The Co-operative Group’s food business has reported a 20 per cent year-on-year decline in operating profit before significant items during its first half of trading, whilst like-for-like sales fell 3.6 per cent.
In an interim results statement for the 26 weeks ending July 2nd 2011, published today, the company cited “intense competition” from rival grocers, poor consumer confidence and the start of the coalition government’s austerity cuts as reasons for the downturn, which resulted in total sales slipping 4.6 per cent to £3.7 billion.
Today’s results will be concerning for the food business considering its ambitious growth plans in the UK, which are expected to see the grocer open more than 300 new food stores over the next three years.
Peter Marks, CEO of the The Co-operative Group, said that trading conditions in the UK during the first half of 2011 were “the worst he has seen in over 40 years of retailing”.
“At the full year we warned that the downturn was biting deeper than anyone had expected and predicted that challenging trading conditions would continue into 2012 - this has clearly proved to be the case,” he explained.
Difficult times are expected to continue for Co-op Food in the months ahead as the business moves into “a concerted development phase” after completing the integration of the Somerfield supermarket group earlier this year, having acquired it in 2009 for £1.6 billion.
Major changes to the Co-op supply chain are being made as the group makes a £70 million investment into upgrading its food logistics network to cater for the Somerfield takeover, and today’s statement suggested that this will bring a level of disruption to store activity.
New distribution centres have recently opened in Andover and Newhouse, while regional hubs are soon set to be unveiled in Avonmouth and Castlewood as Co-op has now secured agreement for these sites.
Co-op’s strength however lies in diverse portfolio, and in contrast to food its financial services arm increased H1 profits by more than £20 million year-on-year.
The group’s funeralcare and legal services also performed well, although profits at its pharmacy and life planning divisions were down.
Marks added: “The results we are announcing today are in line with our expectations.
“It is a mixed picture, but one that shows the strengths of having a diversified portfolio of great businesses, with financial services turning in a particularly strong performance.
“Looking ahead, we do not see signs of any real improvement in the economy and we are planning accordingly to help our customers, as much as possible, through this difficult period.
“Given the outlook and our determination to continue to invest through the cycle, we will find it difficult to match the record profits we made in 2010; but I remain optimistic.”