The Co-op claws back retail market share

Twenty years ago the Co-op had a share of the grocery market similar to Tesco’s. Then Tesco took off and left it behind. This isn’t so much a blog on the rise of Tesco, but picks up on a few ideas about where the Co-op may have gone wrong, and some indications that the co-operative ‘movement’ is fighting back.

In 2009 I was wondering if the Co-op was about to stage a comeback. Now the Economist picks up on the same story. The Co-op started in 1844 when a group of textile workers clubbed together to set up a grocers in Rochdale, a few miles from Manchester. The idea quickly spread. By the early 20th-century co-op stores – which are owned by their customers - accounted for a large slice of grocery sales. But from the 1960s onwards, shareholder-owned rivals began to catch up.

But the co-operative movement is starting to feel confident again. Many of the big name retailers are struggling in the public relations battle. And Nick Clegg, the deputy prime minister, has been singing the praises of a “John Lewis economy”, referring to the much-loved employee-owned retailer. The time may be right for a co-op comeback, but the history of the Co-op’s retailing arm in Britain shows that the member-owned business model has weaknesses as well as strengths.

According to the article, the problem was that what looked like a single firm was in fact a loose alliance of local co-ops, each with its own management. More dynamic rivals were better able to reap economies of scale from centralised buying and marketing. They could raise capital quickly to build bigger stores. And a new breed of grocer – Tesco is probably the best example - understood that retailing is part showbiz. They even hired well-known comedians to open stores. The Co-op movement was slow-witted and dowdy by comparison. “It didn’t co-operate and it rarely moved,” recalls one observer.

Now a series of mergers has brought most co-op stores under the umbrella of the group. The acquisition of the Somerfield chain in 2009, plus a revamp of its own stores, has improved its market share. The rising cost of regulation means its banking business also needs scale if it is to survive. In July the Co-op agreed to buy 632 branches from Lloyds Banking Group, which has been forced by EU regulators to slim down. Its share of current accounts will triple to around 7% once the deal is completed next year. Banking scandals have served to emphasise the main strength of co-ops, which is public trust. There is perhaps less incentive for a member-owned business to engage in price rip-offs or the mis-selling of products. This trustworthy appeal extends to other areas where the co-op is popular, such as funeral services and legal services dealing with personal-injury claims and divorce. The co-op continues to try to forge ahead by cultivating its reputation as an ‘ethical’ retailer.