The meaning of profit in a co-op

There is (or should be) a reminder in today’s press that profit in co-operative businesses is a very different beast from profit in conventional shareholder-owned firms.

The media has reported that the Co-op Group’s profits on the six months to July 1st fell by 48% compared with the same period last year. This sounds worrying. But such a reading of the accounts would be misleading. The Group’s retained profits have indeed fallen, to £14m, but only because the co-op has passed back £29m to members as part of its 5% refund on own-brand goods. A further £6m has been passed to community good causes.  Add these back in, and in fact the Group’s profitability has increased quite substantially.

Co-operatives are run to benefit their members, and there are various ways that a consumer co-op can do this.  It can reduce prices. And/Or (‘or’ in this case) it can keep prices up, broadly at market levels, but pay members a dividend from the trading profits.

Of course co-operatives have to be profitable and money from profits needs to be retained in reserves. But the headline profit figure is by no means the key financial indicator that it is for non-co-ops. We need to look also at other metrics: how well are members’ interests being met and what social benefits are being achieved from trading, for example.

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