Co-op cost-cutting plan to save millions

The Co-operative Wholesale Society is planning a big cost-cutting programme designed to make the poorly performing business more efficient and help head off the approach from Andrew Regan's Lanica Trust.

However, the CWS denied that its plans were in response to Lanica's aim to cut pounds 10m from the society's central costs if its attempt to acquire parts of the division's non-food businesses proved successful.

The CWS said yesterday that its chief executive, Graham Melmoth, had set up working parties to cut costs when he took over last autumn.

"We will be taking out millions of pounds of savings across the board," a spokesman said. "Not in jobs but through better use of technology and centralising certain processes that may be duplicated in the regions."

Though there are no plans for mass redundancies the CWS conceded that the issue of staff numbers would be looked at. Any cuts are likely to be through voluntary redundancy or natural wastage.

In another move which mirrors Lanica's plan to incentivise the Co-op workforce, the CWS is looking at introducing staff incentives. These would take the form of staff discounts.

A profit-sharing scheme along the lines of the one operated by the John Lewis Partnership has not yet been considered. However, the CWS said it may be looked at as a way of improving accountability and increasing staff motivation.

The CWS said that though its costs could be cut it would not be possible to axe pounds 10m from central overheads without jeopardising the Co-op's traditional federal function within the movement.

"The CWS is the sheet anchor of the Co-op movement," a spokesman said. "It performs a whole range of roles for the other societies including the harnessing of the buying power as well as supporting the Co-operative Union, which is the administrative centre of the movement.

"You could start to reduce costs by chipping away at all of that. But in doing so you would have no CWS. You might as well pack up and go home."

Mr Melmoth is expected to say more on the issue of costs on Monday when he announces the CWS results for last year. These are expected to show that retained profits fell from pounds 49m in 1995 to pounds 30m last year.

As the Co-op Bank is thought to contribute some two-thirds of that figure, this means the remaining businesses such as the supermarkets, funeral parlours and travel agencies contributed just pounds 10m.

"You wonder if they are making a loss in food retailing," said Clive Vaughan of retail consultants Verdict Research.

The planned changes by the Co-op will be welcomed by retail experts who say the business has remained rooted in the past for too long.

Mr Vaughan said: "The Co-op's problem is that it doesn't seem to have moved with the times. And if it doesn't, it will start to look like the proverbial dodo. I don't think Andrew Regan will succeed but he will act as an agent to accelerate change."

A key part of the transformation would need to be the integration of the disparate group which is spread across 51 different regional societies. These range from tiny operations such as the Brixham Co-op in Devon, which has sales of just pounds 4m a year, to the CWS where sales top pounds 3bn.

It has also emerged that Lanica Trust has appointed Lowe Bell Financial as an additional public relations adviser. It already has Financial Dynamics acting on its behalf as well as an internal manager. The CWS also has three PR advisers - two external agencies plus an internal PR officer. The banks advising both sides are SBC Warburg for the CWS, and Hambros for Lanica.