How are co-ops, community businesses and employee-owned firms weathering lockdown?

Many organisations are struggling financially during lockdown – even while the sector is demonstrating its flexibility when it comes to offering community support

With lockdown extended and continued uncertainty over the exit strategy, UK businesses are counting the cost of Covid-19 – and not all are benefiting from the government’s support packages.

This has been a particular concern for the co-op and social enterprise sectors. Ed Mayo, secretary general of sector body Co-operatives UK, wrote to the government warning that many small organisations are not eligible for full support, and that the Coronavirus Business Interruption Loan Scheme (CBILS) is difficult to apply for and access.

Ed Mayo, secretary general of Co-operatives UK

Co-operatives UK has carried out a survey of its members to see how they have fared under the government support packages. It stresses that percentages given in the following figures are from respondents to each particular question – and may not be representative of the sector, as in some cases only a few people have answered that question; they are a snapshot of the sector rather than a full picture.

The survey found that:

  • 30% say they are key workers or providing ‘essential’ services
  • 78% have concerns about the financial health of their co-op
  • 48% cite cashflow as an issue
  • Nearly half (48%) say they are confused or uncertain about the support available from government
  • 86% say a cash grant is needed to support their co-op
  • Early data shows around 20% are ineligible for the government grant schemes’ (but will be able to access the JRS, SSP rebate, VAT deferral etc).

Co-operatives UK also asked what government support they were able to access or were planning to access:

  • Almost 40% are having to furlough staff
  • 13% plan to apply for CBILS – but some have said they are reluctant to take on more debt and/or the interest rate was too high
  • 18% plan to defer VAT payments
  • 9% said they expected to be eligible for the Retail, Leisure and Hospitality grants via their local authority

The team at Co-operatives UK has identified several issues and challenges  – notably that some co-ops are not eligible for self employed support or able to furlough staff and do not operate from a rateable property; Co-operatives UK has written to the government to highlight this issue. 

It is also looking for clarification from the Department for Culture, Media and Sport that co-operative and community benefit societies are eligible for the £750m package of support for charities and social enterprise.

Related: Sector bodies urge more support for social economy

There is some support for the credit union sector: the government has brought in Fair4All which is supporting around 50 organisations with up to £5m of funding – with grants that will range from £20,000-£350,000 in size.

But some credit unions are struggling to access financial support. Barrow and District Credit has told local press that it is continuing to operate but did not  qualify for the fund introduced by the government for credit unions because the scheme is only available to credit unions with a current loan book of £2m or more.

There are other challenges for rural community businesses who have found it difficult to access essential supplies from wholesalers who have been focussing their efforts on meeting demands on big stores in urban areas.

Duncan Smith, from the Plunkett Foundation, the support body for rural community businesses, told the News: “Local suppliers are often stepping up where bigger wholesalers have failed.

“Community businesses have to be resilient and flexible in how they get their stock. They’ve also had to be flexible and resilient when it comes to the volunteers who run their stores – many were aged over 70; younger ones have had to come on board to enable shops to do more, and to do different things – such as deliver supplies to people who are self isolating.”

As Co-op News went to press, it was reported that Nisa – the mutual groceries wholesaler, now a subsidiary of the Co-op Group – has opened up  its membership to Plunkett’s family of community shops, which should help them to secure food supply chains in their rural communities.

The crisis has enabled community shops to show how resilient and adaptable they are – and how important they are to the people they serve.

“For some people who have no transport it is not an option to go to the supermarket,” said Mr Smith. “Community pubs, which had to shut their doors, have re-purposed themselves – they have opened shops, and they are offering deliver services.”

One community pub, the Green Man in Toppesfield, Essex, has even set up support lines using qualified psychologists to help those who are isolated and vulnerable. 

Mr Smith hopes the crisis will expand this flexibility of the community business sector and enhance its visibility.

“Community business is ingrained in community, and has the flexibility to offer new services and diversify – this is becoming apparent as the weeks go on. People are working longer hours and really becoming a sort of heroes in their community. They are doing a service above and beyond what they would normally see. In rural areas they may be the only service people have.

“The fact you’re drawing in more people and younger people and introducing new services has got to be good thing and any new way to serve a community can be beneficial. If it gets more people involved, it’s a positive.” 

The government’s job retention scheme has kicked in but, said Mr Smith:
“I suspect shops are expanding; it’s the pubs where it is different. We don’t know how long they’re going to be closed.”

The Campaign for Real Ale has warned that the lockdown means many pubs could go to the wall, while Plunkett has continued to campaign for the community pub sector.

Community pubs have been busy re-purposing themselves as shops and delivery services. For example the Abingdon Arms, in Oxfordshire, is hosting virtual quizzes and talks; selling about 250 takeaway meals a week; and operating a temporary shop which, while not making money, offers a lifeline in rural areas where food is hard to access. 

Mr Smith added: “The lockdown has shaken the sector to its foundations. Many community pubs have had to close completely, and the next big test is the unknown – we do not yet know exactly how long pubs will have to remain closed. That brings with it uncertainty over costs and cash flow. 

“Ensuring these community businesses can sustain a potentially long period with closed doors is a great challenge. And when pubs do reopen, there will be a very real possibility of a deep recession. Should they not reopen until the autumn there is the further potential difficulty of the post-Christmas months, which can be a testing time for the hospitality trade.

“Many pubs have had to furlough employees and have been accessing government support. Some tenanted community pubs have been able to offer their tenants a rent holiday, but this can’t be unlimited.

“Plunkett is here to help and support these community pubs with advice and guidance throughout the coronavirus lockdown, and in the months of uncertainty yet to come.”

Like community businesses, the employee-owned sector has seen growth in recent years but is facing lockdown challenges. The Employee Ownership Association is offering one-to-one calls, weekly webinars, weekly newsletter and an online Covid-19 resource which is regularly updated.

“The nature and values of the businesses that make up our membership is to share. As an EO community we can support everyone to be as resilient as possible during these unprecedented times,” it said. 

Key issues are cashflow and accessing finance – and, in the short term, EO businesses need help in accessing some of this government support, in
particular CBILS.

Head of communications Keely Lead said: “Access to finance for employee owned businesses has been an issue that pre-dates the coronavirus crisis, which has seen the EOA engage with the finance sector to address its lack of understanding and inconsistency of response to supporting employee owned businesses. 

“None of the main banks have explicit policies to support the growing number of businesses that transition to an Employee Ownership Trust. Therefore, in the advent of this pandemic, the lack of understanding means that requests for personal guarantees, which EO businesses are unable to provide, teamed with some banks preferring to support customers using their existing lending products (which have T&Cs that employee owned businesses may struggle to meet) means we are trying to support their needs by speaking to government, the British Business Bank as well as signposting to help and support to access funds.”

There are also issues around engagement. “We’re hearing from many of our members that they were quick to engage with employee owners and explain, gather ideas and come up  with the right solutions and where necessary change tack,” said Ms Lead.

“Many of our members are using the job retention scheme and using furlough to keep their businesses going, but with excellent engagement plans in place so the teams still feel part of what is going on. We are hearing how many of our businesses are doing so with a highly engaged team all supporting each other and the business the best way they can during this difficult time.”

She gave the example of Stockport-based school and corporate wear supplier Rowlinson Knitwear, which decided to furlough 75% of workers, prioritising those who were vulnerable and those who would have to use public transport. 

“Furloughed workers will have pay topped up as the business splits the difference – so are receiving 90% pay” said Ms Lead. “Having shown strong leadership, being open and transparent and offering mental health and wellbeing support has seen great feedback from their team and the business continues to prepare for the future with many of its furloughed workers choosing to use their time to train.”

EO businesses are also adapting, she added. For instance, Northants chemical company Scot Bader has developed a new rheology modifier for alcohol-based hand cleansers in just ten days to help with the global shortage; and Middlesex manufacturer Flowstore has set up a socially distanced production lines for hospital ventilators and social distancing screens.