Thursday 10 April 2014

Myners’ striking at core Co-op issues...

Euan Sutherland argued that democracy and values might be vital, but without radical change the whole future of the Co-op business was at risk.

By implication, Lord Myners’ resignation endorses that view.

In practice, the Co-op will not go bust, but may break down into separate societies, each operating and buying without the benefits of scale, and as a consequence becoming less attractive to suppliers in terms of being a counter to the power of the major multiples…

The BBC quotes the Midcounties submission to Lord Myners' re-organisational recommendations: "Among the independent consumer co-operative societies, it is demonstrably the case that it is the most democratic that are the most successful in commercial terms, not the reverse."

No one is claiming that democracy in business does not work, it just takes longer…

And, as even the most consultative CEO’s know - and their teams accept - in crisis conditions a degree of temporary autocracy is essential…

If the Co-op really wants to perform commercially, it means being able to deliver an acceptable ROCE – not the currently depressed 5-10% level currently being delivered by the UK major multiples, but more akin to Walmart’s 19% - a combination of 5% Net profit and a stockturn of 10+ times/annum.

As anyone with commercial experience knows, producing an acceptable surplus of sales over costs – i.e. a source of funds for investment in the business and sharing with members – means aiming at 10% net profit and achieving 5%...

Suppliers are prepared to invest in suitably qualified trade partners a combination of retail margin (25+%), free trade credit of 45+ days, trade investment of up to 20% of retail purchases, and even suffer up to 7% deductions off invoice for failure on their part to meet professional retailer agreements...

All the supplier require in return is fair-share treatment, retail professionalism and 100% compliance, a standard even the major multiples find onerous…

If the Co-op wants a place at the table with the major multiples, and to be treated as a serious ‘invest’ player by key suppliers, it needs to perform commercially, and deliver standards of compliance comparable with other retail players…

A focus on the bottom line can help drive the business in the short term, and managing a gradual improvement in ROCE will provide a longer time-frame, each demonstrating to suppliers that the Co-op qualifies for longer term investment, and means it..

Unfortunately, a £2bn loss is not the best place to start…

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