Co-op lifted by convenience store focus
excellent first half performance from the Co-op Group was all but
overlooked. But the group's highly successful focus on the
convenience store sector is a warning for the failed Safeway
bidders that they will not have it all their own way if they seek
to expand further into the small store sector.
With all the major UK food retailers fighting over the Safeway chain in recent months, it is easy to forget that there are a number of smaller supermarket operators who are also highly successful.
One such operator is the Co-operative Group, whose interim results were issued a day after the Safeway takeover ruling last week and as such were largely overlooked.
But the farms to finance, funerals to food group continued to improve its performace during the half, with profits for the six months to 28 June rising by 10 per cent to £3.9 billion and operating profit before exceptional items increasing by an impressive 49 per cent to £169.7 million.
The Co-op's trading activities - essentially its food production and retail business - accounted for £60.7 million of the profits - up £27.6 milliopn on the previous year, while the Co-operative Financial Services (banking and insurance) lifted its profits by nearly £30 million to £109 million.
The improved trading performance was mainly due to the group's food retailing business and its strategy of focusing on the top-up shopping sector, through the acquisition of convenience store group Alldays, the company said in a statement.
This is a telling revelation in the light of the Safeway takeover - larger groups such as Tesco and Sainsbury have already been moving aggressively into the convenience sector in recent months, and their failure to acquire Safeway is likely to lead to a redoubling of their efforts in the smaller, city-centre store segment.
Co-op said that its Welcome convenience store format had been boosted by a heavy investment programme in store refits and acquisitions, all of which helped it achieve a 75 per cent rise in profits, before exceptionals, to £45.8 million on the back of a 27 per cent surge in sales to £1.4 billion.
Like-for-like sales during the period were up 4 per cent - a rate of growth which Co-op said was well ahead of the market as a whole.
The company has further expanded its convenience store operations with the acquisition in June of the Balfour chain of convenience stores and newsagents for £31 million, strengthening its position as the UK leader in top-up food shopping.
Co-op's focus on the small store format is clearly paying off - and the fact that everyone from Tesco to Budgens is following suit is evidence enough that there is still significant potential in this market. As the bigger groups move increasingly into this area, Co-op is likely to face stiff competition, but its experience in this field is second to none, and should allow it to ride out the storm.
