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Thursday, 24 February, 2000, 18:45 GMT
Co-op faces an uncertain future

Supermarket aisle
Co-op used to be top of the supermarket league


Today it's almost impossible to believe, but only 15 years ago Co-op was the biggest food retailer in Britain.

Then came the supermarket revolution with its craze for ever-bigger out-of-town stores, lower prices, loyalty cards, cheap petrol, three-for-two multi-buys, and vast car parks to cater for a newly car-dependent society.

Sainsbury's, Asda, Tesco, and Safeway rode the wave of change while the daddy of them all, Co-op, slumped into the shadows.

It now ranks fifth in the supermarket league and such is the concern for its future that Tony Blair has announced a commission to review its operations.

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Co-op, or The Co-op as it is affectionately referred to, has been a familiar presence on Britain's high streets for more than 150 years.

It was founded on ethical principles in 1844 as a reaction to consumer exploitation. Twenty-eight working men opened a shop in Rochdale that sold "wholesome food at reasonable prices".

Members were able to share in the profit according to the amount they purchased. This eventually became the famous co-operative dividend, better known as the "divi".

The movement prospered and spread around the world, championing the principle of profit distribution over that of raising finance on the stock market.

But in 1997 its survival was threatened when it became the focus of entrepreneur Andrew Regan. It escaped a buy-out then, but has more recently drawn attention from US finance house Babcock & Brown.

Vast and complex

Britain's current co-operative movement is a vast and complex structure of 45 autonomous societies spanning activities as diverse as food retailing, banking, farming, opticians, insurance and undertakers.

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The biggest two societies, the loss-making Co-operative Retail Services (CRS) and the profit-making Co-operative Wholesale Society (CWS) account for about half of its trading and are in the process of merging.

All the societies are linked through the Co-operative Union which has close links with the Labour Party and currently sponsors a handful of Labour MPs.

But in today's cut-throat consumer environment, Co-op's dated image and perceived lack of dynamism have appeared increasingly at odds with what consumers want.

The new review - the second in Co-op's history - will look at the role and purpose of the movement and recommend changes to turn around the lumbering giant.

Long-term outlook 'bleak'

Retail analyst Richard Hyman says the long-term outlook is bleak for Co-op.

"The Co-op has been in decline throughout the post-war period. It's possible to slow that decline but I don't think it's possible to put it in reverse," says Mr Hyman, chairman of Verdict Research.

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Its unwieldy structure, where many of the societies are fiercely independent, is perhaps its biggest drawback, he says.

"It moves very slowly and often cannot attract or retain the best people. It does not have access either to the relatively cheap capital available to public companies."

"It's as much a state of mind than anything else," says Mr Hyman, who points to the success of Waitrose, part of the privately held John Lewis Partnership, as a worthy comparison.

But Co-op insists it is in a strong position to turn itself around.

It claims nine million members, mostly staff and customers, and has been acquiring businesses at a rate of one per week in recent months, including several stores from the Somerfield chain.

Sensibly, according to analysts, Co-op has chosen to concentrate on the neighbourhood grocery market, rather than wade into the out-of-town sector, dominated by the big names.

Return of the divi?

A spokesman for CWS said the loyalty card might even pave the way for a return of the annual divi. Previously customers had to collect all their receipts over a year and send them off.

Clive Vaughan, director of Corporate Intelligence retail analysts, says the multiple societies are hampering a solid image.

"The reason, Tesco, Sainsbury's and Asda overtook them was they could project themselves as a single entity. People knew who Tesco were and it was the same, their prices were the same, whether you were in Scotland or London," says Mr Vaughan.

He sees the achievement of the Co-operative Bank as an important lesson. The bank has prospered through its image of ethical investment.

"The key in my view for the Co-op is to be much more of an ethical retailer. It should be at the forefront of things like anti-GM foods, organic production and the like," says Mr Vaughan.

"It actually does all these things but it doesn't get its message across."

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See also:
23 Jul 99 |  Northern Ireland
Co-op superstore sold to retail rival
05 May 99 |  The Company File
Co-op closes its non-food stores
14 Apr 99 |  The Company File
Co-op bank profits soar
30 Mar 99 |  UK
Co-op pulls out of GM trials
26 May 98 |  Business
Co-op fights to halt decline

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