The Co-op's reformers need to fix the mutual model

Outlook

The Co-op Pharmacy is to be rebranded with a new name, Well

The poor old Co-op actually has something good to report for a change. It’s back in the black again, although only just when one-off gains are taken out of the equation.

But sales are also growing on a “like for like” basis and the convenience stores, identified as the key to the future of the business, are doing particularly well.

It should be noted that customers walked away in droves during a disastrous 2013, so the Co-op didn’t have to do as much work as some of its rivals to show an improvement. It was starting from a much lower base.

That said, food retailing is brutally competitive and price deflation means you have to increase volumes by quite a bit to be able to report higher takings at the till. So credit is due to chairman Allan Leighton and chief executive Richard Pennycook. Their turnaround project is showing results.

Questions, however, remain about what the Co-op is for, and whether the reforms to its Byzantine structures will bring long-term improvement. It is now governed on the basis of one member, one vote, with a more professional board overseeing the group – rather than the complex network of local boards that led to the Co-op becoming dominated by people who were good at politicking but spectacularly bad at business.

The problem is that while the new structure is a step forward, it still has many flaws.

Some commentators fret about the Co-op allowing a small corps of voting activists to create problems, with their antipathy to anything that reeks of business – and especially profit. Just as big a risk, however, is having a small number of people who blindly follow the board whatever it does.

The idea of businesses being owned by their customers rather than shareholders is one people instinctively find attractive. In theory, this sort of institution ought to do a better job of looking after them.

Sadly, experience tells us that this is more honoured in the breach than the observance. Because too few customers engage with the mutual companies that they own, boards get a free pass to run them in the mutual interests of their directors.

The challenge for Messrs Leighton and Pennycook, now the business is turning round, is to prove they can chart a different course.