The world's largest consumer-facing co-operative society is officially formed tomorrow. The as-yet-unnamed society brings together the UK's number one and number two co-operative societies, The Co-operative Group and United Co-operatives, and will boast a £9.4bn turnover, 87,500 staff and 2,249 food stores.

But what does the mother of all mergers mean for the co-operative movement and does it bring it any closer to a single, 'super' co-op?

The union is a milestone for a movement that has already done a lot to turn its fortunes around after a long period in the doldrums following the big box multiples' expansion into convenience.

In 2005, the Co-op Group reported like-for-like sales down 3.1%. In the year to 13 January 2007, this had turned into like-for-like sales growth of 4.4% . There have also been positive financials from many other societies this year.

"The sector is riding on the crest of a retail wave as years of fine-tuning of its store portfolio, food offer and branding fall into place," says Patrick Mitchell-Fox, senior business analyst at IGD. "Everything is coming together now. The co-ops are successfully managing their store portfolios, developing their formats and capitalising on the growing trends of premiumisation and local retailing."

Spearheading much of the co-ops' reinvention has been the Co-operative Group, which believes the new merger will further rejuvenate the movement. Peter Marks,, the new society's CEO and former United boss, has already promised higher profits on the back of increased market share, better stores, better value and better service.

But the ultimate goal is to create a super co-op, he maintains. "This nonsense of 40 separate societies trying to do things together just doesn't work," he says. And the only way to achieve this is through further mergers and acquisitions.

Over the past year there have certainly been plenty of those - though not all have come off, Raunds Co-op's proposed merger with Midlands Co-op, for instance. But more are inevitable, say experts. "The smaller societies simply won't have an option against bigger retailers," says James Flower, analyst at Verdict. Yet, while some of the smaller societies believe consolidation is a good thing, they are not convinced about the merits of a super co-op.

"I believe the creation of this new society will help to increase retail market share and have a positive effect on the UK movement," says Ben Reid, chief executive of Midcounties Co-op. "But we are committed to being an independent business."

The message is the same from the Plymouth & South West Co-op. "The merger is good news as it will improve lines of communication, drive out inefficiencies, provide best practice to other co-ops, and give the movement a feel of a national retailer while allowing [smaller] co-ops like us to continue to serve the local communities," says a spokeswoman. "But we have no plans to join them in the future. They have enough to do to integrate the two great businesses without detriment to them and the movement."

Instead of a single co-op, there should be regional groupings, believes Richard Samson, chief executive of East of England Co-op. "Having amalgamated the two largest societies, the structure of the rest of the co-op movement starts to look fairly sensible, with a small number of regionally based societies beginning to assert themselves in their own regions, without having too much overlap with the enlarged Co-operative Group," he says. It would make sense for societies with a turnover of less than £100m to become part of regional groups, he suggests.

Tony Gudgeon, CEO of the Chelmsford Star Co-operative Society, echoes Samson's sentiment. "I don't see one single society as a cure for all ills," he says. "But I do envisage further consolidation into six or so regional groupings and Chelmsford could at some point in the future feature in a regional arrangement."

Another potential obstacle to the super co-op concept is 'The Co-operative' fascia, launched in 2005 by the Co-operative Group in a bid to unify the movement and now being rolled out across Co-operative Group and United stores.

Following trials among the smaller co-ops, societies such as East of England and Scotmid have turned their back on the new look in favour of their own fascias.

Others may take a different view in light of the latest Co-operative Group data. In the 208 stores it has converted to the new fascia, weekly sales have increased on average by more than 15%.

However, the benefits of staying small may be seen to outweigh the benefits of joining a larger society. "Scale is important, but the smaller co-ops must be careful not to leave behind other benefits," warns Mitchell-Fox. "They already benefit from the Co-operative Retail Trading Group, but may not want to be so quick to give up their regional focus."

So, while most view tomorrow's merger as something that will rejuvenate the movement, many stop short of advocating the super co-op concept. "It is not for us, or the new society, to suggest that others join the enlarged society, but for the members of those societies to decide how best they can promote co-operation locally," says Dame Pauline Green, chief executive of Co-operatives UK.

"The enlarged society has the opportunity to demonstrate how a national, co-operative business can meet the demands of the 21st century. Other societies may well like to buy in to this too."

Multiples: watch this space.nMergers and acquisitions

July 2007: Raunds Co-op members narrowly reject merger with neighbouring Midlands Co-op

February 2007: East of England buys Anglian Convenience Stores, adding 20 stores to its portfolio

January 2007: Leeds and Sheffield co-ops merge with United

January 2007: Midcounties Co-op acquires Stars News Shops, which has 150 stores

August 2006: Southern Co-op buys RNS Holdings and Greenstead Developments , gaining 14 stores

November 2006: Ilkeston and Midlands co-ops merge

October 2006: Ipswich & Norwich and Colchester & East Essex co-ops merge to create East of England Co-op

March 2006: Brixham and Plymouth & South West co-ops merge

September 2005: Oxford, Swindon & Gloucester and West Midlands merge to create Midcounties, UK's fourth-largest co-op

May 2005: United Co-op admits it is interested in bidding for Somerfield, but pulls out a month later

Topics