New Millennium, New Future

British Cooperative Group enters the new century

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Retail members of the Cooperative Group

A new millennium started when the clock struck midnight in Greenwich, England on December 31, 1999. Further north, in Manchester, a new era began for leaders of the British consumer cooperative movement. During the 1990s they had prepared the ground for structural change, and the time had come to act. Since the turn of the 21st century, a once quaint British institution has purposefully focused on a different future.

In 2004 the Cooperative Group employs over 70,000 people and operates more than 3,000 retail outlets with sales of over $15 billion. However, the Cooperative Group is much more than just food stores. It is an umbrella for 39 department stores, over 300 pharmacies, Travelcare (400 travel shops), Funeralcare (providing 90,000 burials a year), Priory Motors (selling 16,000 vehicles annually), the Cooperative Bank, Cooperative Insurance Society (insuring 4.5 million policy holders), Farmcare (Britain’s largest farmer with 100 farms and the leader in organic and sustainable farming), and other enterprises.
 

Struggling co-ops of the 20th century

 

Since the end of World War II British cooperatives had struggled unsuccessfully to keep up with changed consumers and a fiercely competitive retail world. The co-op’s organizational structure was not geared for competition. Cooperatives had fallen from being the largest food retailer in Britain to a market share of 5 percent. (Recent successes and acquisitions have moved market share in 2004 back up to 6 percent.) Large British, European, and Wal-Mart chains have outstripped the co-op. In Britain, the top four private chains control over 65 percent of market share.

Withering from competition, British cooperatives closed hundreds of stores. Hundreds of local co-ops merged and merged again. Cooperative Wholesale Society (CWS), the predecessor organization to the Cooperative Group, and other large independent co-ops exited from the superstore category. As co-op purchasing power dropped, the CWS sold off its once proud production factories. By the 1990s, many wondered how long consumer cooperative retailing might be around in Britain.

After taking over so many unprofitable stores from local societies, the mostly wholesale CWS unwittingly became Britain’s largest retail cooperative. Another group, Cooperative Retail Services (CRS) had also been taking over local cooperatives and became Britain’s second largest co-op retailer. For decades, these two co-op groups had been in head-to-head competition.

Faced with the demise of the “Co-op,” the leadership of the two co-ops began to face facts. By 2000 the CRS was too weak to turn down the latest CWS offer to merge. The merger between the CWS and CRS allowed for greater economies of scale and more efficient allocation of resources.
 

Focus on the future

 

To focus on the future, the CWS adopted a re-branding of the entire organization. By 2001 the staid CWS became the savvy Cooperative Group. In 2001 Cooperative Financial Services brought together the Cooperative Bank and the Cooperative Insurance Society under one common strategic leadership. The following year another independent entity, National Co-operative Chemists, brought its 300 local pharmacies into the Cooperative Group.

In 1998, the CWS had reintroduced the “divi” (dividend) as a method of returning profits and benefits to members. By 2002, the dividend program was in place throughout the Cooperative Group. The dividend card provides approximately twice the rate of return as the loyalty cards of other British supermarket chains. In spring 2004, over 1.8 million co-op dividend loyalty cardholders received a record “divi” payout from the Cooperative Group of $30 million.

The dividend scheme has an added community element. Co-op dividend cardholders are encouraged to donate their change from purchases back to the Cooperative Group to give out to community groups. Since the introduction of the community dividend in 1998, com-munity groups have received over $10 million from the Cooperative Group.

The program is now supplemented with a co-op dividend Visa card issued by the Cooperative Bank. The Visa card offers customers an additional 1 percent dividend on all transactions in Cooperative Group stores and .5 percent on all other transactions.

The Cooperative Group’s community giving is the largest percentage of any supermarket chain in Britain. “Because [the Co-op] is owned by its customers, concern for the communities it serves is built into its democratic structures. It invests nearly 4 percent of its profits in charitable giving, spending it on hundreds of different causes, from cash support to the arts or local self-help groups” (The Guardian).
 

Discovering a niche

 

The Cooperative Group is well aware that its strongest niche is mid-sized stores in smaller towns, plus convenience stores in urban, suburban, and rural locations. From 2000 to 2004, the Cooperative Group used its growing profitability to purchase over 750 convenience stores from private regional and national chains.

Announcing the 2003 year-end results of the Cooperative Group, Martin Beaumont, chief executive, said: “We are making sustained progress in unlocking the potential within the Cooperative Group, and the 41 percent rise in profits for 2003 demonstrates our success. We maintain a highly commercial approach to running our businesses to ensure that we maximize profitability for the benefit of our members while still upholding the core values of a co-operative organization.” Beaumont was hired from United Cooperatives in 2002 to direct the Cooperative Group to a new destiny. Former chief executive Graham Melmoth retired, knowing that a good cooperator and innovative leader would continue growing the organization.
 

Not the only co-op in Britain

 

The Cooperative Group is not the only consumer co-op in Britain, however. There are a number of independent cooperatives ranging from United Cooperatives (a $3.6 billion regional co-op) to one-store, one-society village cooperatives.

All of the independent cooperatives participate in joint purchasing through the Cooperative Retail Trading Group (CRTG), managed by the Cooperative Group. The CRTG annually purchases over $10 billion of goods on behalf of nearly 100 percent of the retail co-ops in Britain.

Whereas previously the British co-ops had bought from their own factories, they now purchase Co-op label items directly from other manufacturers. There are over 4,000 Co-op label products, and the Cooperative Group achieved 50 percent own-brand penetration in their stores by 2002. With Co-op label volume going up, wholesale costs have come down.
 

Restructuring the co-op movement

 

There has been a corresponding re-structuring of the education and development organizations. For decades the Cooperative Union (education, training, and representation) had a growing operational deficit providing services to a diminishing membership base. The saddest episode was the sale of the Cooperative College at Stanford Hall in Leicestershire. A resplendent mansion on stately grounds, the Cooperative College was the crown jewel of cooperative education. The College program was brought back to Manchester and revamped to meet the educational needs of a new era of cooperators.

Upon retirement of the well-respected Lloyd Wilkinson in 1999, the Cooperative Union was fortunate to appoint Pauline Green as its new chief executive. Green worked in the cooperative movement in her early years and was elected as a Labour/Cooperative Party Member of the European Parliament (1989–99). She was leader of the Socialist bloc from 1994–99, the largest bloc in the European Parliament. Her leadership skills and vision were an advantage in leading the restructuring of the Cooperative Union.

Under Green’s leadership, the Cooperative Union and the Cooperative Forum (an annual conference of all the co-op sectors) amalgamated their activities. In addition, the Industrial Common Ownership Movement (representing worker cooperatives) merged into the Cooperative Union.

At the end of 2002, the Cooperative Union was renamed Cooperatives UK. The new apex body represents every cooperative sector in Britain. Cooperatives now have a stronger voice speaking for their $35 billion movement.

In 2002, the Cooperative Group and other leading consumer cooperatives established Cooperative Action to fund the development of new cooperatives and mutual enterprises. In its first 18 months, Cooperative Action made loans and grants of $2.4 million to over 32 cooperative and mutual enterprises.
 

Fair trade

 

This September, the Cooperative Group won the “Retailer of the Year—Innovation” award at the wine world’s biggest and most influential competition, the International Wine Challenge. The co-op received the prestigious award in recognition of its pioneering work to develop and promote fair trade wine.

Today, the Cooperative Group is the UK’s leading supermarket supporter of fair trade. Their brand range includes wine, bananas, coffee, and chocolate. Various fair trade products are being sourced, one by one; sales increases in fair trade items are tremendous.
 

Strategy for the future

 

The latest action of the Cooperative Group’s unfolding strategy was announced in August 2004. The Group sold its subsidiary, Associated Co-operative Creameries, to Dairy Farmers of Britain (DFB). As a result, DFB, a cooperative owned by 3,250 farmers, became the country’s third-biggest milk supplier.

Commenting on the sale, Cooperative Group chief executive Martin Beaumont said: “The sale to DFB is a marriage of two successful cooperative enterprises, which creates a major new force in this competitive market sector and can only be good for members, employees, customers, and consumers alike. The proceeds of the sale will be reinvested in support of the Group’s strategic plans for its trading businesses.” He added, “In particular, we cannot afford to ease off on the pace of acquisitions in food retailing, nor indeed in pharmacy and travel, where we are delivering first class services to our members and customers.”

This latest action of the Cooperative Group affirms the strategic planning goals of the organization. The Group continues to pare down subsidiaries at the periphery of its retail business model. With the cash infusion from the sale of non-core assets, the Cooperative Group is able to target retail acquisitions. The strengthened purchasing power in turn increases profitability.

British food retailing is a highly competitive business that once looked like it would force co-ops out of business. However, a decade of decisive action has returned success to the cooperative sector. The momentum initiated under former chief executive Melmoth has been strengthened by Beaumont’s focus on the continuing re-structuring of the resources of the Cooperative Group.

At the Labour Party spring conference in 2004, Beaumont said: “We have in the past 30 years or so been referred to as a sleeping giant, but this is no longer the case. We are well and truly awake—the cooperative renaissance is under way.

“This is an exciting time for the movement. Ideas such as localism, new mutualism, and communitarianism—call them what you will—now feature more prominently on the political agenda.… We recognize that it is only our commercial success that allows us to play a part in community life, helping those communities to build and shape their own futures. This activity in turn creates strong mutually beneficial ties, which cement our place within some ruthlessly competitive markets.”

Beaumont pointed out that the cooperative approach is as relevant today as it was in the nineteenth century era of the Rochdale Pioneers.

By returning to a captivating vision of their collective future, British cooperatives are reaping the social and economic benefits of solidarity. The end result is a Cooperative Group that has returned successfully to both its cooperative roots and sustainable profitability. The Rochdale Pioneers would be proud to know their principles and practices are once again in good hands.
 

Stealth takeover defeated by the co-op

 

One dastardly event almost scuttled the ambitious plans of the re-focused British cooperators. In 1997, a plot was discovered to criminally “de-mutualise” the Cooperative Wholesale Society (CWS), forerunner of the Cooperative Group. Two key CWS executives had been passing all the organization’s proprietary financial information and the full list of every CWS shareholder to a shadowy financier. The intent was to offer the CWS shareholders a premium to sell their shares, privately. The CWS and British co-ops would be stripped of billions of dollars of communal assets built since 1863. Fortunately, the criminal actions were discovered and immediate legal protection won. Through the strong leadership of Graham Melmoth, then chief executive of the CWS, the stealth takeover was defeated.

In April of 2002, two former CWS executives were found guilty of corruptly accepting $2 million each to provide the inside information. The Cooperative Group is now taking legal action to obtain $20 million in damages. Melmoth and the CWS board replaced this sad and shocking chapter with a different vision. Their actions allowed the accompanying article to have a happier end.

See other articles from this issue: #115 November - December - 2004