How Company Shop was turned around

The fresh produce section of Community Shop in Hoyland, Barnsley, resembles that of any convenience store. Packs of apples and cabbages rub shoulders with fresh turmeric, lemongrass and more. It’s only when you see the prices – 20p each – that it becomes clear this is not your average local store.

Community Shop was the UK’s first ‘social supermarket’, a not for profit offering heavily discounted groceries to its means-tested members in some of the country’s most deprived areas. And on one level it’s a sad reflection on the impact of the cost of living that Biffa has opened seven more Community Shops in the three years since it acquired Company Shop Group – Community Shop’s parent – with the Hoyland store, which opened in July, the 13th.

On the other hand, these openings have only been possible because of Company Shop’s other arm. It too has a strong purpose-driven mission, sourcing and redistributing food surplus at prices that are about 50% cheaper than normal, in 14 supermarkets. And they are also member based, open only to employees from the food and drink industry, as well as emergency services, social care and those on benefits. But crucially, it’s a for-profit business. “And the two arms are symbiotic. Company Shop and Community Shop support one another,” says Owen McLellan, the MD of Company Shop Group.

The Barnsley-based business also provides an invaluable service for suppliers. It’s the UK’s leading redistributor of surplus food and household products, taking products destined for landfill, anaerobic digestion or animal feed and makes some form of intervention – from relabelling and repackaging to X-ray and metal detection – before selling them in either Company Shop or Community Shop stores.

Hundreds of thousands of donations

According to the group’s 2023 impact report, Company Shop Group redistributed the equivalent of 108 million meals last year, the largest in its 50-year history. And the logistics are highly complex. Whereas typical supermarkets deal with a product range in the tens of thousands, because it accepts stock of all types from all retailers and suppliers, Company Shop’s range can be in the hundreds of thousands. The group relies on a mixture of donations – all of which are sold in the not-for-profit Community Shop arm and reinvested in its operations – and paid-for surplus that’s sold in its for-profit Company Shop supermarkets.

“It’s fair to say we see ourselves as a commercial organisation,” says McLellan. “But for a long time we’ve talked about ‘profits with purpose’. Food waste is difficult. All the pre-packed food that’s being redistributed, the charity sector’s really great at that. The future is the more complicated, half-done stuff. And to access that and provide an outlet to industry you’ve got to be able to invest. So as a commercial organisation we will take those investment decisions.”

However, it’s not all been plain sailing since Biffa’s acquisition. There was a recent period where the ‘profits’ part of ‘profits with purpose’ disappeared entirely. In the financial year to April 2023, despite £83m sales, the group recorded a £1.8m loss.

“It was two things really,” explains McLellan, who was brought in as MD in 2023 to turn it round. “Covid was very difficult. And then, we shouldn’t shy away from it, the business was family-run for 40 or 50 years and then Biffa bought it because they thought it’s a great fit. As a result, the family and the guys that ran the business stepped away. So you’re left with a business that’s struggling a bit coming out of Covid and you’ve lost the institutional knowledge that was there.” Knowledge that was needed to run and grow this most complex of operations, amid heightened demand.

Gary Stott, executive chairman of Community Shop, recalls that while it was “definitely getting more professional, there was a period where we thought a bit like a normal retailer in terms of just buying product. We took our eye off the ball on making sure we are fundamentally a purpose-driven organisation. But I will cut us a bit of slack here, because this was at the same time as the entire globalised food supply chain was in chaos.”

“What’s led to more donations is that we became a bit clearer in our brand proposition”

Gary Stott

McLellan’s turnaround aimed not only to return Company Shop to profitability but to provide greater support to communities during the cost of living crisis.

And both objectives have been met, with a remarkable reversal from a £2m loss to a £5m profit in the space of about 18 months. So how has the Company Shop turned around its fortunes? And what does the future hold?

Initially recruited from Morrisons as finance director, McLellan says the first part of the turnaround was finance-led. “It’s rationalising, understanding costs, focusing on the right metrics and all that good stuff. We did the basics and have grown from there.”

 

Modernisation

Along with estate rationalisation – which saw one Company Shop supermarket close – a key part of the process has been improving store experience. Currently, 21% of Company Shops have been refurbished, with another 21% in progress.

The store rationalisation was “a difficult decision, but the right decision” because it has “meant the shopping trip is better across every other store. So despite taking out some of our square footage we’ve seen sales grow by 47% in the past two years.”

In contrast working on the look and feel of the stores was “dead easy” . “Making it feel less like a surplus shop and more like a supermarket is the right answer. The customers feel it, the colleagues feel it. There’s not been any silver bullets, it’s just been good, honest, professional retailing.”

The group has also focused on driving more customers and baskets with a price-match scheme that checks 10,000 prices per week, along with investment in accessibility of deals. Selling beer at eight cans for £5 rather than 15 cans for £10 saw sales improve over 100%.

“Nowadays, people and organisations actually want to shout about the great work they do”

Charlotte Slack

The company also developed a new brand strategy because, says McLellan, “there’s no point talking to the industry about food waste but not talking to your customers about it, so we’ve been trying to help our members understand what we’re about a bit more.

“And working with the industry to unlock more product, that’s how we’ve grown top line. We’ve got more product in, we’re more relevant in the industry and they like working with us, which means we’ve got more exciting stuff for our members. And that creates a virtuous circle.”

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According to head of partnerships Charlotte Slack, a key ingredient has been the shift in perception within the industry when it comes to food waste.

“When I started 10 years ago, surplus, redistribution, waste, and us as an organisation, were the industry’s best-kept secrets. Whereas now, people and organisations actually want to shout about the great work they do,” she says. “There are so many challenges our partners face, but alongside them is this desire to be more sustainable. That has definitely supercharged what we do.”

Crucially increased engagement from partners has also been good news for Community Shop, which saw a 70% increase in stock donations in the year to April 2023.

“I think what’s resulted in more donations is that we became a bit clearer in our proposition,” says Stott. “We went through a pandemic, a cost of living crisis, a war on mainland Europe. These were back-to-back hits on the retail sector. And of course, all those same things meant Community Shop was even more important to the communities it serves.

“So Community Shop did play a role in the company’s turnaround, because it highlighted to us and our 800-plus partners that Community Shop was providing a vital service, and that’s increased our profile both internally and externally.”

Charity challenge

With that increased profile, though, comes increased scrutiny, and some in the redistribution sector have taken issue with some parts of the group’s business model. It’s been suggested for example that paying for some of the surplus it receives – to the tune of £47m last year, according to its impact report – means food that might have gone to a charity instead finds its way on to Company Shop’s for-profit shelves.

“I can’t say yes or no. That comes down to the suppliers’ choice, and there may well be times where the supplier thinks: ‘Yes, I do want a return on this,’” says McLellan. “So yeah, I’m sure there are times when that happens, but when we get surplus we can’t do anything with, the best thing we can do is support a charity with that. We talk to the other redistribution organisations all the time. We quite often get on the phone and say: ‘Look, we’ve got X, Y and Z. Do you want that?’”

McLellan admits he hadn’t appreciated how competitive food redistribution is before coming in, but as with many leaders in the sector, he’s keen to offer a rallying cry around co-operation and solidarity. “Competition is not the answer. We’ve no interest in a charity struggling as a result of an action we’re taking. So that’s another reason our focus is on solving food waste issues, because the charity sector typically can’t invest in machinery and building the capacity to do that, but we will. And more and more the redistribution sector is trying to work together.”

“There’s not been any silver bullets, it’s just been good, honest, professional retailing”

Owen McLellan

With the company back in the black, the group is in a better position than it has been for some time to reinvest in those solutions. But also in Community Shop. The plan is to open two to three more per year, while Community Shop has also produced a white paper with policy recommendations that it will present in parliament later this month.

As to McLellan, with the turnaround complete, he will leave his role later this year. But the group’s plans “have become way more ambitious” off the back of its recovery, he promises. “In the short term, it’s about continuing what we’re doing, getting better at what we do. In the future, expansion. This company will never be 500 stores big, but the one side of the business that will definitely grow physically is Community Shop.

“There will always be communities in need, it’s a sad state of affairs. And there’s a queue of people now saying to us: ‘We’d love to work with you to open more.’ We’re working with some very big, household brands to do that in the near future. So if the industry wants it, we’re there, we’re ready.”