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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Thoughts of a Co-op Group customer

I’m back from a quick dash to my local Co-operative Group supermarket, which happens to be conveniently just about fifty metres from my front door. A few essentials have been bought for tonight’s evening meal (baked potatoes, since you ask).

I’ve used this store for the best part of thirty years, much longer than the Co-op Group itself has been around in the form it’s in today. So I know the store well. And I’ve seen it change.

There was a time when everyone locally had their favourite stories about the awfulness of the management and the bizarre nature of the store’s stocking policy. The joke was that if a new line sold very well, you could guarantee it wouldn’t be stocked again (too much work involved in putting in the necessary reorders).  And back in the days when my supermarket was part of a regional co-operative society, there were some blatantly bad goings-on, including health and safety breaches and brazen theft. (Once I asked for a membership form to join the society, and one was only tracked down in the manager’s office with very great difficulty – the staff thought I must be wanting to apply for a job).

We can still grumble about things, and not all the management and HR issues seem to me sorted yet. But do you know?  I really think the Co-op is better run now than it has been for a very long time. I’m old enough to remember when anti-apartheid campaigners tried to persuade the co-op to boycott South African oranges – only to be told that the co-op couldn’t possibly stop its customers having the choice of buying Outspan. Now the Co-op Group takes a lead on fair trade and there is a definite (if still slightly inchoate) sense of a business trying to be run ethically.  Not everything is right yet, but we’re seeing progress.

Travelling the co-operative way

One of the less impressive acts of the Co-operative Group before the great Co-op Bank meltdown was the time it allowed Thomas Cook in as majority partner of its Co-operative Travel operation, meaning that the ‘national co-operative brand’ established with so much effort and expense almost immediately included a business which was not co-operatively owned at all.

At long last this is to be resolved. The Thomas Cook/Co-op Group joint venture (which also included some outlets from what is now the Central England society) is being wound up with Thomas Cook buying out its co-operative partners. The shops will also be rebranded as Thomas Cook outlets – although not necessarily until the end of 2018.

In the meantime the Midcounties society gets in touch, keen to remind me that they never participated in the Thomas Cook partnership and that their travel agencies remain a direct part of their business. “We are not part of the Joint Venture and are proud of our travel business, proudly boasting the Co-operative name,” they say. Ironically for a time these genuinely co-operatively owned travel agencies were unable to use the national brand. They now boast a slightly adapted version of the brand, something which would no doubt horrify the original graphic designers but which seems to do the trick.

Co-operative business, on a scale from 1 to 10

I was stopped the other day in my local Co-op Group store by a woman from a market research company undertaking research for the Co-op.

I was asked to rate, on a scale of 1 to 10, a number of aspects of the store.  Fresh fruit and veg, for example.  What would you say?  I gave it 5 out of 10.  Well, let’s be honest, I don’t think the Co-op offers particularly good quality produce and although it’s a few years since we went through a whole Autumn without a single English apple on sale (and a few more years back since the co-op astonishingly ran completely out of potatoes one day) there is certainly no room for complacency.

The tidiness of the store? Again, not great. There seems a lack of managerial oversight which gives attention to important details like this.

Value for money? Expensive, compared with the larger supermarkets, although perhaps the fairer comparison is with small convenience stores.

I wasn’t asked about my experience of the self-service kiosks, so I wasn’t able to report the recent occasion when the machine gobbled up a £20 note of mine without appearing to notice it. But I was able to rate staff helpfulness very highly.

It’s good that the Co-op Group is trying to understand what its customers think of its store. My market researcher seemed surprised I had been quite so negative. Just trying to be helpful.

The Co-operative Group and its employees

In an ideal world, co-operative businesses would be able to acquire the business products and services they needed from other co-operatives.

Sadly, the world is not ideal. The Co-operative Group obtains the “workforce management software solutions” it needs from US based private equity company Kronos, so that employees’ timekeeping, sickness and attendance records and much else are chewed through and processed by Kronos’s algorithms. Obviously the Co-op Group needs effective tools to handle its HR but I wonder whether a US giant which promotes itself as helping firms among other things ‘control labour costs’ and ‘improve workplace productivity’ is quite what’s needed to encourage staff to identify with the co-operative way of doing business. The Group is working hard to rebuild its membership. It also needs to ensure it has a committed workforce.

Branding and re-branding

Ramifications continue over the Co-operative Group’s decision to re-re-brand, away from the ‘national’ The Co-operative brand they had previously effectively spearheaded. I understand that Co-operative Group members will shortly get replacement turquoise cards for the standard yellow honeycomb cards which have been issued up to now.  Which is fine, but could create no end of confusion if Group members are also members of independent regional societies which themselves issue honeycomb cards. Letters are now going out to people in this situation, trying to explain what’s happening. Poor old regionals.

Is there anything positive in all this?  Just possibly, if it means that the regional societies are able to reaffirm their own independence from the Group as autonomous member-owned co-ops, something which was very difficult under the previous combined brand.

Branding, rebranding, and de-branding

High profile business fiascos, such as Coca Cola’s maladroit ‘new Coke’ attempt to change the taste of its product in 1985, form the basis of case studies for business schools around the world. Will business schools now also include the Co-operative Group’s recent decision to abort its 2008 “The Co-operative” rebrand among their case studies?

The 2008 rebrand was a major event for the British co-operative movement – and an expensive one. At the time, it was seen as confirmation that co-operatives were putting behind them their reputation for shabby stores, expensive prices and poor quality goods. With great drum-banging, the Co-operative Group announced that it had secured rights to use Bob Dylan’s Blowin’ in the Wind soundtrack for its TV advertisements.

So what, if business schools pick up on this latest twist to the co-operative story, will they consider the real fiasco?  Will it be the 2008 rebranding exercise, abandoned so quickly? Or will it be the 2016 decision to revert to the old turquoise ‘clover leaf’ logo, a decision which I’d call an exercise in de-branding?

You know, seeing the old logo back in my local store, I have a horrible feeling that it may be the latter.