The Co-operative Group should be celebrating its 150th anniversary this year, but right now it’s in no mood to party.

With the society plunging into the red earlier this year due to a £1.5bn capital shortfall in its banking arm - resulting in its sale to hedge funds, losses of £600m for the group and the cancellation of the interim dividend - the sorry saga went from bad to worse this week, after the former bank’s chairman Reverend Paul Flowers, who left in June, was filmed allegedly buying Class A drugs.

The media went into overdrive, dubbing Flowers ‘The Crystal Methodist’ while further allegations alluded to ‘Rent Boys and Trysts in Rooms Paid for by Bank’.

“There is no reason to shop there any more. Talk about suicide”

Comment on

The society has taken 150 years to build its reputation as an ethical mutual. But in the space of a few horrific months, with sales in the grocery business also in decline this year, the wheels appear to have fallen off. So, can The Co-op restore its battered reputation? And how?

The Co-op finds itself “navigating unknown waters”, believes branding expert Jonathan Gabay. “The recent allegations over its chairman don’t help in the traditional view of the brand as a cautious investor - including in this case - in its own people,” he says. “The bigger issues, however, are the brand’s financial woes.”

Claire Nuttall, a founding partner at Thrive, agrees: “The one part of the Co-op with the most defined public values is the banking arm. When the internal workings of the bank are shown to transgress this so thoroughly, not just through the unfitness for office of one senior person but also the stories of political infighting, compromise and turning of blind eyes, many years of investment in the Co-op brand go out of the window.”

Dividend cancellation

Though Flowers was understandably the focus of this week’s headlines, the society’s last-minute cancellation of its interim dividend is arguably no less significant in terms of the long-term fortunes of the Group.

Despite announcing the £599m loss in August, members were not told until last week about the dividend’s cancellation. And the society is unlikely to turn a full-year profit - which means no traditional divi in six months time, either.

Writing on this week, one member succinctly commented: “And it’s goodbye from me.” Another said: “One reason for shopping at the Co-op was to get your divi, now they have shamefully abandoned this and there is simply no reason to shop there anymore. Talk about a company committing suicide.”

Independent societies, who in most cases share the same branding, have been quick to point out they’re still rewarding members - either with a dividend or vouchers.

And the Co-op Group has attempted to stem the blow by offering members a 10%-off voucher every time they spend £5 or more in-store between 18 November and 15 December. But it’s clearly worried the lack of a divi will hit its membership scheme.

The membership website features just three Q&As. ‘Why should I keep my Co-op membership card?’, ‘What is the point of being a Co-op member?’ and ‘Why should I keep swiping my card?’

The site struggles to answer the questions convincingly. It says: “Support of our members is vital. We are committed to supporting them in a way that is sustainable for our business and gives them value. The reward scheme we have established ahead of Christmas is only available to members who swipe their card at the checkout and continue to collect points for the different products they purchase.

“As well as a financial reward, there are many other facets to Membership of The Co-operative which enables people to have a say in the running of the business, join campaigns and to take part in organised events with other members. In addition, our members gain exclusive access to a number of compelling discounts both from our own retail and service businesses and with a selection of carefully chosen partners.

It adds: “At the moment we have only decided not to pay an interim dividend. We remain committed to rewarding our members but given that we are unlikely to declare a profit for 2013 this may well not be in the form of a traditional dividend. When we have a full view of the Group’s performance for the whole of 2013 we will announce what our policy will be.”So what else can the group do to restore trust?

Forget folksy

The Co-op Group needs nothing less than to reinvent the movement for the 21st Century, says Rob Metcalfe, managing director of Richmond Towers, the UK’s oldest PR agency.

“Embrace mutual ownership, not in the current folksy, heritage, I-remember-the-divi way but as a real powerhouse of popular engagement,” says Metcalfe. “Start recruiting new members now, champion democracy within the organisation and be overtly and proudly non (even anti-) capitalist.”

And Gabay argues that “Putting any seasonal offers aside, longer term the brand will need to show that its loyalty programme can match its competitors’ often far superior loyalty programmes.”

To be fair, the society is already showing a willingness to change. Stores will be open until 10pm on Christmas Eve and New Year’s Eve for the first time (see p5) its recent 10% discount to students with an NUS Extra card is “proving popular”, says a spokeswoman it is investing in digital technology such as apps to attract younger shoppers, with its first click & collect trial expected before Christmas.

It is also launching new store formats, including ‘Generation 2’ store format trials, and has completely overhauled its own label offering.

It’s the right way forward, believes Nuttall: “The best thing the Co-op can do is to develop clearer consumer propositions, to drive them in a single-minded way. And make sure internal behaviours support those propositions.”