Earlier this year, the Co-op announced a massive £70m investment in pricing. Billed as the “biggest investment ever announced by a convenience retailer on pricing”, it made clear that the business was taking the convenience channel very seriously and was willing to take on all comers to protect and grow its market share. While part of a larger plan to increase membership by one million new member owners by 2028, it saw almost immediate results with membership increasing by 500,000 by November 2023, well ahead of schedule.
This overall strategy, comes at a time when shopping habits have changed and the UK retail marketplace is at its most competitive. Speaking to Convenience Store, managing director of food at the Co-op Matt Hood explained how the business is having to work harder to attract new shoppers and members.
He says that retailers need a USP to properly compete in this space. “When you look at the UK, this is an unbelievably competitive market. There just isn’t another market like this in the world where you’ve got so many big food retailers fighting for 70 million people’s share of wallet,” says Hood.
“I’m very much of the opinion that every business needs a USP. If you look at any successful business, they’ve always had one and in some cases it’s really easy to find what it is. In some it’s harder to find and in some it’s almost criminally overlooked and forgotten, and I think we drifted towards the latter, despite having really significant unique selling points that have existed for many, many years.”
Taking on the competition
In this competitive space, how does the Co-op’s convenience offering stand out?
“Because of the historic, expensive price perception that exists within all convenience, it requires a little bit more skill in terms of proposition,” says Hood. “It is important, especially in convenience, to balance the whole value equation. It can’t be just about price, because the reality is it’s hard to win on price in convenience.
“But if you look across the full value equation, which includes a promotional strategy that is relevant for convenience customers and gives them deals that they want, if you have a range that isn’t flabby but gives the space to what people want and I think that the own brand piece is a critical part of that equation.
“We’re playing in a different space to the multiples – they’re trying to get you to go and do a big basket shop and we’re not. We’re trying to make surethat every customer who wants the utmost convenience at the best value across all of the value equation comes to a Co-op score.”
Growing membership
The work on pricing has obviously helped the Co-op gain members but with other retailers going big on loyalty schemes, does Hood feel under pressure to get into a membership price war?
“Tesco has been doing it for a while and they’ve spent a lot of money on recruiting people and their Clubcard penetration is huge. What is different for us is that we specifically went about investing in the lines that we know people buy anyway.
What you can do in this space is get people to spend more money and you can do it in a way where it’s probably not obvious to customers, but it’s obvious to us as retailers - you’re trying to get them to put extra items in the basket.
“What we did is say no, this is about making it attractive to be a member of our organisation and therefore we will make milk cheaper and we will make bread cheaper and we will make eggs cheaper and we’ll make chicken fillets cheaper because they’re the products that people are already buying and that enables us to address what is a significant barrier to entry in convenience which is value for money.”
Hood clarifies that it’s unlikely that Co-op membership will be rolled out to Nisa members any time soon.
“I would love to get to a stage where they are Co-op members, but at the moment that’s a big piece of work to accomplish,” he says. “Partners access it if they run a franchise but wholesale is different. They’re independents and own their own shops. We are their buying group and therefore we can offer them the best prices, but also access to the own brand. But at the moment the independent selling strategy has to be done by the independent wholesaler.”
Opportunities in retail
Part of the Co-op’s strategy was looking at alternative channels, and while it may seem that the delivery boom has dissipated somewhat, Hood feels there’s still room for growth in this area. “If you take our quick commerce business, whether that be with Deliveroo, Uber, Just Eat, Amazon or our own model, unbelievably, that’s now 6% of our sales and we refocused on that business as part of the Pure convenience strategy.
“Quick commerce is where the growth is, where you deliver in 10-20 minutes as opposed to e-commerce. We’re already 23% of that market. Our aim is to be over 30% of that and it’s an area where despite the delivery platforms charging a premium and despite a cost of living crisis, it has still grown and grown and grown, which shows to me that while customers are a little bit less cash rich, they are also still incredibly time poor and therefore it’s an area where I want us to get better. We can work with some of our other selling and channel partners to help them improve in that space as well, because it is just going to keep getting bigger.”
He also highlighted how changing shopping habits have created other opportunities for convenience stores.
“The other areas of growth are own brand and fresh food missions. People want to be able to just choose what they’re going to eat tonight - planning for the week just doesn’t work either in terms of budget or time. So if your quality is right and your mission focus is right, then it’s a big opportunity.
“I know it’s a challenge for many convenience stores and there’s a risk associated with selling fresh foods and that’s why we work really closely with our franchise partners as an example, so they can learn from our expertise and move into the fresh food model without that risk.
“I think what is also beneficial for our retailers is giving them access to our own brands. It just makes such a difference in terms of how they can be brave and step into that space. That’s where I see the market going.”
Tackling crime
As well as growing the business, Hood is passionate about protecting those who work at The Co-op, with the group being extremely vocal about crime in stores and the lack of support from the police.
“We’ve talked a lot this year about colleague safety and some of the scary statistics that exist,” he said. “We’ve said that this is being driven by prolific offenders and organised gangs. Some have described it as consequence-less but there’s nearly 1,000 incidents a day across all of our shops where somebody is having to face into something that they shouldn’t have to.
“Irrespective of whether you run your own convenience store or whether you run a managed convenience store - these people come to work to do a brilliant job of running shops and then facing into all of that is unacceptable.”
He says that the Co-op is exploring every avenue on protecting staff but it needs to be supported by the local authorities.
“We’ve spent nearly £200 million on college security over the years and we continue to test and learn as best as we can to make our our customers and colleagues safe in every store, and each one requires a slightly different selection of mix of initiatives that we have.
“In some stores we’ve put increased security guards in and others we’ve put reinforced kiosks to reduce the amount of kiosk jump overs. We’re putting in spirit doors, which stop people being able to sweep spirits off the shelves. And also some of the more innovative stuff like AI cameras, but all of that has to be backed up by the promises that the police have now made.”
Convenience evolution
While the Co-op has its goals set out for where it wants to take the business, how does Hood see the overall sector evolving?
“The retail market is going to change fundamentally over the next three to five years and convenience will be one of the biggest area that changes. The market is so fluid – look at tobacco, vaping and news and mags, all of these categories are going to be in a very different place within three or four years. You have price rises in tobacco [announced in the Autumn Statement] making it eye-wateringly expensive; we’ll soon see the results of the vape consultation by the government and you have a news and mags industry that is changing as people consume their news in different ways.
”A lot of the small shops that exist in the UK are going to have to change and start innovating a little bit more to what the customer wants.”
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