The member-owned business has regained its mojo

The ovoid structure near Victoria station, to the north of Manchester city centre, is the most striking of the city’s many modern glass buildings. It is to be the home to the Co-operative Group, which is Britain’s fifth largest food retailer and a growing presence in financial services. Peter Marks, the Co-op’s chief executive, jokes that a flash headquarters can be a sign of a bloated corporate ego. It should instead be seen as a symbol of the Co-op’s modernisation, he says. The building’s green design will cut energy costs in half. And the staff scattered in a warren of draughty old offices nearby will soon be under one 21st-century roof.

The Co-op started in 1844 when a group of textile workers clubbed together to set up a grocers in Rochdale, a few miles from Manchester. The idea quickly spread. By the early 20th-century co-op stores accounted for a large slice of grocery sales. From the 1960s onwards, shareholder-owned rivals began to catch up. Twenty years ago the Co-op had a share of the grocery market similar to Tesco’s. Then Tesco took off and left it behind.

The problem was that what looked like a single entity was in fact a loose alliance of local co-ops, each with its own management. Fleet-footed rivals were better able to reap scale economies from centralised buying and marketing. They could raise capital quickly to build bigger stores. And a new breed of grocer, exemplified by Tesco’s Jack Cohen, understood that retailing is part showbiz. He hired well-known comedians to open his stores. The Co-op movement was slow-witted and dowdy by comparison. “It didn’t co-operate and it rarely moved,” recalls Mr Marks.

A series of mergers has brought most co-op stores under the umbrella of the group. The acquisition of the Somerfield chain in 2009, plus a revamp of its own stores, has improved its market share. The rising cost of regulation means its banking business also needs scale if it is to survive. In July the Co-op agreed to buy 632 branches from Lloyds Banking Group, which has been forced by EU regulators to slim down. Its share of current accounts will triple to around 7% once the deal is completed next year.

Banking scandals have served to emphasise the main strength of co-ops, which is public trust. There is less incentive for a member-owned business to price-gouge or mis-sell. Part of the appeal of the Victorian co-op stores was that they could be relied upon to sell unadulterated food. It also explains why the Co-op is strong in funeral services, where customers are stressed, under pressure to act quickly and unlikely to know what a fair price is. Mr Marks sees a similar opportunity for a trusted supplier of legal services dealing with personal-injury claims and divorce.

The movement’s bigwigs, gathered this week in Manchester to celebrate the UN year of the co-operative, sense opportunities. Ed Mayo, the head of Co-operatives UK, a trade body, injects a note of caution. “We’ve won the battle to say that we are ethical. The challenges are innovation and service levels.” Still, he thinks there are businesses where the member-owned model might be deployed: rail franchises, for instance. That would have a pleasing Victorian ring to it. Shareholders did not achieve great returns from the 19th-century railway mania. The main beneficiaries of the boom were the railway’s customers.