Little and large: the societies making the most of mergers

Mergers have long been a retail co-operative tradition, and in 2013, two deals meant that some of Britain’s biggest retail co-ops got even bigger.

Mergers have long been a retail co-operative tradition, and in 2013, two deals meant that some of Britain’s biggest retail co-ops got even bigger.

With 17,000 members, Penrith Co-operative Society was among Britain’s smallest co-op chains before it approached Scotmid with a proposal to merge last May. By September, both societies had approved the deal and Penrith was on its way to becoming the Lakes and Dales Co-operative, part of the Scotmid family.

As that was being confirmed, another merger was being announced, this time featuring more equally matched players – Midlands and Anglia, respectively the second and eighth largest regionals in the country.

Members approved transfer of Anglia’s engagements to Midlands in November, but both societies are operating independently until early in 2014, when it is expected to unveil a new name, either Alliance, Community or Central England.

This has created a £1bn business – boasting 329,000 members, over 100 funeral homes and nearly 250 stores – which rivals neighbouring Midcounties as the country’s biggest regional society.

John Chillcott, chief executive of Anglia, found the commercial case for the merger compelling.

“Competition in our core businesses is fierce,” he says. “We have to robustly respond with investment in new locations, improved systems and competitive value and service.

“The merger will create the scale and resources necessary to compete, and will provide greater opportunity to members and colleagues. It will also provide greater financial strength, reducing the cost of funding legacy issues of debt and pension liability and releasing more capital for future growth.”

Anglia chose Midlands because the societies had already worked together to mutual benefit.

“There are many similarities,” says Mr Chillcott. “As well as being a good fit geographically, we also have many similarities from a business and operations point of view.”

Likewise, Penrith was looking for a competitive edge. With nine outlets across Cumbria and County Durham, it had been struggling in the face of increased competition, especially in Penrith itself. In 2012, profits were just £162,000 on revenue of £13m, leaving scant resources for much-needed store renovations. In contrast, Scotmid, Britain’s third largest regional, turned over £428m in 2012, with an operating profit of £6m.

John Mills, chief executive of Penrith Co-operative, says: “We knew we were taking them an asset. We just needed that little bit extra which would take us over the next hundred years.

“If we had gone with the Co-operative Group, we would have lost our independence, but we have always had a close bond with Scotmid. Scotmid are akin to what we are.”

“We have co-operated for many years, as co-operatives do,” says John Dalley, secretary and chief financial officer of Scotmid. “We worked together on IT and have the same IT system. We have sat together on the Northern Sectional Council, helped each other and shared best practice.”

Although Scotmid dwarfs Penrith in size, this was a merger, not a takeover. “Only co-operatives can do this,” says Mr Dalley. “In legal terms, the two societies are brought together and it’s as if they were always together.”

John Mills says they share human as well as financial resources. “We don’t have all the answers,” he adds. “We have to be open minded. Just because you do the things you’ve always done, doesn’t make them right.”

The new Midlands-Anglia merger is, its leaders say, a new society, pointing to its new name and a new democratic structure for host society Midlands.

Martyn Cheatle, chief executive of Midlands, and future chief executive of the enlarged society, says: “A takeover implies one party is stronger and more successful than the other. As a result it usually involves the organisation which is being taken over adapting to fit into the structure of the more successful organisation.

This is clearly not the case with Midlands and Anglia co-operatives, both of which are successful societies in their own right.

“We have taken a ‘best of the best’ approach, which means the newly formed society will benefit from the considerable strengths of both societies. It was this approach which led to the development of a new democratic structure.”

John Chillcott adds: “It is very much a partnership, which has come about with the support of members of both societies. It will also move forward with the input of these members.”

At Scotmid, a southern area committee will ensure the former Penrith society’s interests are represented. The new brand, unveiled on 29 November at the official opening of the newly renovated Lazonby store, came from Penrith members, and was led and approved by its staff.

“It is a coming together of two organisations, not one subsuming the other,” says John Mills. “We retain our independence and our members have the rights they had before. We have had equal say in everything. It’s going to give us everything we’ve hoped for.”

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