It has been almost six months since I became Group Chief Executive and it is fair to say that I could never have anticipated the challenges that were to face the Group, myself or that of my new management team.
They have been seismic in nature and have required immediate and decisive action. Before I discuss in more detail what we have done and where I see things moving forwards, especially with regards to the Bank, I want to re-affirm my commitment to The Co-operative and our membership.
I have been asked on a number of occasions in recent weeks, if I knew beforehand what I know now, would I still have come. My answer has been on every occasion a categorical “yes”. This is a special business, with a proud heritage and the potential to be a great business again in the future. Even though we are in the midst of perhaps the biggest crisis in our society’s history, I believe we can turn this around together to become the biggest revival story of the decade.
I have been moved by the array of emotions shown by our members in recent weeks as I’ve spoken to them at our members meetings. There is understandable anger, sadness, frustration and concern at what has occurred. But at the same time these emotions have been matched with a genuine desire to help and restore our business back to where it belongs – as an integral and distinctive part of UK community life. The support and encouragement I have personally received from co-operators through this difficult period has also been truly appreciated, and together I know we can make great progress in the months and years to come.
It is important however, that I manage expectations here; and my longer term positive view for the brand needs to be tempered with the short-term necessity of fixing some major problems – which are not simply in the Bank.
The question of how we got into this situation is important. But it is complex and we cannot allow it to distract us from facing into the issues which are urgent, immediate and real. The past is being looked at by Sir Christopher Kelly in a structured way, which will allow management to focus on taking the hard but necessary decisions, to restore our business to health.
What I do know is that the Group has amassed far too much debt over recent years and a heavy and inefficient support structure which makes it difficult to serve our customers and members to the best of our ability. We simply have to be better connected into customer and member needs and to exceed them every day in all our shops and branches.
Our first priority has been to save the bank and achieve a solution that would secure its future, whilst maintaining its distinctive ethical position in the market place.
Throughout this process I have been cognisant of delivering a “best-fit” solution which recognises the interests of our customers, members, colleagues, bank investors (retail and institutional) as well as The Group as a whole in terms of the debt it can afford to carry.
The final details of our negotiations are still being finalised with investors at time of writing, but crucially we have an agreement in principle, which will see The Group retain an equity stake of around 30%. This will ensure that we remain by far the single largest shareholder, retain the ability to shape its future direction, whilst vitally protecting the Bank’s ethics.
I know the later point has been of acute concern for our members and customers and to ensure the bank has a clear ethical focus we intend to embed our values into the Bank’s new constitution, to ensure it guides its decision making. This will be the first time that the Bank has ever had this within its articles of association and we will also have a Values and Ethics committee as part of the Bank, with an independent director as Chair to ensure the ethical foundation of the bank delivers for customers and members.
I genuinely believe that the solution we have found, after detailed and exhaustive negotiation is in the best interests of all stakeholders and protects and upholds our co-operative values at the same time. Whilst the challenges facing the bank have naturally dominated peoples’ minds and the news agenda, they cannot mask either other significant challenges we face within the wider Group, which must be urgently addressed. Our food business has been losing market share and falling behind our competitors in terms of like for like sales, and we lack a clear strategic purpose. I will now address and put right these fundamental issues.
Our food business in recent years has been too pre-occupied in growing scale and has taken its eye off the ball in terms of delivering real value to the customer in terms of product quality, accessibility and service. Under a strengthened leadership team, led by Steve Murrells, we now have a clear way forward under our “Truth North” strategy, which will deliver the results we want in time.
The strategy will see us play to our strengths as the biggest convenience retailer in the UK, and as such we will accelerate our disposals programme in those trading outlets which do not align with the strategy. As such I do expect our market share to dip in the short-term, but with an aggressive opening programme we will make this up in time.
We are however starting to see a step change in some areas, which provides a glimpse of the exciting future for our food business. Our re-launched own label range “loved by us” has a range of meal deals, which I believe are best in class, and our Christmas offer this year, which I’ve fully sampled(!), marks a real step change in terms of product quality and variety.
Looking ahead we must also continue to improve our customer service proposition, which will see us invest further in digital technology to attract younger audiences, re-fresh our store appearances & layout, while ensuring the size and shape of our portfolio is truly aligned to delivering a compelling offer for our customers and members. I am especially excited about the opportunity for us to grow our appeal with a much younger generation in the months and years ahead. Our recent partnership with the NUS and the establishment of The Co-operative Youth Board, are clear signs of our intention to connect and engage far more with young people in the future.
In order to retain our price competitiveness across our family of businesses we must also reduce considerably our operating costs, which are simply too high and un-sustainable. A programme of work is now well underway, which will eliminate processes, procedures and activities which are not directly benefiting customers.
While tackling our cost base, we are also deep into the process of reviewing the whole Group strategy. This will ensure that the investments we make and the markets we operate within, are truly aligned with our members interests. A key component of this work is to properly evaluate and understand our co-operative purpose within a modern environment, whilst remaining true to our founding co-operative principles.
I don’t profess to have all the answers to this and the work we are conducting is looking at examples of great co-operative businesses, both in the UK and abroad, which The Group can learn and adapt from. I see much closer collaboration with our members, but also the wider co-operative movement, as a vital ingredient in terms of moving our business forwards.
It is essential that we establish far stronger 2-way lines of communication and engagement than was the case previously, if we are to create a progressive and sustainable new era of co-operation. Simply put, we must work together to promote co-operation and I will be the biggest advocate of this in the coming years.
So to summarise; the first six months of my time as Group Chief Executive has brought about many un-foreseen challenges, which have required immediate and decisive action. We have delivered a solution to save our bank, while preserving its ethical commitment and focus.
We our clear about the pathway for our food business and our need to review our wider strategic purpose, while addressing as a priority The Group’s overall cost base. I am also clear about the responsibility I have for running the UK’s largest consumer-owned business and what that means in terms of providing our customers with the highest quality of products and services, whilst enhancing our social purpose and commitment.
It is a responsibility I take very seriously and with total commitment and one I will ensure leads to The Group realising its inherent potential in the years ahead.