The modernisation of the Co-operative Group has been a painful process but CEO Peter Marks remains confident he is forging a business fit for the future
Peter Marks is a man in a perpetual hurry. As soon as I step into his 12th-floor office in central Manchester, he apologises that he won’t be able to spend as much time with me as initially promised as he whisks me to the window to show off the society’s new head office being built across the road.
The reason? I’ve arrived at a pivotal moment for The Co-operative Group. Marks is currently in the midst of Project Verde, which if successful will see the society’s banking business acquire 632 Lloyds TSB branches, taking its share of the current account market from 2% to 7%. That’s if it’s successful. “It is very complex and there are significant regulatory hurdles that we may or may not be able to jump over,” he says frankly.
It’s not the only hurdle facing Marks five years into the role he took on when United Co-operatives merged with the society. Earlier this year, internal memos were leaked to the press detailing redundancies in its food business. And on Thursday, the Co-op revealed a 5.8% drop in group profits - the first in years - on sales up just 1%. In its food business, profits fell 20% with like-for-likes down 2.1%.
Marks, however, remains bullish. “We will not allow the current economic downturn to knock us off the course we have set,” he says. “We have the resources, the resolve and above all the belief to make our vision a reality. When better times come - and they will - these are the foundations on which we will build lasting success.”
These and, of course, the physical foundations. Three years ago this month, the Co-op completed its acquisition of Somerfield and two years ago, it snapped up Britannia Building Society taking its overall estate to a whopping 5,000 branches, encompassing everything from food stores to funeral parlours.
Needless to say, it has required significant investment - and not just in acquisitions. “We’ve invested £3.5bn over the last five years,” says Marks. “Some of that was to buy Somerfield, but the majority was to modernise our business. And, my goodness me, did it need modernising!”
Much of the money was spent on creating a more efficient and effective infrastructure, with an inevitable impact on the bottom line. “Food profits are down 20% partly due to the horrendous economic climate but the bigger part is the disruption the business is still going through,” he says. “You can’t do these changes without impacting at the sharp end.”
In the first half of 2011, the disruption also affected availability, which “wasn’t as it should have been” after the massive overhaul of its food supply chain, admits Marks. The upshot was a 3.6% drop in half-year like-for-likes, although since then they have shown a “significant improvement”, down by just 0.7% in the third quarter and 0.2% in the fourth, Marks says.
He claims to be sanguine about the business’s less than sparkling recent performance. “As chief executive am I happy to not see profits continue on an upward curve?” he says. “Of course not. But I have to be realistic. It’s short-term versus long-term and we have to look to the long term.”
It was vital to act quickly, he adds. “I sometimes do say to myself ‘are we forcing too much change too quickly on the organisation?’ But the answer is ‘no’ because while we are transforming ourselves, the competition is not going to be sitting around saying ‘let’s give the Co-op a chance to catch up’.”
There have been downsides. “The worst thing I have to do is sign off redundancies. It’s an awful, awful thing to do that keeps me awake at night,” he says. However, he insists, employee engagement scores remain “really high”.
The business is also in good overall shape. When he became CEO, he promised higher profits, increased market share, better stores, better value and better service. He’s delivered on every promise, he says, more than doubling profits and turnover in the past five years. There is plenty more to come, he adds. The society is heading into legal services after the introduction of the so-called ‘Tesco law’ last year (which Marks jokingly says should be called ‘The Co-op law’). It’s also halfway through Project Unity which will see the back office functions of its banking business brought into the wider group.
Then there are his ambitious plans for food. Store opening hours are to be extended from next month. Work is also underway to tailor in-store offer to the local demographic and 1,400 own-label lines will be launched or reformulated this year.
“For the last 12 months we have been pulling drains up on what we know about customers and, to be honest, we didn’t know that much,” he admits. “We’ve brought the technology behind our membership card in-house and are going to develop a Dunnhumby-style system to integrate and use all the information on our seven million members so we can target sales far better.”
Many would argue this is something the society should have done years ago. Marks’ response is: better late than never. “When I started in 1967, the co-op movement had a market share of 25%. Tesco, Morrisons and everyone else then ate us for breakfast, lunch and dinner. We needed to do something and we’re doing it now. But we’re still not there yet.”
Perhaps not, but under Marks it seems to be on the right track.
Peter Marks CV
Lives: Bingley, West Yorkshire
Family: Wife, Julia; daughters Joanna and Laura; granddaughter Chloe
Hobbies: Golf; playing the drums
Career: Entire working life with Co-operative Movement. Joined Yorkshire Co-op as a management trainee in the food business. Quickly rose through the ranks. Became chief executive of Yorkshire Co-operatives in 2000, which became United Cooperatives in 2002.