Promotions at a high as Co-op profits rise

The extent of promotions is evidence of the intensity of competition between food retailers, said Co-op chief executive Peter Marks.

Greater scale brought by the retailer’s acquisition of Somerfield is being reflected in lower prices, maintained Marks. He expects to continue to offer keen value, despite rising food inflation.

“Competition in the food industry is extremely fierce,” said Marks. “That will mitigate against cost price increases being passed on.”

The Co-op’s food division generated a 12.6% increase in underlying trading profit to £169.7m in its first half, on sales up 11.5% to £3.9bn.

The profit rise came despite a drag on sales resulting from disruption caused by the conversion of Somerfield stores to the Co-op brand. While like-for-likes at stores pre-

dating the 2008 deal rose 4.1%, the entire estate recorded a 1% fall. However, like-for-likes at stores converted to the Co-op brand, including former Somerfield shops, rose 2.5%.

Marks insisted the integration of Somerfield was proceeding to plan and will be completed as scheduled by early next year.

He said that about 24 shops are being converted per week, necessitating their closure for some days, and the sales impact was therefore to be expected.

“This is the biggest integration bar none in food retail in terms of store numbers. It’s going extremely well,” he said. So far, more than half of the Somerfield estate has been converted.

The food-to-funerals giant, the UK’s biggest mutual retailer, posted a 17% rise in group underlying profit before payments to and on behalf of members - the equivalent of a conventional company’s pre-tax figure - to £260m on turnover up 8% to £6.9bn.

Marks cautioned that the trading outlook remains cloudy. He said: “As anticipated, 2010 has been challenging so far, with tough economic conditions across all our businesses. We do not expect things to improve until late 2011 at the earliest.”