The Co-op boss who is on a mission to rejuvenate an iconic organisation

IT IS EASY to see why Co-operative Group chief executive Peter Marks is so excited about the new £180m head office that will open on a 20-acre site in the centre of Manchester in 2012.

The current 1960s 13-storey building across the road seems to be made almost entirely of linoleum and plywood. I have never seen the HQ of Bulgaria’s Ministry of Fisheries, but you get an uneasy feeling that the Co-op’s current head office was modelled on it.

But there is nothing sleepy about the trim and talkative Marks; as we chat, he is standing in his large 12-floor office, pointing to a picture of the new sleek glass and steel head office.

“That new building is an indication to our staff and everyone else of the way we are refreshing this iconic brand,” he says.

The Co-op boss sees this as a fitting home for a diverse, retailing-led business that two years ago bought Somerfield for £1.6bn, making it the fifth largest supermarket chain in the country, and last year took over Britannia building society, boosting its financial services business.

Marks’ staff also deserve a mention. I met five people on the way up to meet the chief executive, and all of them were among the most helpful in any corporate head office I have ever visited.

They all seemed acutely aware of the special place the Co-op holds in British Society.

The Co-op is the largest mutual business in the country, with 5.5m members, who receive a cash payment or dividend based on the points they earn when they trade at any of the group’s businesses.

In addition to its 3,000 supermarkets, the group includes among its units the country’s biggest farmer (tending 65,000 acres), the UK’s third largest pharmacist, and Europe’s biggest funeral service provider. If the firm, which employs 120,000 staff, were a plc, it would fit in the FTSE 30.

The business, which began trading in 1840, still has a political wing, which backs Labour MPs.

The group’s half-year results last month showed impressive growth, considering most of its units are consumer facing. Its profits before payments to members, equivalent to a plc’s pre-tax profit, rose from £221m to £260m, after exceptional items such as store sales. Revenue rose eight per cent to £6.9bn.

The underlying trading profit at its supermarkets – which account for 60 per cent of the group’s sales ahead of its financial services and chemists – was up 12.6 per cent at £169.7m.

Marks says food, financial services, funerals and its pharmacy units “have all done well” during the last six months and, indeed throughout the recession. He says this is because these divisions do not have such a “volatile reaction to the business cycle.” Even its supermarket’s premium Truly Irresistible range is growing “because people are staying in more, but still want to treat themselves.”

TOUGH TIMES AHEAD FOR THE CONSUMER
But Marks is in no doubt that the UK consumer is in for a tough year ahead. He says: “We are coming out of recession. And we expect to see very little growth in the economy. Consumers are about to be hit by a barrage of austerity measures as the government starts to cut back on spending. These challenges will have a dampening effect on consumer spending.”

At the end of this year the supermarket will complete a £2.5bn three-year integration and modernisation programme that has unavoidably interrupted trading.

Marks says: “We have been modernising stores at the rate of 24 a week. And that has had an impact. You have to close stores down for a few days and that causes disruption.”

In food stores that were modernised, half year sales are down one per cent; in stores that traded normally, sales rose 2.5 per cent.

Many critics say the Co-op food estate was due for investment and was falling behind bigger players such as Tesco and Sainsbury’s.

Marks agrees: “Three or four years ago, we were not great, we were declining. The stores were tired and needed investment. I believe that has changed. Our stores are now as good as anyone’s, if not better.”

Co-op has also benefitted from having the right kind of stores. Its supermarket estate is in the main made up of city centre convenience stores of between 2,000 sq ft and 20,000 sq ft, rather than the 50,000 sq ft to 70,000 sq ft superstores its larger rivals have traditionally relied on. However, in the last few years it is the convenience store segment that has shown the fastest growth. Tesco has opened 1,130 Express convenience units, while Sainsbury’s has opened several hundred Local stores in a bid to close the gap.

But Marks remains bullish. He says: “We are not worried about that. We have a lot of reach and experience in this market.”

Marks’ second large integration project is merging Britannia – and its large mortgage base – with his well-regarded Co-operative bank. He is in the first year of a three-year programme here.

He says: “Our aim is to be the most admired financial services brand in the business. We stand for prudence and old-fashioned banking. We were one of the few banks that didn’t have to go to the government cap in hand to ask for a bailout.”

Marks adds: “We don’t rely on wholesale banking to support our lending. In the main those funds come from our deposits.”The Co-op boss says his bank can’t be accused of not lending to small businesses: its annual lending in this area over the last three years has risen from £600m to £1.2bn.

The Co-op covers a wide range of services, but that does not necessarily mean Marks is constantly on the look out for new areas to push into. He says: “We never say ‘never’, but on the whole we are looking to focus on what we do well.”

For instance he has no plans to get into online food shopping, preferring to “concentrate on upgrading our bricks and mortar.”

LEGAL SERVICES EXPANSION
However, he is interested in selling basic legal services. He says: “We already draw up wills, probate and handle personal injury cases for our members. But we think next year there will be plans to deregulate the legal services industry so we can sell these services to anybody. These moves were started under the Labour government, but we understand the coalition plans to carry them out.”

Marks is a Co-op lifer who has worked for the mutual for 43 years after leaving his Bradford grammar school, St Bede’s. He worked his way up through most divisions of the business, before becoming chief executive of United Co-operatives in 2002. He then became chief executive of the Co-operative Group after it merged with United Co-operatives in 2007.

However, 19 other regional Co-ops remain outside his movement. Does he hope they will join the fold? He says: “Do I lay awake at night thinking about this? Not really. We are 90 per cent of the movement, and that gives us the economy of scale we need. That battle has been won.”

Marks also has no plans to retire. He says: “There is a lot to do here. We are on a journey to reinvigorate this iconic brand. In two or three years we will have the business in the sort of shape that we want it. But then there will be other areas we will want to look at. “There are only two directions a business can travel – forward or backwards. It can’t stand still.”

On that note, Marks politely indicates he has another appointment. He is a busy man, with a huge agenda; he is pitted against UK Plc’s most powerful quoted firms. If Marks pulls off his plans, he will have proved that an oft-written off mutual business can triumph. It will be a fascinating tale.

CV | PETER MARKS
Age: 60

Work: 1967 to 2002 – joined Yorkshire Co-op as a management trainee in the food division, going on to manage various divisions; 2002-2007: chief executive of United Co-operatives (following the merger of United Norwest and Yorkshire Co-operatives); 2007-present – chief executive of Co-operative Group (after its merger with United Co-operatives)

Education: St Bede’s Grammar, Bradford

Family: Married, with two daughters

Lives: Bingley, West Yorkshire

Hobbies: Plays drums once a month in a pub rock band – Last Orders