View from City Road: Co-operative ideals are not enough

Instead of worrying about whether they should merge, the Co-operative Wholesale Society and Co-operative Retail Services would do better to think about why they exist at all.

It is 150 years since the Rochdale pioneers set up the first co-operative society. Founding principles of low prices and profit-sharing for customers are presumably as relevant today. The problem is the businesses are not.

In the 1960s, co-operative retailers had more than a quarter of the market. Now, they have just 7.5 per cent and falling. That is not because customers have rejected the co-operative ideal, rather it is because they are rejecting the co-operative's retail concept in favour of the lower prices, better quality and more attractive stores of rivals like Tesco and Sainsbury.

Some of that success is certainly attributable to the fact that quoted rivals can use shares to finance expansion. But both CRS and CWS have such enormous resources - their combined net assets are more than pounds 800m, and their huge store portfolios have never been revalued - that it would be easy for them to raise money. With a 3 per cent operating margin at CRS and less than half that at CWS, their ability to generate profit for investment plainly leaves something to be desired.

They are also failing to live up to the ideals of profit distribution espoused by the founding fathers. CRS and CWS each gave back just pounds 7m to their members last year.

Harry Moore, head of CRS, is for a co-op man a pretty dynamic manager. He believes a merger would solve most problems. Both societies have tried it before, however, and it didn't work then. True, this merger is on a different scale, but what are really needed are some latter-day Rochdale pilgrims who can show that it is possible to combine co-operative ideals with commercial success.