Co-op Study 4

Co-operative Retail Services Ltd

by Manfred Davidmann



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}:


CRS 1995/96   GBP mill     GBP mill     GBP mill
               
Surplus for year available for allocating           16.468
               
               
Grants and Donations            
      Education & 'Member Relations' Grants   1.465        
  Political   0.464        
  Other Grants and Donations   0.541        
  Total       2.470    
               
Members' Benefit            
  (5% card discounts on non-food items)       1.266    
               
Retained Surplus for Year       12.732    
               
Total Allocated       16.468    
               
               
               
Net Assets (ie total shareholders' funds)   491.957        


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

Over 400 food stores, over 50 non-food stores.
Net Sales GBP 1.6 bill, Trading Surplus GBP 26.8 mill.
         
         
         
CRS 1995/96     GBP mill     GBP mill
           
Surplus for year available for allocating       16.468
           
           
Allocated as follows:        
           
Grants and Donations        
      Education & 'Member Relations' Grants        
  Political        
  Other Grants and Donations        
  Total   2.470   (15.0 %)
           
Members' Benefit        
  (5% card discounts on non-food items)   1.266   ( 7.7 %)
           
Retained Surplus for Year   12.732   (77.3 %)
           
Total Allocated   16.468   (100 %)
           
           
           
           
Net Assets (ie total shareholders' funds)       491.957
       
       
       
Ratio        (Trading Surplus)/Net Sales = 1.72 per cent
   
   
   
Notes  
1 Net Sales = Turnover - VAT
2 Gross Profit = Net Sales - Cost of Sales
3 Trading Surplus = Gross Profit - Expenses



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
http://www.solhaam.org/

ASSOCIATED CO-OP STUDIES
Manfred Davidmann
http://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:

Title   Description
     
Directing and Managing Change     How to plan ahead, find best strategies, decide and implement, agree targets and objectives, monitor and control progress, evaluate performance, carry out appraisal and target-setting interviews. Describes proved, practical and effective techniques.
     
Style of Management and Leadership     Major review and analysis of the style of management and its effect on management effectiveness, decision taking and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent.
     
Role of Managers Under Different Styles of Management     Short summary of the role of managers under authoritarian and participative styles of management. Also covers decision making and the basic characteristics of each style.
     
Organising   Comprehensive review. Outstanding is the section on functional relationships. Shows how to improve co-ordination, teamwork and co-operation. Discusses the role and responsibilities of managers in different circumstances.
     
Work and Pay   Major review and analysis of work and pay in relation to employer, employee and community. Provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of National Remuneration Scales and of the National Remuneration Pattern of pay and differentials.
     
Work and Pay: Summary   Concise summary review of whole subject of work and pay, in clear language. Covers pay, incomes and differentials and the interests and requirements of owners and employers, of the individual and his family, and of the community.
     
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and community leadership, on the world-wide struggle for social accountability.
     
Social Responsibility and Accountability: Summary   Outlines basic causes of socially irresponsible behaviour and ways of solving the problem. Statement of aims. Public demonstrations and protests as essential survival mechanisms. Whistle-blowing. Worldwide struggle to achieve social accountability.
     
Motivation Summary   Reviews and summarises past work in Motivation. Provides a clear definition of 'motivation', of the factors which motivate and of what people are striving to achieve.
     
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
     
What People are Struggling Against: How Society is Organised for Controlling and Exploiting People   Report of study undertaken to find out why people have to struggle throughout their adult lives, in all countries, organisations and levels, to maintain and improve their standard of living and quality of life. Reviews what people are struggling against.
     
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
     
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
     
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
     
Ownership: Summary   Ownership means control, means decision-taking. This short review covers where the right to ownership comes from and how it is exercised. Ownership of land, means of production, and wealth. Ownership in relation to incomes, need, and human rights.
     
The Right to Strike   Discusses and defines the right to strike, the extent to which people can strike and what this implies. Also discussed are aspects of current problems such as part-time work and home working, Works Councils, uses and misuses of linking pay to a cost-of-living index, participation in decision-taking, upward redistribution of income and wealth.
     
Using Words to Communicate Effectively   Shows how to communicate more effectively, covering aspects of thinking, writing, speaking and listening as well as formal and informal communications. Consists of guidelines found useful by university students and practising middle and senior managers.
     
Exporting and Importing of Employment and Unemployment   Discusses exporting and importing of employment and unemployment, underlying principles, effect of trade, how to reduce unemployment, social costs of unemployment, community objectives, support for enterprises, socially irresponsible enterprise behaviour.
     
Transfer Pricing and Taxation   One of the most controversial operations of multinationals, transfer pricing, is clearly described and defined. An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates. Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.
     
Inflation, Balance of Payments and Currency Exchange Rates     Reviews the relationships, how inflation affects currency exchange rates and trade, the effect of changing interest rates on share prices and pensions. Discusses multinational operations such as transfer pricing, inflation's burdens and worldwide inequality.

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Relevant Subject Index Pages and Site Overview


The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.

To see the Site Overview page, click Overview

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Copyright    ©    1996    Manfred Davidmann
All rights reserved worldwide.

History
21/11/96 Completed
17/03/97 To Website
02/06/02 Added 'Relevant Current and Associated Works'