January 2019 Council meeting

Saturday saw the first National Members’ Council meeting of 2019, and as part of my Member Nominated Director role I was of course delighted to be there.

The two main items on the agenda were an update from the senior management team on progress within our Food Business, and a Q&A session around the proposed sale of our insurance underwriting business.

2018 was an amazing year for Coop Food. Sales performance outpaced the market by a considerable stretch, we acquired NISA, opened a hundred new stores and invested in colleagues and testing out a whole range of new initiatives. Questions from Council focused on plans for developing our vegetarian/vegan/organic offerings, and underlined the importance of not using every new efficiency to strip hours out of stores but to enable more time for serving members and customers.

As one might expect there was appropriate challenge offered to the decision to sell underwriting activities to Markerstudy (see picture above and also my previous blog). Mark Summerfield, MD of Coop Insurance, was present to lead Council members through the rationale and provide reassurances – and it was great to hear explicit recognition from Council and Board members of the integrity and expertise he has brought to the negotiations. By the end of the session my impression is that Council members, a number of whom had initially been sceptical about the decision, came round to recognise that it was the right strategic move on the part of the Board.

There were also sessions when we as individual directors were held to account by questioning from small groups of Council members. In my own Q&A session there was discussion of our logistics operations, our investment in improved IT systems, the management of Group debt and the background to our Sustainability Bond offer in the autumn, and the role of MNDS compared with that of independent non-executive directors. Various points were made around our Festival offering in 2018 particularly in relation to displays about the Co-op’s wider purposes and membership, the use of membership cards and a desire to see us consider offering free water at future events.

All in all it was a good and useful day, with questions focusing on important issues and on longer-term opportunities, and answers being full, open and honest: as one would hope! It was also an occasion when we could note that Council Secretary Gill Gardner was moving on to another role within the Group.

Gill has been an amazing colleague, helping the Council to become ever more effective, and she will be a very hard act to follow: though I am told we have number of excellent candidates putting themselves forward and an excellent interim Council Secretary in Andrew Seddon.

Brexit implications

Like many others I find Brexit is a constant topic of conversation at the moment. Personally I voted Remain, mainly on the grounds of international solidarity and because I saw the UK as a positive influence for good within a Europe that was (and is) facing serious challenges. As a historian by training I am very conscious of how fragile Europe has always been, and how much we all benefit from peace and stability and have a responsibility to contribute to it.

The Co-op Group chose not to campaign on the subject at the time of the referendum because we recognised that our membership was pretty evenly divided on whether to leave or stay in the EU, and the issues at stake were far wider than the difference it might make to the Co-op on which we could legitimately speak.

But what difference would Brexit make to the Co-op, particularly if it is a “hard exit”?

If, as seems likely, Brexit leads to a deflation of sterling, then the cost of all food imports will go up, and this may be amplified by the additional frictions of bringing food across borders, and possibly by the imposition of WTO tariffs. Although the Co-op sources more product proportionally from the UK than the other major retailers, a lot of what we sell is of course still imported, and competitive pressures will inevitably also force the price of UK-sourced goods up. Price competition between retailers may shield consumers a little, but the scale of price rises means that food prices are almost certainly going to rise pretty steeply.

Food retailers are more protected than some in inflationary times, because we all still need to eat. However, as consumers feel their purchasing power squeezed they will be forced to choose more basic products, and (a good thing this) will become much more conscious of only buying what they need. Competition from discounters will become even stronger in this context – although Aldi and Lidl imports a great proportion of what they sell from Europe and so may be disproportionately disadvantaged.

We will also be concerned about our colleagues from overseas. Although they will have some rights to remain here, we know they will feel less welcome in our country and some valued members of our teams may choose to leave. For those who are sending may back to their homes, their sterling earnings will be worth less because of the likely downward movement of the pound. Many of our agricultural suppliers will be even more affected by the reduced attractiveness of coming to the UK for the seasonal workers on whom they depend.

Are there any upsides? From a strictly Co-op Group perspective, I can see few benefits from leaving the European Union.

But whatever happens we have to recognise that we have become a society where a sense of division is more acute than at any time since the 1930s. Brexit has accentuated perceptions of the real unfairness of income distribution between rich and poor, between the university-educated and the less-educated, between skilled and unskilled, between the regions and the South East, between companies and the people. It is also leading to a sense of distrust in our political system and its ability to work for the common good. It has made it clear that something has gone wrong with the working of our society, and we need to change.

This will be a context not too dissimilar to the times when the co-operative movement started in the 19th century. So co-operative values and approaches will be more important than ever – and are likely to resonate more with the general public. Themes of justice, fairness and working together to build stronger community, which are all intrinsic to co-operation, will be very relevant to re-creating a cohesive society in this country.

So whether we leave or whether we remain in Europe, now is a time when we need to promote the benefits of co-operation and community values afresh – and it just may be that we will find the nation readier than ever to respond. That is a challenge and an opportunity to which I hope the Co-op will be able to respond.

Sale of insurance under-writing business

It has just been announced that Co-op has agreed to sell its insurance under-writing business to Markerstudy, subject to approval from the Regulators. It is important to make it clear that this is not the Co-op exiting from the insurance business – which will remain an important part of our offer. We are just selling the under-writing element, which creates risk and volatility of earnings. Co-op home, motor, travel and pets insurance products will continue to be available – and as well as releasing capital, this move should free us up to develop an even wider range of insurance products to offer to our customers and members. This deal secures the jobs of hundreds of our colleagues – who will continue to be at the “front end” handling customer queries and claims and maintaining the high quality of service for which Co-op insurance is renowned.

From my perspective this is the right way forward. Insurance under-writing was a discrete part of our business and was not operating at an effective scale. Being a regulated business it created a lot of complexity, and the Co-op Group was not the sort of partner that the Regulators felt comfortable with. In Markerstudy we have found a partner with a strong reputation for treating its staff and customers well, and with a higher level of technological expertise than we have historically had in place. We look forward to working closely with them on Home and Motor products for the foreseeable future (at least 13 years), will also work with Markerstudy and others on developing a wider range of insurance products that more closely match our members’ needs. Our recent award-winning travel insurance product has demonstrated how we can innovate in the sector – and we should expect to see a lot more of this in the years ahead.

Future of Food

 

Reflecting on the past year, one of things of which I am most proud is the Co-op’s development of our “Future of Food” strategy.  Building on many years of pioneering ethical and responsible sourcing of products, we have been working hard to revitalise our commitments for the next decade and beyond.  In a world where we are all challenged by issues of environmental sustainability, its great to see us setting ambitious targets to build on our existing strengths in conjunction with our partners, taking action on what matters most.

Our goals revolve around three areas:

  • Sourcing products that are created with respect for people and planet – sustainability, health, reduced waste, reduced use of plastics, agricultural innovation.
  • Treating people fairly – working for justice in supply chains through more Fairtrade, empowering vulnerable workers and women, tackling water poverty, supporting British farmers and ensuring that all our suppliers get a fair deal.
  • Learning and celebrating together – educating and empowering future generations to make informed choices, working with partners and sharing good practice, helping everyone understand the true value of food.

Our programmes and plans have been developed after a lot of consultation with our supply partners, NGOs and academic experts as well as colleagues in all parts of our business. Having attended several workshops around this process as well as the launch event, I have been impressed by the hugely positive feedback they have given about the Co-op difference they can already see and our qualitatively stronger commitment to partnership.

You can read about our plans in much more detail on our website:  https://food.coop.co.uk/food-ethics/future-of-food