Britain’s Co-operative Group takes ethics to a new level

The Co-operative Group is Britain’s largest cooperative organization, accounting for roughly 90 percent of all co-op trade in the country. The Group has over 6 million members, and has announced plans to triple that in under a decade. This huge federated cooperative operates over 5,000 outlets in food, banking, funerals, travel, pharmacy and other lines, under a uniform physical image and a simple name: “The co-operative.” 

The Group’s unified brand is based on a clean and coordinated visual appearance and an unparalleled concern for ethics. It is now in a position to provide a highly-visible challenge to its investor-owned rivals, which generally seek to concentrate wealth while pushing ethical concerns to the sidelines. Ultimately, The Co-operative Group is in a position to debunk the myth that an uncaring form of capitalism is the only way to do business at scale.

“The Group has gone through a renaissance in the last three or four years,” said Russ Brady, the Group’s head of public relations. “The net effect is we’ve doubled our members, doubled our revenues and doubled our profits.” 

This is quite a turnaround from the end of the 20th century, when retail co-ops in Britain presented a disjointed and sometimes frumpy face to the public. Many regarded them as a thing of the past, and the movement seemed to be in decline.

Building a United Foundation

At the turn of the century, British cooperatives may have shared an identity, but the public could never tell that from looking at them. 

Kristian Mills, the Group’s head of brand governance and standards, recalls that in 2001, Prime Minister Tony Blair endorsed the Co-operative Commission report, which concluded that the nation’s co-ops needed to be more unified. 

The Co-operative Group then conducted several years of its own research, and in 2005 launched a pilot project to establish a brand based on consistent quality and four other characteristics that Mills calls the “brand DNA.” These are: championing, rewarding, trustworthy and community.

“These are the things we do that make us better, whether it’s Braille on packaging or Fair Trade,” said Mills.

The co-op has grown in scale mainly by joining forces with nearly two dozen other cooperative societies, which maintain their autonomy within a shared brand that ensures consistency and places the Group squarely in the public eye. Most recently, it merged in 2007 with United Co-ops—a regional society based in northern England that was itself the product of numerous mergers tracing all the way back to the Rochdale Pioneers of 1844. There are now only about 20 regional societies remaining outside of the Group.

In 2009, the Co-operative Group merged with Brittania Building Society, which was formerly Britain’s second-largest cooperative bank. Brittania is now a part of Co-operative Financial Services, which is a subsidiary of the Group as a whole. CFS operates The Co-operative Bank, Smile online bank, and Co-operative Insurance Society.

The Co-operative Group has also grown by absorbing the privately-owned grocery chain Somerfield. The Somerfield acquisition added about 700 stores, although roughly 150 were sold or closed due to antitrust considerations. The physical conversion of the acquired stores has been disruptive to sales, but growth has continued regardless and the conversion process is now expected to conclude by springtime.

According to Mills, the Group’s brand has enabled its rapid growth. He believes that a shared brand makes the organization capable of taking on ambitious projects, including the absorption of Brittania and Somerfield.

“We’re now a powerful organization in the U.K., which allows our acquisition process to progress,” said Mills. “Those two things would not have happened without our unified brand.”

The Group is also opening new grocery stores. Roughly 300 new stores are planned by 2013, with the co-op expecting to create 7,000 new jobs throughout its operations. In late February, the Group opened a new grocery store in London’s posh Strand district, just down the road from Buckingham Palace. New stores are at all not unusual these days, but Brady says this store is special: It gives the Group a location in every postal code in the country.

The Group’s growth has predominantly taken place in food and financial services, but that is not all. It is the country’s largest provider of funerals, and recently formed a joint venture that will make it partners in Britain's largest travel agency. 

The Group has also expanded into new activities. An online store for home appliances is growing briskly. The legal division now provides services including wills and probate—taking advantage of a recent legal change that removed the requirement for law firms to be owned by lawyers. And members can even buy energy through their cooperative with a single low price, in contrast to the complicated schedules offered by competitors.

The Group also finds ways for its businesses to support each other in offering new propositions. For example, the insurance division now offers pet insurance, while the pharmacy—which is Britain’s third-largest— will fill prescriptions for veterinary medicine.

This expansion, while significant, is only the beginning.

The Co-operative Group has set a membership goal equivalent to roughly one-third of the entire British population by 2020. Brady admits that this is ambitious, but believes it can be done.

“We already have about 20 million U.K. consumers who regularly trade with us,” he said. “The key target is to get these people to become members.” 

Rapid growth has caused stress on many co-ops, but Brady does not expect this growth to cause problems for democratic governance. The Group resembles a three-level federation: nearly 50 geographic area councils send delegates to regional committees, which in turn select a central board of directors. The general board is elected with votes proportionate to each region’s trade with the Group.

An additional representative channel involves the 23 societies that are affiliated with the Group and share its brand. Each of these corporate members maintains its individual identity within the constraints of the brand, and also receives votes based on its level of trade. 

This federated structure is flexible enough for a wide range of sizes: Several member societies do business in over 100 locations and a variety of activities. The largest is Midcounties Co-operative Society, which has 450 locations, 8,500 employees and over $1 billion in annual sales. On the other hand, about one-third of the societies operate a solitary food store—with the smallest relying on a single manager supported by volunteers.

Although this system is quite complex, the balance of power seems to work. “We’ve got very clear and transparent governance,” said Brady.

Convenience Meets Ethics

The Co-operative Group has developed a brand that combines convenience and ethics.

The Group has become Britain’s leading operator of convenience stores, small shops of around 3,500 square feet. Unlike American businesses of the same name, which tend to supply processed snacks and little or no fresh foods, these stores provide a full range of high-quality goods including Fair Trade products. 

Many consumers have been trained to think that if they want to make ethical purchases, it is necessary to sacrifice on price or quality—and drive across town to boot. But the Group recently launched a television ad campaign in which a couple confessed their desire to spend time with each other doing something besides driving to do the “massive weekly shop.” 

For most companies that can afford national television ad campaigns, ethical practices are of secondary or minimal importance. Growth is often driven by the simple desire for greater profits, and ethics in included only to the extent that it supports the profit motive. 

This is based on a false assumption that the convenience that comes with size is somehow incompatible with ethical behavior, and The Co-operative Group is putting that assumption to rest. 

Growing ethical awareness among consumers has driven many changes in business practices throughout the global economy, especially relating to treatment of labor and the environment. These changes have spread to the point that some consumers are cynical about what they see as “greenwashing.” 

However, ethics are absolutely central to the Group’s brand and rooted in input from members about what sorts of activities should be included. Ethics is not a shallow marketing pitch; it reaches the core of the business. In a sense, ethics are the whole point of growth. Expansion facilitates even more ethical behavior.

“We’ve been an ethical business for 167 years,” said Mills. “It’s not a fad or a new idea.”

The Co-operative Bank is one place where the Group’s ethical brand has long been on prominent display. Their ethical investment policy was first generated in 1992, using a participatory process and setting clear standards of what investments would be forbidden. The policy forbade weapons manufacture and child labor, for instance.

To date, the Group has turned down more than $1.6 billion worth of loans that would have conflicted with its ethical policy. The Group makes loans that support its ethics, which creates a virtuous cycle of pleased members making larger deposits, which can be used for additional ethical investments.

Co-operative Insurance had its own ethical policy, launched in 2005. Rather than avoiding ethically dubious investment altogether, Brady says this policy sought to “challenge major businesses from the inside, to improve their performance in relation to issues of concern to our customers', such as climate change and human rights, in a way that other organizations cannot.”

“We’re really benefiting from what I call the ‘flight to trust,’” adds Dave Smith, the Group’s public relations manager. “We were not part of the dodgy practices.” 

Even so, local concerns have sometimes clashed with the Group’s overall work. Most recently, some Manchester residents have expressed opposition to the realignment of a road as part of the “Co-operative District” that will surround the Group’s striking new headquarters now under construction.

Brady adds that appeals to ethics can emerge when there is local opposition to the Group’s practices.

“Whenever someone wants to have a go at us, they use the ethical line,” says Brady. “Any complaint we get, chances are there’s somewhere in the letter in which they say ‘you call yourselves ethical but…’”

Sustainability

Growing nearly 6 percent of the fresh domestic produce that it sells on roughly 50,000 acres, The Co-operative Group is already Britain’s largest owner of farmland. Here, too, dramatic growth is in the cards. The Group aims to grow a quarter of the British produce it sells by 2015. So it should come as no surprise that the Group is interested in sustainability in agriculture.

One of the Group’s initiatives is “Plan Bee,” which seeks to educate the public about the decline of honeybee populations. While the cause of colony collapse disorder is still somewhat mysterious, there is evidence that certain pesticides may be connected. To err on the side of caution, the Group has banned suspect pesticides from its fields, while developing bee-friendly wildflower seed mixes to plant alongside crops. The Group has also contributed over $300,000 to research into the cause of the honeybee’s decline.

Climate change is another major concern for the Group, which has produced an elaborate annual sustainability report four years running (now running over 120 pages). The 2009 edition reports that the Group had reduced gross CO2 output by 21 percent in only three years. 

For 2010, the Group sought to source 15 percent of its energy from renewables, including turbines on co-op farmland and a 400-foot solar array on the southern face of its current headquarters in Manchester, which Mills says generates enough electricity to heat 9 million cups of tea per year.

The Group was recently honored as one of the two the greenest grocers in the U.K. However, Brady notes that this study only addressed grocery and overlooked the impact of the Group’s many other activities, most notably its refusal to invest in unethical activities.

And if all this weren’t enough, in 2010 the Group contributed over $2.7 million to thousands of community organizations through its Community Fund.

Members are able to select whether to contribute all or half of their dividend, or just the change. But even if the lowest option is chosen by half the members, a cooperative of this size can collect a tidy sum.

“You figure that the average change is going to be 50 pence and multiply that by 3 million, and it adds up,” said Brady.

Each year the funds are allocated proportionately to each area, where the area committee makes a decision about how best to use it for the local communities.

These ethical achievements provide the platform for an increasingly comprehensive marketing campaign that has the potential to change the way that the British look at business.

“Join the Revolution”

After five years of rolling out the brand, it is now time for the Group to take their message forcefully to the public. The Group has launched a coordinated marketing blitz to ensure that all Britons knew that they no longer have to choose between convenience and ethics, and that they are all invited to join a transformative business initiative.

The Group first made a major national impact in 2009, when it created advertisement highlighting its ethical practices. The elaborately-produced ad ran for two minutes and 30 seconds, and featured Bob Dylan’s hit song “Blowin’ in the Wind.” This was the first time Dylan had ever licensed the song for an advertisement, allowed because he believed in the Group’s way of doing business.

And like the rest of its operations, The Co-operative Group’s ads combine quality with quantity. With a marketing budget to match its size, the Group’s activities are getting noticed. Throughout 2010, they continued an aggressive publicity campaign, and were frequently featured in prominent news articles.

In 2011, the Group’s efforts have kicked into an even higher gear. It has sponsored a nightly national weather forecast for the entire year, with plans to use the sponsorship as a platform for education on environmental issues.

In February, the Group unveiled a radical new Ethical Operating Plan, which it bills as “a revolutionary approach to social responsibility.” This plan makes 47 ethical commitments in eight areas, each of which are outlined in a prominent new section of the Group’s Web site.

The British media responded enthusiastically, with dozens of news articles giving generally good reviews.

Then, on Mar. 7, the Group delivered its sales pitch. It launched a new ad campaign based on the tagline, “Join the Revolution.” 

This choice of words may raise eyebrows in a year of global political and economic turmoil. But Brady is not concerned about that language turning anyone off.

“It is important that the co-op model is presented in its full glory,” he said. “When we talk about revolution, we’re looking to change how people do business, to create a more vibrant and just economy with win-win benefits. It’s right and proper to use the term.”

Brady notes that the co-op has its roots in a revolutionary period in which workers struggled fiercely for their rights and economic interests. 

“We began in 1844, and it’s as relevant today as it ever was,” he said, describing a trip to the co-op as a “different experience and situation” from simply buying groceries at a for-profit retailer. It may be peaceful, he says, but it is still transformative.

And as impressive as it may be, Mills sees the current work as only the beginning.

“We’re on a journey,” he said. “To me our brand is in its infancy, so I think we’ve got an amazing platform to take this to the next level.”