Profile: The Co-operative Group
Founded in the 19th
century, the Co-operative
Group’s member-centric
model has stood it in
good stead during the
downturn. Group CEO
Peter Marks explains his
vision for this growing
British business
words Kath Mortimer_ pictures Images courtesy of Cooperative Group
Streets ahead
Manchester’s
Corporation Street in
the 1950s. The building
in the foreground is
the headquarters
of CWS – now the
Co‑operative Group
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Exceptional July–December 2011
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Profile: The Co-operative Group
The Co‑operative
grows some of the food
it sells in its shops,
which will be run from
its new 20‑acre site in
Manchester (below)
“I said about five years
ago that we needed
to change or face going
out of business. And
we did change”
P
eter Marks, Group CEO of the Co-operative Group, is a fan
of soccer analogies. “To use one in relation to my career, I’d
say that I’ve played in the second and third division for most
of it,” he says. “But I’ve always wanted to play in the Premier
League. Now we’re back in it.”
Back in it he most definitely is. The Co-operative Group,
based in Manchester, England, currently boasts an annual
turnover of £14b (US$23b), employs 114,000 staff and
operates more than 5,000 retail trading outlets that serve
more than 20 million customers a week. With core interests
in food, financial services, travel, pharmacy, funerals and
farms, the group is one of the few businesses that have
flourished in the credit crunch and come out fighting.
But it has not always been this way. The consumer-owned
Co-operative Movement has, in the past, been fragmented
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Exceptional July–December 2011
and uncompetitive. Market share in its food retailing
business, historically the Co-operative’s strongest division,
hit a low of 4% at one point. This was a dramatic decline from
the Movement’s halcyon days of the 1970s when one in four
people in the UK shopped in Co-operative stores.
“They called it the Co-operative Movement,” says Marks,
“but it didn’t cooperate and it didn’t move much. Bigger
competitors ate us alive. The likes of Sainsbury’s and Tesco
consolidated and grew, but we stayed where we were. And
we got eaten alive.” He recognized that something needed
to be done. “I was one of the people who said about five
years ago that we needed to change or face going out of
business. And we did change.”
Company man
When Marks speaks, people listen. Indeed, there are few
better placed to comment on the Co-operative’s fortunes
than he is; he joined as a shelf stacker at the age of 17 and
has been with the business ever since. “I have never had
to move to satisfy my career ambitions,” he says. “I have
been fortunate in that the Co-op has given me the business
education, training and opportunities to further my career.”
The Co-operative has always invested heavily in its
employees and in the wider community. Its strong social
conscience has its roots in the Movement’s formation
in 1844, when a group
of 28 workers, tired of
seeing families, friends and
neighbors exploited at work,
decided to form a new kind of
business, and the consumer
cooperative was born.
Unlike other businesses,
it is owned not by a small
group of shareholders, but
by its customers. “We have
six million members at the
moment,” reveals Marks,
“and we hope to make that
20 million, which is a third of
the population of the UK. Why wouldn’t people want to join
the Co-operative? It’s a great organization to be a member
of and you also get a dividend on what you buy.”
Members have to invest only £1. “That’s how cheap it is,”
says Marks. “And for that, eventually and if they were so
inclined, members could join our board of directors and give
me a hard time every month.”
The Co-operative’s membership is at the heart of its
operations and is just one way in which the organization
differs from a public limited company. “The PLC model is
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Profile: The Co-operative Group
Co-operative by numbers
3,000
360
53b
800
2002
250
The number of its food stores
and supermarkets
“We are very concerned about
the planet we are working on.
I suppose it sounds pompous in
a way, but it is absolutely true”
The number of its travel agencies,
serving three million people a year
How many prescriptions its pharmacies
dispense each year
The number of its funeral homes
The year in which Co-operative Financial
Services was founded
How many Co-operative Bank branches
are on Britain’s high streets
An illustration of the
planned Co-operative
Group headquarters
in Manchester, due
to open in 2012
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Exceptional July–December 2011
designed for one thing and one thing only: shareholder
value,” says Marks. “If you buy shares in a PLC, you just want
it to make your shareholding more valuable and that’s what
drives boards of directors in the PLC world.”
It is not what drives Marks. For him, a successful business
is about looking after all three groups of stakeholders: its
shareholders — or, in the Co-operative’s case, its members —
its employees and the communities in which it operates.
A social purpose is also a key component of Marks’
definition of a successful
business. “I don’t just mean
box ticking and providing
fancy, glossy CSR reports;
I’m talking about real social
responsibility — putting
things back into society,”
he asserts. This is where
profit comes in. “Profit
is the lifeblood of any
business. If we concerned
ourselves solely with ethics
and values and principles,
then we would be the most
ethical organization in
the corporate graveyard.
But if you are making a
profit, then you have the
ability to do other things
that you think are socially
responsible — what we call
social goals.
“We think long term. We
are very concerned about
the planet we are working
on. I suppose it sounds pompous in a way,
but it is absolutely true.”
There are two events that contributed
most directly to the turnaround in the
Co‑operative’s fortunes. The first came in
2007 when the Co-operative Group merged
with United Co-operatives. Marks describes
this as “transformational.” It delivered about
£70m (US$114m) of extra profit from
the business synergies of that merger in
year one and gave the group the capital for
much-needed investment in its retail stores.
Further growth
The second event was the 2008 acquisition
of the Somerfield chain and its integration
into the Co-operative’s food retail arm.
Within 12 months, the Britannia Building
Society had also been merged into the
Co-operative’s financial services arm, which
includes the Co-operative Bank and Smile,
the internet bank. “In this world, and in the
markets within which we operate, scale is
of crucial importance,” explains Marks. “We
were subscale in both our banking and food
businesses and we had to put that right.”
The Somerfield deal was a particular
coup, coming as it did at the height of the
credit crunch. “We had to go to the City [of
London] to raise £2.5b (US$4b): £1.6b
(US$2.6b) to buy Somerfield, and the
rest to refinance the business,” he says.
“It was quite an undertaking when the banks
were shutting up shop and not lending any
money. But we never considered not doing
it. We knew it was the right thing to do. And
the fact that we did raise that money in
those circumstances is testament to what
a good deal it was.”
So where next for the Co-operative?
Marks refuses to rule anything out. “We
haven’t got any specific plans to open any
retail food stores outside of the UK; we’ve
got plenty to do here at the moment,” Marks
says. “But we do have relationships with
other co‑operatives internationally and we
do talk to them from time to time about
possible tie-ups, so never say never.
“There are two ways a business can go:
forward or backward. We intend to keep the
momentum going and we are going to carry
on working hard in all of the things we do.”
By this time next year, Marks and co. just
might be in the Champions League.
Viewpoint
Growth options for
private companies
Simon Allport,
Senior Leader, North West, UK, Ernst & Young
There comes a point in every
company’s development when
difficult decisions have to be made.
Regardless of the size of operations,
the nature of the industry or the
extent of a company’s ultimate
ambition, such choices represent a
defining moment in an organization’s
history and will prove central to its
future success. The corner shop
owner pondering whether to take on
an extra member of staff; the SME
CEO presented with the possible
takeover of a rival; the multinational
considering launching operations
in a new jurisdiction — all of these
are examples of businesses at a
crossroads, united by the uncertainty
of which way to go next.
The good news for
private companies
looking to expand
is that there are
many opportunities
for growth
The good news for private
companies looking to expand is
that there are generally numerous
opportunities for growth. The
difficulty is in deciding which to take;
the best choice is almost always to
follow multiple paths simultaneously.
The key for private companies is to
have a clear strategic plan for their
future business development.
Inevitably, growth means access
to fresh capital. However, the banks
may not always have the appetite
to provide the levels required, as
most decisions are based on the risk
profile of a business — especially
in the current climate. Margins are
still tight in the lending market,
so the banks must consider every
application carefully. The full picture
tells a different story, as there is an
increasing number of alternative
funding sources to businesses with
the aspirations to grow.
Alternative funding providers
include institutional investors,
private capital (private placement),
commercial paper, private equity
and capital markets. Private equity
especially has the ability not only to
introduce additional capital through
innovative capital structures but
also to add operational expertise
through industry contacts, external
knowledge and fresh ideas for
growth. Institutional capital also
remains a very active market, with
investors constantly seeking new and
innovative ways to structure.
As the world’s economies move
slowly out of recession, the bottom
line is this: in order to expand
and achieve their full potential,
businesses will require additional
capital. The choices ultimately made
by private companies to grow should
reflect their strategic intent and help
them see, or realize, potential in what
will be a growing market.
More information
Please contact Simon Allport at sallport@uk.ey.com. Managing capital is just one
part of our approach for companies seeking funding: the Ernst & Young Capital
Agenda. To learn more, visit ey.com/transactions or, to request a copy of The
essential guide for fast-growth companies: managing capital or The essential guide
for fast-growth companies: private equity, email susannah.webster@uk.ey.com
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