Comment: Co–op not betting the farm on growth

Martin Flanagan
Martin Flanagan
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AFTER the hubris comes the retrenchment. The Co-op Group hit the corporate aggrandisement trail with a vengeance in recent years, even while bathed in an ethical, mutual glow.

The group swooped for the Britannia building society and the Somerfield supermarket chain before the pièce de résistance – a plan to take over more than 600 branches from Lloyds – foundered on a £1.5 billion black hole in its balance sheet.

In the aftermath, it has become the ever-shrinking Co-op. Our mutual friend has now revealed it is to sell its farming business, one of the biggest cereal producers in the UK.

It has also rung the bell to alert ­potential buyers that it is not wedded to its big pharmacies division, either.

The Co-op has lost majority control of its banking arm to private equity and bondholders, had previously sold its life and savings business, and came very close to getting out of general insurance as well to raise capital before pulling that plan at the 11th hour earlier this year.

Under new chief executive Euan Sutherland, the Co-op seems to be going back to its roots again and ­betting that smaller is beautiful.

If it does get shot of farms and pharmacies, it will leave the group with its flagship food business, the remnants of a bank and its funeral care arm (no jokes, please, about the latter business being useful if the mutual has ever to be laid fully to rest).

That much thinner public face of the Co-op will be partly buttressed by the direct, vaguely anonymous selling of general insurance (for how long?) and legal services. But the general direction of travel is clear.

The Co-op reckons its best chance of survival is to be smaller and ­simpler.

It has been a chastening experience for all concerned, and I don’t think the group will be troubling investment banks for acquisition ideas for some time.

This return to simplicity and reduced ambitions after coming unstuck through chasing scale and diversity goes across virtually all industries, from energy and steel to banks and supermarkets, from pubs and transport to holiday companies and conglomerates.

The epitome of the grandiose/retrench cycle comes today with Royal Bank of Scotland’s annual results expected to show a loss of around £8bn and a stated aim by new chief executive Ross McEwan to make RBS a much simpler retail bank.

The strategy he will unveil is the ­antithesis of the global flag-planting of Fred Goodwin, and will build on the billions of pounds of RBS businesses immediate predecessor Stephen Hester sold off to return the bank to the straight and narrow.

Which, back to where we came in, was at one time the modest path pursued by the Co-op. What goes around comes around. website weaves a golden market debut

THERE were shades of the Royal Mail privatisation yesterday when shares in online white goods business AO soared some 40 per cent on its market debut.

And it was certainly click and collect for founder John Roberts, who took home £86 million from selling part of his stake in the business he started 14 years ago in a ­Lancashire pub.

In a further sign that the market remains firmly in love with most things digital, that leap in maiden trading comes on the back of the offer price – 285p – already being towards the top end of expectations.