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20 September 2021

“We don’t chase profit”: Steve Murrells, CEO of the Co-op Group, on running the UK’s biggest mutual

With 63,000 employees, 4.5 million members and its own political party, can the Co-op change the world?

By Will Dunn

Above the triangular lobby of One Angel Square, the building’s graceful white ribs rise for 200 feet. The Co-op group’s Manchester headquarters is the largest office in the city, with space for 3,500 staff, but it tries to tread lightly, recycling water and conserving energy. It embodies both the ambition and the pressing question of the UK’s largest consumer co-operative: can you be a corporate giant and a force for good? Does the market allow for real change?   

Steve Murrells, the Co-op group’s CEO, is in a unique position among British business leaders. He heads a workforce of 63,000 people across several companies – Co-op Food is the UK’s fifth-largest food retailer, and the group also runs a “life services” division that includes the country’s biggest funerals company as well as legal advice and insurance businesses – but this is not all the Co-op does. The group invests more than £15m a year in a growing empire of social enterprise projects, chosen by its 4.5 million members, and it supports the Co-operative Party, which – through an electoral pact with the Labour Party – has 25 MPs. It also operates one of the largest multi-academy trusts in the country, running 27 schools in Manchester, Liverpool, Leeds and Stoke-on-Trent. By next year the Co-op aims to be educating 800 apprentices and 40,000 schoolchildren.

Born in Colchester in 1965, Murrells grew up in Essex. “I went to a comprehensive school. I’d say I was an average performer.” During his A-levels, he was working at Sainsbury’s on evenings and weekends, and when he got his results the supermarket offered him a position.

“I leapt at the chance. I didn’t think I’d really excel at university, and I wanted to start a career. Back then, food retailing wasn’t deemed to be the career that it is today. We were all directed towards banking and insurance… But I seized the moment, and found that it stretched me, gave me opportunity.” 

After a decade with Sainsbury’s and 15 years at Tesco, Murrells became CEO of the meat company Tulip, which is owned by a co-operative representing thousands of Danish farmers. In 2011 he was approached by a headhunter about running Co-op Food, and politely declined. But the head-hunter arranged a meeting between Murrells and the Co-op’s then CEO, Peter Marks, and as a supplier to the supermarkets, Murrells knew he couldn’t turn down a meeting with a major customer. In the space of 90 minutes, Marks had persuaded him that the Co-op was “more than just a retail business” – that it was “a movement”.  

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That movement was established, like the Labour Party, in northern England in the late 19th century, and for the same reason: to represent the working class in the area’s rapidly growing cities. The parallels continued as both organisations struggled to innovate within the confines of their founding principles; the cheap goods that the Co-operative Wholesale Society offered were gradually replaced by still cheaper goods from overseas. To survive, Britain’s broad network of co-operatives merged or adopted, like other retailers, a single recognisable brand.

The Co-op once had eight million members, many of whom joined for the “divi” – a yearly share of profits – but this has not been paid since 2012. The 4.5 million members now join for discounts and, says Murrells, to participate in the group’s support for communities. The dividend now is a moral one.

Not far from One Angel Square stands a statue of Robert Owen, the Victorian socialist who helped found the co-operative movement. Owen’s cotton mill employed children as young as five, but it did so on more benevolent terms than others, offering shorter working hours and better pay. Mill workers at the time were often paid in private money that could only be spent in the owner’s shops; Owen’s offered decent, affordable goods and limited the sale of alcohol. As part of Owen’s statue, a grateful young waif gazes up at her benefactor.  

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Behind the statue stands the red-brick headquarters of the Co-op Bank. In March 2013, less than a year after Murrells joined the Co-op, the bank’s debt was downgraded to junk status, and shortly after that, it announced the largest capital shortfall of any British business to that point – a £1.5bn hole that led the group to losses of £2.5bn the following year.  

The limelight fell on the bank’s chairman, Paul Flowers, a former Methodist minister who had advised Ed Miliband on banking reform. At a hearing of the Treasury select committee that year, Flowers revealed that he didn’t know the value of the bank’s assets or the size of its loan book. Days later, he was covertly filmed buying large amounts of cocaine and methamphetamine – the press dubbed him “the Crystal Methodist” – and disturbing revelations about Flowers’s conduct as a Labour councillor began to surface. Facing still greater losses, the Co-op lost its majority stake in the bank to two US hedge funds.  

At the same time, Co-op Food was facing its own, less public, crisis. Like the bank, it had tried to expand quickly, buying Somerfield for £1.57bn in 2008. But the transition had been poorly managed and the supermarket business, Murrells recalls, “was going backwards, at an alarming rate”.   

There was little danger of a takeover, he says, because “the competition had worked out that they didn’t need to acquire the Co-op. They could just beat the Co-op by doing a better job”. The ageing supermarkets were “a place that other retailers went to gain market share, because the Co-op had lost its way.” 

Like other organisations that see themselves as institutions rather than businesses, the group had spent decades ensuring that everyone was heard and no one was sacked. The result was what Murrells describes as “a lot of treacle”: a systemic incapacity for change, and a conviction that “Manchester knows best”. 

Murrells says the opportunity to turn the Co-op’s ailing food business around was perhaps the main reason he took the job, and he is blunt about what was needed to bring this about: the company had to “face into the lack of talent” and to “say goodbye to some very loyal, hard-working Co-op colleagues”. This included “virtually 100 per cent” of the executive team and swathes of operational leaders and store managers. 

Murrells wanted to change the people in his stores because he saw grocery shopping changing. Evidence from Spain, Portugal and South America suggested that the trend in the UK would be away from the “big shop” and towards “little-and-often shopping, three or four times a week”. Hundreds of larger stores – many from the Somerfield takeover – were sold off as the group concentrated on convenience, acquiring smaller shops in new locations. It also spent £125m reducing prices in its stores, especially on fresh produce. By 2017, the group was back in profit and ready for another acquisition – this time of the Nisa chain of convenience stores, which now sell Co-op goods. The same year, the interim CEO Richard Pennycook stepped down, and Murrells took over leadership.

If it is no longer assumed at the Co-op that Manchester knows best, there remain big differences between the corporate staff at One Angel Square and the 45,000 shop-workers across the UK.  

Because retail workers had so much contact with the public during the pandemic, they bore five times the risk of infection and a higher risk of death from Covid-19. In recognition of their work during the crisis, the Co-op paid store staff who had worked through lockdown a £100 bonus.  

Murrells’s own bonus for 2020 was considerably larger, at £1.35m, taking his total pay for the year to more than £2.2m. Is it fair, I ask him, that a “customer team member” earning £9 an hour would take at least 120 years – three working lifetimes – to make what he gets in a single year?

“What’s fair,” he responds, “is what we’ve done to colleagues’ pay since I’ve been in charge. Over the last four years, colleagues’ pay has grown by over 25 per cent.” This rise includes corporate staff, although the group has committed to paying a £9.50 living wage to hourly workers. “Given that we’ve got the best part of 45,000 colleagues on the front line, that’s a considerable investment, the right investment, in those people that are serving customers every day.” His own pay, he says, is set by an independent committee, and remains lower than previous group CEOs (Richard Pennycook was paid £3.59m in his final year).  

The group also has a significant gender pay gap, at 29.9 per cent. Murrells says this “is always going to be difficult to shift” because, of the group’s 45,000 shop-floor workers, “the vast majority are women”. While he is the only man in the five-person group executive team, and 30 to 40 per cent of senior management are women, he says the fact that most “frontline colleagues” are female will always dictate the pay gap – though this also assumes a large and permanent pay gap between those working at the shops and at One Angel Square. 

As we enter the Co-op store on Manchester’s Corporation Street, I ask Murrells what a lifelong retailer looks for when they walk into a shop. Do they see success or failure in the arrangements of packets and cans? When he was running the food business, he says, he would visit stores three days a week – a habit he picked up from Terry Leahy at Tesco. “Start out the back,” he advises, gesturing to the double doors. “The backup area will tell you everything you need to know about the front of the shop.” 

To a civilian, this branch seems to be running well enough, but Murrells sees a team working against the economic stress of the pandemic – a “lack of drivers, lack of pickers in fields… this store is light on availability.” 

We pause by a fridge that appears to have been freshly stocked with the Co-op’s “Gro” range of plant-based foods, which was launched in January 2020. Vegan food has been instrumental in the fortunes of another national chain, Greggs, which released its vegan sausage roll a year earlier. While a few meat-headed internet users bemoaned the gentrification of a British icon, younger consumers rewarded Greggs’s conviction with a 58 per cent rise in profits, pushing the chain’s yearly revenues over £1bn for the first time.

Murrells says the Co-op’s aim, in selling affordable vegan food, is not only to cater to an expanding market but to reduce the climate impact of his business and its customers. Of all the Co-op’s produce, meat is arguably the most consequential: the Intergovernmental Panel on Climate Change says livestock farming accounts for 14.5 per cent of humanity’s greenhouse gas emissions. Most of this comes from cows.   

But if beef is a disaster for the planet, why does the Co-op sell it? At what point does a product violate the group’s principles to the point where it has to come off the shelves? Murrells responds that it is “British beef”, which means “we’re not transporting it around the world”. But beef’s emissions come mostly from the methane produced by cattle, not shipping, and while the Co-op’s own-brand beef products are British, it also sells Princes corned beef, which is produced in Brazil and was linked in a 2019 Earthsight report to a supplier that had been fined millions of dollars for illegal deforestation in the Amazon.  

Even in questions of modern slavery, the Co-op has engaged rather than prohibited: “When we really got into that issue, and we went deep into our supply base in countries around the world, there were many occasions where we could see a real problem,” Murrells says. “We could have said, ‘I’m sorry, we’re going to stop taking supply from you.’ But we chose to have a voice, and influence them and get them to change their practices so that we could still take their products.”

He cites the same approach when dealing with Deliveroo, which the Co-op partnered to offer delivery services. Since 2017, Deliveroo riders have fought to be recognised as employees – many have said they earn less than the minimum wage – and the company has fought back. “All the time, we’re talking to Deliveroo around these issues – about how [riders are] paid, around their safety. And there’s lots of evidence that [Deliveroo CEO] Will Shu and the team are listening and making progress,” Murrells says. 

At the checkout, there’s another contradiction between the mission and the merchandise. Smoking costs the NHS £2.6bn a year, and accounts for almost half the difference in life expectancy between the poorest and most affluent people in the UK. The tobacco industry has been criticised for its environmental impact and the use of child labour. So why does the Co-op sell cigarettes? Murrells says it “would do more harm to the success of the Co-op” to give them up, and that his aim is “to be commercially successful, and then do good with that money”.

The problem the Co-op now faces is that while its commitment to doing good with money was exceptional for most of its history – and remained unusual as little as five years ago – every other company now justifies its profits by saying it’s changing the world. British American Tobacco has itself trademarked the phrase “A Better Tomorrow”. How does a company that is trying to do good with its money distinguish itself from companies that just say they are? And where’s the ethical alternative for customers, if the shop itself is only as moral as the market will allow? 

At first sight, the school blazers at Failsworth could be mistaken for a corporate uniform: on the breast pocket they are decorated with what most people would recognise as a supermarket logo. But the former Failsworth School is another turnaround project: having been placed in special measures by Ofsted in 2014, it became the Co-op Academy Failsworth in 2017, one of 27 academies the group has established since 2008.  

The Co-op’s academy programme “has developed through government reaching out to us and saying, look, this is a failing school – would you take it off our hands?”, Murrells says. While the academies are funded, like others, by the DfE, the Co-op contributes in other ways, donating training, equipment and, in 2018, a £3.6m investment in growing the programme further.

It is here that the Co-op differs from other retailers in the non-profit work it is prepared to do, and also in the trust that is placed in it by politicians and the public. How many parents would be as happy for their children to attend an Asda Academy, a McDonald’s Academy or a Wetherspoons Academy?  

It is here, too, that the Co-op finds its answer to questions about whether it can sell beef, cigarettes and scratchcards and still claim a higher moral ground than its competitors: “We don’t chase the profit, we chase sharing the wealth,” as Murrells puts it. While the group is not the biggest corporate charitable donor – banks top the corporate donation tables – it contributes more than simple philanthropy. Members and volunteers develop their own community projects, aided by a digital platform and 1,100 paid employees, to make things happen at a local level.

Clearly, this has benefits to the business; if hundreds of thousands of people find they’ve had a higher standard of education thanks to the Co-op, they and their families will be more likely to use its shops and services. “That’s not the primary reason,” Murrells says, “but it’s obviously a realistic secondary reason. If they can see that the brand’s made a difference, put their arms around them, given them opportunity, then why wouldn’t they and their families want to shop in our food stores, or use our funeral care services when they need it, or if they go through a divorce, use our probate skills?”

“I had a great childhood,” Murrells reflects as we join Manchester’s peripheral traffic. “I didn’t have a privileged childhood. But I took advantage, and did OK. Lots of people need help along the way.” Among those who have needed help are Murrells’s two sons from his first marriage. Now 28 and 30, born were born with a genetic disorder called Fragile X syndrome. “They have some unique needs… and they give you a different perspective on life. And you see, with your own eyes, how society doesn’t always support and cope with people who are different.”

This is the key difference between the Co-op and other companies that place themselves as practitioners of a more moral capitalism. While other firms pursue distinct political goals, often related to global challenges, the Co-op is resolutely personal. Murrells doesn’t mind if other companies claim to be good – he encourages it. “If you’re the CEO of a PLC, I think you should be judged not just on the share price, but by what you’re doing in society. For us, it’s more than corporate social responsibility. It’s a lot more earthy, a lot more real.”