The Co-op swung back into the black in 2017 as strong like-for-like sales in its core food business helped boost its bottom line.
The mutual posted a pre-tax profit of £72m during the 12-month period, a year after a writedown of its stake in the Co-operative Bank contributed to a £132m loss.
Not content with that return to profitability, the business today unveiled its new ‘Stronger Co-op, Stronger Communities’ strategy to create what it dubbed “the Co-op of the future”.
As part of that plan, the retailer pledged to strengthen its emphasis on convenience and relevance, maintain a clearer focus on serving customers and members, align its businesses – which include funeralcare and insurance as well as retail – more closely and make capital-light forays into new markets.
The Co-op’s core convenience business has already started on that journey, but group chief executive Steve Murrells insists there is more to come.
Invest in price
The Co-op has already ploughed £50m into lowering prices since the turn of the year, but Murrells said the mutual has more work to do on that front.
Although he declined to commit to a figure, Murrells said: “We know that we have to keep lowering prices – that’s been one of the levers for success in food.
“We will do further price cuts over the term of this plan.”
However, he cautioned that not all of its investment in price would be visible at the shelf-edge, highlighting the work it has done through its membership scheme to save customers money.
Whenever Co-op members purchase own-label goods and services, they receive 5% of the money they spend as a reward.
Since relaunching the membership scheme in September 2016, Murrells said the Co-op has dished out £61m in rewards directly to its members.
Despite making impressive strides with its own-label proposition in the past few years, the Co-op aims to continue that momentum by broadening its range.
In particular, Murrells said the business can exploit an “opportunity around trends” such as veganism, free-from and single-person portions as more and more people live on their own.
Murrells believes the Co-op has been “front and centre” of the wider grocery market’s drive to meet such changes in dietary requirements and consumer needs.
He cited today’s implementation of the new sugar tax, claiming that the Co-op has been “waiting for this day for three years” after cutting the sugar content in its own-label soft drinks quicker than most of its rivals.
“What’s important is for us to keep ahead of the curve on these issues,” he said.
“In the same way we have been ahead of the curve on the sugar tax, we will be ahead of the curve on changes in consumption and meal occasions.”
Broader business through partnerships and acquisitions
The Co-op is leaning into the seismic changes sweeping across food retail and wholesale by helping to consolidate those markets.
The business has penned a deal to supply Costcutter’s 2,200 c-stores and is in the process of acquiring Nisa in a £137.5m deal.
Murrells believes the Co-op has put forward a “compelling case” to competition watchdogs about why that deal should be given the green light and believes it will have “some sight of a decision” by the end of the month.
But he insists there are more tie-ups and M&A in the pipeline – and suggests the Co-op is “absolutely well-placed” to play a role in such transformative changes.
“The difference between success and failure is the thickness of a credit card, and you need to be innovative and look in different areas in order to continue to grow,” Murrells stated.
“Our simple ambition over the next five years is to get more Co-op products and services to more homes. We’ll do that organically, but we’ll also do that through smart partnering and maybe through acquisitions in the future.”
Speed up the shopping trip
Murrells highlighted queuing as “the biggest issue” that customers raise in their feedback about the business – and he is determined to attack that.
The Co-op is testing “pay in aisle” technology in a “handful” of stores, allowing shoppers to scan and pay for items using their smartphone and leave the shop without queuing at the checkout.
Murrells said the drive to cut queuing times will be “really important” for grocery operators and suggested technology will help the Co-op to achieve that.
He said: “People want to come in and get out as fast as they can. Our focus is on finding solutions to that to make their lives easier.”
Murrells added that the “pay in aisle” technology is something he hopes to roll out “quickly”, because it represents “a simple digital product that would meet the needs of what people want”.
Resolve supplier issues
Last month, the Co-op admitted it had “fallen short” of standards in the way it deals with suppliers after it emerged that the Groceries Code Adjudicator was investigating the business.
The Co-op identified two areas in which it needed to improve its relationships: the extent of warning given prior to delisting items, and variations in its payment terms across different contracts.
Murrells highlighted that the Co-op does some “great work” in supporting fair-trade suppliers and British farmers, but admitted it needs to “learn quickly” from its mistakes in order to retain trust among those stakeholders.
“I don’t feel great about where we find ourselves,” Murrells admits.
“We will work with the adjudicator through the inquiry because we need to get back to the high standards that we set.
“We need to learn quickly, but it’s not a crisis. We will learn quickly and fix it.”
Now that the Co-op is back in profit, Murrells aims to keep that way.