Everyone loves a David & Goliath story, and while Southern Co-operatives isn't exactly small fry, getting one over on Tesco is a great feat for any c-store operator. That's why general manager Phil Ponsonby is so delighted with the way its brand is stacking up against the mighty supermarket.
Fifteen of Southern Co-op's 100 stores operate within half-a-mile of a Tesco Express, and the rise of the supermarket in convenience following its acquisition of One Stop sparked a new chapter in Southern Co-op's book. In 2003 it launched a new look and strategy for the network in a bid to take on Tesco.
"By the end of this year 90% of stores will be trading under the new fascia," says Ponsonby. "We launched it in Wittering, West Sussex, as a mechanic to compete with Tesco Express, which opened two doors down from our store. It's been so successful that we're rolling it out across all stores. One Stop grew out of Portsmouth so there's a lot of them around here, but our brand is standing up to Tesco very well."
Indeed, the group commissioned some consumer research at Wittering to find out exactly how well its brand stood up to Tesco, and Ponsonby is pretty impressed with the findings. "We wanted to understand why we were doing so well against Tesco. We converted Wittering just ahead of Tesco Express building its store, and were taking more money after Tesco Express opened than before we re-formatted our store.
"All respondents were asked to rate each operation and we scored higher in every area apart from opening hours. Some of the ratings were quite dramatic differences. We scored significantly higher on product range, and what amused us the most was that those who mainly used Tesco Express, still rated us higher."
The research found that 85% of customers were using both Co-op and Tesco Express, 12% Co-op only and 3% Tesco only. "We found that customers were using both stores, which meant that people were staying local to shop rather than going to a superstore because they had more choice in Wittering," says Ponsonby.
But running rings around Tesco is just one of Southern Co-op's achievements of late. It has just completed the transfer of the eight stores it acquired from Davids on the Isle of Wight last November.
"The way we approached the acquisition was to acquire the business trading as Davids. We continued to trade under Davids and embarked on an integration period, store by store. Staff were still employed by Davids and we made an agreement with Nisa to continue to supply stores.
"Nisa has been fantastic," adds Ponsonby. "Some people would see us as competitors but they've been very good in agreeing to continue supplying the Davids stores, knowing that it was for a limited period. We couldn't have done it without that because we would have had to bring in Co-op branded products straight away but we wanted to be clear that it was one transformation so as not to confuse customers.
The first store - in Carisbrooke - transferred to Southern Co-op in February, and the final store was Somerton on May 27. The average spend on each store was about £240,000, with Mill Hill Road commanding the greatest investment of £290,000. "We closed each store for about a week and gutted them. In that same week we transferred all the staff from Davids to Southern Co-op and underwent all their training - it's been a big training exercise."
David Harris, who created Davids with his wife, re-opened the Carisbrooke store. "It was really important for us to maintain a good relationship with the previous owners," says Ponsonby. "We wanted to show that we're not trying to wreck what was already there, but bring some investment to the stores.
"Our strategy has been to maintain the community spirit of Davids with Co-op branding. They fact we had David Harris there at the first opening showed that he endorsed what we were doing to his stores. He was really proud and said some nice words about us."
Southern Co-op now has 14 stores on the Isle of Wight, which is more than any other grocery operator, and the group is currently coming up with some artwork to promote the brand on the Wightlink and Red Funnel ferries.
Customer reaction has been "superb" and sales have increased on average by 20% at each store. "It's been a really successful programme of conversion, not just from the refurbishment and sales point of view, but because all of the staff and managers have stayed with us. That was absolutely paramount because, in our experience, if you lose staff you lose customers.
"That goodwill in the business is goodwill in the staff and the way they interact with customers. So we put a lot of effort into securing that body of staff."
While Southern Co-op's store numbers on the island have more than doubled with the Davids acquisition, they're a far cry from its glory days on the Isle of Wight. "We used to have a big presence on the island with 30 stores, but that number gradually declined and at one time - in the early 1990s - we had just one store, in Shanklin," explains Ponsonby. "The decline reflected the Co-op nationally after it went through difficult times in the 1970s and 1980s and stores started closing everywhere in the country."
The demise of Southern Co-op on the Isle of Wight coincided with the rise of the supermarkets. "As well as the co-operative proposition not modernising or changing with the times, it was also destroyed by the supermarkets and the Isle of Wight was a good example of that," says Ponsonby.
"There was a Tesco in Ryde, Safeway in Sandown and Newport, and Sainsbury's in Newport. As we've developed the new neighbourhood model, the Isle of Wight has given us good opportunities. Locals want to limit their travel, which is why the neighbourhood stores are doing so well there."
Ponsonby is no longer content with 14 stores - he wants more. "I'd be disappointed if we weren't up to 20 stores by 2008."
Major milestone
Southern Co-op has also just reached a major milestone with the opening of its 100th store at Cherque Farm, Hampshire. Since 1999 the group has acquired 32 stores and opened several new-builds. "We were down to about 60 stores in the late 1990s so we've got to 100 stores quite quickly," says Ponsonby. "We're working on other opportunities to grow and our strategy for growth, at the optimistic end, is to double the size of the business in five years, so we'll see how we get on with that."
The group's focus going forwards is about fresh foods with a particular emphasis on produce and in-store bakery. "Seventy of our 100 stores now have an in-store bakery and it's an ongoing rollout programme, which started in the late 1990s. We've intensified it in the past couple of years and last year opened 14 in-store bakeries."
Ponsonby has also been spending time with the Casino Group, which operates 5,500 c-stores in France. "Its focus is very much on fresh and bakery, which is in line with how we see our brand developing," he says.
In terms of in-store services, Ponsonby has a clear strategy. "We're focusing our efforts on Post Office services and a third of our stores now have a Post Office. We've recently developed the Combi Post Office -that's our model for the future. We opened our first Combi just before Christmas and now have three."
Ponsonby also says that retaining store managers for as long as possible has been a key focus. "As a business we have focused hard on store managers to try to keep them for longer - that's been a particular problem in our c-stores. We're working hard to keep a solid group of managers, which in turn helps to reduce general staff turnover.
"Now 88% of our managers have been with us for longer than a year. In 2004 it was less than 80% and 60% five years ago."
The group operates an awards dinner for managers and last year began to issue budgets for each store to work within the community. "It's all part of our People Product Place strategy," says Ponsonby. "While managers are restricted on product and layout we want them to be creative with staff and active in the community. We've been in CRTG (the trading group that procures range and promotional activity on behalf of all the Co-op societies) since 2003 and that 'national supply, local implementation' is a winning formula."
The impact of the group's strategy speaks for itself in like-for-like sales increases, which last year grew by 5.8%, and by 6.4% in the year to date. "The format of more space for fresh, a focus on bakery and produce and more space for seasonal lines and promotions, plus the focus on core services, is proving so successful for us," says Ponsonby.

Community action

To cultivate relationships within local communities Southern Co-op runs a Community Support Card scheme as part of its support for the Southern Co-operative Foundation. It first launched at its Wittering store in West Sussex and allows customers to nominate a good cause within two miles of the store to get 3p in each pound when shoppers present the card with their payment.
"The cause with the most votes is selected for the year and every time customers present their card we raise money up to a maximum value, usually about £25,000," explains Phil Ponsonby, general manager at Southern Co-op.
The Community Support Card scheme also runs in Cowes on the Isle of Wight, Tadley, Stockbridge and Emsworth in Hampshire, and Selsey in West Sussex. "Last year a primary school in Wittering got £20,000, and that worked very well because the PTA campaigned like mad to get people to use our shop. It was a clear strategy for Wittering because we knew that Tesco would resort to its national marketing and we wanted to do something local."