The boss of The Co-operative Group is in no mood to slow down as he seeks to get on terms with the major banking and retail players
I last sat down with Peter Marks in the summer of 2008. It was a year after the merger with United Co-operatives; a few months before the collapse of Lehman Brothers. So much has happened since. The Co-operative Group swooped on convenience retailer Somerfield in 2008; it bought building society Britannia in 2009; and, as Insider went to press, it has been named as preferred bidder to buy nearly 700 high-street branches from Lloyds.
“The bank is respected, but it’s a small player,” he says. “Can we compete against the big five? I think we’ll struggle. Can we grow organically? It’ll be tough. So Lloyds comes along and it’s another opportunity, and that’s why we’ve gone for it. It will transform our bank into a serious player.”
The Co-op reported a 10 per cent drop in underlying operating profits to £275.1m for the six months to July. While its financial services division increased margins, the food and pharmacy businesses were down on the year before. “We’ve had four years of exceptional top and and bottom line growth,” says Marks. “This year we’ll take a slight step back and our profitability will be less than last year, although ahead of the year before.
“There’s the issue of personal pride here, of course,” he adds. “No chief executive wants to see profits going backwards, but you have to be realistic; we are living in unique times.”
Marks continues to invest in the business, while others have been more cautious. Out the window I can see the new headquarters building gaining height; there has been a huge deal nearly every year since 2007; and more on the way. All this is taking place against a tough consumer backdrop, which impacts all of the businesses in the group.
Do they ever stop to refuel, I wonder? “We can’t stop, and I have very strong views about this,” he says. “We challenge ourselves and ask if we are stretching too far, but this business is playing catch up, and our competitors are not sitting around in their boardrooms saying ‘lets give The Co-op a couple of years to catch up’. The world moves on.
“But we are disciplined in what we do and think carefully. I’ve got a strong board who challenge me all the time about things we are doing. Don’t forget, we are not used to all this change as an organisation.”
Change is the only constant in this conversation, as we move from one big deal or project to the next. This year Marks launched Project Unity, which will bring together the central structures of The Co-operative Banking Group, formerly Co-operative Financial Services, and the trading group.
While the financial part of the business is ring fenced, because of its Financial Services Authority’s regulatory demands, reshuffling the back office has great implications for the future. “In the past we’ve had a silo culture,” he says. “Food, pharmacy and funerals have all come closer under the trading group, but financial services was always separate. I joke that it’s 50 yards away; it might as well be 50 miles away. We didn’t really talk.”
The idea is to cross-sell food, travel and pharmacy products to mortgage and insurance customers, and vice versa. The project will also iron out duplication in departments and payrolls. “It’s something we’ll develop over time,” he says. “But people are coming up to me saying they feel part of the family now. We call ourselves a family of businesses; we’ve been a bit dysfunctional if I’m honest.”
Talking about the wider family, I ask about Neville Richardson’s departure earlier this year. The chief executive of the financial services division joined from Britannia in 2009 and had been instrumental in the integration of the business. “I’m not going to comment on individuals leaving,” says Marks. “Neville did a great job integrating Britannia.” I cut in. So is that all done now? “It’s mainly done.”
The Co-operative Banking Group is being run by acting chief executive Barry Tootell. It will concentrate on retail and corporate banking, and general insurance activities, following a deal to sell the life and pensions arm to Royal London. The search for a full-time chief executive for the division will begin once the Lloyds deal has gone through.
With this reshuffling in mind, and the recent merger of Co-operative Travel with tour operator Thomas Cook, is a diversity of businesses still the aim? “It’s all about balance,” says Marks. “You can be too diverse. As we move forward and invest heavily, then capital becomes an issue. Unlike a plc, we can’t issue equity so we have two ways of raising capital: one is profits and the second is borrowing. You have to ask tough questions about what our core businesses will be. The board will continue to appraise the portfolio.”
Marks clearly thrives on all this change, but doesn’t all this integration need an opportunity to breathe?
“You are right,” he says, “you can’t rush at 500 miles an hour all the time, but you have to go at x miles an hour, and you certainly can’t go at zero miles an hour because you start going backwards. The world’s changing; technology is changing, so businesses have to be in a constant state of change – that’s my view anyway.”
Also in: January 2012
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