Modernise or die was the stark message of the Co-operative Commission report into the co-op movement in 2001. Three years on, the co-ops have clearly taken the hint.
Co-op food retailing has changed beyond recognition since the report, having further pooled its buying power, pulled off a string of major acquisitions and transformed itself into a major force in convenience retailing.
However, many challenges remain, as the setbacks at the Co-operative Group demonstrate all too clearly.
As the multiples attempt to reclaim the niche that co-ops have been steadily carving out for themselves, we analyse how effective the movement’s buying arm CRTG has been since United Co-operatives joined in 2002.
We also examine how individual societies have been leading the way on fair trade, clear food labelling and retail technology. And most importantly of all, we ask consumers what they think of co-op stores. Have they really ditched their old-fashioned and expensive image?
On the face of it CRTG has been strengthened by United Co-operatives. However, its £5bn buying power pales in comparison with Tesco’s £33bn. It will have to boost its clout through acquisitions, buying alliances or franchising if prices at co-op stores are to remain competitive.
Although the Co-operative Group’s operating profit margins have risen since 2000-2001, they remain stubbornly below those at the major multiples, and return on capital employed at most societies is still well below the 10% target.
One major longstanding advantage that the movement has is the large amount of goodwill in which it is held by consumers and suppliers who say CRTG has significantly upped its game. One supplier says: “They have changed from being something of a sleepy giant to becoming much more commercial. They have become more demanding.
“Their quality standards are also among the highest in the business - they want very high specs.”
Another adds: “It’s much simpler to deal with them now - just through one office at CRTG, so the decision-making is quicker and easier.”
However, as our exclusive consumer research reveals (see following pages), while nearly one in four shoppers uses co-ops, the societies still have to tackle deep rooted negative public perceptions despite the millions invested in new formats and advertising campaigns.
The perception that the movement is a bit old-fashioned also extends to the supplier
base, with some manufacturers still complaining of poor compliance at smaller societies, complicated commercial arrangements and dated IT systems.
One chilled goods supplier observes: “CRTG can be frustrating to deal with compared with a multiple’s head office because things can take ages to get done. Some societies are not very good at feeding information back to the centre.
“Technology isn’t great - each society seems to do its own thing.”
He adds: “There is a long tail of societies and trying to get compliance is mission impossible, really. You agree a promotion, but it can be hard to generate a head of steam around it. I think the traders themselves can sometimes be frustrated by the structure and the speed with which things move. I suppose they can’t make promises other societies won’t keep.”
Another supplier says: “They also have a pretty complicated system of overriders and advertising allowances built into the pricing structure, whereas my other accounts seem to be moving away from that into simpler deals.”
There is also a feeling in some quarters that CRTG can try and punch above its weight, he says: “The trouble is, they can’t offer you anything in return when they want more from you. They drive a hard bargain, but sometimes they are unrealistic in their expectations given their size.”
He adds: “For Christmas lines, however, they have been a bit better. They go out and get commitments from stores.
“I’ve dealt with them since the mid 1990s and they have definitely raised their game.”
This is a recurrent theme, with many suppliers keen to stress CRTG’s growing professionalism.
One says. “They are a good account for us. They pay us on time and they are good dealmakers and negotiators. They have also become more strategic, they’ve chosen their niche and have retained their focus.”
So what does the future hold?
When it comes to buying clout, the Co-operative Group’s recent attempts to move into franchising show it is clearly looking at new ways to boost CRTG’s scale, while its
interest in Londis proved that it was serious about partnerships with other buying groups.
Chief executive Martin Beaumont says: “Provided we can achieve something as disciplined as CRTG, there is an opportunity to extend that buying model beyond the co-operative societies. If we are all to withstand Tesco and the like then we all need to get closer together - big and small.”
Work is also under way to re-engineer the Co-operative Group’s supply infrastructure, which is buckling under the strain of recent acquisitions, impacting on availability and badly denting profits, which were down from £62m to £36m in the first half. Says Beaumont: “The Co-operative Group’s infrastructure and management systems have struggled to cope with the fast pace of our expansion in food retailing over recent years, and as a result, the level of service and efficiency we offer our customers has fallen below our expectations.”
However, a new national distribution centre for slow moving lines has just been announced and the society has also signed a major new deal with Manhattan Associates to implement new supply chain systems, he says.
The lack of a coherent identity for the movement - highlighted by consumers in our survey and raised repeatedly by the Co-operative Commission in its 2001 report - is also being addressed. Details are still under wraps, but an ad agency (to be announced next month) will be working with the movement to look at all elements that make up a brand, including fascias, store formats and marketing activities, says a Co-operative Group spokesman.
This is a project expected to span five to 10 years, and is not merely about an ad campaign or a new logo, he stresses.
“When you are talking about developing any standards, especially in things such as store formats or fascias where individual societies have invested millions in doing their own thing, they are not things that will happen overnight.”