Tax haven is co-op strength: Co-operative News

Co-operative Review 2009, just published, contains some very impressive statistics. Many retail co-ops are doing well and a few are doing exceptionally well.

The strong performance continues from the Co-operative Group, which increased turnover by 1.9% in the most recent trading year, producing a 7.8% return on capital employed and a net profit of £439m.

Yet the highest return on capital employed of a leading society was recorded by the Channel Islands Co-operative Society, which – rather surprisingly – lies at number 22 in the Co-operative UK top 100. The society’s turnover for the last year was £152m, lying not far behind that of the Plymouth & South West society (soon to be merged into the Co-op Group) and more than that of the Heart of England and Chelmsford Star societies combined. This is despite the very small size of the population served in the Channel Islands.

The Channel Islands Co-op not only has the highest return on capital employed of any large retail society, it also recorded one of the biggest increases in turnover – up by over 10%.

It is not merely impressive that the figures are so good, but that the society operates in what might be assumed to be hostile territory. It has large operations on both Jersey and Guernsey – which are very wealthy and whose economies are dominated by their characteristics as tax havens.

Yet the Co-op food operations on the islands are large and strongly supported by locals (in fact most are branded as ‘Locale’ stores). The role of the co-op movement on the islands goes beyond groceries: the society also operates sports shoes and home furnishing stores. And, on Guernsey, the Co-op Bank is situated as the most imposing of the retail bank branches in St Peter Port, dominating the town’s market area.

The strong role of the Co-op Bank and the Channel Islands society contrasts strangely with the presence of so many leading banks and accountancy firms helping the rich to minimise their tax payments. RBS has the most striking of the buildings overlooking the St Peter Port harbour, demonstrating the strength of its position as a bank offering wealth management advice. (Coutts – whose customers include the Queen, other royals and many of the world’s richest people – is a subsidiary of RBS.)

Yet, RBS is now a taxpayer-owned institution. If there is one illustration of the reality that the Government sees nationalisation of RBS as merely a short-term obligation to keep the economy running – rather than an opportunity to change banking practices – it is surely the continuing presence of RBS in the ostentatious market advising clients how to avoid paying tax to the very people who, at present, own the bank.

But how is it possible for a community regarded as a byword for capitalist greed to also be a haven for co-operation? For a start this perception is a misunderstanding, says Jim Hopley, chief executive of the Channel Islands Co-operative Society. The Channel Islands are home to “a very caring society,” he says. “The ability of charities to function here is first class,” he adds.

The success of the co-operative is the result of “a huge number of factors,” he explains. “The Channel Islands isn’t quite like what you might expect. It’s a place of extremes.

“The society was started just after the Second World War. We have grown and grown and grown. Our biggest advantage, particularly on food, is that we have had limited competition. It’s put us in a unique position.”

Hopley estimates that the society probably controls 40% of food turnover on the two main Channel Islands. It also operates what the society believes are two retail outlets larger than any stores operated by the Co-op Group or other UK society.

The largest of these – a 30,000 square feet food store – has a weekly turnover in excess of £600,000 and which for most of this year has exceeded £650,000. The main competition comes from two former Safeway stores, sold by Morrison’s after the takeover and now run by Channel Island Traders with backing from a private equity house. These stores may come up for sale in the near future – possibly as a distressed sale at a discounted price – and this could lead to a much more difficult trading environment for the society.

“If they are sold to one of the multiples it could change our position fairly significantly,” concedes Hopley.

But the society retains important trading strengths, he insists. It has invested in its stores, they are modern and smart, management quality is high and there is huge customer loyalty. “The big driver for us is that we have never gone away from the dividend and we still pay 5%,” says Hopley.

He believes that nearly all households on the island are members. It has a membership of 100,000 people, with a population on the two main islands of 160,000. “At least 85% [of the members] have spent money with us in the last 12 months. Our profile in the community is very high. We participate very, very vigorously in the local community.”

As well as having invested in the stores, the society is reviewing its management of its assets. In contrast to most societies that have moved out of household products, the Channel Islands is reaffirming its commitment to the sector by moving its operations above the main Jersey foodstore. Hopley says the household products operation is profitable, covering its overheads in full, though says that household goods are sold more as a service to members than for their contribution to profits.

It is, it seems, that focus on servicing members and generating membership loyalty that lies at the heart of the society’s success.