funds for failing equipment and operating funds. As a result, in 2014 the NDAREC formed a task force (The Rural Grocers Task Force) consisting of rural grocers and service providers to better understand the challenges facing rural grocers and to identify potential solutions. Resource providers included NDAREC, ND Farmers Union, United States Department of Agriculture (USDA), and North Dakota State University (NDSU). Rural grocers had first-hand knowledge of how the industry operates and the challenges faced by rural grocers while the resource providers had financial and other support mechanisms to help address the issues and challenges faced by rural grocers.
The Rural Grocers Task force collaborated with NDSU Extension agents throughout the state to visit each rural grocery store to conduct a survey in 2015. Findings from the initial survey identified several challenges small grocers face including wholesale prices based on volume purchases far beyond small grocers’ ability to move products, low sales volumes, and access to suppliers. From this initial task force and survey, the groundwork for identifying potential solutions began. Through community grants and anonymous donations managed by the NDAREC, additional survey work in the following years led to a feasibility study in 2019 which helped to identify the possibility of a cooperative venture in Walsh County.
STRUCTURE AND OPERATIONS
The structure of the Cooperative was guided by the feasibility study conducted in 2019. Cooperative board members finalized and implemented a plan for the rural distribution hub in late 2020. The cooperative model was based on a hub-and-spoke model and structured around the concept of collective wholesale purchasing that would enable wholesaler delivery to a hub store with last-mile delivery (delivery from a distribution hub to the final destination) by the Cooperative to the spoke members. The collective purchasing model allows the smaller spoke stores access to a wider selection of products at better prices from a major food wholesaler. Cooperative members are able to purchase from a major wholesaler at lower costs than from their existing vendors, with delivery to a hub store that has existing service from the wholesaler. The RAD Cooperative then delivers product to the smaller spoke stores using a refrigerated delivery truck, which was purchased by the Cooperative. In addition to a purchase and delivery system, the RAD structure includes an online shopping platform with a locker delivery system, both purchased by the Cooperative. The online ordering platform meets customers’ demand for an online shopping option. The locker delivery system enables the Cooperative to serve communities without grocery stores and enables after-hours pickup by making temperature-controlled grocery locker systems available in publicly available locations.
While the underlying theme seems relatively simple and straightforward, there are multiple components and systems that need to work together for the concept to be successful. Each of those components is outlined with a brief description below.
Formation of a Cooperative. One of the first tasks was to create a legally recognized and incorporated cooperative. Cooperatives can be organized as either for-profit or not-for-profit. RAD Board members elected to organize as a for-profit with the expectation that any profits would be used for future needs to ensure sustainability. Legal counsel with experience in cooperative law was retained to guide the process and draft articles of incorporation and bylaws to govern operations of the cooperative. Establishing a formal structure and rules that govern operations is a necessary and critical first step that defines the cooperative’s mission and operating parameters and help prevent the potential for disputes or other issues that could potentially derail the organization.
Wholesale Purchasing. Smaller stores often do not purchase sufficient quantities of product to meet wholesaler requirements for service, or they pay a higher cost to purchase smaller quantities. A cornerstone component of the RAD model was enabling the smaller spoke stores to access and purchase inventory from a major wholesaler. Through a unique arrangement with United Natural Foods Inc. (UNFI), the largest publicly traded wholesale distributor of health and specialty foods in the United States and Canada, the smaller spoke grocery stores within the Cooperative were set up as sister accounts under the umbrella of the hub store for a minimal fee of $2 per month. Spoke stores were able to access the wholesaler’s entire inventory, including special offers and seasonal items and order whole cases directly from the wholesaler. The wholesaler delivers the order to the hub store where orders are sorted, stored, and prepared for delivery to the spoke stores. The hub store is billed for the sales by the wholesaler and the spoke stores in turn pay the hub store for their orders. The spoke stores are able to order partial cases from the hub store. These partial-case orders are placed two days in advance of the wholesale order deadline to give the hub store time to determine whether it needs to order additional product to fill the order. The hub store marginally marks up the product from the wholesale price paid to cover the costs of providing this service. This process helps the spoke stores to expand product selection and ensure freshness of perishable products.
Cross-Docking. Wholesale orders for both the hub and the spoke stores are delivered to the hub store. Hub store staff sort the product onto palettes, by location. The sorting process is conducted in the back end of the hub store and takes approximately two hours. The hub store has approximately 2,000 square feet of cooler, freezer, and back-room floor space, which is sufficient to meet sorting and storage needs of the Cooperative.
Distribution. The RAD model included the purchase of a refrigerated truck with a driver hired by the Cooperative to deliver groceries from the hub to the spoke communities once a week. With each store within approximately 20 miles from the hub, the delivery takes approximately two to three hours round-trip. The delivery truck that was purchased was intentionally smaller to avoid the need for retaining a driver with a commercial driver’s license. An additional benefit of the Cooperative owning and operating the delivery truck is the ability of the Cooperative to dictate where deliveries can be made. Challenges associated with finding a Cooperative driver for the delivery truck ultimately led to the hub store hiring an employee to drive the truck and complete other activities at the hub store. The Cooperative pays the hub store employee to drive the delivery truck.
Point-of-Sales System and UNFI Ordering System. The Cooperative entered into a contract with FTS Solutions for a point-of-sales system for the two smaller spoke stores. The point-of-sales system provided the smaller stores with an enhanced management tool that can generate reports and streamline other business activities. The point-of-sales system would also enable the spoke stores to offer online shopping with pickup at the store locations. However, the smaller spoke stores ultimately abandoned the idea of adding an online shopping platform due to concerns of insufficient labor resources to service an online shopping and delivery platform. Also, the smaller stores incorporated UNFI’s electronic scanning wand technology which substantially streamlined the smaller stores’ product ordering processes.
Online Purchasing Platform. The demand for online ordering was accelerated by the COVID-19 pandemic. Given consumer demand for online shopping, Cooperative members wanted to be able to offer the same type of online shopping offered by larger retailers in urban communities. However, initial cost estimates associated with an online shopping platform appeared to be prohibitively expensive. Most online shopping platforms are suited and scaled to large scale retailers. Pricing systems for online shopping platforms is the same for small retailers as it is for large retailers which entails a monthly fee plus a per transaction fee. Finding an affordable online option was a substantial undertaking.
FTS Solutions was identified and offered an affordable solution that included a single-system online platform that would not only serve the hub store but would also enable the spoke stores in Hoople and Edinburg to offer online shopping. Users simply select which store or locker system they want their order delivered to, and the appropriate menu of items is displayed. For example, if the customer would like to pick up their order in Hoople, the user would select Hoople and the Hoople inventory is displayed. The system allows for the stores to retain their unique inventories and pricing.
However, FTS Solutions, was not able to deliver the online shopping platform as promised. As a result, the Cooperative terminated the original vendor and hired an UNFI preferred vendor to develop an online shopping platform that is also compatible with the locker delivery system. The online shopping platform for the hub store and locker systems are set to come online in early 2025.
Temperature-Controlled Grocery Locker Systems. Through a contract with T4 Solutions, the RAD Cooperative purchased two temperature-controlled grocery locker systems to place in publicly accessible locations in two rural communities that do not have grocery stores. Using the online ordering system, residents could place orders for frozen, refrigerated, and shelf-stable products. The RAD Cooperative refrigerated truck would pick up the orders from the hub store and deliver to the identified locker space. Upon delivery, the system generates either a text or email message informing customers that the product has been delivered and assigns them an access code. The customer enters the access code into a terminal at the locker location, and the assigned locker doors pop open. Once the product is picked up, the redistribution hub receives confirmation that the transaction is complete.
The locker systems come in various configurations of ambient, frozen, and refrigerated compartments. Given the lack of any guiding research, Cooperative members had to use their best judgement to determine the size and configuration of the locker systems keeping in mind, population, operating costs, and number of deliveries per week. One locker system was ordered with ambient, refrigerated, and frozen compartments. The other locker system was ordered with only refrigerated and frozen compartments as the original plan was for the locker system to be stored indoors, thus eliminating the need for ambient storage. The locker vendors describe the technology as robust. They state that the lockers use zero fluorocarbons, temperatures are constantly monitored to ensure food safety, and servicing is similar to HVAC systems in grocery stores. The locker technology is user friendly and should be easy for customers to use.
Organizational Development. The North Dakota Association of Rural Electric Cooperatives (NDAREC) played an important role in the formation and development of the RAD Cooperative. NDAREC staff provided support and guidance that helped to keep the project moving forward by scheduling meetings, keeping records, securing grant funds, following up with vendors, and other work as necessary. Given that RAD Cooperative board members already have full time jobs running their businesses, the support from the NDAREC, especially in the early stages of cooperative development was critical. There was a substantial amount of time needed for front-end development and launch. Frequent regular meetings with board members and stakeholders were needed to work through processes, set up the cooperative structure, discuss operations, and make decisions. Initially meetings were held twice per week, then weekly, and eventually once a month. Meetings were organized by NDAREC staff, and minutes were kept and organized using the online Basecamp application for easy reference. Regular meetings to keep progress moving and documentation of meeting minutes were both critical to the Cooperative’s development.
Funding and Sponsorship. In addition to major funding from a Bush Foundation Community Innovation grant, other significant monies were secured through an anonymous gift and additional grants from state and local funders. The primary source of local funding was through the sale of advertising space on the side panels of the delivery truck.
Pro Forma. Recognizing the importance of documenting ongoing costs such as truck insurance, truck registration, technology support, and other potential fees, board members worked with stakeholders to develop a pro forma financial statement to better understand the financial stability of the Cooperative. This pro forma enabled board members to estimate total current and future operating costs and estimate revenue streams to better understand and plan for short- and long-term sustainability. The Cooperative was structured to operate on a break-even basis with small profits to be set aside as a contingency fund for unexpected expenses.
Outreach and Communications. Cooperative board members and stakeholders actively and continually shared the story of the emerging project through multiple media outlets, social media, networking events, and speaking opportunities. Members worked with local and regional news outlets to make local residents aware of the project and to hopefully encourage them to shop locally and support the effort. NDAREC developed and manages a Facebook page dedicated to the Cooperative to promote events, educate residents, and provide a source of information on ongoing activities of the Cooperative. The RAD Cooperative was chosen by organizers of the National Rural Grocery Summit to make a keynote presentation at the 2022 Summit in Wichita, KS. As a result, stakeholders in Kansas and New York are hoping to replicate the model. The cooperative project was also highlighted in the Bush Foundation’s magazine that recognizes exceptional community projects funded by the Bush Foundation (Bos, 2022).
OUTCOMES
While still early in the effort, feedback from Cooperative board members, stakeholders, and community members suggests that project objectives have been met, resulting in positive outcomes for both the Cooperative members and the rural communities served by the RAD Cooperative.
Benefits of Collaboration. RAD Cooperative efforts have greatly benefitted from committed board members and stakeholders who actively engage in providing inclusive input and perspectives in all decision-making processes. Key to its success is that each member, regardless of size or investment, has one vote giving all members an equal voice in the operations of the Cooperative. Overcoming the typical competitive nature of independent businesses, board members and other stakeholders reported that a hallmark of the effort was a rare sense of inclusivity and a shared vision that was critical to the project’s success. Interviews with board members identified trust as a factor critical to the collaborative process.
Board members were committed to making the venture successful and were willing to commit their own time and finances for the sake of the Cooperative and the community. From the early planning stages, board members gave freely their own time and resources to, among other things, continually plan, seek funding, negotiate with city officials and local businesses, engage with the media, learn new technologies, work with vendors, manage truck repairs, and drive the delivery route when needed.
Members’ objectives were to establish a sustainable cooperative venture that improves stores’ viability and sustainability and meets the grocery needs of local communities. Members were committed to ensuring access to healthy foods at competitive prices and offering a variety of products to residents in their communities. The collaborative effort resulted in cost savings to grocers and introduced technology upgrades and modernizations.
NDAREC staff provided necessary and critical support to help move the project forward. RAD Cooperative board members, like other small business owners, are fully engaged in daily operations with little excess time or capacity. NDAREC staff supported the project by scheduling meetings, keeping records, writing grants, ensuring on-time grant reporting, guiding feasibility and other study efforts, following up with vendors, and other work as necessary. The involvement of the NDAREC staff was critical to the project’s success.
Collective Purchasing. A food distributor’s business model typically excludes very small grocery stores or charges higher prices and/or and fees to the smaller grocer to deliver the needed supply. These higher costs are passed on to customers, making small grocers uncompetitive with larger retailers. RAD Cooperative members were able to collaborate and negotiate with a major supplier to enable servicing the smaller grocers by setting up sister accounts between the smaller stores and the larger hub store at a much-reduced weekly fee to the wholesaler. This arrangement with the wholesaler was critical to facilitating and bringing to fruition collective purchasing among the Cooperative members. An interview with a representative of UNFI early in the project revealed a strong connection to rural community, and a long-time working relationship with the hub store. While there was little financial incentive for the major distributor to work collaboratively with the Cooperative, UNFI’s commitment to the effort was essential to the success of the project.
In recognition of the RAD project, the hub store was recognized as the 2023 Central Region Innovative Retailer of the Year by UNFI. Further, the hub store was recognized as UNFI’s national customer of the year. The project has also gained the attention of UNFI’s Central Region President who is a supporter of the project and has pledged to support the model and encourage and support development of similar hub-and-spoke collaboratives.
Improved Selection, Quality, Variety, and Price of Offerings. Feedback from Cooperative members suggests that both the Cooperative members and their customers are very pleased with the expanded variety and quality of foods available for purchase. One smaller grocer added coolers and freezers to accommodate the increase in products and sales. The smaller stores also indicated they have been able to offer better prices as a result of the lower cost of goods from the wholesaler. Increased sales volume has also enabled the smaller stores to buy and turn over full cases of products, further enabling the grocers to pass on cost savings. Both the spoke stores reported better turnover of perishable goods, especially produce, as well as expanded offerings of fresh produce as a result of collective purchasing. The ability to purchase from a major wholesaler has also allowed the small grocers to respond to special requests from customers. Previously, without the ability to purchase from a major wholesaler, small grocers were often unable to fulfill special requests from customers.
Reduction in Rural Food Deserts. The Cooperative is meeting the needs of residents, businesses, and has expanded to include an entire school district. With early signs of sustainability, members of the Cooperative and NDAREC testified on behalf of Senate Bill 2273, which created a pilot grant program to support development of rural grocer cooperatives similar to the RAD Cooperative. The bill received a unanimous Do Pass from the Senate Agriculture and Veteran Affairs Committee in February 2023, and received bi-partisan support from members of the 68th Legislative Assembly. If this effort can be replicated in other areas of North Dakota, the concept can help maintain existing rural grocery stores, expand access to healthy foods, prevent further expansion of food deserts, and hopefully reduce food deserts in the state.
Opportunities to expand the distribution system to other local foods, products, and services within the Cooperative’s service area were identified. One example is expanding the Cooperatives’ delivery service to the local school district. During to the COVID-19 pandemic, many schools throughout the region lost their food supplier. The superintendent of the local school district reached out for assistance and as a result, RAD was able to supply food to three schools, a preschool, and child care program. Due to the reinstatement of school lunch nutritional guidelines, the Cooperative is not able to provide all food products requested by the schools, but continues to supply them with fresh produce. The Cooperative also delivers fresh bread from a local bakery to the schools. Some locally made and grown products that previously had difficulty with distribution are also being distributed by the RAD Cooperative.
Improved Profitability. Findings from a feasibility study in 2019 indicated a potential cost savings of $1,050 per week less $460 distribution costs, for a net savings of $590 per week to be shared among the three stores. Assuming the savings were distributed evenly among the three stores, estimated weekly savings were $200, or $10,400 annually. Current data from the two smaller rural grocers, each located in communities of approximately 200 residents each, indicate increased sales of at least 16 percent over the previous year. This would suggest that communities are responding to and supporting this effort. Increased sales have helped to make the spoke stores more viable and sustainable.
Technology Improvements. The cost of integrating an online shopping platform is typically prohibitively expensive for most small rural grocers. Fees charged by vendors are typically the same for a store in a major urban area as for one in a small rural community. Through early networking, the Cooperative was connected to FTS Solutions, an IT company that promised to provide an online shopping platform for not only the hub store but also the spoke stores at an affordable price. However, ongoing delays and problems with implementation ultimately led to the Cooperative discontinuing its relationship with FTS. A new vendor was identified and the online shopping platform for the hub store and locker delivery systems installed in the community without the grocery store and at the hub store location are scheduled to be operational by early 2025.
With the addition of an online shopping platform, the hub store can offer online shopping similar to other larger stores, keeping the hub store competitive with larger retailers. The online shopping platform also enabled the integration of the locker delivery system. The locker delivery system offers a means to expand access to groceries in a community without a grocery store and expand access to groceries beyond the hub grocer’s typical business hours.
An additional technology improvement in the form of a point-of-sales system for the spoke stores provided substantial upgrades to existing systems. Technology updates streamlined ordering processes and allowed the spoke stores to order directly from the wholesaler, enabled the generation of various reports, and streamlined billing processes for in-store charge accounts. Additional upgrades in the form of credit card processing enabled one of the spoke stores to again accept and process WIC and SNAP benefits.
Two locker systems were purchased to provide access to groceries in two small towns without grocery stores. One of the lockers was placed in a town without a grocery store, in an establishment owned by a board member in a publicly accessible entryway. While the second system was originally slated for another small community without a store, plans changed and the second system was ultimately installed outside the hub store. Rationale for placing the locker system outside the hub store was to allow for customers to pick up grocery orders after normal business hours and to expose more people to the locker concept. The lockers expand access to food beyond regular store hours without additional labor requirements or costs.
While implementing the technology presented challenges and a substantial time commitment, both spoke stores reported the systems were a significant improvement that streamlined day-to-day operations. The online shopping platform at the hub store improved store competitiveness by offering customers the same online shopping options available at larger stores in larger communities. The addition of the locker system will provide access to groceries in a community without a grocery store. The online platform in combination with the locker delivery system will offer customers expanded access beyond normal business hours and an additional convenience.
Demonstrated Community Support. Community support and acceptance of new systems was perceived as vital to the success of the effort. It was important to bring awareness and ensure that residents understood how to manage the new systems being put in place. Members engaged frequently with media outlets to inform the community of the project and the concept of a publicly available refrigerated locker system. Members also actively engaged community members to convey the collaborative effort of the Cooperative members’ businesses. Stakeholders reported community members viewed the effort positively, and increased sales volume at the spoke stores suggest that people are willing to shop locally if they are able to acquire desired products at competitive prices.
SUMMARY
The RAD Cooperative is a first of its kind innovative effort aimed at mitigating challenges faced by rural grocers. Stakeholders view the effort as a success that has helped make their stores more viable and better able to serve their communities by improved access to healthy foods through greater selection, quality, and variety of store offerings. Store owners have been able to pass along cost savings to customers making them more competitive, and at the same time report increased sales volume and profitability.
With initial capital infusions necessary to become established, the model now appears to be sustainable. The RAD Cooperative has demonstrated the feasibility of a cooperative effort and represents a model that can be potentially replicated to address challenges facing rural grocers - not only in North Dakota but elsewhere in the country.
References
Bos, M. (2022). Bush Foundation. Retrieved from A RAD-ical Solution: https://www.bushfoundation.org/story/rad-ical-solution
Capouch, L. (2024). North Dakota Association of Rural Electric Cooperatives (NDAREC), Personal Conversation.
U.S. Census Bureau. (2024). Population Estimates, Vintage 2023. Retrieved from ND Compass: https://ndcompass.org/demographics/key-measures.php?km=population#0-10802-g
For more information
The final evaluation report, A Roadmap to Success for Rural Grocers, which includes a detailed timeline of the effort along with stakeholder interviews throughout the venture is available online through the Center for Social Research at North Dakota State University.
Center for Social Research
North Dakota State University
Compass created by:
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