Wednesday, 15 October 2014

Whose Shops Are They Anyway?

I spend several thousand pounds a year at the Channel Island Co-Op, for the convenience of their shop locations and the few hundred pounds kickback in dividends. I also shop a little at Jersey's other chains, for different product selections, or because I happen to be nearby.

Therefore, as a customer and shareholder, I like to think that the management have their eyes open for opportunities to minimise prices and maximise dividends and range. And so, it gave me food for very mixed thoughts, when they recently announced a grand new plan to shift almost all of their procurement to the mainland Co-Operative group's new national distribution centre at Andover.

There would certainly be significant upsides to the Andover move, in terms of efficiency and profitability.(*1) However, closer analysis reveals that there also some serious downsides, and, moreover, downsides that either do or should matter a lot to the CI Co-Op's general membership.

The biggest practical advantage would be that dairy and provisions could be ordered from national stocks on a day-to-day basis. At present, the CI Co-Op outsources fresh goods procurement to local wholesalers, who buy in stock to order for the Co-Op shops according to pre-orders estimated a week in advance, and sell it on to them on arrival. This shifts jobs from the Co-Op to their suppliers, but still keeps them in-island. The flexibility and responsiveness of 36 hour lead times has to be a good thing in itself. The obvious difficulty, however, is that shelf lives will necessarily be poorer on goods bought from stock held at Andover before shipping, than on goods shipped direct from source and redistributed locally on the day of arrival. The other major drawback would be that the work now done locally by the workforces of CI wholesalers would be done by the Andover staff. It would still be the same amount of work, but the cost of it would be drained out of the local economy to England instead of recirculated by local workers. A neutral decision for the company in terms of cost management, but a strategic blunder for the community in terms of economics and social responsibility.

The logic of shifting stocks of long-life goods to England does not stack up at all.(*2) Fresh foods can only be handled with a just-in-time system; too soon and they perish before sale, too late and they have missed the opportunity to sell and once again perish. But it is different with long-life foods. The freight links cannot operate in all weathers, so it is essential to carry local buffer stocks sufficient to cover the longest foreseeable interruptions. The running costs of local storage may indeed be somewhat higher than a proportionate share in the running costs of the Andover base, but they are necessary costs, and trying to dodge them will doom the CI Co-Op to empty shops in windy weather. Moreover, once again, local costs are mostly recirculated, while UK costs are more money lost to our economy, that somebody has to export something to replenish.

Even if some added value can be gained by judiciously targeted use of Andover for specific products, the CI Co-Op's local warehousing and wholesale supply networks are essential to the stability of its supplies on the shelves. Beyond that, it is supposed to be a player in the Channel Islands' economies, not Andover's.

The rundown and disposal of the local warehouses would release a substantial capital windfall, that would look good in the accounts for the year they took place. They are an asset that can only be stripped once, though. Once the directors have taken their bonuses for that cash-rich year, the shareholders are just left with badly supplied shops to show for the divestment.

One final point, those of us who hold share accounts in the CI Co-Operative Society are not merely customers. We are the owners and employers. And do we want to be the sort of employers who throw hard-working long-term employees on the scrapheap in the pursuit of an irresponsible fast buck? I for one do not, and if there are some who do, I am glad they are not my friends. On the other hand, do we want to be the kind of employers who meekly tolerate the managers we employ taking reckless measures in the pursuit of their own financial benefit? No again, speaking for myself.

If you are CI Co-Op members, please make the effort to get to the forthcoming Special General Meeting, and stand up and be counted against the Board implementing this shameful betrayal of workers and customer alike in your names.

Email comments:
(*1)The significant upsides have only been stated not rigorously debated from the figures I look at it is going to cost the CI Coop more, the shelf life will be marginally less and the range in the Grande Marches will be reduced. As for the logistics they will be a nightmare for the shops, with small back stores, used to JIT in cages for all their goods. 
(*2)This is an issue which *originates* in Manchester/Andover not the Channel Islands and the fact that the UK Coop have built an infrastructure that is underutilised. It is no coincidence that in the UK Ice-cream World has closed its doors because the UK Coop has *just* taken all the ice-cream distribution in house - sound familiar. Andover is throwing everything at the CI Coop to persuade them to change over, how long before they realistically price I have no idea but by then it will be too late. 

The CI Coop has the 3 biggest outlets by sales in the whole of the Coop group, the UK Coop is far more used to dealing with and ranging for the normal smaller UK Coops.