Retail tech business VME converts to co-op status

We speak to Stephen Gill about the switch – which he hopes will offer an example for other firms to follow

VME Retail Systems, which creates retail software for the supermarket and convenience store sector, has made the transition to co-op status.

Chief executive Stephen Gill, who has been working with the co-op sector since joining the IT department at Scotmid in 1995, says the transition uses a form of employee ownership based on the FairShares model.

He hopes the move, completed on 28 September, will help VME work with the consumer co-op sector to give it a competitive advantage in the 21st century – and also provide a template for other businesses to convert to a co-op model.

He joined VME – which specialises in electronic point of sale (EPOS) equipment – in 1999 and led a management buyout of the family firm in 2004. He has been trying to turn it into a co-op since 2017 when he realised the business was already run with co-op values in mind.

“I attended the Co-operatives Europe conference in Malta that year and there was a session about ways to transition conventional businesses to the co-op model. I hadn’t known about this possibility until then.

“VME was already working with lots of consumer co-ops and I’d been talking with Ben Reid [then-chief executive] at Midcounties about ways we could make smaller co-ops work better so the transition seemed a natural fit for us.”

The business has offices in London and Malta and Mr Gill’s first step was to seek loan finance from the Maltese government to turn the organisation into a platform co-op hub. Ministers were initially enthusiastic, he said, but eventually decided they didn’t want to support the plan.

Next, Mr Gill said he tried to persuade consumer co-ops to buy VME and run it as a federated co-op. “I think this is what the consumer co-op movement needs,” he said. “They need to work together and help the smaller societies like Coniston and Allendale – or even Radstock – acquire modern retail tech.”

This plan was turned down in 2018, he said; his next idea was to develop a multi-stakeholder model, working with the FairShares Association and Anthony Collins Solicitors on a plan to raise non-voting investor capital.

“We spent a lot of money on this and had a memorandum calling for investors; interest was high and we attended the Co-operative Retail Conference in March. But then the Covid-19 pandemic hit which killed the interest off.”

With no external funding to draw on, VME had to look at other options and finally decided to work with Rory Ridley-Duff at FairShares to develop an Employee Ownership Trust model that was strong enough to be classified as a co-op by statute; and there is an asset lock in place to prevent demutualisation if workers decide to sell.

“We went beyond what Co-operatives UK want,” said Mr Gill. “We needed to make sure employees have a say and a vote – that they have control.

“The EO trust had to buy the company from my partner and I. It has an EO council elected from the employees who work in consultation with the trust; the trust works for the benefit of the employees and consults them. We have worker-members sitting on the Trust with full transparency and access.”

The new co-op is a UK business with a branch in Malta – which means there are Maltese owners of a UK co-op. “Legally that’s fine because it’s just a UK entity,” said Mr Gill. “There might be issues arising down the line over the distribution of surplus and tax – we don’t know for now. But the number one issue is democracy: workers having a say and involvement.”

The next step is building up the employee council, holding elections and implementing a sociocracy model for decision-making.

Mr Gill is still keen to expand VME’s offer of EPOS innovation across the retail co-operative movement.

“We’ve almost reached a limit of what we can do in the UK,” he says. “We’re trying to reach smaller community shops in the UK and also engage with European co-ops. We want to collaborate and learn from Eroski and Mondragon in Spain; and Coop Italia are way ahead – they are superb.

“By making those connections we could help the smaller players in Britain; Allendale or Coniston can’t afford to go out to visit Mondragon but VME can do it for them.”

Stephen Gill

He also has his eye on the US market. “There are a lot of co-ops operating in their own silos and we need to reach out and work together – because Amazon could open Go stores everywhere and we need to be prepared for that challenge.”

The development of opensource software could also give co-ops an advantage, he thinks.

“People can be nervous about that, saying ‘you’re giving it all away’, but we need to get out of this mindset. We need to see co-operatives growing through the use of technology. ”

And having seen first hand the hefty cost of converting to co-operative status he wants to focus more on his work with Coop Exchange to provide a capital-raising platform for the movement.

“How do we get companies converting? It can be done through Coop Exchange and FairShares; we can get it templated to bring down the cost. There are ways to do this without external funding.”