It’s teatime in a home for the elderly in Rochdale, Manchester. Dawn Nicholls is leading a sing-along and some of her colleagues have served cakes and sandwiches.
Nicholls is a Co-operative Group employee, not a care home worker. She is taking part in a pilot project in the town where the mutual was founded 171 years ago, which could be a key part of the future of the business.
After a turbulent year in 2013, when the business nearly collapsed and its ethical image took a bashing – partly thanks to revelations about drug use by the Co-op bank’s former chairman Paul Flowers, the Co-op is trying to get back in touch with its roots.
Its chief executive, Richard Pennycook, who took the helm last year, sees community projects as a way to make the the group’s grocery stores, funeral parlours and insurance businesses attractive again. He wants the Co-op’s staff and 7 million members to play an important role in their communities – bringing people together, raising money and helping to support local groups. It is about giving people a reason to choose the Co-op over bigger and better resourced rivals. “We have got to create businesses that are really quite different,” he says.
With his corporate background at Morrisons, Laura Ashley and JD Wetherspoon, many Co-op members suspected the besuited and fastidious Pennycook was hired to shape the business up for sale.
He admits he would not have taken the helm of the company unless a rejig of its corporate governance set-up had been approved by members last year. But he insists the Co-op’s mutual status is vital to its future. “I think an absolutely fundamental reason the whole new team is here is a passionate belief in what the Co-op should be about: owned by members with democratic control by members and rooted in communities we live and work in,” he says.
The trial in Rochdale is one of 55 pilot schemes looking at how membership can be rebooted. These include paying staff to devote a few hours a week to being community liaison workers or “champions” alongside their day job.
“Over the years, the Co-op has become a bit corporate and a bit centralised. We are unpicking that. We want engagement to be at a local level. We are in every postcode. We have units in about 2,000 communities in the UK and the new member proposition will be about those communities,” Pennycook says.
Members will be encouraged to get involved in reviewing and selecting products and choosing community projects or charitable partners that will benefit from local funds. A policy group is also being established to enable members’ representatives to help develop ethical policies.
Pennycook has hired Mike Bracken, the government’s former executive director of digital, to bring membership into the 21st century by developing new ways for everyone to communicate with each other and the Co-op. “In a post-financial crisis world, there is inherent distrust of big institutions and for good reason. Look at the banks, supermarkets and now automotive companies,” says Pennycook.
“Huge complex institutions which are a long way away are now the subject of suspicion while the Co-op is back to its roots as an organisation owned by you where you have an influence and economic returns come back to you and the your community. Nobody else can do that. It’s completely unique and I think there is a real place for it.”
Pennycook believes there is strong “latent demand” for attachment to such an organisation and signing up large numbers of people as members is the most important thing for the future of the business. “If that doesn’t happen we haven’t got a bright future because we are just a bunch of indistinct businesses,” he says.
The dividend was suspended in 2014 as the Co-op was forced to pump hundreds of millions of pounds into rescuing its bank, which had to be bailed out by hedge funds leaving the mutual with just a 20% stake.
Pennycook says the dividend is an “iconic part of being a member”. It will return, but not until 2017 at the earliest – at the end of the rebuild phase of his turnaround plan.
“We don’t have the financial firepower at the moment,” he says. The last payment, of £34m, was made in 2013. “Day to day now we are in calm waters, we are well away from the tough stuff when the fire was blazing and this was something close to collapse, but there is more to do.”
There remains uncertainty over whether the slimmed down Co-op, which was forced to sell off its farms and successful pharmacy business to reduce its debts, will be able to fight off bigger and better resourced rivals.
Its grocery chain, which makes up the vast majority of sales and profits, is trying to compete in a market in the throes of a bitter price war, commodity price deflation and rapidly changing shopping habits which favour those with an online presence. The Co-op tried and ditched efforts to sell groceries online.
Given his widely known reluctance to take on the job, will Pennycook stick around to get the job done? He says he is “at the board’s disposal”, but typically doesn’t commit himself to any particular timetable.
Quietly spoken and imbued with a zen-like calm, Pennycook is an easy man to underestimate. But he has proved himself tenacious enough to deal with some retail heavyweights from Sir Ken Morrison to Marks & Spencer boss Marc Bolland and the Co-op’s current chairman, Allan Leighton.
Pennycook says he is seeking inspiration from previous bold moves, such as the introduction of Fairtrade goods in all its shops in 1999, in order to find new ways the Co-op can intervene in markets that are not serving its members well. “We need to go back to being brave and different,” Pennycook says.
He suggests the Co-op could get involved in energy, childcare or telecoms – areas that are “opaque and don’t give good customer service”.
Pennycook has plenty of ideas for the future. “If you look at the last 50 years, the Co-op has been benignly neglected and in relative decline. A turnaround doesn’t happen in a year, but do we think we can prepare the Co-op for the next 100 years? Absolutely. Overwhelmingly people want it to succeed.”
