I arrive at the Co-operative Group’s swoopy glass-and-steel HQ about half a mile north of Manchester city centre. Opened in 2013 it’s a landmark building bursting with green credentials like greywater recycling, eco-heating and LED lights. A pretty swanky home for a business still recovering from a near-death financial experience a few years ago.
Waiting for me in the 9th floor boardroom, with panoramic views over the edge of the City towards the Co-op’s Rochdale heartland, are boss Richard Pennycook and CFO Ian Ellis. It’s interim results day, so while I’ve been sat on the train up from Euston the pair have been closeted with colleagues and PR advisers getting their story straight for the media. (I think that means me, too).
Perhaps unsurprisingly given the Group’s torrid recent past, it’s a good news/bad news story. Profits are down by half, from £36m to £17m, but revenues are up 2.2% to £4.7bn (£3.5bn of that from food retail, making the Co-Op not only the UK’s largest mutual but also it’s fifth-largest supermarket).
The party line is that the fall in profits can be largely attributed to the Group’s ongoing restructuring costs and ‘investment in price’ (the current industry euphemism for discounting). Like for like sales in food are up a not-too-shabby 3.1% but it’s not all about retail – it’s easy to forget the diversity of the Groups interests. Its insurance arm is doing well and funeral revenues (it’s the country’s largest funeral director) are holding steady despite a potentially bad-for-business reduction in the death rate.
The results call begins. The facilitator’s voice warbles from the speakerphone - there are journalists from the FT, Times and Telegraph on the line, as well as from industry specialist Retail Week.
Pennycook turns a question about those falling profits on its head – we’re not a plc, we can afford to take a hit on profits and we did it on purpose, he says, it’s all part of a three year, £1bn plan called ‘Rebuild’. The cash that would have been profit is instead being invested in everything from store refits and the ‘back to the future’ blue cloverleaf rebrand to an 8.5% payrise for workers and a costly re-induction programme – featuring actors in period Victorian costume expounding the Co-op founders’ story - for all of the group’s 70,000 employees.
Lean and angular looking, he gives off the air of one who is used to dealing with much worse – as indeed he is. A couple of years back he was grappling with the multiple existential threats of an out-of-control chairman (so-called ‘Crystal Methodist’ Paul Flowers) a £1.5bn hole in the Co-op Bank’s balance sheet and the not-fit-for-purpose nature of the (now-reformed) mutual’s governance systems. There are no plasterers or nurses on the board these days.
It all added up to a staring-into-the-abyss moment which still informs the way he communicates the community spirit and values of the Co-op. ‘We can’t preach to others, we have had out fair share of issues’ he tells me later on.
The truth is that the travails of the Co-operative Bank – now controlled by a US hedge fund consortium – remain one of the more intractable problems he has to deal with. The fact that there is a large financial institution out there with the Co-op brand on it that he cannot control, having only now a 20% stake, is decidedly sub-optimal as the consultants might say. In public the messages from both sides are all about mutual support, but the tensions are clear.
Disentangling the two completely is the obvious solution but the practical obstacles are huge – a million Co-op Group members are also bank customers, and employees of both bank and Group share a pension scheme. It’s the work of years to separate the two businesses.
After fielding queries from half a dozen or so interlocutors, the call draws to a close. ‘I love not being a plc’ says Pennycook, reflecting on the levels of public interest faced by listed companies and mutuals respectively. ‘There were times [when he was on plc boards] that there would be over 270 people on a call like that.’
It’s back downstairs to the grand and airy atrium for an ‘open mic’ session with colleagues – whoever is around is welcome to turn up and quiz the boss. 'It’s a Co-op tradition. We talk, a lot. But there aren’t so many people here today, because we’ve told them all to get out into the business and spend less time at head office.’
When it comes to razzmatazz he’s no Justin King but what he lacks in showbiz sparkle is made up for by a kind of unpolished authenticity. There is no grandstanding or slick stage-management here.
Maybe it’s because this business is owned by its members, and many of them are employees too. ‘On Wednesday we reset the co-op’ he says, referring to the brand new customer rewards programme and the 5m new membership cards that are being mailed out as a result. It’s a major undertaking that makes the interim results seem routine by comparison.
The new Co-op card is a loyalty card with a difference - participants will get 5% cashback on all the Co-op branded goods they purchase, and a further 1% of their spend will be donated to the charities supported by their local store (which are in turn chosen by staff and members from that store). Own brands are more profitable of course, so it should be a win-win.
It’s only supposed to be a soft launch but the plan is proving so popular that people are joining in their droves anyway – 120,000 paid the £1 fee for new members in the first 48 hours alone. That’s 10% of the 1m new member target already. ‘We don’t want them yet!’ he jokes, to loud cheers.
He concludes with a tagline –‘The Co-op is back, and it’s back to being Co-op’ – and after another quick call it’s time to head out into the real world for some store visits.
We depart the One Angel Square mothership. Despite its landmark status in Manchester his feelings about it are clearly somewhat ambiguous. ‘£130m of steel and glass and we don’t own it. There’s a bit of hubris there’ he says of the building, whose commissioning predates his arrival, as we drive away.
Over sandwiches and fruit (Co-op brand of course) in the back of the car, we chat about his volunteering, back in May, for a 60% pay cut – his basic salary fell to £750,000 from £1.25m with an even larger potential hit to his bonus and pension.
‘It was something I wanted to do, not a comment on wider executive pay’ he says – having worked at full stretch for two year to keep the group afloat, the job simply got a bit easier. ‘It was a reflection of the fact that we were out of the rescue phase’.
Chairman Allan Leighton also donates his salary to charity so there must be something about the Co-op which attracts people who aren’t (just) in it for the money. Pennycook clearly wishes more Brit bosses would think about what their personal behaviour does to the reputations of the businesses they run. ‘One thing I admire about the America is that when individuals have made their money they do try to give something back. Like Bill and Melinda Gates.’ Whereas here in Blighty (or rather bobbing about in the harbour at Monaco) ‘We have Philip Green on his yacht, sending out all the wrong signals.’
We arrive at Rochdale’s Cutgate shopping centre, a modest affair with a freshly-refurb'd Co-op store at its centre. The Co-op is unusual in that most of its 2,700 stores are small and in town centre locations.
Back in the distant days of the ‘space wars’ this was a problem but now convenience retail is where the action is and it’s the big box players like Tesco and Sainsbury’s that are in trouble. That's clearly a source of satisafaction ‘There aren’t any Co-op stores that are considered large by industry standards’ he says.
With 21 staff Cutgate is actually one of the group’s larger outlets – a false wall cuts off a section at the back, to bring its floorspace under the 3,000 sq ft limit for a convenience store, with the lucrative longer opening hours that brings.
But he’s not here for the real estate. ‘I don’t really need to see the stores, I do these visits because I like to meet the people’. So he’s soon deep in conversation with store manager James Brownlees and the shopfloor staff. Sales are up and there’s a keen interest from punters in the new ‘5% plus 1%’ membership cards, complete with the pleasingly retro new white on blue Co-Op logo, a reboot of the firm’s 1970s ident.
A charity dress down and bake sale organised by one staff member raised £245 for the family of a young girl killed in a car crash locally. This is prime Co-Op country where the brand means more than just a place to shop, and it’s not unusual for customers to know their membership numbers off by heart. Try asking a Nectar cardholder the same. The challenge is to parlay that local strngth into a set of brand values whcih resonate thorughout the UK.
Since he took over the top job in 2014 he has spent a great deal of time and effort recruiting a new senior team, with non-exec hires including Simon Burke, former CEO of Virgin Retail, ex-Labour MP for Salford and Eccles Hazel Blears and former CEO of Clear Channel Steve Spring. He’s also just added Rufus Olins, ex-chief executive of Newsworks and former editor of MT, to his roster as chief membership officer.
‘There are 80 in the top team – the people who report to me, and the people who report to them – and 65 of them are new’ he says. Getting them settled in and performing well is one of his major daily preoccupations. There are numerous off the record phone calls on this subject over the course of the day.
Perhaps his most intriguing hire so far has been the ex-government CIO Mike Bracken, who has been tasked with devising a grand new digital strategy for the Co-op. There are few details as yet. ‘Clearly it’s going to be around communicating with the members, but there wil be a commercial element to it.’
One thing we can be pretty sure it won’t involve is online shopping, which he has described as ‘a social service for the middle classes.’ Take that, Ocado.
After a quick shufty at another local store it’s off to the company museum. Yes they really do have one. It’s on the site of the first ever successful co-operative store in the world: an unassuming Victorian end-of-terrace on Toad Lane in Rochdale, where the Rochdale Pioneers first began selling unadulterated basic foodstuffs like butter flour and eggs to their members in 1844. It’s where the famous profit sharing divi (currently and somewhat controversially suspended) was invented: the Pioneers' efforts spawned a global co-operative movement which still thrives to this day.
‘That’s a Co-op Defiant Radio’ he says pointing to a very brown, clearly vintage wireless set in a display case. He loves the stories of the Co-ops pioneering early days and the cartel-busting way it made the first affordable radios back in the 1930s is a favourite.
Early radio manufacturers he explains, kept prices high so only the well-off could afford them. ‘The Co-Op decided that it was important for everyone to be able to listen to the news so they made their own radios’, and at a price all could manage. He’d like to see the modern Co-op get back to its champion of the ordinary people roots.
Back in the car we’re driving east in sluggish M62 traffic, to the village near York where he lives. I'm headed that way too and he's offered me a lift. Not an everyday occurrence, and besides it's more time to chat.
It’s the first time he’s been home for a week – when in Manchester he shops around the city’s hotels to get the best rates. Tomorrow (Saturday) he’ll be up early and back to Manchester again; there’s a big national meet of the all-important member’s council (the nearest the Co-Op gets to a shareholder gathering) and he has to be there.
In between email and phone calls we discuss the strange life of the CEO – as well as his car and driver, he has a team of three super-efficient PAs who organise his every working moment for him. ‘They even know where there is mobile signal on the trains for calls,’ but it is an existence that he tries to get away from when he can.
So on Sunday he’ll be back at home, ferrying his 16yr old daughter (who wants to be a vet) to a veterinary centre in Thirsk where’s she’s a volunteer. While she spends the day tending to poorly pets, he’ll be waiting for her in the car park.
There’ll be no driver and no PAs. But there will probably, he admits, be some work. ‘It’s a good chance to catch up with my emails. Glamorous life, isn’t it?’