On the move: Marks transformed Co-op but more change needed
Co-op has been losing market share
Peter Marks, the outgoing chief executive of The Co-operative Group, gave the UK retailer its shot at the country's grocery big league.
The announcement yesterday (7 August) that the 63-year-old Marks plans to retire from The Co-op next May raised eyebrows. It came just three weeks after The Co-op agreed one of the most significant takeover deals in its history: a deal to boost its banking business with the acquisition of over 600 Lloyds branches.
Naturally, a lot of the national media comment in the last 24 hours has focused on the impact Marks' departure could have on the deal.
However, with food being The Co-op's largest business in terms of sales and profits, it is worth looking at just how the retailer's grocery division changed in the six years Marks was chief executive.
The way Marks joined The Co-op provides insight into the first major change to the retailer in recent years. Marks became The Co-op's chief executive after it merged with fellow mutual retailer United Co-operatives in 2007. Under Marks, a year later an enlarged The Co-op then went about bringing all its outlets under its namesake brand. The move gave The Co-op a unified identity and helped to build, in consumers' minds, a single brand.
2008 was also the year of the other major change to The Co-op's food business under Marks - the deal to buy Somerfield.
"This deal will propel us into the Premiership of food retailing," Marks told just-food that July after The Co-op had announced a GBP1.7bn agreement to buy Somerfield.
Marks saw the UK's Big Four food retailers becoming a Big Five and argued the takeover of Somerfield would create a powerful position in the convenience channel.
The acquisition of Somerfield was a sound move strategically. It gave The Co-op more scale in a market where it faced and still faces the might of Tesco, Asda, Sainsbury's and Morrisons. It also beefed up its convenience estate at a time when the likes of Tesco and Sainsbury's were making serious inroads into the faster-growing convenience channel.
However, even in the immediate aftermath of the deal being announced, analysts were asking how easy it would be for The Co-op to digest Somerfield and for it to compete with its larger rivals.
Marks has since admitted The Co-op found the integration of Somerfield a challenge, not least with stores needing to be closed and converted in the teeth of the worst recession for a generation, with consumers being less loyal to chains and with its rivals continuing to fight for share of the convenience market. The takeover also led to challenges with the retailer's systems and processes but Marks maintains the acquisition was a "wonderful deal" for The Co-op.
"We had a plan when we acquired Somerfield to create one business in two years. We have achieved that," Marks said after The Co-op reported its annual results in March, a set of numbers that included a fall in sales and profits from its food division. "Integration is always a challenge and we have come through that extremely well."
However, even though The Co-op deemed the integration of Somerfield complete, the last year has been a challenging one for the retailer in the food sector. Last August, Marks said trading conditions in the UK had been "the worst I had seen in 40 years of retailing" and The Co-op has sought to revamp parts of its food operations. In January, it appointed Steve Murrells, the chief executive of UK meat processor Tulip, to become CEO of its food business.
Murrells' CV includes a stint at Tesco, where his roles included commercial director for its fresh foods business and CEO of c-store chain One Stop. He also held buying and trading roles at Sainsbury's.
It is unclear whether Murrells would be in the frame to replace Marks. The Co-op said yesterday it would consider candidates from within and outside the company. However, looking ahead, Murrells' and The Co-op's broader task in food is, analysts say, to sharpen up their stores and fight the likes of Tesco and Sainsbury's on price. Kantar Worldpanel data shows The Co-op has been losing market share and there are concerns its stores look tired in comparison to its competitors.
"I do think that the business is in need of some serious investment," Conlumino analyst Joseph Robinson says. "There needs to be another step-change."
Robinson points to the "issues" The Co-op has had with stocks and the need to compete more on price. "The Co-op can be quite uncompetitive on price compared to its peers." Fighting the likes of Tesco, Sainsbury's, and now Asda and Morrisons, two other retailers expanding into convenience will be tough.
The Co-op has always been seen as one of the more ethical retailers and, although such considerations have perhaps seemed less important to consumers amid the UK's double-dip recession, issues like Fairtrade continue to resonate - the problem for The Co-op is that rivals like Sainsbury's continue to invest in these areas and promote their own credentials.
Marks, then, has made his mark on The Co-op, particularly in food. However, as the retailer prepares to say farewell to a man that has spent over four decades in the co-operative "movement", it must look ahead to an increasingly competitive future.
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