Is the Co-Op the new Woolworths?
Bored of what’s happening on Corrie at present? Why not take a look at the staid old Co-Op instead? The Co-Operative bank has just revealed losses of £1.3 billion, there’s salacious tales of drug taking by the former chairman, eye watering levels of executive pay for new directors, resignations by Lord Myners and Euan Sutherland, respectively the chairman and non-executive director of the bank, and accusations of political interference and favouritism.
All of these events have provided evidence of a famous institution, built on the Rochdale principles of democracy and anti-discrimination, at war with itself between traditionalists and reformers.
Customers of both the bank and its other arms must be wondering if the Co-Op has a future, and the signs are not encouraging.
The bank has been in freefall for a number of years. The problems arose when the Co-Op became too big for its boots, and bought the Britannia Building Society in 2009, but didn’t do its homework at the time when looking at the finances of the Britannia. It acquired a business that contained huge bad debts, and these dragged the parent down to such an extent that the Co-Op bank revealed a £1.5 billion hole in its finances.
The Co-Op, which used to own 100% of the bank, could not plug the gap itself, and so sold 70% of the bank to venture capital firms, not traditionally noted for their compassion and concern for societies, as laid down by the Co-Op’s forefathers when the principles of the movement were created in 1844. A further £400 million is now needed at the bank, and if the parent cannot stump up its share of this cash injection then it will have to dilute its investment to 20%.
The Co-Op bank has been further hit by revelations that it mis-sold (which is a middle class way of saying defrauded) its customers PPI (Payment protection insurance) cover, which most customers didn’t need and was worded in such a way that it was difficult to make a successful claim. Again this seems at odds with the principles of education, training and information that the institution was originally set up to provide. It has had to set aside over £100 million to compensate customers for the PPI scandal, and there may be more to come.
An IT system which was so antiquated it couldn’t even count the number of days in the year (here’s a clue, it’s usually 365) provided further embarrassment.
Whilst all this was happening the Co-Op was patting itself on the bank with One Angel Square, a £100 million new HQ in Manchester, the greenest building in the world, sadly governed by some of the greenest managers in the world. Even Nero himself would consider it excessive (PPI) fiddling whilst the Co-Op banking world burned.
Part of the problem was the way in which the Co-Op is managed. A 21 strong board of directors, elected by activists, and containing well-meaning but naïve enthusiasts (currently including a farmer and a nurse, but sadly not a butcher, baker and candlestick maker) did not possess the experience and skillset to deal with the rapid world of banking.
The Co-Op Bank’s former chairman, the Reverend Flowers (I thought he was one of the characters in Cluedo), admitted he knew little about banking, but was then caught in a sting operation involving the eye-boggling combination of crystal meth, rent boys and the Daily Mail, a plot which makes The Wolf Of Wall Street seem like a vicar’s tea party (or should that be a Reverend’s tea party?).
Customers worried about their savings can be consoled by the fact that under the government savings protection scheme the first £85,000, or £170,000 for a joint (ahem….we’re back to Reverend Flowers?) account is guaranteed in the unlikely event of the bank going bust.
The Co-Op grocery business is currently the fifth largest in the country, but it too has struggled in recent years. The takeover of the already ailing Somerfield chain in 2008 for over £1.57 billion, whilst increasing the number of stores, has not had a positive impact otherwise. A recent report in Which? Magazine put the Co-Op at the very bottom of the table when rating grocery stores. A combination of high prices, poor fresh food and lack of choice was a fairly damning indictment of the way it has been run (although I must confess my wife is very fond of its own label Prosecco).
The Co-Op travel agency has been long established on the high street, but with more and more holidaymakers booking online it has seen its customer numbers fall. Type ‘Co-Op Travel review’ into Google and you’re immediately faced with customers complaining about the level of service on Tripadvisor, not the type of publicity anyone at the top of the company would probably want to see. It’s difficult to see much growth opportunity for this part of the group.
The Co-Op does have a funeral service and farms that appear to be free from the negativity surrounding the rest of the group.
Many people, especially those in the North West who are familiar with the history and heritage of the Co-Op movement, are very fond of the nature of the institution. However, the disconnect from the founding principles of the movement, along with the poor reputation of some elements of the group, leave this iconic part of British social history staring into the abyss. The nature of the way the Co-Op is managed on a local basis may prevent it being the Woolworth’s of this decade, a place of happy memories but little reason to visit, but no one can be too sure.