The Co-op Rebuild Plan: Strategy and Governance

828 words (3 pages) Essay

25th Apr 2018 Accounting Reference this

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Current position of the company;

3 Year Re-build Plan

Co-op is currently in the midst of its 3 year rebuild plan which was first presented in 2014 following the financial crisis related to their banking division. Since then there has been a large investment into their workforce with as many as 5,400 managers attending “Being a Co-op Leader” events and over 70,000 members embarking on “Back to Being Co-op” sessions intending to revitalise and reassure them.

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There has also been a focus on ‘giving back’, instances of this include a partnership with the British Red Cross which has already raised over £1m in a span of 8 months raising awareness of loneliness and isolation as well as their commitment to increase their number of British suppliers. Backing British is a cornerstone of the Co-op’s food strategy and the retailer has pledged to increase the number of small suppliers it works with to 1,200 by the end of 2017.

These are part of a number of aims Co-op has committed to achieving in the near future including;

  • Aiming to double their number of local UK suppliers
  • Aiming to make 80% of packaging used recyclable by 2020
  • Investing a minimum of £1.5bn in sourcing of UK meat and vegetables

Co-op’s current focus lies in providing a ‘convenience, own-brand led shopping experience’ which has result in the sale of 298 of their smaller food stores to McColl’s Retail Group plc. This was spurred on by like-for-like sales growth of 4% in the year to April 2016.

As part of this they have introduced a new membership reward scheme which launched in October 2016. Over 500,000 people have paid £1 to join the new Co-op membership scheme (over 250,000 people have taken out full membership and over 250,000 have taken out temporary cards)

Research conducted by the company has concluded that ‘engaged customers are more likely to spend more and are less sensitive’ to price changes. As such the new membership is designed to get members engaged with all Co-op subsidiaries due to the blanket 5% cash back reward for any purchases made of Co-op products or services. This will be the UK’s biggest mutual and is estimated to hand back £100m in 2018.

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A further 1% will benefit local causes through a new community reward scheme. The Co-op has identified 1,500 communities around the Food stores and Funeral care homes in its trading areas where members will initially choose the local cause they want to support from a list of three selected by colleagues in that community.

The scheme is backed by a commitment to stretching targets. By the end of 2018 The Co-op is aiming to:

  • Recruit one million new members
  • Increase the percentage of sales coming from members to 50% from around 20% currently
  • Return an additional £3m in benefits to producer communities operating under the Fairtrade scheme by extending sourcing commitments
  • Make digital work for members across our businesses and seeking new digital opportunities to Co-operate in communities

Over the first 10 weeks of the trial and based on year-on-year comparisons, transaction numbers, turnover and the sales of the Co-op’s own-brand product range have all seen marked increases. The net affect has been that almost £100,000 has been generated through the 1% community element in support of local good causes.

Co-op Governance

In response to the previous financial crisis as part of their first Annual General Meeting a vote was passed to ensure that the board of directors will include a majority of independent directors as well as three positions for member-nominated directors. The new rules were introduced to also protect against de-mutualisation.

The recent elections at the last AGM in 2016 were aimed at strengthening their governance and oversight. The overview of appointments were;

  • Margaret Casely-Hayford and Hazel Blears were elected as Member Nominated Directors to represent members’ interests on the Group Board.
  • Lord Victor Adebowale, Simon Burke, Peter Plumb and Stevie Spring were elected as Independent Non-Executive Directors.
  • Richard Pennycook and Ian Ellis were elected as Executive Directors.

CEO Richard Pennycook has also requested that his remuneration package be reduced substantially as a result of the company turning a corner from ‘rescue’ to ‘rebuild’ and that the current ‘calm waters’ do not necessitate his current remuneration. Following discussions, and with the full agreement of the Board, his maximum total remuneration will fall by nearly 60% falling below organisational median for his position.

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