The Co-op Food today unveiled plans to launch online grocery. Chief executive Steve Murrells explains online is just one element of his plan to revive the fortunes of the retailer.
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The mutual’s traditional point of difference, its ethics, remains important but Murrells admits that with Waitrose, Sainsbury’s and Marks & Spencer also heavily trading on their integrity he will throw weight behind grocery’s traditional footfall winner – price.
“You have to be able to get the price architecture right. [The ethical] model works well when people have lots to spend but not as well now. We have not shirked away from the supply chain and the good work the business does. [The price offensive] is an overlap rather than a replacement.”
The Co-op plans to fund the long-term investment in price by “sweating the operating model hard” to drive out cost in the business. The project has already seen the retailer reduce its cost base by between £150m and £165m over the last decade as part of its Project LIDIA (Logistics Integration and Development to Improve Availability) programme which has seen it slim down the number of distribution centres and tweak in-store work processes.
Murrells, who led convenience chain One Stop while at Tesco, is also tackling the attack on the convenience market by the big four head on. Morrisons has joined The Co-op’s traditional foes including Sainsbury’s Local, Tesco Express, Spar, Costcutter, McColls and Musgrave among others in expanding in the small store sector as customers shop small baskets more frequently.
Yet despite a lacklustre 0.7% decline in full-year like-for-likes last year across the retailer’s stores, within that the mutual’s smaller stores enjoyed a 1.9% bounce, suggesting its position in the sweet spot of grocery has not been squandered.
Murrells’ first initiative to fend off rivals hungry for convenience share has been to improve the Co-op’s own brand offer, including its new Loved By Us range.
“We are bringing in an army of food developers to help us to bring wonderful products. We have to build that credibility with them,” says Murrells. “We are putting delicious food at the heart of what we do.
“The strategy is to fall back in love with food and fall back in love with own brand.” He adds that The Co-op plans to move the proportion of own label it sells from 46% now to 60% by the end of 2015 which “puts us back in the ball park with Tesco and Sainsbury’s”.
The retailer’s other key initiative is rolling out its Fresh Format. The store design, first trialled last year, puts the onus on fresh food through improved ranges, navigation and merchandising. It is now in 250 stores, delivering “high single and double digit growth”, and the retailer is poised to introduce its second iteration later this year with 130 planned next year.
“The level of sophistication in the second generation is a step on,” says Murrells. “It moves us into hero areas where we believe people will come to us because we offer as good or better than the best.”
These areas include bakery, baby and food-to-go, the latter of which is a key consideration as shoppers increasingly expect hot food and drinks as they nip into high street stores.
In addition, The Co-op will double its 2012 store openings with 130 planned for next year despite “fierce” competition for prime sites.
There is a confidence about Murrells which suggests he may well breathe new life into The Co-op. His wealth of experience at Sainsbury’s and Tesco, where he also led the integration of the Dobbies business, shows he has the fight to lead a significant business change.
Away from the business, Murrells has moved his family from Stratford-on-Avon to Manchester and expends his energy away from Angel Square on them. “I have two sons in their 20s and a new 15-month-old and trust me it’s much harder having kids in your forties than twenties,” he quips.
If Sutherland and Murrells are to usher in a new era at the mutual, the latter’s fledgling projects will have to bear flourishing fruit, particularly in the volatile trading environment. Murrells says trading was difficult in the first quarter as the second coldest March on record hit sales, but an improving trend in the second quarter was added to by a strong start to the third quarter amid warm July weather.
Despite the obvious challenges faced by The Co-op, which reports its interim results next Thursday, the foundations are in place for a long awaited fightback.
The Co-op unveils plans for online grocery launch
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Analysis: Co-op food boss Steve Murrells puts price, store format and own brand at heart of revival plan