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

2017 AGM

Just back from the Co-op AGM in Manchester.  This was an inspiring event, with a good turnout of members, impressive debut speech from our new Chief Executive Steve Murrells and a great sense of an organisation now back in a stable position and beginning to think more about areas in which we can challenge the status quo as well as extend our trading.

  For me there were four particular highlights:

1. Modern Slavery

We gave great attention to our new commitment to leading work on Modern Slavery.  It was horrific to learn that there are thought to be 21 million victims of slavery worldwide – more than at any other time in history.  And it is estimated that there are 10,000 slaves in the UK today.  We are committed at the Co-op not only to working hard to ensure that our supply chains are free of this scourge, but to providing survivors with paid employment to help restore their dignity and sense of self worth.  There was a powerful and emotional video sharing the story of one of the three former slaves who have been given permanent employment by Co-op, together with a commitment to taking on 30 more this year working with two charities (City Hearts and Snowdrop) in our Bright Future initiative.  It was great to get an endorsement from members of our plans to campaign to encourage other companies to do likewise.

2. Fairtrade

This is a picture of me with Brad Hill, who heads up the Co-op’s Fairtrade work.

More good news on the Co-op’s commitment to Fairtrade, with our volumes of FT sales (18.5% up on last year) now over-taking Tesco’s to make us the second largest Fairtrade retailer in the UK.  Only Sainsbury’s sells more, and with their momentum appearing to wane it is clear that our support for the movement is increasingly crucial.  Our focus on maximising impact for producers is driving our new initiatives.  Having taken all the cocoa in own brand products Fairtrade this year, we are now going to do the same with tea, coffee and bananas.  So not only will these product categories continue to be 100% Fairtrade, but we will always source them on fair trade terms when they are used as ingredients in other products too.

It was also great to hear that because of our work with One Foundation (donating 3 pence per litre on sales of our bottled waters to water projects in Kenya and Malawi) we are the only UK retailer to be invited to join a new UN backed initiative (the Global Investment Fund for Water) to promote clean water.

3. Waste and recycling

New commitments on making all our food packaging recyclable by 2023 (though there is perhaps still more to do on reducing packaging).  We will also be working with FareShare to redistribute the food for 20 million meals.  These are great initiatives – although in my view we still need to do more to tackle the root problems behind food waste.

It was also great to see the Co-op’s first hybrid diesel/electric powered lorry outside the conference centre!  It is the only 26 tonne lorry of this type in the UK, and we are trialling it as a way of improving fuel efficiency and reducing noise.

4. Community engagement

The launch of our Member Pioneer scheme, which over time will lead to 1500 activists working in the localities we serve to mobilise our members behind improving the well-being of their communities.  About 60 Pioneers have been recruited so far (from 450 applicants) and we have started to train and resource them.

Lemn Sissay, the poet and Chancellor of Manchester University, has agreed to be Ambassador for the scheme, and gave a rousing speech on the importance of communities and also on our embracing migrants and refugees (recognising that migration is part of all our stories and integral to being human).  This initiative promises to make our community support even more meaningful than the money given to good causes:  £9 million distributed just last month as a result of our 5+1 membership scheme, and a further £6 million raised to fight against loneliness with the Red Cross (nearly double our target figure).  I hope tackling loneliness will become a big feature of our local work going forward – with hard evidence that nothing does this better than encouraging people to volunteer and become engaged with local initiatives.

Re-elected!

Oh, and then there was the good news that I have been re-elected for a second term as Member Nominated Director!  Although the voting numbers weren’t announced formally at the meeting I am told that I received over 40,000 of the first preference votes, with the other two candidates being on just under 20,000 each.  I am humbled and delighted by this endorsement, and look forward to the next two years of serving the Society.

Election time – my manifesto

It seems hard to believe that is almost two years since I joined the Co-op Board.  But AGM papers have just started going out to members, and include the ballot for electing Member Nominated Directors. It’s my turn to stand again.

I’m very much hoping to be re-elected for a second term.  My colleague Ruth Spellman has decided not to stand again owing to her other commitments, so I’m the only current MND standing in this year’s election.

Over the last two years I’ve got to know my way around the Society (you can see something of this by looking at my posts on this blog over the past six months). I’ve been able to build relationships with many colleagues and Council members and I’ve spent time listening the the views of customers and members around the country.  So I believe I’m well-placed to contribute to our planning for the next stage of the Co-op’s Renewal, and can provide continuity as we build on the successes and learn from the experience of the last two years.

My “manifesto” can be found here and if you are gluttons for punishment you can even see a short video of me making a two minute pitch!

A brief summary is that if re-elected I would focus on four things:

  • Firstly, empowering and equipping our colleagues so that they can use their skills and enthusiasm to serve our members and customers even better and get properly rewarded for doing so.
  • Secondly, extending our commitments to sustainability and ethical trade: more Fairtrade; more local suppliers; healthier ranges; less food waste.
  • Thirdly, I want to see us re-engage with the wider co-operative movement so that together we can truly champion better ways of doing business.
  • And fourthly, we need to build local structures that really connect with members and their communities and deliver benefits to them so that we feel like a real Co-op and not just any other business.

So if you are a member of the Co-op and entitled to vote I would very much appreciate your support!

 

Co-op: back to the future

Spent yesterday visiting the wonderful Beamish open air museum here in the North-East. As always one of the highlights was going round the village high street from the early 1900s: a high street dominated by the Co-op’s grocery and haberdashery stores.

I loved the nostalgia of looking along shelves to see some brands that are still going strong (Colman’s mustard, Rowntree chocolate …), and other products that have long since disappeared.  Lots of Co-operative Wholesale Society own brand products too, of course, many of them manufactured and packaged in our own factories and proudly labelled with their origins.  Early examples of the importance of knowing a product’s provenance.

And there were the posters urging customers to “Join Us” as members – something we are still encouraging people to do today.
   Over half a million customers have signed up to become members since the New Year – so we are well on our way to the target of one million new members this year.  But we need to do more than sign people up.  We need to reconnect with the local community too, in the same way that the store at Beamish was once the heart of the community in Annfield Plain.

So I am delighted with the £9 million we have given to 4,000 good causes around the UK and that we have announced in the last week.  This is the first fruit of our 1% donations on all own brand products bought by members since the relaunch of our Membership offer in September. As the scheme builds we hope to be giving £20 million a year in this way: that’s serious money.  I hope the pioneers and the many colleagues who worked for Co-op down through the last 170 years would be proud of what we are still able to do in the spirit of the service they gave their local communities.

Co-op Funeralcare

I was delighted to spend a morning attending a “town hall” meeting with colleagues from Co-op Funeralcare in Washington.  These are a relatively recent initiative to allow colleagues to be updated on progress in the business and get their feedback.  Colleagues from the Funeralcare support centre in Manchester are encouraged to get out to these local meetings around the country as a way of ensuring they keep in touch with the realities of life at the front line.

Thinking back through Co-op history making provision for a dignified funeral was a key concern of our members in the nineteenth century, so it is great that we continue to provide a high level of service in this sector to this day.

Recent progress

There is a remarkably good story to be told about our recent performance:

  • Growth in market share for the first time in five years 29% market share in sales of pre-need funeral plans – an excellent sign for the future Investment in new funeral homes – now over 1,000 around the UK – and in renewing our fleet of vehicles.
  • Launch of a low cost Simple Funeral to help address funeral poverty – which has forced competitors to respond in kind.
  • Announcement that we will provide funerals free of charge to any person who is 17 or younger, helping families at a time of acute grief:  an initiative that was recently commented on positively by the Prime Minister in the House of Commons.
  • Merger of the funerals business with our legal services operation, to maximise the synergies around will writing and probate work and provide a fuller service to our clients.
  • Development of new software by our Digital team that promises to transform the back office operations of Funeralcare, improving efficiency and releasing colleague time to care for bereaved families.

Under the leadership of Richard Lancaster and Robert McLachlan there is a new confidence and willingness to take the business forward with a clear focus on caring for families.  I was impressed by the positive comments and clear engagement of the colleagues at the briefing session.

Digital developments

At the session I was able to hear more about the Digital project (now being trialled in Edinburgh) from Regional Operations Manager, David Knowles.  David was seconded to the Digital team for six months, to make sure that someone who really understands the needs of the business was plugged into the systems design from the outset.  His enthusiasm for the potential improvements that would flow through was tangible, but I was especially pleased to note how positively other colleagues responded to the news:  embracing the change rather than fearing a new challenge.

High standards

 

It was also great to be given a tour of the Washington Funeralcare centre, the hub of a network of homes in the area.

Our senior manager Karen Crake, with nearly thirty years of experience, is justifiably proud of her purpose-built building, for it looks very smart and professional throughout.  They are the sort of premises in which the deceased can be handled in a dignified, respectful and professional manner, with strong standards clearly in place.  I heard several stories of funeral directors visiting from other non-Co-op organisations and being amazed by the quality of what we do.  Our main competitors, Dignity, in their recent results announcements called for more regulation of standards in the funeral industry.  I am confident that the Co-op already leads the way in this respect, and we would welcome the opportunity for standards to be improved across the board to benefit families everywhere.

So thanks to David, Karen (shown in the photo above, with me) and Funeralcare’s Head of Marketing Lorinda Robinson for making me so welcome!

Annual results

This week has been dominated by preparations for the release of the Co-op Group annual results for 2016 on Thursday.

The headlines have predictably focused on the decision to write down the value of our holding in the Co-operative Bank to nil.  Although the headlines say this means we just get it to be “worthless”, in fact it simply points to the impossibility of being able to put a clear value on the shares at a time when a sale is in prospect and uncertainty is being fuelled by (often misleading) press speculation.

Highlights

The newsworthiness of this item and the fact that the write-down turned our year end profit into a loss have hidden a lot of other good news:

  • All three of our core businesses (Food, Funerals and Insurance) have shown growth in both sales and market share.
  • Strong uptake of our new membership scheme, and re-engagement of many members with the Society.
  • Operating profit was up 32% year on year.
  • Underlying profit before tax was slightly down on last year, but ahead of our budget and unsurprising given the scale of re-investment we are making across our businesses and in re-launching our brand and membership proposition.

The full press release can be found here.

Future prospects

Our markets remain fiercely competitive, of course, so the next couple of years will be challenging.  Nevertheless we now have a stable and much stronger platform from which to develop and launch our plans for the future. It was interesting that the BBC coverage ended up focusing on what markets the Co-op might choose to enter next and disrupt.  That’s quite a change from just three years ago when everyone was wondering whether the Group could even survive!

 

Co-ops UK Retail conference

Earlier in the month I attended a conference organised by Co-ops UK (our industry trade association) focusing on the challenges and opportunities faced by co-operative retailers.  Its an annual event, but it was my first time there.  I was particularly impressed by a presentation from James Walton, chief economist at IGD (the Institute for Grocery Distribution) surveying past and future trends in retailing and the economy as a whole. And the whole proceedings were ably presided over by Ed Mayo, Secretary General of Co-ops UK.

This picture shows me chatting with Nick Matthews, chair of Co-ops UK and director of Heart of England Co-operative Society, between two of the sessions.

Shared brand and services

It was a great chance for me to get to chat at greater length with leaders from some of the independent co-operative societies.  Many of these are closely linked to the Co-op Group, many of them use our brand and have votes within our democratic structures. We have a federal wholesaling system, meaning that many products are brought centrally using our collective purchasing power to get better prices.  But they are also proudly distinct, with their own histories and a clear focus on their own regional constituencies.

The existence of these independents is sometimes a cause of confusion to Group members and customers.  They see the Co-op brand over the shops and on own brand products inside, but find they cannot swipe their membership cards. If you understand the history behind this you can understand it, but in the modern era with so much more focus on clear brand identity you would probably not want to invent such structures!

The Co-op Membership offer

So I was especially interested to gauge the thoughts of the independents about adopting the Group’s 5+1 membership offer.  It would be so much simpler if members could receive 5% on Co-op branded products and get 1% donated to local community projects, regardless of where they bought those products.

But you can understand why some of the independents are feeling reticent about adopting the same scheme. In a business where margins are often wafer thin, giving away 6% of margin can feel a big risk, especially if you still want to be able to give away dividends or support good causes in other ways too in accordance with the wishes of your own members.

To be able to afford it you need to be able to see a number of factors coming to fruition.  You need existing members to switch their purchases from branded products to own brand products, as we need to give away less margin to suppliers on the latter ranges.  Secondly, you need your members to start increasing their basket size and frequency of visits in response to the offer – so they are buying more from you than before. And thirdly you need to attract new members – not just converting existing shoppers to membership (though that is a good thing in itself), but attracting in brand new customers to increase volumes.

There are already promising signs on all these fronts for the Group, with growing proportions of own brand sales and half a million new customers signed up as members.  But you can understand why an independent may for the moment want to wait and watch before plunging in.