How one town raised the capital to invest in – and save – the local abattoir
Alberta Venture, February 2015
Four years ago, half of the storefronts on Sangudo’s main street were boarded up. The small town, 90 kilometres northwest of Edmonton, had been losing businesses for a decade. They were unable to compete with Internet retailers and big-box stores in Spruce Grove and Whitecourt, to which Sangudo’s 325 residents seemed more and more willing to travel.
So about 30 concerned citizens created a committee to see if some kind of co-op might help reinvigorate their town. Dan Ohler was on it. “For about nine months we travelled around, we did research, we crunched numbers and looked at all kinds of different businesses: tire shops, restaurants, hardware stores, car washes.” But starting a business from scratch comes with risk, and the committee wasn’t convinced any of them would work in Sangudo.
Then news came that the town’s small abattoir, Sangudo Custom Meat Packers, was in danger of closing. “The old guy who was running it, he was at the point where he was just going to shut the doors and walk away,” Ohler says. “This group realized that if that business was lost, it’d be another hit to the community, so we decided to go buy it.”
The committee made a business plan, formed the Sangudo Opportunity Development Co-operative, raised $240,000 from about two dozen local investors and bought the plant. The co-op then leased it out on favourable terms to two young entrepreneurs. Kevin Meier was a Sangudo native working in the oil patch, but he also had his retail meat-cutting ticket from NAIT. Jeff Senger was an accountant working in Whitecourt but not loving it, and had been involved with the co-op committee. The two saw an opportunity in the meat plant but had doubts about getting seed money from a big bank. “We felt that a lot of banks weren’t interested in this deal because it was too small,” Senger says. “Sangudo was like a blackout lending area; it had no future. We heard from one big bank that they were not interested in doing deals that size in rural Alberta and in Sangudo because Sangudo wasn’t a growing concern and wouldn’t be.”
So they turned to the community members, who stepped to the plate not just as investors, but also as promoters. “The 22 or 23 people that threw money in the pot became our sales force in the community,” says Senger. “They were all ranchers, and community-minded. They were focused on preserving and growing the town, so they became our advocates and they would say, ‘Give those guys at Sangudo a try.’ ” Now, Sangudo Custom Meat Packers is the town’s largest private-sector employer and sells custom cuts to restaurants across the province. And the co-op members have seen strong – often double-digit – annual returns. The model has been such a success in Sangudo that other communities in Alberta are following it. Is it the beginning in a shift in how rural business raises capital?
Co-ops are an organizational concept almost as old as the province of Alberta itself (see sidebar). But prior to the Sangudo ODC, the model had never been used in the province to raise capital for local investment. Paul Cabaj, the director of co-op development at the Alberta Community and Co-operative Association, was familiar with the model from its use in Nova Scotia. Cabaj had been hired by the Sangudo ODC when it was kicking the tires of various co-op ventures. He notes that it is notoriously hard to raise equity capital in rural areas, particularly for young entrepreneurs. “It’s very difficult to take an equity investor and invest in local businesses from the general population,” he says. But over 12 years, co-ops in Nova Scotia had raised $70 million through community economic development investment funds, just like the one created in Sangudo.
Here’s how the idea works: People can legally invest in ODCs in one of two ways. The first is a member loan. There are exemptions in securities regulations that allow such loans without the co-ops having to do full-blown offering documentation, which is an incredibly expensive undertaking. Members can invest a maximum of $10,000 in the first 18 months, which provides some protection that people aren’t going to lose their shirts.
Another option is to issue investment shares. As long as the co-op is kept to 50 members or less, people can buy shares with no upper limit as long as they’re friends, family or close business associates of founders and directors. Those investment shares are RRSP eligible, opening a huge bucket of capital. “Albertans invest more than $4.5 billion in RRSPs every year and most of that leaves our province,” Ohler says. “This is a way to redirect that money right back into our own communities.”
Inspired by Sangudo’s example, there are now capital investment co-ops in Smoky River, Crowsnest Pass, Athabasca and Three Hills. In Crowsnest Pass, the co-op bought a historical building on Main Street in Blairmore, gutted it, renovated it and put four rental apartments on the upper floor and two commercial spaces on the ground floor. “The potential is amazing,” says Cabaj.
The Sangudo ODC continues to grow. A year after investing in the abattoir, it bought the local branch of the Royal Canadian Legion. The legion’s members were aging and wanted to sell their big hall on Main Street. The co-op bought it and supported an entrepreneur to start a restaurant. Shortly after that, Senger and Meier came back with a plan to renovate the abattoir. They had arranged matching grants from the provincial and federal governments but needed cash to hold up their end of the bargain. Once again, the Sangudo ODC stepped up and raised the cash to match the grants.
All is not hassle-free, however. Ohler says the biggest challenge remains getting people to buy into the bigger benefits that ODCs offer communities. “Because of these three little projects we’ve done here, there are thousands and thousands of additional dollars every week that are circulated through a variety of businesses in our community,” Ohler says. “People come in to get their cattle slaughtered; maybe they’ll go up to the restaurant for a meal or pick up some groceries and some gas and stamps. It’s amazing the extra dollars that are circulated through our community.”
A Brief History of Co-Ops in Alberta
There were co-ops in Alberta before there was a province of Alberta. In 1905, when Alberta became a province, the Territorial Grain Growers’ Association became the Alberta Farmers’ Association (which later became the United Farmers of Alberta). Co-ops are particularly important in small rural communities which may not be adequately served by private companies.
Financial co-ops came of age in the 1930s. “Banks had largely exited lending in the Prairies during the Depression,” says Ian Glassford, chief financial officer with Servus Credit Union, a company whose own history traces back to 1938. “Under the joint stock model, where shareholders own the bank in order to maximize income for the shareholder, when [the banks] think a geographic region or a group of people aren’t profitable enough, they simply won’t do business with them. With a credit union, the owners are the shareholders; they knew a credit union model would never abandon the community purely for profit maximization.” Co-ops provide returns to their members in a variety of ways, depending on their community’s needs – some solely through reduced cost of goods and services, and some through dividends or interest.
While many co-ops, such as phone services, electricity and groceries, have been largely or entirely privatized, and while many credit unions across rural Alberta have shut their doors, the province still has one of the strongest co-operative sectors in the world. Sixty-five per cent of Albertans have membership in at least one co-op and there are more than 500 co-ops province-wide.
Reprinted with permission from Alberta Venture.