Co-op Group’s profits drop 34%

23 August 2012 11:27

Co-op Group’s profits drop 34%

The Co-operative Group has announced that profits fell by a third amidst "fierce" competition in the grocery sector and a poor performance from its banking arm.

The group said its 3,000-strong food store division, which is the UK's fifth biggest grocer, was also hurt by the wet weather as people drove to supermarkets rather than walking to local shops. Underlying sales in the grocery division fell 1.2% in the 26 weeks to June 30th, while operating profits dropped 16% to £119 million.

Its banking division, which has entered into an agreement to buy 632 branches from Lloyds, also suffered, with operating profits down 67.9% to £36.9 million as it bore the brunt of the UK's double-dip recession.

With its two biggest divisions suffering, overall group profits fell 34% to £174 million.

Chief executive Peter Marks, who recently announced his retirement, said: "A year ago, I warned that we were operating in the worst conditions that I have seen in more than 40 years in business.

"The results we are announcing today show the full impact of that, with the profitability of our two biggest businesses affected."

However, the group said it was confident that sales and profits would improve in the second half as plans to improve its offering begin to flourish. The Co-op said it is rolling out a new system which has improved stock availability in stores to 97.5% while it is opening shops for longer, which was helping to increase customer satisfaction. Underlying sales in its core convenience chain were up 1.4%, with "very encouraging" sales in new trial stores, where like-for-like sales were up more than 12%.

It is on track to open 80 new stores this year after buying 28 David Sands food stores in Scotland, and is building an "industry-leading" supply chain as it presses ahead with "the most ambitious change programme" it has ever undertaken.

Tesco and Sainsbury's have ramped up openings of convenience stores in recent years, bringing them into direct competition with the Co-operative's offering, whilst cash-strapped consumers have been shopping around for the best offers.