A Co-op for the new Millennium

Helen Dunne learns how the Co-op is shaking off its recent past and going back to its Victorian roots, albeit with a modern twist

As top ten lists go, it was a rather unusual one. My Way, sung by Frank Sinatra, is the most popular song to be played at funeral services this year, with Vera Lynn’s We’ll meet again optimistically emerging at number six. But the bi-annual survey by Co-operative Funeralcare, which has been produced since 2002, is just one of the ways that the Co-op is reconnecting with its members and providing a service to the community.

Britons, it seems, do not like to talk about death; often the first time a conversation occurs about the subject is after they have lost a loved one. The bereaved relatives or friends often face the issue of deciding upon all aspects of a funeral service without ever knowing if they are carrying out the wishes of the deceased.

The top ten prompts discussion, according to Russ Brady, head of group PR at the Co-operative Group, and, as the largest funeral director in the country, it is only right that Co-operative Funeralcare is leading the way.

‘The funeral music chart gets people to talk about death,’ he explains. ‘It can start them talking about their music choices, the service they wish for, even discussions about wills.’

The Co-operative Group relishes conversations. Its two-year campaign to end social isolation and loneliness, in association with the Red Cross, emerged from conversations with its members on its Let’s Talk website. A third knew someone in their family or community who felt lonely. It is an indiscriminate feeling, affecting all generations, classes and cultures.

‘It is not the most obvious campaign for a corporate,’ admits Brady. ‘But we are tapping into an issue that clearly matters to our members. What is it that we can do about it? We have to look at new approaches, looking at where our existing products or service can be adapted to help communities.’

It is campaigns like these that are core to the Co-op’s new strategic agenda, to demonstrate that, at its heart, this is a business set up to serve its members across all aspects of their lives. It also harks back to its past: in 1945, the Co-operative Group raised funds selling own-brand tea to help vulnerable people in the aftermath of the Second World War. ‘We always were a championing and campaigning organisation,’ says Brady.

New digital capabilities will be used to identify future opportunities to make a difference. But it was not that long ago that many of the Co-operative Group’s five million members were concerned that the business, which has its roots in the 1844 Rochdale Society of Equitable Pioneers, had forgotten about its guiding principles, as scandals and financial mismanagement at the Co-op Bank threatened its very existence.

The front pages of Sunday newspapers were dominated by lurid stories and photographs of a meth-taking bank chairman, an image as far from the 28 Victorian tradesmen pioneers as could be, while the financial pages were filled with tales of financial losses, recapitalisation and disastrous corporate governance.

Today as a minority shareholder in the Co-op Bank, the group can put the debacle behind it and Brady no longer has to deal with media calls on the intricacies of upper tier 2 capital ratios, for example, allowing he and his team to retell the story of the Co-op and what it stands for in today’s society.

The crisis is firmly in the past. Instead, it’s about ‘Back to being the Co-op’, a group focused on its core businesses of food, funerals insurance and legal services, having divested its pharmacy, farm and cash transportation operations in 2014. But it’s also about serving local communities, just as the Rochdale Pioneers started out with a remit to serve the needs and protect the interests of their neighbourhood.

The new strategy was unveiled at the Co-op’s annual general meeting for its members on 21 May, where a return to the old, familiar blue clover leaf and name was announced by chief executive Richard Pennycook and chairman Allan Leighton. The Co-operative Group was a name that never resonated with members and customers. People didn’t say ‘I’m off to Co-operative Food’, admits Brady. They were always ‘off to the Co-op’ for their shopping.

But the groundwork had begun months before when Brady and his team started to brief the media, sometimes under embargo, explaining how the business was recovering and highlighting the strength of its new executive team with profile interviews with Pennycook, demonstrating his determination to get back to basics.

‘We were explaining the logic of the Co-op,’ says Brady. ‘We had forgotten about what was important about our business. We realised that the clover leaf was much more meaningful to our members.’

It is also a subtle ‘door closing’ on the old regime, abandoning the ill-fated corporate image that had been introduced in 2008. The clover leaf, which dates back to 1968, is to become the symbol of a new Co-op Economy worth an estimated £100 million a year in which local communities will benefit, but where the power of distribution will remain in the hands of the members.

‘It has to be about meaningful engagement with our members,’ explains Brady. ‘It is not simply about a corporate rebranding exercise.’ Demonstrating this visually to more than 700 delegates at the annual meeting, they entered at 2pm through a mocked up high street under the old corporate brand but left the venue through a new and future-looking Co-op street.

‘We had to break it down for our members,’ he adds. ‘The Co-op is different, but it’s back to the future. It is about creating value for both our members and their communities.’ It also had to break it down for its 70,000 colleagues, who face a ‘re-induction’ into ‘Back to being the Co-op’.

‘It doesn’t matter if you have worked here more than 20 years or a few weeks, this is an opportunity to revisit the values and principles that motivated those Rochdale pioneers. It will be our people who bring our business forward. They will be living those values and principles in a modern-day context.’

It’s about reinforcing the message of the Co-op’s heritage while focusing on the future. It’s about having colleagues who appreciate the stories behind the own-brand products, for example, who can explain that its Fairtrade Malbec helps fund a secondary school in LaRiojana in Argentina, which now educates 800 pupils, and has established a new water facility for workers in the local vineyards.

Or that more than 10,000 people have benefited from the Co-op’s partnership with Kasinthula Cane Growers Association in Malawi, who supply its Fairtrade sugar, with the installation of water points, household toilets, the supply of low-cost fuel efficient stoves and the planting of 100,000 trees.

Telling such stories to a customer undecided between an Argentinian Malbec and the Fairtrade one, say, should prompt them to make the right choice. But the central tenet of the strategy is a return, in effect, to the old-style dividend payment, on which the Rochdale business was based, plus so much more. From September, members can earn benefits directly linked to how much they spend. The ‘5 plus 1’ offer provides members with a five per cent reward for every own-brand purchase, from a loaf of bread to a funeral plan, plus a further one per cent going to support a local cause of their choice. Each own-brand product will be clearly marked with a ‘5 plus 1’ label, to encourage members to select them over branded products.

The retailer estimates members who spend £20 a week on groceries will receive £52 of benefits and generate £10.40 for charity every year.

But while the clover is back, it was a step too far back in time to reintroduce the old ‘Co-op stamp books’ so beloved by shoppers in the seventies. New membership cards are being issued. This is not just another loyalty scheme where spending patterns are rewarded with vouchers, it is stressed, but a genuine co-operation between the Co-op and its members.

And when the group returns to profitability – it recently announced a 53 per cent drop in first half pre-tax profits to £17 million – it will also resume dividend payments, offering its members an annual slice of its profits, on top of the ‘5 plus 1’ pledge.

The Co-op is also putting its money where its customers’ mouths are. Last year, it invested £781 million on sourcing ‘own-brand’ British goods: the first stage of a £1.5 billion, three year commitment to British farming. The price of more than 200 own-brand products have been cut, which the group estimates will save the average Co-op shopper’s annual food bill by more than £125.

Today, 48 per cent of Co-op food sales are own-brand. But just 23 per cent of total sales across the group are own-brand. It hopes to bring that number to more than 50 per cent. With annual revenues in excess of £9 billion last year, Brady highlights how powerful the ‘5 plus 1’ offer could be. Internal estimates suggest that, by 2018, half of the Co -op’s revenues could derive from member spending and, if half the products bought are own-brand, then back of the

envelope calculations imply more than £20 million annually for local community projects. ‘That provides another opportunity to re-engage with our membership,’ he says.

As part of the new strategy, the Co-op will also actively recruit one million new members: members are distinct from customers as they pay a nominal fee for the privilege. ‘We are open to members. If you pay £1, you have made a conscious decision to become a member [because you share our principles]. It is free will. But what do we stand for?’ asks Brady. ‘If you come to a Co-op food store, it’s about provenance, service and care of our suppliers. That is a narrative that we can explain to our members, and on which we can rebuild the Co-op brand.’

It is also what Co-op’s customers want. A recent survey found that 77 per cent of customers feel more confident when food is sourced from Britain, particularly when it comes to fresh meat, fresh fish, fresh fruit and vegetables and milk. Almost nine in ten (86 per cent) also feel food is more traceable when it is produced on British farms, but a vast majority also believe buying British helps farmers and supports local economies.

It is not surprising, therefore, that Co-op recently unveiled plans to only stock British bacon and lamb, making it the only major food retailer in Britain to only stock own-brand British fresh beef, lamb, turkey, bacon, chicken and pork. These are all initiatives that Brady says offer the Co-op brand a ‘means of differentiation’ from other retailers. ‘It’s a richer story.’

Other own-brand products, such as wine or coffee, are predominantly Fairtrade, again providing a story that customers

and members can understand. But the Co-op has also gone beyond the Fairtrade ‘brand’ to source 250 other product lines that are ‘fairly traded’, including a partnership in Bangladesh with Traidcraft to provide fairly traded bamboo and willow coffins.

And the Co-op is actively working with local manufacturers and micro producers to unlock the logistics issues that can make it difficult for small companies to supply national businesses.

Following a successful trial in Yorkshire, where it signed up 50 local producers to supply 150 products, including ice creams, chutneys and beer, the Co-op is rolling out the initiative across the North of England, before taking it nationwide. However, it has already signed nationwide agreements with almost 60 local breweries to enable the Co-op to tap into the growing demand for craft ale.

‘These locally sourced products will form part of our Co-op economy,’ says Brady. ‘The Co-op works best when we perform as a disrupter.’ Back in 1997, for example, it exposed the ‘seven deadly sins of food labelling’ and five years later became the first major retailer to introduce labels with nutritional information; it now also includes provenance on packaging, after customers said such information was second only to ‘best before’ data. And here it is disrupting traditional sourcing methods favoured by other retailers. ‘It’s about bottom up membership,’ he adds.

But the new strategy is also about giving members a voice. Members’ views will be sought in a ‘much more active way’ on how their money is spent and, increasingly, which products are offered in stores. While initially the local community projects were selected by Co-op’s employees to kick off the initiative, the decisions will soon be given to members. Their online membership packs will ask them to vote on which local cause they wish to benefit from their one per cent. Every store will have the ability to select three local causes, according to these votes.

Similarly, members will be given the opportunity to vote on the potential new lines from local suppliers. ‘We are engaging with them in a much more active way. We are going to ask them how they would like their money to be spent,’ says Brady.

‘We will be utilising their support to benefit community needs.’ The opinions of the Co-op’s 70,000 colleagues will also be sought, so that product and services can develop and evolve to better suit needs. ‘It is all strategic PR,’ he adds. Brady is aware of the impact of such a strategy. Five years ago, Co-operative Insurance became the first mainstream insurer to launch a ground-breaking Young Driver Insurance Product that calculated premiums according to driving behaviours and rewarded safer driving. By fitting a special ‘smart box’ on their dashboards, which constantly monitored their driving, drivers aged between 17 and 24 could save an average £328 on their insurance premiums.

It followed a Co-op campaign Too young to die, in association with road safety charity Brake, that found an 18 year old driver was three times more likely to be involved in a crash as a 48 year old one.

Having commissioned the survey, Brady was struck that – away from the headline findings – there was a real opportunity for the Co-op to tackle the issue head on, and try to resolve the situation.

‘It was an impactful and educational campaign, but there comes a point where you have to work to create a solution to the problem,’ he says. ‘Our purpose today is to champion better ways to do business for our members and their communities. That’s a powerful message to tell.’