Co-op takes on big four as food profits skyrocket

Profits soared almost 18 per cent at the Co-operative Group last year, after a stellar performance from its food division.

Ahead of its planned merger with United Co-operatives, which will transform the business into the world's largest co-op, the group defied the strength of the big four supermarkets to increase profits at its food arm by almost 30 per cent. A refurbishment drive focusing on 250 of its food stores is planned for this year to maintain growth.

Group pre-tax profit rose 17.6 per cent, from£270 million to£318 million, for the year to January 13, although revenue fell 0.7 per cent to£7.3 billion.

The Co-op's food division achieved the strongest performance, where profits jumped to£92.5 million. Total food sales were£3.04 billion, with like-for-likes up 4.4 per cent. Food accounted for 41.8 per cent of group sales.

The retailer put the strong performance down to a raft of initiatives introduced last year, including new products, a£52 million investment in refurbishing 180 stores and an emphasis on service.

Guy McCracken, chief executive of the retailer's food division, said: 'We've worked really hard at driving sales. We've been pretty remorseless in spending time and money on things that will make a difference to customers.'

In May, the Co-op will launch a fresh store format at five smaller outlets in the South and Southwest. 'They will look and feel different and will coincide with product launches. They will be about bringing our fresh food offer to life,' said McCracken.

He added that the Co-op's refit drive will accelerate this year and a total of 500 stores will have been refurbished by the end of 2007. A further 500 will be refitted during next year and the programme will be complete by the end of 2009.

Planet Retail analyst Bryan Roberts said: 'It definitely marks a recovery, because the Co-op has been in the doldrums for the past couple of years.' He added that if the proposed merger between the Co-op and United gets the go-ahead later this year, the enlarged group will be in a position to confront the big supermarkets.

If the merger is approved by the memberships of the two retailers, it will create an enterprise with more than 4,500 stores and total annual sales in excess of£9 billion.