Will going back to being the Co-op pay dividends?

The Co-operative Group is no more. From now on, it’s just the Co-op. And the blue logo is back too, as the green and yellow livery is retired. 

The rebrand was announced by CEO Richard Pennycook at the Co-op’s agm on Saturday, and swiftly put into practice over the past week. Seven food stores adopted the cloverleaf logo - first used in 1968 - on Monday. In three years’ time, the Co-op aims to have taken the new look to its entire portfolio of 3,750 shops and funeral parlours. But all staff have started wearing new fleeces in the blue colour and all carrier bags will feature the blue clover leaf from this week. Likewise, 632 own-brand products have updated packaging.

The name, logo and colour all hark back to a bygone era for the business. That is exactly what makes it so important, as Pennycook made clear to the 750 members. He stressed it was about far more than adopting a retro look: it was about becoming “the Co-op again”.

This means getting back to what Pennycook sees as the Co-op’s core values - one of which is its membership offering. So from the autumn he intends to make the proposition attractive again. With the axing of the dividend, only half of the Co-op’s 8.5 million members used their cards last year and only a quarter spent the £250 that enables them to vote in the agm. Now members will receive 5% back every time they buy a Co-op own-brand product or service. The Co-op forecasts that by 2018, on top of the return of the annual ‘divi’, it will hand back £100m a year to members.

And, critically, another 1% will go to the customer’s choice of community cause, with as many as 4,500 set to benefit initially. In doing so the Co-op hopes to attract a million more members over the next five years. The membership will account for half of all food sales compared with just 25% now, and there will be consequential growth in own-brand sales and margins. It’s the magic key the Co-op hopes will unlock the door to a secure future.

So will these measures be enough to bring more people back to the Co-op? And what will the focus on own brand mean for branded suppliers?

The spirit of Rochdale

When devising the strategy, Pennycook asked himself what the Rochdale Pioneers - the founders of the first co-operative society in 1844 - would have done to reinvent the business. “They would tell us to be different, to do what others could not or would not do,” he said. They would have “warned against following the pack”.

So its new membership offering won’t be “just another loyalty scheme or data collection scheme” but about putting members and community “back at the heart” of Co-op values - what made it different in the first place. In the words of food CEO Steve Murrells, this membership promise is “the magic ingredient” that can give the Co-op a competitive edge.

Murrells won’t reveal how much he expects overall sales to increase but he is confident the 5% back on own brand will boost the performance of these higher-margin lines. Sales of own brand are already on the up - the category is worth £2.5bn today at the Co-op and represents 48% of all food sales compared with just 40% in 2013. Murrells hopes the relaunch will take this figure to at least 50% or 55%. “We would hope to break through 50% this time next year,” he says.

Own brand will either need to expand or punch above it weight - it currently accounts for 45% of the Co-op’s 5,500 SKUs. And Murrells doesn’t beat about the bush on the implications for brands. “We expect people to buy more own branded products at the expense of some branded areas,” he says. “If we are to call ourselves a real membership business, or society, we think getting 50% of our sales from members and 50% of those sales being on our own-brand products, and services in other parts of the group, will mean, in the mid to long run, more people will join the Co-op because they’ll be enjoying wonderful food products but getting something back as a consequence, and getting something further back to do good in their community.”

Communicating this message will clearly be a priority. The Co-op will be “shouting louder” about everything it puts into creating its own food, Murrells says, and will launch a training programme for all 70,000 staff called Back to Being Co-op. This will help them explain why shopping in a Co-op store and buying a Co-op product is different. “And that is why this is more than just a logo rebrand; this is a real business rebrand.”

Positive reaction

David Sables, CEO of Sentinel Management Consultants, brands the plan “smart”. “This is a positive change and absolutely correct, driving their own label in terms of quality and loyalty - and that is where the margins are for them,” he explains.

But he warns: “No doubt they can pull back on branded further, but they need to be careful, because of the loyalty shoppers have to those brands.” Primary brands look safe on this basis, but secondary and tertiary brands could be “in trouble” he adds.

Ged Futter, director of Innovative Retailing Solutions, doesn’t believe this is a problem for the Co-op. The brands selected to stay will be the ones wanted by local stores and customers, he says. And the rebrand is “brave” but sensible. “If they stand for something in the community, that will give them a difference and customers a reason to go there.”