Shockwaves resonated through the sector this week as the man branded the saviour of the Co-op - Richard Pennycook - announced his resignation. Having “saved” the mutual in the words of chairman Allan Leighton, Pennycook had become a figure synonymous with the turnaround of the food division. So what is next for the newly reborn society? The Grocer quizzed the man taking over, food chief executive Steve Murrells, on his plans for a more aggressive new phase for the Co-op.
Was it a surprise to you that he was stepping down now? We’ve always planned it. We clearly set out that there were to be different phases in our strategy. The first was to rescue, then to rebuild, and Richard has done a great job at the helm alongside a brilliant chairman.
He has brought the business back from the brink and put it on a firm footing. But the next phase is renewal. That is all about how we are going to bring the Co-op difference to new markets and more people. Richard knows there is a good team in place to deliver on that. I’m very proud to be the one leading that process.
Leighton has said the renewal phase will last for up to five years. What does that mean in practice for the Co-op’s food strategy? Our history is rich as an organisation that disrupts markets and it’s all about looking at where we want to go next. Clearly I’m not going to reveal all our cards now but I will say I want to have a more aggressive strategy. Rod Bulmer [the Co-op’s consumer services CEO] is leading that work. A key part of it is about continuing to drive up our membership.
The Co-op has suffered some spectacular failures in the past, possibly from being over-ambitious in its reach, which is what got it into trouble in the first place. How will you avoid making the same mistake? Of course we will put huge care into everything we do and make sure it is the right thing to do. We will be thorough in our diligence and rigorous in all these things but we have proved with the success of the turnaround so far that we can once again land big initiatives well. We need to keep on surprising people. We’ve spent the past few years in defensive mode. Now we are in a new phase.
How will you look to disrupt the market? What’s very important is that we look beyond the next 12 months to the next 10 to 15 years. The market movement that is happening already tells us one thing - you have to be agile, you have to be thinking about new opportunities.
Speaking of disruption, how much of a threat is your old employer Tesco’s merger with Booker and what are the implications for the convenience sector? I’ve always been very upfront in saying strong competition is good and this is another example. It also confirms that the traditional world of business is changing rapidly. Partnership and consolidation is something people are looking at. I’m sure that this is something that is going to have an effect on more than just Tesco and Booker.
Will the Co-op be part of that consolidation? Partnership in the future will be very interesting. Those retailers that have started to partner with other retailers will find themselves in an interesting place. For us, we have our scars from the past but the past is the past and we have to look into new markets and make sure we do a good job with the decisions we make.
How disappointed were you to be overtaken by Aldi this week as the fifth biggest supermarket according to Kantar? It came as no surprise. As we move to concentrate on being a convenience retailer, we said we would close more stores than we opened and we knew that by doing so we would lose share. It’s something that was always going to happen and the sale of 300 stores to McColl’s has accelerated this week’s development.
How worried are you that the weak pound, inflation and supplier demands for increased prices will throw a spanner in the works following your recent strong sales performance, which saw like-for-likes up 3.5% over Christmas? This is clearly a major issue but it’s a major issue for all business, not just the Co-op, and for the Co-op, not just inflation on food. We have to strike a balance between supporting suppliers at the coal face of commodity inflation and looking after our members. But we believe we are very well placed to cope with what the market environment throws at us. Certainly you are seeing inflation in certain categories on the shelf and we have been having conversations with suppliers over a number of months. There are additional factors also, such as the extraordinary effect of retail pricing caused by the situation in Spain with certain fresh products. But we have to be calm and find the places where we can increase the value of our offer for our members.
Your chairman has said the renewal phase will look at your future food offer - is own label still the most important part of that strategy? Yes. We’re very proud of our own-label brand these days and more and more you will see us develop our own brand offer. Our big challenge is to better articulate our unique Co-op story, as I don’t think people realise yet the story we have to tell.
You recently accelerated your plans for increasing Co-op membership to recruit one million new members by the end of 2017. Why is that so all-important? Isn’t it more down to sales at the end of the day? Membership gives us permission to talk to people and really personalise the relationship we have with customers. We want to really get under the skin of what people are looking for.
We know community is important to 100% of people up and down the country. Membership gives us a chance to work closely with them on what counts for them, and owning part of one of the most iconic businesses is a great thing for people.
We want to do an even better job of explaining that. Clearly our success will be based on how many new members we attract whilst at the same time we will be giving existing members a better deal.
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