Co-operative Retail Services Ltd

CONTENTS

Introduction

Co-operative Retail Services Ltd

Consumer Co-op

Allocating the Surplus

Organisation

Pay of Directors and Managers

Reserves

Co-op's Objectives

Accountability of Management

Performance

Notes <..> and References {..}

Relevant Current and Associated Works

Relevant Subject Index Pages and Site Overview

INTRODUCTION

Co-operative Retail Services Ltd is one of the largest UK consumer co-ops and the study looks at its profitability, at the extent to which it serves its members and its democratic processes.

This is one of a series of eight studies of co-operatives and mutual societies which were undertaken to determine causes of failure and reasons for success, to see how these enterprises were controlled and managed, to learn from the mistakes of others. What is taking place is fascinating and often unexpected (See 'Relevant Current and Associated Works').

The main report 'Co-operatives: Causes of Failure, Guidelines for Success' is based on these studies. Its conclusions and recommendations are entirely relevant and cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, management and control (See 'Relevant Current and Associated Works').

CO-OPERATIVE RETAIL SERVICES Ltd

Co-operative Retail Services Ltd (CRS for short) is a consumer co-operative belonging to its members. One becomes a member by paying GBP 1 and so opening a share account.

Net Sales GBP 1.6 bill and Trading Surplus GBP 26.8 mill. About 1,485,000 members but this figure is likely to include many who are not active customers. Over 400 food stores, over 50 non-food stores.

CONSUMER CO-OP

As a consumer co-operative, CRS belongs to its members and is run for the benefit of its members. After paying expenses, its surplus (profit) is divided and paid to members in proportion to their purchases. The more you spend in the co-op, the greater your share of the surplus. The money you receive is your dividend, your 'divi'.

That was the intention, that is how it was. What happens now is different.

The divi has gone.

CRS now attracts deposits by offering its members 'highly competitive interest rates on up to GBP 20,000 in your CRS share account'. Interest rates vary between 3 and 6.5 per cent {CRS 01}

Members with GBP 50 or more in their share account can obtain a Shareholder Card. About 42,000 cards are in use. CRS's non-food stores offer a 5 per cent dividend to members using their cards. These stores turn over about 17 per cent of CRS sales.

ALLOCATING THE SURPLUS

This is how CRS shares out its surplus {CRS 01}:

After paying expenses, GBP 16.5 mill was available for allocating. Members received GBP 1.3 mill while GBP 2.5 mill were donated to different causes. The bulk of the surplus, namely GBP 12.7 mill, was retained in the business.

GBP 1.3 mill, which is 7.7 per cent of the total, was given to a few members (42,000 out of 1,485,000). So it seems that the bulk of the members received no price discounts, no direct benefit from membership.

Almost twice the amount allocated to members was spent supporting different causes instead of directly benefiting members. So I would like to know what causes were supported and how money was spent on 'Member Relations'.

The bulk of the surplus, amounting to GBP 12.7 mill or 77.3 per cent, was retained and added to reserves. Here also I would like to know why members did not receive a direct benefit from some of this surplus.

'Net assets' is the amount of money which would be left for distributing among the owners if everything belonging to the enterprise were sold and all its debts paid. After adding the GBP 12.7 mill to reserves, CRS's net assets are GBP 492 mill.

ORGANISATION {CRS 01-03}

Each member having one fully paid up share (GBP 1) is entitled to one vote. This is one vote per member and not one vote per share.

There are 26 regions each of which has a regional committee elected by and from members in that region. These regional committees 'oversee' the society's local activities.

A regional committee may nominate one of its members as a candidate for election to the Board of Directors. It seems to be the committees which elect the Board of Directors. <2>

The Board of Directors consists of 12 members. It is this which controls the Society's activities.

There is also a General Council which meets twice a year. Here 'regional committees come together', 'motions are discussed', and regional representatives 'meet with' the Chief Executive Officer and the Board of Directors.

It looks as if its purpose is being described as a kind of talking shop.

What you would expect to see in a democratic organisation would be meetings at which delegates discuss matters of importance to their regions and by voting on motions decide policy for the society as a whole. Deciding policy which would have to be implemented by the society's directors and senior executives.

We are also told that 'the Society introduced a vertical management structure to take the place of a largely decentralised structure in which each of its regions operated almost as a separate society'.

More levels of management and more direction from the top, which is what these structural changes seem to mean, do not as a rule improve matters but make them worse.

Employees are encouraged to become members of the society. However, the number of employees on any one committee is limited to two, because

'unlike a worker co-op, a consumer co-op exists primarily to serve the interests of its consumer members.'

PAY OF DIRECTORS AND MANAGERS

Directors can receive a 'nominal' fee for their service. {CRS 03}

A new management salary structure was introduced in 1993, presumably when a vertical management structure was introduced to centralise control <1>. A performance appraisal scheme was also introduced 'designed to reward middle and senior managers according to their work performance'. {CRS 02}

The term 'work performance' can mean whatever you want it to mean and it can also mean that what is being rewarded is obedience to, and rigidly applying and enforcing, decisions made at the top.

RESERVES

We saw in 'Allocating the Surplus' that

'Net assets' is the capital which would be left for distributing among the owners if everything belonging to the enterprise were sold and all its debts paid. After adding the GBP 12.7 mill to reserves, CRS's net assets are GBP 492 mill.

Co-ops find it more difficult to raise capital as they do not have shareholders who can be asked to buy more shares. Yet much capital is required to update facilities, to open new superstores, supermarkets, shopping centres.

CRS has been obtaining capital largely from its share accounts scheme and by retaining profits.

The use of these large sums is apparently controlled centrally. And I have the impression that this co-op has done well in building new supermarkets and stores and in updating them.

CO-OP'S OBJECTIVES

The co-op's key social objectives {CRS 02} would appear to be:

Consumers

"Offer high quality goods and services to customers at the lowest possible prices by the efficient management of the Society's human, financial and material resources."

Members

"By the efficient management of the Society's resources to provide a fair return, with maximum security, on members' investment."

But hold on. It would be better to leave out the statements about how good they are or would like to be:

Consumers

"Offer high quality goods and services to customers at the lowest possible prices ..."

Members

"... provide a fair return, with maximum security, on members' investment."

"Provide an economic benefit for members trading with the Society."

"Encourage the involvement of members in the democratic control of the Society on the basis of one member, one vote."

Employees

Maintain the best possible working conditions and an exemplary working climate.

Pay wages commensurate with the job description and in accordance with performance.

As regards customers and employees, such statements could have come from any other company. I do not have the information to assess whether these nice-sounding phrases are mere hype or serious objectives which the co-op is striving to attain. But this is a co-op and I prefer to think that it is in fact putting people before profit.

As regards members, something more specific, more tangible, than just 'a fair' return or merely 'a ... benefit' is required. Members are owners and economic surplus (profit) should benefit them in one form or another.

It seems that members gain little in the short term. Re-invested profits show up in co-op accounts but do not directly benefit members. And it looks as if members lost interest, are not very involved in the affairs of their co-op.

The objective about encouraging members to take part in the control of the society does not say 'come to our meetings, get involved, we need you to run and manage this co-op'. It in effect says 'come and vote'.

To me such objectives are an indication that the co-op may be ceasing to be relevant to its members in their daily struggle for existence and a better life, that it is not providing them with goods at near-cost price by cutting out the middlemen.

Quoting CRS {CRS 04}:

"... today's CRS ... has come a long way from those early co-operative pioneers and has transformed itself into a business, ..."

There are, however, other considerations. It seems CRS's efforts are fragmented possibly because it has taken over smaller ailing co-ops. It has many part-time employees particularly in areas of high unemployment. And I have the impression it has kept going in community-orientated locations and not just concentrated on prime sites.

ACCOUNTABILITY OF MANAGEMENT

One would like to have information about how policy is decided, how it is implemented, and how those who make the decisions are held accountable for what they do and for what they fail to do.

How are directors appointed and rotated? Are directors' meetings open to all members? If not, why not? Are directors attending meetings regularly? Are they deciding policies in accordance with the wishes of the members or according to their own likes and dislikes? Can they draw on independent advice as and when required? And so on.

Who appoints the chief executive and senior executives? How are they appointed? How and how often is their performance evaluated?

How does the co-op ensure that its directors, executives and managers believe in, wish to apply and advance co-operative principles and practice?

PERFORMANCE

NOTES AND REFERENCES

NOTES

<1> See section on 'Organisation'

<2> I have no detailed information on this.

REFERENCES

{CRS 01}   Directors' Report & Financial Statements for year ended 27 January 1996,

Co-operative Retail Services Ltd

{CRS 02}   Social Report (1994),

Co-operative Retail Services Ltd

{CRS 03}   CRS - Part of the Co-operative Movement,

Co-operative Retail Services Ltd

{CRS 04}   Towards 2000,

Co-operative Retail Services Ltd

Relevant Current and Associated Works

MAIN REPORT

CO-OPERATIVES: CAUSES OF FAILURE, GUIDELINES FOR SUCCESS

Manfred Davidmann
https://www.solhaam.org/

ASSOCIATED CO-OP STUDIES
Manfred Davidmann
https://www.solhaam.org/

1. The Trustee Savings Bank Give-Away
2. Credit Unions
3. Building Societies
4. Co-operative Retail Services Ltd
5. 5a. Co-operative Wholesale Society Ltd
5b. Co-operative Bank PLC
5c. Co-operative Insurance Society Limited
6. John Lewis Partnership PLC
7. Mondragon Co-operatives (Mondragon Corporacion Cooperativa)
8. Kibbutzim

Other relevant current and associated reports by Manfred Davidmann on leadership and management:

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