Another impressive set of annual results for the Co-op has been overshadowed by its decision to keep business rates relief. Group chief executive Steve Murrells explains the decision and claims it has the full backing of members.

  • The Co-op has come under criticism after returning just £15.5m of the £82m in government relief it received last year
  • In the same period, the group’s food arm delivered its eighth straight year of growth, with revenues and profits both up year on year
  • Group chief executive Steve Murrells has defended the decision, claiming it “absolutely chimes with our values and our ethics”

“We are always looking ahead and are mindful of the challenges and uncertainty. We think this year will be as tough as last year,” says Co-op group boss Steve Murrells, before adding somewhat wearily, “which brings us to our decision on the repayment of government money.” 

Despite group revenues growing to £11.5bn and profits before tax hitting £92m up 38% in the 52 weeks to January 2, the Co-op has decided to return only £15.5m of the £82m it received in government support last year. 

The £15.5m is equivalent to the money the Co-op accepted from the government in furloughed staff support. Murrells draws a distinction between furlough, which the Co-op actively claimed, and the business rates holiday, which he says was freely offered. 

“There are a number of reasons behind the board’s decision. But at its heart, it comes down to the fact that the Co-op took the government’s business rates support in good faith, not expecting to pay the money back or as an IOU. We made forward-looking business decisions on that basis.”

Record year for grocers

While that semantic argument may make strictly business sense, it’s not enough to deflect criticism. Last year was a record year for almost every grocer and the Co-op was no different. 

The Co-op’s food business enjoyed its eighth straight year of growth, with revenues climbing 3.5% to £7.8bn, while like-for-like sales shot up 6.9%. 

When Tesco made the decision to forgo reliefs in December last year, and the rest of the big four and discounters soon followed suit, returning rates relief became ‘the right thing to do’.

Murrells believes this is a simplistic way of looking at a complex issue, saying that while revenues grew £600m, added costs meant pre-tax profits only grew by a “modest” £25m. 

Yet that hasn’t stopped him and his executive team from taking a bonus. How does he square the retailer’s decision on rates relief with its famously community-minded ethos?

“This decision absolutely chimes with our values and our ethics. It’s about doing the right thing for our Co-op, which our members clearly understand and support”

Steve Murrells, Co-op group chief executive 

“This decision absolutely chimes with our values and our ethics,” he says. “And actually, it’s about doing the right thing for our Co-op, which our members clearly understand and support.” 

Murrells and food chief executive Jo Whitfield argue that the Co-op is unlike its grocery competitors and so its decision shouldn’t be compared with others. 

“We operate a really different model to our competitors. All of our sales come through our shops and we only sell groceries. We don’t have the benefit of a clothing or general merchandise business,” says Whitfield. 

“Also the majority of our 2,600 shops are less than 3,000 sq ft and they are all individually unique. So all of them needed their own plans around social distancing, their own investment in safety equipment and cleaning.” 

Charity push

Murrells also adds that the Co-op’s charitable and social work had to increase during the pandemic as many of the areas in which it is most active have been among some of the hardest hit. 

“This decision has helped us put our communities front and centre, and over the last 12 months we’ve supported them with over £30m of help,” he says.

“We’ve got very much behind the food poverty campaign and Marcus Rashford in influencing the government – making sure the kids in our own academies had devices at home so they could work remotely and they got their free school meals. 

“Whilst we’ve been fortunate and lucky to remain open, we have been supporting the Treasury through other taxation, whilst we’ve kept the doors open for our communities.”

Steve Murrells, Co-op chief executive

 

The Co-op is not alone in the grocery sector by choosing to not return government support in full. Indeed it has gone further than Iceland, Waitrose and Marks & Spencer which have refused to return any money. 

Ultimately, Murrells and his board are happy to accept criticism now, so long as they continue to grow the Co-op for the future. 

The retailer’s eyes are already fixed on the shape of the grocery sector post-pandemic, and Murrells plans to spend every penny of the support and more on future-proofing the Co-op.

Online expansion

During the pandemic, the Co-op expanded its online service to more than 800 stores, continued with new store openings and refitted over 100 stores to act as delivery hubs. 

“We believe we’ve struck the balance right between paying back the government and making sure that we have a really strong Co-op for the future”

Steve Murrells, Co-op group chief executive

“We believe we’ve struck the balance right between paying back the government and making sure that we have a really strong Co-op for the future,” he says. 

Detractors will argue that all of the mitigating factors laid out by the Co-op for its decision are faced by every other grocer that repaid the money. Yet, the Co-op is betting the short-term public relations hit will be worth it for long-term financial sustainability.