The Co-op - Not Good With Food

If ever there was a company which should be flourishing in today’s economic climate it is the Co-op, yet last week it posted a 16% drop in its food business profits for the last 6 months. Like for like sales are down 1.2%, and market share is sliding.

The Coop should have much going for it. It operates in the convenience sector which is growing fast and is now worth nearly £34 billion or 21% of the UK food and grocery market, driven by factors such as consumers shopping locally to save on petrol costs, and the benefit of longer opening hours. With nearly three thousand stores it has a scale advantage that smaller shops envy, and it is Britain’s biggest farmer which should give it access to high quality food at reasonable prices. It also claims to be ethical in its sourcing policy.

Peter Marks, the Co-op’s chief executive, attributed the drop in profits to budget conscious consumers and a particularly competitive grocery trade, where over 40% of goods are sold on promotion. Well yes, but none of this is new news, and the Co-op has failed to deal with market place reality.

Price is not everything. If the Co-op offered something different and special then the fact that it is a bit more expensive would not be a stumbling block. A trip to several Co-op stores seems to indicate that what can be bought is anything but special. Despite the claim to be “Good with food”, there is a minimal amount of space dedicated to food, and what is available often looked tired and unappetising.

   

Add to this a sense that nothing new or exciting has happened to the Co-op food offering in years, and it is possible to see why shoppers might be tempted to pop down the road to a Tesco or Sainsbury or even Marks and Spencer and Waitrose who are all now operating in the convenience sector, and upping their game with a focus on value, innovation and good if not superb quality.

It is difficult to avoid the conclusion that the Co-op has been badly managed, and it is perhaps here that we see the downsides of the cooperative model where operators are insulated from shareholder pressure to improve performance. Indeed if the Coop were publicly quoted it would have faced demands for management changes and a strategy rethink. Instead, the chief executive has decided to retire at a time of his own choosing leaving a mess at the food business as well as a huge challenge on the banking side which also saw a big drop in profits and must now set about the huge task of integrating the Lloyds TSB branches it recently acquired.