And now, the co-operative societies are on the verge of their biggest change yet as members are being asked to vote for the merger of the two largest societies to create a £10 billion business that can rebuild the Co-op’s share of the food market.
The idea is that the Co-operative Group, which is based in Manchester, will merge with United Co-operatives which is headquartered in the spiritual home of the movement, Rochdale, to create, for the first time in the Co-operative movement’s history, a truly national co-operative food business, with more than 2,200 stores. It is also worth noting that the Co-operative Group has a range of other activities such as the Co-op Bank, Co-op Insurance Services and the funeral business which account for almost £5 billion of sales.
The aim of this new business would be to create a strengthened co-operative retail offer that could generate sustainable profits and provide an improved service to members and customers.
Its stores would be predominantly in the convenience sector. The geographic fit of the two societies’ stores is good with very little duplication. The plan is to expand this network, both by organic growth and by acquisition within the convenience and supermarket sectors.
Not surprisingly, supply chain improvements figure strongly in the scheme. The two organisations, together with a number of other societies, have been working closely on a strategy to deliver a modern logistics network to improve product availability for customers in all Co-op stores.
The network now includes facilities for slow moving ambient goods at Coventry and the Co-op’s first multi-temperature composite facility in West Thurrock. They have also installed a new warehouse management system.
They say that these developments, plus high levels of productivity in existing facilities, have been reflected in improved product availability in both societies’ stores.
“The amalgamation would enable additional significant cost savings to be made across the logistics network by reducing overlap and complexity. We also believe it will further improve the product flow from suppliers to stores, reduce the number of food miles and reduce energy consumption, thus delivering an improved service for members and customers, while continuing to reduce costs for the business.”
The programme, named Project Lidia (Logistics Integration and Development to Improve Availability), was launched in 2004 in the wake of sharp fall in profits at the Co-operative Group. In 2004, the Co-operative Group reported a 39 per cent fall in profit from food retailing to £74.5m. Sales, at £3.01 billion, were fractionally up although, critically, like-for-like sales were down one per cent. This compares to industry growth of 2.14 per cent. It blamed the decline on in-store availability and ranging issues.
Co-operative Group chief executive Martin Beaumont said at the time: “It is clear that in food retail, our infrastructure, systems and logistics had not kept pace with the rapid expansion of our estate in recent years. The acquisitions we have made were both necessary and timely: as events have shown, we were ahead of a game which has now been joined by the major multiples. Without our acquisitions – and we have trebled the number of stores we operate in only four years – we would be in a much weaker position to hold our market share. Indeed, in 2004 we continued to add to our estate with the purchase of the Conveco chain of stores. In the short term, we are addressing the immediate problems of availability, levels of customer service and product ranges, particularly in fresh produce and chilled foods. We are also opening a new national distribution centre in Coventry for slower-selling lines, freeing up capacity elsewhere to improve delivery to our stores. This is the first step in a major improvement of our distribution capabilities.”
The supply chain was too complex with too many inefficient depots, small order quantities from multiple order points and inconsistent EDI.
Phase 1 of Project Lidia was completed in Spring 2005 with the opening of the 310,000 sq ft ambient DC at Coventry which handles 7,500 slow-moving lines from some 500 supplies. The composite RDC at West Thurrock opened early last year.
Alongside Lidia is Odyssey – a project to overhaul the depot systems including warehouse management, transport execution and forecasting, scheduling and time and attendance.
The Co-operative Group chose Manhattan Associates’ Integrated Logistics Solution for Retail incorporating trading partner management, warehouse management, slotting optimisation, labour management, billing management, transport planning and execution, and performance management software.
Trevor Ashworth, general manager of retail logistics at the Co-operative Group said: “We needed an infrastructure that would create a much more efficient inbound, as well as more flexible and store-friendly outbound supply chain operation. The advanced functionality of Manhattan Associates’ distribution and transport solutions, and their ability to help us exploit real-time information on a whole variety of logistics activities within our own organisation, as well as exchange this kind of data with our suppliers, will give us more control over just about everything we do.”
The opening of the Coventry distribution centre did not go as smoothly as had been hoped. Although it was installing the Manhattan systems elsewhere in the supply chain, the Co-op decided to open Coventry using its legacy systems in the belief that it would be easier to open the new site with a tried and tested system. However, the legacy system proved to be inflexible and the new workforce at the site needed extensive training. It took several months to restore availability and service levels.
However, since then the site has proved to be a major benefit. Suppliers receive on average one order a fortnight from a central point, compared to a multitude of orders from all over the country and product introductions are being handled more efficiently.
Voice picking is also on the agenda. Last Summer, The Co-operative Group signed an agreement with Zetes for the supply and implementation of wireless infrastructure, mobile computers and voice terminals to its UK distribution centres.
The five-year agreement covers the roll-out into the estate of distribution centres operated by the Co-operative Group. The first site to go live was the 350,000 sq ft RDC at West Thurrock. Zetes is working with Vocollect, Symbol Technologies, Zebra Technologies and Wavelink to deliver the system solution.
At the same time as Project Lidia, the Co-operative Group has been implementing its Programme for Retail Change (P4RC) to transform the way it operates the business across stores, depots and key head office functions concentrating on store ranging and space management, price and promotions and operational efficiencies.
The Co-operative Group has also formed a buying alliance with symbol group Spar focusing on own label products. It is being managed by the Co-operative Retail Trading Group (CRTG), which handles over £5 billion worth of food sales on behalf of more than 3,000 Co-op stores throughout the UK. Spar operates a chain of 2,742 neighbourhood stores with retail food sales of £2.5 billion. By pooling volumes the two retailers expect valuable commercial benefits.
“With increasing consolidation in the sector it makes good commercial sense to build scale and improve our competitive position. Spar are long-term players with integrity, and I’m convinced there are significant benefits for both of us through this initiative,” says Guy McCracken, chief executive, food retail for the Co-operative Group.
The Co-operative Group’s strategy has clearly revived the food retail business. In the first half of 2006 sales were up 3.3 per cent to £1,624.6m and operating profit before significant items up 31.8 per cent to £55.1m, both ahead of plan.
The merger process is now well under way with an exhaustive series of meetings for members but critical votes are due to be held towards the end of this month. While, the commercial logic of the merger is compelling, members don’t always vote the way management would like. For example, the Co-operative Group was formed in 2000 from the merger of the Co-operative Retail Society (CRS) and the Co-operative Wholesale Society (CWS) – then the two largest co-ops in the UK.
However, four previous attempts to bring the two together had failed when they became bogged down in constitutional questions, despite the compelling business case for merger. In fact, that merger only succeeded because the two societies agreed to proceed with full business integration, while leaving the constitutional issues to a post-merger review board. Assuming that members support the votes this month there will be confirmatory ballots in May and the formal merger will take place on 29 July. The new organisation will be the world’s largest consumer co-operative with a whole new range of supply chain challenges.