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November 2005

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November 2005

On your Marks for a merger

On your Marks for a merger

        
        
				    
        

'Peter Marks should do well out of the inevitable merger of his United Co-operatives business with the Co-operative Group. But, as Joanne Birtwistle found, he's coy about that subject, while proud of his life with one company and up for the task of taking on Tesco'

Peter Marks can only think of one job better than his present one - bashing the skins behind Jagger and Richards: "I owe this business everything. It's a fantastic business. I've never wanted or needed to work for anyone else. I've gone from nothing on the shop floor to one of the best jobs. Well, I can only think of one job better than this and that would be drumming for the Rolling Stones."
As chief executive of United Co-operatives he's had a good run. It's a hugely successful business that spans five sectors from healthcare to travel to funeral services to car dealerships and that has posted 11 successive years of increased profit. But in the cut-throat world of retail it balances its democratic membership ethos with strong competition. It gave nearly £32.4m to good causes last year - that's 6.7 per cent of its annual pre-tax profit.
Fair trade, honest nutrition and content labelling and a place of work dedicated to the training and further development of its staff run throughout the business.
Marks has been with United Co-operatives since he was a teenager. He is, as they say, a lifer, who started stacking shelves on the shop floor at 17 having dropped out of his A levels, before being taken under the cooperative wing and trained up for management on day release.
And though he realistically knows he won't take the stage with the Stones he likes to bash out the tensions of being chief executive of one of the largest retail cooperatives in Europe by drumming in a band: Last Orders. But everybody needs a hobby and to be fair there is a bit more to it than that. The last 1970s themed ball the band organised had Smokey, of Living Next Door to Alice fame, headlining (Marks went to school with Terry Uttley et al) and it raised an impressive £380,000 for Christie's.
So was it Marks' charitable bent that meant he was attracted to work in an organisation with the high ideals the co-op movement is known for? "If I'm really honest, I didn't join because of any fancy ideals - I was 17 then. It was completely by accident."
And yet the ideals the cooperative society was borne out of, way back in 1844, are undeniably philanthropic. When United Co-operatives was born in 2002, through the merger of what was the Yorkshire Co-operative Society and the United North West Co-operative society, a new head office had to be found, somewhere between the old headquarters of Stoke and Bradford. So United Cooperatives went back to its roots and the home of cooperation: Rochdale.
But is the cooperative society structure still sustainable today? Several societies have joined together, as Yorkshire and United North West did, for greater scale but also the cooperatives have joined forces to utilise a single buying group, the CTRG (of which Marks is chairman). "One of the big areas where we collaborate is buying," says Marks.
"We collectively buy our food together so we can get better terms."
However, it seems that their collaborative buying power is not enough. According to The Grocer magazine, the CRTG has a combined buying power of around £35bn, compared to Tesco, with an annual buying power of £333bn.
"How do you stop Tesco?" says Marks with a nervous laugh. "We don't have the answers at the moment. Tesco's buying power is massive, it's massive." To this end, Marks admits that the CRTG is thinking about allowing other companies into the buying group. "We have had some tentative discussions with one or two people and it is certainly something that we are considering. There are other major retailers who clearly have the same kind of issues," he says.
I put it to Marks that most consumers perceive all cooperative stores to be one single entity under the cloverleaf brand, with no real understanding of the structure of the different cooperative societies and differing brands within them.
"Well that's understandable because we are a complicated business and the consumer is not interested in all the ramifications of our ownership and corporate governance and structure. All they are interested in is that brand. And the brand says "Co-op' over my stores' doors and also over the door of the Co-operative Group's stores. What's important is that we all operate to high standards.
If I don't operate to good standards that has an impact on my colleagues in other societies, and vice versa," says Marks.
So is another merger on the cards? Perhaps one bringing together United and the Manchester-based Co-operative Group, the two largest cooperative societies in the country? After all, the societies buy their goods together and are already publicly perceived as one unit. Isn't this the next logical step? Marks' response is along the official lines of "couldn't possibly comment", but when asked more generally about the synergies to be gained by all the societies joining forces at some point in the future, Marks' line softens.
"Who knows? One day that might be the case. I mean I've told you about our merger - United and Yorkshire. There have been another two mergers in the last few months - societies getting together. The biggest merger was when CRS joined with CWS to form the Co-operative Group. There is almost an inevitability, an extricable move towards getting together," he says.
But Marks feels strongly about retaining the cooperative society structure, regardless of other changes that might be made now or in the future. "In my view we will never demutualise and I would never support demutualisation. I think there is a role for a mutual organisation like ours in the future. There needs to be a different business model," he says.
United Co-operatives has joined up with other societies around the country, including the Manchester-based Co-operative Group, to address public perception issues through a rebranding exercise. The new look, which is being trialled in Hull before roll-out in 2007, drops the cloverleaf and simply retains the word Co-operative. Not only is the initiative looking to present a uniform image across all cooperative societies, but it will also address the question of what the Co-op brand means to consumers.
It's all about getting the same kind of standards and same kind of retailing philosophy as uniformly as possible across the different societies.
"The ultimate answer in an ideal world is that we will all have the same fascia, same colours, called the same thing. But then you could say that the ultimate is to have one organisation. But we aren't. We are where we are and we've got what we've got and we have to manage it as best we can." says Marks.
"Brand is about lots of things. Yes, it starts with a sign over the door, which is an indicator of who owns the shop. But what does that mean to the consumer?"
Research suggests that when you say "Co-op" people think "old-fashioned, dowdy and expensive". But a new fascia won't address this problem and Marks knows it.
"My guess is Mrs Bloggs will still call it the Co-op whatever we call it. But what we are trying to do is say: "Look - we are different, we've changed, we've invested money over the years.' We are now a much more modern business than a lot of people perceive us as. This is our effort to try to raise the profile and get that across to people that we have changed," says Marks.
Of course there is much more to United's business than food retail. This is a business that is on target for sales across its five sectors to pass £32bn in 2005.
It employs 16,000 in the north and Midlands and is the second largest cooperative society in the UK.
However, food retail will undoubtedly be the biggest determining factor in United Co-operatives future development. Food is what most of us think of first when we think Co-op - apart from those glass-half-empty types who may think of funeral services. Marks himself admits that the food retail offering is what United is judged on. "It's our biggest business and it's what consumers know us as," he says.
Despite this, there is no denying that food retailing across all the societies has suffered at the hands of the supermarkets. "When I joined we had 25 per cent of the grocery business," says Marks. "Now we have, collectively, less then 5 per cent.
"We have to draw a line in the sand and say: "No more'," continues Marks, banging his hand on the table fervently. "We are not going to be chased out of the convenience market. We are going to make a stand and we already have." So what's the plan of action? United Co-operatives is now exiting superstores, "because of Tesco", and concentrating on convenience stores and community supermarkets of around 10,000 to 12,000 sq ft. Marks describes these as "a secondary shop for, say, young mums who might go to Tesco once a month but want to top up regularly from a decent range.
"That's the thing - we actually share customers with Tesco and Asda and Morrisons. Customers shop with them and us," he says. While Marks might be happy to share customers with the big superstores, he does not want them coming onto his patch in the convenience store sector. And he wants to bulk up the number of convenience stores United operates to block their way. It all comes back to scale. "I'm very ambitious for our business. We have to grow," says Marks, on more than one occasion. He points to recent acquisitions in the convenience store sector as proof of the seriousness of intent (United has just bought five ex-Safeway stores in the Yorkshire region from Morrisons), as well as United's recent almost-bid for Somerfield.
"We were initially considering buying the whole lot - over a billion pound acquisition - which for us was very big but we felt it was doable," he says, but then goes on to explain that for a "whole host" of reasons they pulled away. "We are still very acquisitive and whoever buys Somerfield - or indeed if it is not sold and they want to sell stores at some stage - we are a potential customer," he says.
United is going to need one hell of a war chest if it is going to fight for a place at the forefront of the convenience store sector through acquisition alone. And, as Marks acknowledges, citing Morrisons as an example, growth through acquisition cannot be done at breakneck speed; periods of consolidation and time to bed down are always needed.
To properly secure its place in the convenience store sector, United needs to sell itself. Whichever society it is run by, the co-op shop is distinct in its offering. It has, to coin a phrase that is often inappropriately over-used, a unique selling proposition (USP).
And yet in a time when corporate social responsibility comes in strictly under the PR banner for a lot of companies, United isn't exactly shouting about its close community ties. A point Marks has to concede: "Some operations have an orchestra and we have a rusty old trumpet that we very rarely get out and blow." He says that part of the rebranding project is about getting across the message that cooperatives are more responsible than other retailers.
But Marks does not concede that USPs like honest labelling and own label fair trade products should be at the forefront of United's offering: "We can't afford to appeal to a niche market and if we go too far down the route of differentiation on the basis of fair trade and responsible retailing we risk becoming niche.
"It's alright being a nice friendly, cuddly, well-meaning business,. But first we've got to get our retail operations sharp, as sharp as the competition. It doesn't matter how good we are in giving things to charities. If we are not good at retailing we will not succeed."
Although he admits "there is no way we can beat them at superstores", there is a bullish air about Marks when he talks about taking on the competition, particularly behemoth Tesco. "I opened a store recently in direct competition to a Tesco store. I knew a Tesco store was there and I've opened one opposite and it's doing well. I don't worry about Tesco. We can take Tesco on and beat them at convenience stores," he says.
The whole thing has a bully-in-the-playground feel about it. Everyone played the game and had their role until the big boys came along and took control of everything. "In the good old days there were corner shops all over this country, but not anymore," says Marks. "And you can thank the superstores for that because they've killed communities. You get a superstore opening on the outskirts of a small market town and what you find then is that in six months time that town has shut down - it's full of charity shops and is a ghost town. That's happening all over the country. Superstores have destroyed communities. They've brought a lot of good things people would argue - food's cheaper than it ever was - but they have brought a lot of bad things as well."
But it's more than that. Marks has been with the society all of his life; he has a lot to thank United for. He has an emotional investment. And that is the key to understanding what makes him tick.
He knows that United Co-operatives needs to build on and strengthen the ties its stores have with their local communities, but at the same time it needs to take on the supermarkets that threaten to eat up share in the convenience sector, though not by becoming just like them. The trick is to trade on its place in the community as a local retailer.
"We are trying to sustain community life, because we have community stores. People identify with their local Co-op store, because it's their community shop. We need to build on that," says Marks.
"We might be seen as old-fashioned and fuddy-duddy but there is also something a bit friendly and warm, we've got an awful lot of loyalty. And we are changing; we are not old-fashioned anymore."

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