The Co-op is continuing its turnaround with a 3.1% increase in like-for-like food sales in first half of 2016.
The convenience business grew ahead of the market at 4.3%, the Co-op announced in its interim results today, following the retailer’s heavy investment in price and products.
Underlying operating profit in food fell to £63m in the 26 weeks to 2 July - down from £88m last year - which was driven by price investment, the fresh food range and increased colleague pay.
However, it remained the most frequently visited retailer [Kantar Worldpanel] and has opened 30 of its 100 planned new food stores for 2016, as well as carrying out a refit at a further 80 stores. It has also disposed of non-core food properties that did not align with its food strategy as it focused on delivering “a compelling and convenient shopping experience for members”.
Food made up the lion’s share of the group’s overall £68m operating profit for this year. Planned reduction in profit, driven principally by investment in its ‘Rebuild’ strategy, pay increases for frontline colleagues and price reductions in food meant underlying profits before tax were halved to £31m (£63m in 2015).
Overall, the Co-op Group saw revenue increase by 2.2% to £4.7bn (£4.6bn last year) as customer transactions grew by 3.3% and its rescue continued apace.
Debt remained steady at £0.7bn compared with £0.6bn last year, which the Co-op said was in line with its stated aim to keep it at about £0.9bn during the ‘Rebuild’ phase.
Costs from supporting functions increased from £37m to £52m for investment in brand, the creation of its new digital division and the membership relaunch, which was also announced officially today. More than five million members are now receiving new Co-op cards for the new membership offer, which it wants to see place customers and communities firmly “at heart of the Co-op again”.
A further cost over the past half-year has been a major investment in employees, the retailer said, as 5,400 of its managers attended “Being a Co-op Leader” events and all 70,000 colleagues were taken through its “Back to Being Co-op” sessions ahead of the membership relaunch.
“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,” group chief executive Richard Pennycook said.
“These results, along with today’s relaunch of our compelling new membership offer, show the real value of “being Co-op” and our difference as a business.
“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 halfway 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.”
Pennycook said disposals of stores that were too large for The Co-op’s convenience model would continue but not on a scale that had been seen over the last couple of years.
“The portfolio now is in really good shape,” he said.
Pennycook added that promotion of its new 5:1 Membership proposition would concentrate in the immediate future on in-store activity, with colleague awareness and with existing members. It would also be talking more about its improved own brand, upon which the 5:1 membership hinged, in the run up to Christmas.
However, in the new year, it would begin a major campaign with traditional and digital advertising to promote “The Co-op Way” and a push to target new members.
“We will be making sure people up and down the country get the message that we would like them to join the Co-op,” he said.
He also explained that work was continuing to improve customer service in Co-op stores as well.
“I think we have made great strides,” he said “We have got some way to go, we’re not complacent about that; we’ve got to keep pushing, it’s another part of the Rebuild agenda over the coming year and a bit.”
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