Co-op Revival Continues With Strong LFL Sales Growth In C-Stores

Interim results released by the Co-op today show the business is continuing its recovery with strong performance in its food retail business.

During the 26 weeks to 2 July, overall like-for-like food sales rose by 3.1% with growth of 4.3% in its core convenience stores, boosted by improvements in its competitiveness and products.  The division’s turnover remained almost unchanged at £3.5bn following recent store disposals, whilst underlying profit fell 28.4% to £63m as a result of the group investing in price cutting as well as increasing staff pay.

The group opened 30 new stores during the period as part of 100 planned for its current financial 2016. It also refitted an additional 80 stores and sold the remaining assets within Somerfield Stores Limited, recognising a profit on disposal.

The group has recently agreed the sale of 298 smaller food stores to McColls for £117m. The group said that the sale proceeds, once received, will be re-invested to further deliver its food strategy. Earlier this week, the Co-op started rolling out its revamped loyalty scheme as part of its turnaround plan.

Overall, the group’s underlying profits more than halved to £31m due its investment programme, staff pay rises and price cuts in its food business. However, total revenue was up by 2.2% to £4.7bn – boosted by strong performances in its insurance and funeral businesses.

The group also announced that it had cut the value of its stake in the loss-making Co-op Bank by £45m.

Richard Pennycook, Group Chief Executive of the Co-op, said: “These are exciting times for the Co-op as we continue to make this a better business that is more relevant for members, customers, communities and colleagues.”

He added: “Revenues across the Group have grown and, in line with our strategy, profitability has fallen due to our major Rebuild investment, pay increases for our people and price cuts for our customers. We are able to invest for the long-term, strengthening the appeal of our products and services, because our business model allows us to pursue our unique approach, championing a better way of doing business for customers and communities.

“This long-term approach is evidenced by the continued reshaping of our Food store portfolio to support our own-brand, convenience-led strategy. This means we can, as necessary, forgo sales growth in order to ensure we have the right stores in the right places for our customers.

“We are only half way through the Rebuild and much remains to be done, whether it is investing in our digital capability or campaigning on key issues. We remain firmly on track with our plans and are encouraged that the work we are doing is attracting more and more people back to the Co-op.”

NAM Implications:
  • Where at: Deck clearance that appears to be working in terms of convenience growth
  • Where headed: Capitalising on underlying loyalty, especially via own label, at some cost to the bottom line, in the short term
  • Effect on you: Branded goods suppliers need to re-evaluate what makes their brands appeal to Co-op traffic
  • Action: Anticipate a Co-op stripped down and focused on what makes the Co-op good, and particularly receptive to tailored initiatives, and plan accordingly…
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