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.
Banking
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.
Groceries
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).
Travel Agency
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.
What else?
The Co-Op
does have a funeral service and farms that appear to be free from the
negativity surrounding the rest of the group.
Summary
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.
