Business review


2011 was a challenging year for the food retail market, primarily because it was a very difficult year for customers.  With increased economic uncertainty and challenges in the UK, overall national food volumes decreased for the first time in many years.

Given these external challenges, results for The Co-operative Food were in line with forecast.  Operating profits before significant items were down 20% from £388.6m in 2010 to £309.4m in 2011.  Sales were down 2.1% on a like-for-like basis, while inflationary increases added over £60m to the business' cost base. 

2011 LFL quarterly analysis

Q1 Q2 H1 Q3 Q4 H2 FY
(4.9%) (2.5%)  (3.6%) (0.7%) (0.2%) (0.4%) (2.1%)

With the economic uncertainty set to continue, the outlook for 2012 looks as challenging as 2011.  However, the predicted growth in both the convenience and small supermarket channels is forecast to be above overall food sector growth in the next five years. The Co-operative Food’s 2,801-strong store estate serves 14.5m customers every week; industry data show that 60% of the population shops in a Co-operative in a year. 

To fulfill its potential, The Co-operative Food has set out to ensure its stores are ‘right for the customer’, with new products developed to meet changing customer needs.  The business has also invested in remodeling its supply chain, infrastructure, systems and processes to improve availability on a consistent basis.  Meanwhile the business is taking a lead, via its ethical strategy, on key social issues of importance to our customers such as healthy eating and animal welfare.

A priority for the Food business has been to gain a deeper understanding of its customers in order to anticipate and satisfy their needs. Customer research has indicated some scope for improvement in product availability, range, and value. Improvements are already starting to be delivered via change programmes such as SMART (Store Merchandising and Replenishment Transformation), product innovation and investment in reducing prices and a new ‘fewer, deeper, stronger’ promotional package.  The successful relaunch of the premium Truly Irresistible range in 2011 and the growth of the new ‘Eat in’ range and the high demand for our Christmas range demonstrate that there is a strong customer demand for The Co-operative own brand. Meanwhile, TV advertising and new point-of -sale packages have been designed to 'shout value'.

Customer convenience is also a priority. The Co-operative Food will next week trial contactless payment in its four Manchester city centre stores. An additional 50 sites within the M25 area will be upgraded with contactless-enabled chip & pin terminals in April 2012, while a further 125 stores within the M25 will join the trial from early May.  The significance of locating most of the trial sites in the M25 area is that they will all be online for contactless payment ahead of the London Olympic Games, where this point-of-sale technology is expected to be promoted and used prominently.  A decision will be made by the end of 2012, on whether to roll out contactless payment to all food stores.

Customer convenience is also at the heart of The Co-operative Food’s ongoing acquisition programme.  Thirty two new stores were opened in 2011, including 12 stores opening in 12 days during December.  The focus for this latest programme of acquisitions has been to secure city centre locations.  New stores were opened in Edinburgh and London, including the high-profile Strand store which opened in February 2011.

Sitting behind the expanding store network, and playing a key role in delivering market-leading customer service, is a revitalised support and supply network.  Significant progress has been made in 2011 as the store replenishment strategy was overhauled.  New distribution centres were opened in Newhouse and Andover, and further sites are opening in Avonmouth and Castlewood.

Delivery frequencies to many stores have been increased and new depot delivery schedules are being introduced.   The roll-out of InStock (an element of the SMART system) was completed in mid February 2012.  This system automates store ordering improving availability and freeing up store teams to focus on customer service.

The Co-operative Farms business is now more closely integrated with Food and has performed well over the year, partly due to increases in cereal prices but also due to extensive efficiencies at pack houses supported by good buying practices. Going forward, we aim to continue our support for British farmers as well as our Co-operative farmers who work hard to produce our own-grown British produce such as potatoes and apples.  New operations (including a pack house) in Kent and Herefordshire, form a key part of this strategy.

A partnership has also been established with Wiseman Dairies, now part of Muller, to launch a dedicated milk supply chain, which has already been recognised with a Good Dairy award.  Under this partnership agreement, contracted British farmers will supply to Wiseman, the equivalent volume of fresh milk required to supply all Co-operative brand fresh milk annually.

Underpinning all of this is the continuing engagement and commitment to the customer, shown by store colleagues throughout a difficult year.  Delivering real value and top-class customer service demands personal commitment from every member of the store team. 

The Co-operative Food was named Responsible Retailer of the Year at the Oracle Retail Week Awards for the fourth year running, while being named Green Retailer of the Year at The Grocer Awards for the second year in succession.

Banking Group

The aim of The Co-operative Banking Group is to deliver the ‘compelling co-operative alternative’.  To achieve this we have focused on restructuring our business around its core banking proposition, upgrading core banking systems and extending key services to all customers, while maximising opportunities for growth. Care is taken to balance the demands of capital, liquidity and profit.

The continued resilience of the Banking Group is a positive endorsement for the co-operative model. The 2011 operating result of £216.1m (2010: £209.7m) reflected a strong performance in the Retail sector, partly offset by a difficult year for the corporate sector. 

The income statement benefited from gains on the sale of Treasury assets of £37.2m (2010: £11.4m) as part of our liquidity management strategy, and a £20m reduction in total credit risk expected over the life of the Optimum mortgage book (2010: £15m).  These helped offset the cost of funding increased liquidity, as we prudently enhanced this core element of our financial strength.

Excluding discontinued operations, the operating result was £200.9m, 0.5% lower than 2010 (2010: £202.0m).  Operating profit of £90.5m (2010:£105.5m) was adversely impacted by a £90.0m provision for payment protection insurance (PPI) mis-selling (2010: £4.3m).  Our liquidity and capital position remains sound, with an improved Co-operative Bank loans to deposit ratio of 93.9%, and a Bank core tier 1 ratio of 9.6%. 

As a member owned financial institution, customers trust the Banking Group to put them at the heart of its business.  Levels of advocacy for the Banking Group in 2011 were 10.3 percentage points above the average of its top five competitors.  Colleague engagement has also increased during 2011, reaching 81%, compared with 78% in November 2010.  Meanwhile the Banking Group was named ‘Europe’s most sustainable bank’ for the second successive year.

During 2011 the Banking Group introduced current account servicing into the Britannia branches, creating 245 more places to bank.  To date, some 62,000 current accounts have been opened via these branches (nearly 45,000 during 2011). We have also continued to attract customers switching their current account; during 2011, 10.8% more customers made The Co-operative Bank their main bank. 

The Banking Group is transforming its business infrastructure.  Improvements have been made to core banking systems, including a new Financial Crime Management system, an upgrade to the banking mainframe system, the re-platforming of the telephony system and new credit card issuing and management systems.  The first phase of its new payments hub, covering BACS payments, was implemented in November; the second phase covering card payments will be rolled out in 2012.

Transformation extends beyond the systems infrastructure.  An innovative young driver insurance policy was launched in 2011, incorporating ‘smartbox’ pay as you drive technology, while an in-store banking programme was piloted in a number of The Co-operative Group’s food stores.

We have been granted preferred bidder status by Lloyds Banking Group for the sale of 632 branches.  This is a significant opportunity; a combination of the Lloyds Banking Group branches and our own branch network would significantly strengthen our ambition as a real challenger in relationship banking in the UK.  Our current bid is non-binding and we would only proceed if we could reach an agreement that was in the interests of our members and other stakeholders.  Any transaction would be subject to regulatory approval.

The Co-operative Banking Group consists of two primary operating segments – Retail, and Corporate and Business Banking (CABB).  The Retail business offers a range of banking and general insurance products and services to individuals and households throughout the UK.  CABB includes corporate banking, business banking, business services, Platform (the intermediary mortgage business) and Optimum (the closed book of pre-merger intermediary and acquired loan book assets). 

The Retail operating result (excluding discontinued operations) for 2011 was £138.3m, 77.8% up on 2010, with strong mortgage margins maintained and impairment levels significantly below 2010.  The average loan to value ratio remained below 50%, in line with 2010.  The General Insurance business has also had a successful year, delivering growth in profits of 42.0%, before significant items and distributions.

The Retail customer proposition continues to attract industry recognition, winning Moneysupermarket's "Best Current Account Provider 2011" and Moneyfacts "Best Longer Term Fixed Rate Mortgage Product" awards.  The business was once again shortlisted for "Best Financial Services Provider" at the 2011 Which? Awards.

During 2011, the Banking Group concluded the strategic review of its Life and Savings Business.  Following this review, the Field Sales channel has been closed, while the business is in exclusive discussions with North West based mutual Royal London, regarding the sale of CIS, and tCAM, its asset management company.  The Banking Group has also enhanced its bancassurance relationship with AXA Wealth Ltd, to ensure customers have continuing access to expert financial advice across its branch network.

The CABB operating result for 2011 was £14.5m (2010: £54.7m). Corporate banking has delivered an operating loss of £36.4m in 2011 (2010: profit of £2.5m), reflecting a rise in impairment losses during another difficult year for the industry.  In 2011 the Optimum portfolio, a closed book of intermediary and acquired mortgage book assets, reduced in size, as planned, by 5.5% to £7.7bn, and delivered a profit of £52.7m (2010: £61.2m).

The Reclaim Fund Ltd (RFL), a wholly owned subsidiary of the Co-operative Banking Group, commenced trading during 2011 following authorisation from the FSA to collect dormant customer account funds from UK financial institutions, retaining sufficient funds for future reclaims by customers  and distributing surplus funds to good causes via the Big Lottery Fund.  During 2011, RFL collected £369m of dormant savings account balances; provisions of £147m have been made for possible reclaim by customers, and a £143m provision made for the future payment of funds to the Big Lottery Fund.  In line with previous expectations, £48m was distributed during 2011, while £74m of surplus funds has been retained to establish the necessary capital base.  As a non-profit making subsidiary of the Group, this £74m appears in the Group income statement within significant items rather than profit.

Specialist Businesses

Despite the economic downturn which has impacted nearly every business sector, the Group's portfolio of specialist businesses has performed well with profits up 10.4% from £90.1m to £99.4m. 

In addition to a strong financial performance, customer satisfaction also improved year on year to record levels, with particularly high scores of 92% and 98% being recorded in Pharmacy and Funerals respectively. 

The Specialist Businesses strategy is to drive forward each of our core businesses ensuring they deliver great service and value to our members and customers.  Key to this is anticipating and responding to member and customer needs, innovating and investing in new technologies and routes to market as appropriate and looking to leverage benefits from working more closely together as part of the Co-operative family of businesses.


In 2011 the UK pharmacy industry saw a further significant reduction in government funding.  By the end of 2011 this reduction had cost the Co-operative Pharmacy business some £18m.  In this context, results have remained stable.  Operating profits before significant items have decreased 11% from £33.4m to £29.7m. 

The Co-operative Pharmacy’s strategy is to address the new market realities by improving the sustainability of its business model.  Unnecessary cost and wastage have been reduced and margins on products and services improved.  A new sales and stock tracking system was introduced in 2010, and has helped deliver outstanding cost savings over the last year.

Cost however, has not been the only focus for the business.  A fundamental review of in-store processes was undertaken to ensure a relentless focus on customer service, and a number of non-customer centred processes have been taken out of our day-to-day branch operations. This has enabled us to reduce customer waiting times and drive like-for-like prescriptions dispensed to market leading increases in the last quarter.

Six new branches opened in communities without a local service, furthering business reach and sales potential while underpinning social inclusion.  Meanwhile, a new e-Pharmacy channel offers customers greater choice of access, freeing them from reliance on a local branch.

This determination to build our Pharmacy business around customers and communities has seen full year like-for-like sales volumes increase by 1.5% or approximately 1m prescriptions. 

A 'new-look' pharmacy was also trialled in eight stores, featuring new products, new consumer messaging and new decor.  The pilot produced highly encouraging results. The Pharmacy business intends to build on this encouraging start over the coming year by overhauling its ‘over the counter’ product range, which currently constitutes some 8% of business.

Other important avenues for growth include the emerging market for outpatient dispensing contracts, offering hospital trusts a more customer-friendly alternative to expensive in-house operations.  The Co-operative Pharmacy secured its first outpatient dispensing contract this year, with Doncaster & Bassetlaw NHS Trust.  This was supplemented with the completion of two further contracts just after year end, to place the Co-operative Pharmacy second in this emerging market segment.  Contracts such as these present a valuable opportunity to expand into an exciting new area.

A key factor in establishing sustainable, long-term growth is colleague engagement.  During 2011 The Co-operative Pharmacy invested heavily in training store managers and senior professionals to make a real difference in their own stores.  

The business' commitment to creating a positive working environment was recognised with a successful bid for Investors in People accreditation.  This, as much as our process improvements and pursuit of new opportunities, gives us a solid grounding for success in the coming years.


The Co-operative Funeralcare’s strategy is to maintain its pre-eminence in the market by offering first-class products and services, investment in future technologies and a relentless focus on people (whether colleagues or customers) to deliver the kind of personal service that clients require at what can be one of the most difficult times in their lives.

Operating profits are up 20.4% on 2010, from £44.5m to £53.6m, supported by improvements in our masonry offer and coffin range, allied with a modest increase in market share. 

The Funeralcare business is committed to maintaining the highest standards.  A dedicated standards team makes regular audit visits to all sites services and facilities, while customer service questionnaires are used to monitor customer care.  Questionnaires also feed into a Funeral Excellence Score (FES) based on a range of quality factors.  The 2011 FES score increased from 91.2% to 92.4%, a new record level.

Customer care was the driver for significant changes to Funeralcare’s coffin range, to ensure that customers benefit from an informed and flexible choice.  The business has also developed its masonry service with encouraging results, as more and more customers arranging Co-operative Funeralcare burials now also purchase their headstones from us.
The Co-operative Funeralcare continues to invest in its ability both to deliver outstanding service now, and to anticipate future customer needs.  The funeral home network has benefitted from £13m in estate and £8m in fleet investment during 2011.   The business has also acquired a long-term contract with Shropshire Council, increasing our crematorium estate from three to four. Whilst The Co-operative Funeralcare leads the market for funeral services there is still significant potential to increase investment in the area of developing and operating crematoria.

Our commitment to our communities is based on a dedication to providing a sensitive, responsive service to bereaved families.  This year Funeralcare launched an ethical strategy to highlight how key social and environmental issues would be managed in the day to day running of our business. 93% of the coffins manufactured by the Co-operative Funeralcare are made from wood certified by the Forest Stewardship Council, while Funeralcare is now the first UK-wide carbon-neutral funeral director. 

Legal Services

The Co-operative Legal Services was founded 6 years ago and has gone from strength to strength, growing from 4 colleagues to nearly 500, with an exciting plan for future growth.  Results for 2011 have been very positive with operating results up 15% from £3.9m to £4.5m.

Legal Services’ strategy, in the wake of the deregulation of the legal services market, is to provide consistent, competitive legal advice to the ordinary person, backed by our scale, reputation, systems, service standards and training.  The business has applied for a licence (Alternative Business Structure, ABS) to offer a broad range of consumer legal services. We aim to provide Co-operative members and customers with accessible, high-quality legal advice and services at a competitive price, challenging the legal 'postcode lottery’.

To support its strategy the business has recruited three leading family law practitioners, and plans to extend its operations to provide support for families in England and Wales. 

The legal services business has already been putting its principles into practice with a pilot scheme to offer Wills, Estate Planning, Probate and bereavement advice and Funeral Plans in thirty Co-operative Bank branches.  The pilot has shown the value of collaboration across Co-operative businesses (which lies at the heart of Project Unity) and will now be rolled out nationwide, while the service proposition will be enhanced to further customer needs and provide them with broader benefits from Co-operative services..

Life Planning

2011 saw record sales for Funeral Planning products provided through the Life Planning Business.  The total number of funeral planning products sold by the Group increased by 9.3%.  The Life Planning business is focussed on securing future funeral business for Funeralcare.  The Group has adopted a new accounting policy for Funeral Plans in 2011 and now accounts for funeral plan sales under IAS 18 instead of IFRS 4.  This means that only a small amount of revenue is recognised at the time of sale, approximately equivalent to the cost of upfront marketing and administration.

The sales function of the Life Planning business was brought together with the sales function from the Legal Services business to provide an enhanced customer proposition.  This allows the business to optimise third-party B2B relationships and generate further opportunities to cross-sell products and services and provide an enhanced service to our Business partners and their customers. 

Growth in like-for-like sales has been driven by strong performance in Funeral Plan sales through the Co-operative Funeralcare branches (with sales volumes through this channel up by 11.3% year on year). This has been supported by growth in our Legal Charge products, whereby customers are invited to use their Whole of Life product purchased through our Corporate Partners towards their Funeral costs and plan for their Funeral. Sales of Legal Charges have risen 15.4% year on year.

Sunwin Services Group

The Sunwin Services Group provides a range of services to business, including cash in transit, ATM support, IT services and managed security.  Despite the economic climate and the temptation for businesses to cut overheads and administrative costs, Sunwin has delivered creditable results with operating profits up 12% from £5.6m to £6.3m, through the acquisition of new contracts as customers realise the benefits of the cost-effective service The Sunwin Services Group provides. 


The Co-operative car dealerships have performed creditably in the face of extremely tough economic conditions, exacerbated by a general customer reluctance to spend on big discretionary purchases such as cars.  Sales have increased by 4% from £267m to £277m.  The business continues to seek opportunities for growth and has invested in a new Land Rover franchise in Bradford.  The Leeds Land Rover franchise has also benefited from a major refit.

The strength of The Co-operative Motors brand has attracted a range of accolades over the last twelve months. The rebranding of the business was recognised as 'Best Marketing Initiative' at the Automotive Management Awards.  The business has also been shortlisted for both Dealer Group of the Year and Green Dealer Group of the Year.  Since the turn of the year the business has garnered further awards, with Land Rover naming the Bradford franchise its Land Rover Dealer of the Year.  The Guisely franchise was named ‘Best Franchise’ while the Leeds dealership won ‘Service Centre of the Year’.


The Electrical retail sector (including online) has been hit particularly hard by the economic downturn as customers have less disposable income to spend on luxury items, while the depressed housing market has affected sales of major kitchen appliances. Margins have also been under pressure, contributing to a 25.1% reduction in profits.  However, performance compares positively with other electrical retailers; sales have fallen slightly, down 6.6% from £87.9m to £82.1m (in a market which has fallen much further), while Christmas internet sales (a key period for online businesses) were up 16% on 2010 following the launch of our new website.

The e-store business strategy is to maintain a competitive pricing policy while focusing on excellent customer experience together with a fast, reliable and flexible delivery service.  Significant numbers of customer e-mails, letters, and thank you cards attest to our success. The e-store web site is now live and is the only major internet electrical retailer to feature Feefo reviews (the only reviewer accredited and recognised by Google).  To date we have had almost 3,000 reviews with an excellent overall customer service rating of 97%.
While primarily an Internet business, e-store includes an Electrical Buying Group for other Co-operative societies, an Insurance replacement business and a service supporting The Co-operative Food’s in-store electrical offer.   In 2011 the buying group encountered a difficult year with purchases down 5% compared to 2010, occasioned by difficult Non Food trading conditions, but viewed nevertheless as a creditable performance.
E-store launched a redesigned web site in October 2011, featuring a new look and feel, improved customer information and content and improved functionality (including product and service videos, buying guides, and enhanced product images).  To underpin the business’ move towards a multichannel proposition, a fully transactional kiosk will be piloted in selected Food stores in Q2 2012.


The clothing business has also experienced a challenging year as inflationary prices of raw materials combine with a depressed clothing market to squeeze margins and reduce volumes.  Nevertheless operating profits for 2011 are up over 100% from £0.49m to £1.04m.  The business has focused on cutting costs and overheads while improving margins, to lay the groundwork for more profitable future performance.  Scale however, will continue to be a factor.


The Co-operative Estates team plays a dual role in the success of the Group, as a business unit generating revenue in its own right, and as a provider of property services to the trading business.

The Estates team’s business strategy is to maximise value from its property portfolio through effective investment and disposal of non-core properties; and to maximise the effectiveness of the Group estate through cost effective property management, whilst meeting the needs of the trading businesses.

As a business unit, active property management and tight cost control have helped deliver a successful trading result for 2011.  Trading Profit for the year was £19.1m which was £0.3m or 1.6% above the previous year.

As part of this profit generated by the investment properties under management made a significant contribution to Group results for the year.  Portfolio value has grown despite depressed property conditions and compares favourably to the IPD benchmark.  Meanwhile disposal of non-core properties yielded £33m in cash during 2011 which helped realise capital that can be invested in other Group projects and assist with Group cashflow. In addition the Estates team continues to deploy a range of approaches to optimise the value of provisions relating to the onerous lease estate.

As a service provider Estates plays a key role in managing the Group’s 5000-plus Trading properties nationwide.  During the year the team managed the opening of 32 new Food stores and 24 Funeralcare branches, as well as the relocation of 11 Pharmacy branches and 8 new Pharmacy contracts were completed.  Over 420 food store refurbishments have also been completed.

Estates’ contribution to infrastructure management includes enabling the Group to reduce its carbon footprint.  Initiatives introduced to reduce carbon emissions and wastage are ongoing, but notably the Group recently achieved the target of reducing operational greenhouse gases by 35% five years ahead of target.  Planning consent was secured in the year to build two new windfarms on Co-operative farmland at Coldham and Biggleswade. The intention is that these windfarms will be managed as joint ventures to help deliver the Group’s target of generating 25% of energy requirements through its own renewable resources by 2017.

2011 has seen the Estates team achieve recognition, both for its key projects and for the team itself.  Accolades included the BIFM Client of the Year and Energy Buyer of the Year at the 2011 Energy Awards.

Looking ahead, the Estates team is helping to shape the future of the Group’s home in Manchester.  The NOMA urban regeneration project was officially launched in April, and constitutes 20 acres of commercially focused, innovative and highly sustainable development.

Situated at the core of NOMA is 1 Angel Square, the Co-operative Group’s new headquarters.   Scheduled for occupation from September, the new building is more than just an architectural challenge.  In replacing the paper-based, office-centred templates of traditional offices, its flexible working spaces and innovative use of technology will usher in a whole new working environment and culture for Group colleagues.

The building will be populated from September onwards, with migration freeing up a number of other buildings in the area for redevelopment.  Here too, the focus is on making positive changes to our environment, bringing older buildings back to life in ways that are both socially proactive and commercially viable.