Announcing the Co-operative Group’s results for the first six months of 2015, chair Allan Leighton and chief executive Richard Pennycook highlighted some of the society’s key achievements, as well as the upcoming challenges, in a conference call with media this morning.
- Commitment to a Living Wage
The Co-operative Group has committed itself to achieving the government’s national Living Wage threshold for the vast majority of Group employees. “In May ahead of budget announcements we agreed to a pay award for 47,000 front line colleagues so from next month vast majority will receive the living wage,” said Mr Pennycook.
- Debt has fallen, but it’s only a temporary blip
In the six months of 2015, the Group made an underlying profit before tax of £64m, compared to a £1m loss in 2014. In the results it announced a net debt level of £600m – down from £1.4bn last year. But the chief executive said of the debt: “We’re looking through to the full year in second half will see the impact of investment, debt will start rise back to £900m level, we have to invest to strengthen our business and ties with members.”
- Focus on British produce and local sourcing
Mr Pennycook said the Group would be investing in local sourcing, alongside British produce. Already the society has invested in improving its fruit and vegetable range and plans to carry on a permanent product reduction for these. According to the chief executive the Group now has the best fruit and vegetables offer on the market among convenience retailers. The food business saw like-for-like sales increase of 3.3% in its core stores, while the estate as a while reported growth of 0.8%. The Co-operative Food’s underlying profits also increased by 21% to £120.4m (2014: £99.7m).
- Funeral business continues to grow
The funeral business has grown, partially determined by a higher death rate. It opened 10 funeral homes in the first six months of the year, taking the total estate to 970. The underlying profit for the business rose to £58m from £34.6m in 2015, on sales up 16% at £216.4m. Mr Pennycook said the focus now throughout the rebuild phase would be on investment and ensuring the way the Group does business embraces the co-op difference. In Funeralcare they hired their 1,000 apprentices as part of plan to hire one apprentice every day, investing in youth and training.
- Insurance revenues decreased
The Group’s revenue from its insurance business has decreased in the first six months of the year but this was in line with the Group’s strategy, argued the chief executive. Mr Pennycook said it would take time and profit will remain depressed as the Group invests in new systems. “Our general insurance business is very much focused on our members, that’s a new strategy and it’s working. Where we engage members with the business we can offer fantastic value,” he said.
- Online Grocery is not on the agenda
Richard Pennycook confirmed the society would continue to focus on convenience retailing and said it had no plans to develop an online grocery strategy.
- Digital strategy aims to increase member engagement
With the appointment of Mike Bracken as chief digital officer, the Co-operative Group will look at increasing member engagement through digital channels. Richard Pennycook confirmed the digital leader will aim to promote the businesses to the society’s members.
- Group will dispose of 200-300 big stores
As part of its aims to focus on convenience retailing, the Group will seek to dispose of between 200-300 of its big stores over the next years, with 28 sold in the first six months of this year. According to Mr Pennycook, the Group has no big portfolio for the market and will sell the stores on an individual basis. He also added that the co-operative was not relying on these disposals for further investment, but on trading profitably. “They key point emphasising is that whatever we generate we’ll invest in the business,” he said. Chair Allan Leighton added: “The investment is the sign of confidence in what we’re doing. When we don’t invest you should worry.”
- New membership proposition, but no dividend yet
The Group is working on defining a new membership proposition to make engagement a more positive experience, but Mr Pennycook said the society would not be able to pay a dividend to its members in the near future. The society is running 50 trials across different communities to reengage with members with the most successful ones due to be rolled out at national level.