Out of the ashes

Out of the ashes

25 years ago, Ben Reid was sent to rescue the loss-making West Midlands Co-operative Society. Under a new name, it's now making £23m profit from £1bn turnover.

It was a life-changing conversation that Ben Reid had with his boss in 1988. Technically, he was offered the role of deputy chief executive at the West Midlands Co-operative Society, then based in Walsall. More accurately, he’d been selected as a trouble-shooter to rescue the failing organisation.

“It was really in dire straits,” recalls Ben. “Even the bank was telling them ‘we’re not going to pay your wages’ because they were in breach of a £1m overdraft. Everything was losing money. My boss said: ‘Go and make your name, or go out with a big bang.’ And so I went, mainly, I think, because no-one else would take the job.

“When I arrived the society was completely wasted. They hadn’t even completed their accounts, which were two months overdue. My new boss, the then chief executive, just said: ‘Don’t worry, the money’s all in the dairy side of the business.’ Well, it wasn’t – there was no profit there either, although they thought they were making money.

“The management information was rubbish, and no-one was reading any of the signs. The society was burning cash. I’d always seen myself as an accountant, and I loved the poetry of numbers. So, if they had to choose anyone, I suppose I was the right person.”

Ben began a five-year turnaround of the business, and within 18 months took over when the chief executive left. Things were so critical that he had to cut costs, lose staff and close loss-making department stores.

“It was very hard work,” he says now, looking back. “A high-risk strategy. If I failed, the Co-operative movement would never touch me again. I went out and recruited what I called the ‘dirty dozen’. ‘There’s no way back,’ I told them. ‘But this is an almost unique opportunity to start from the bottom. To build something on ethics.’

“I picked people I knew had a high degree of financial confidence, liked a challenge and believed in engaging in the community. And that’s what we wanted to do – to go from an arrogant, run-down business to being part of the community again.

“I thought I’d stay for two years. Get in, repair the damage and get out. I was making difficult decisions – closing historic department stores in Walsall, Wolverhampton, Kidderminster; icons of the towns, big decisions. I think the board thought bringing someone from the outside would do it, take the blame and then go.”

By year two, the society was making profits again, but Ben stuck at it, continuing the recovery. By year five, the profit was healthy, and by now he’d moved to Walsall.

“The hardest part was moving the family from the Vale of Belvoir, Melton Mowbray to Walsall,” he says.

“What a shock! The East Midlands is not the same, its climate is so dramatically different. But I really loved Walsall. I’d never experienced such a generosity of spirit. It’s like the biggest village ever, an extended family. I met some really great people. I was living the dream – building a business.”

Things moved fast. In 1993, Ben sold off the society’s Holiday Hypermarkets which he’d built from nothing, bringing in £60m from First Choice. This meant the West Midlands Co-op had money to invest for the first time in recent years. It carefully repaid debts and was able to modernise equipment and technology

Over the years, this recovery, investment and consistent profit gave Ben and his management team a growing reputation within the Co-operative movement, leading to an approach by the Oxford, Swindon and Gloucestershire Co-op – “two or three times our size” – to merge.

And so, in 2005, the two societies joined and were renamed The Midcounties Co-operative, based in Warwick, covering Oxfordshire, Gloucestershire, Buckinghamshire, Shropshire, Staffordshire, Wiltshire and Worcestershire, as well as the Black Country and Sutton Coldfield parts of the West Midlands (not Birmingham).

The new, bigger Midcounties Co-op had a turnover of some £500m; this spring, eight years later, the society reached revenues of £1bn. What was the 100% growth down to? “This was my last big job,” he explains.

“I asked myself ‘what did I want it to be before I ended?’ The answers were for the society to be financially secure, bigger and stronger, and that meant trading in sectors where the Co-op difference gave an advantage, giving us a better risk profile.”

The first part of this was deciding where not to expand, and in some cases where to pull out of. “We had garages selling cars, and sold them,” says Ben.

“I just couldn’t reconcile the Co-op environment with gas guzzlers. Our pharmacy side, that’s grown slightly, but there were profitability issues, so that was a ‘hold’. With food [there are around 250 food stores] we just made sure we were shaping in the right way to focus on the community. Funerals were good too; our original society only had three, and we’ve got 76 now – doubling what we inherited from the merger.”

But the real growth came from three sectors: travel, childcare and energy. “I’d been on the plc board at First Choice,” says Ben, referring to the Holiday Hypermarkets business sold off in 1993.

“So I’d picked up a significant background in travel. We were happy with what was then Co-operative Travel - basically a consortium run by three Co-ops. But two decided to sell to Thomas Cook and I refused.

“The Thomas Cook price was huge, ridiculous. But Thomas Cook was a plc, and I felt it would be misleading to be trading as the Co-op. The Co-op brand is important, and we felt that if Thomas Cook did something to disappoint the public, we would carry the can.

"So all the infrastructure went to Thomas Cook and we had to start again. A huge opportunity. There was a transfer of staff, with various offices closing, but then we just started to build – and have doubled travel revenues in 18 months. They’ll soon reach £200m.

“A lot of staff who transferred then came back to the Co-op’s home. And we opened extra travel branches – 20 where Thomas Cook had closed.

"We’ve got 54 now. Also, the old Co-op business used to act as a consortium, buying for other travel businesses. They came to us because they could see everyone’s product. They didn’t just want Thomas Cook, so they came back to us as well. We’re now turning over £100m on the consortium business alone.”

Ben insists that any business should be “counter-cyclical”, building up a wide portfolio to lessen its risks. “For example,” he says, “after 9/11, you couldn’t give travel away. If I mess up we can’t go for a rights issue; we have to borrow. So we have to take care.”

This is where the idea to diversify into childcare came from – an area strong on ‘trust’, the Co-op’s brand message, but still largely a cottage industry with no huge national chain. “We’d inherited five nurseries,” says Ben, “and had to ask ourselves ‘hold or develop’? Market research said the public would like this. Someone trusting their child to your care is the utmost trust. So we acquired some more, opened a few, and now have 50 nurseries, and the occupancy and enquiries grew and grew. The Midcounties Co-op now has 4,000 ‘settings’ in childcare –the industry term for how many little kids they look after. “In ten years we’ll be incredibly strong in nurseries,” predicts Ben.

“Even now we’re the fifth biggest in the country. There’s nothing stopping us from being the biggest in the fullness of time. If tomorrow I wanted to go and buy the business to be number one we could. But that would mean moving too fast, losing discipline. We need to do it via steady growth.”

Which brings us onto Midcounties’ “most exciting” expansion – into the world of energy.

“It’s the most significant thing I’ve done and it’s really turning into something quite remarkable.”

Research had highlighted customer concerns about the energy world’s poor records on sustainability, and its lack of openness, and this created opportunities for the Co-op.

“We asked what business the public thought the Co-op should be in, and the answer was ‘utilities’. We took that up into focus groups and people were annoyed that the big players kept lowering tariffs to collect new customers, but then introduced higher charges a year or so later.”

So Midcounties Co-op offered a different model – Co-operative Energy. This promised one tariff, a standard variable rate, cheaper than the standard rate offered by the ‘big six’ – the likes of E.On, British Gas, Scottish and Southern and npower – but one that didn’t lower itself temporarily to attract new customers. A test model was launched two years ago, then, 18 months ago, it went live as a regulated service. “Not like the Sainsbury’s model,” says Ben, “where you’re getting energy from one of the big players, but buying energy from the market, so as a Co-op customer you know we’re getting the energy directly.

"We didn’t set out to be the cheapest, but we promised to be consistently competitive. What we said was: ‘We’re a good bet. We will operate appropriately to keep the price at a certain level. We will look after you. We will only charge one rate.’”

Once again, Ben was only after “steady growth” and predicted 35,000 customers by end of 2012. But Co-operative Energy quickly won several awards, including one from consumer charity Which?, and without any proactive marketing there are now 125,000 customers, heading for 200,000 by the end of 2013.

“We’ve not been able to keep up with the level of people wanting to join us,” Ben says.

“We had 270 people wanting to switch just yesterday! This summer, the big six will be putting up their prices by 10% to 15%. I’ve bought my energy for the next 15 months and can hold my prices. If we ran an ad campaign, we’d be swamped. So I’m slowing it down, because we need to build a network far faster than we thought. We’ll build steadily through word of mouth.”

All this expansion makes The Midcounties Co-op – the UK’s largest independent co-operative – what Ben calls a “potential Olympic medallist”, with “thousands of advocates”. That’s 9,500 advocates – the number of staff Ben now leads. “Colleagues,” he corrects me, “not staff.”

“It’s a very powerful business model,” he says, “and the management has learnings, values and knows how to deliver. When I first started, it was very worrying to know if I’d even have a job. now it’s a pleasure to be chief executive.”

I discover what that pleasure means when we discuss profits: out of its £1bn revenues, The Midcounties Co-op makes just £23m.“We’re not profit maximising, we’re profit optimising,” he says.

“It’s good to generate profits to invest in new fridges, tills and so on. And to be able to keep some stores open, even if they’re making a loss. If you’re the last store in a district we can make the decision to keep you open. The board is not ruthless. It has a social conscience. That’s the benefit of getting the place into good nick. you can make money and be mindful of the community in which you trade.”

On this profit theme, Ben adds: “We’re only passing through this way once. If you can be a successful businessman and contribute to the community, you can go to the pub and feel you’re doing a good job.”